SES AI Corporation (SES) Q1 2026 Earnings Report, Transcript and Summary

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the SES AI First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Kyle Pilkington, Chief Legal Officer; Kyle, please go ahead.

Hello, everyone, and welcome to our conference call covering our first quarter 2026 Results. Joining me today are 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 in today's conference call webcast in the Investor Relations section of our website at ses.ai. Before we get started, this is a reminder that the discussion today may contain forward-looking information or forward-looking statements within the 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 not limited to, those detailed in our latest earnings release and in our SEC filings. On this call, we will discuss non-GAAP financial measures of a supplement to our GAAP results. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful. These non-GAAP measures should not be considered in isolation or as a substitute for, any GAAP measure, and our definitions may differ from those used by other companies reporting similarly titled measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our latest earnings release. With that, I'll pass it over to Qichao.

Thanks, Kyle. Thanks, everyone, for joining today. We had a strong start for 2026. The first quarter revenue came in at $6.7 million, a 47% increase over the fourth quarter and well above published consensus estimates. We are reaffirming our full-year 2026 revenue guidance of $30 million to $35 million, with contributions expected from all 3 of our revenue-generating business units. We are executing on plan, and we like the momentum we have heading into the rest of the year. Before I get into the business update, I want to take a moment to acknowledge Jing Nealis, who is on this call with us today. As we announced today, Jing will be transitioning from her role as Chief Financial Officer effective April 27. On behalf of the entire team and our Board, I want to thank her for her contributions and wish her well. We have appointed Ray Liu as our new CFO effective April 27. Ray is a seasoned finance executive with over 20 years of experience in FP&A, strategic finance, and SEC reporting at companies, including Ayden and MetLife Investment Management. He's a CFA charterholder and CPA, and we are confident he will be an excellent partner as we scale the business. More details on this transition are in the separate press release we issued today. Now, let me walk through each of our business units. Starting with Energy Storage Systems. ESS remains our largest near-term revenue driver and was responsible for the majority of our first-quarter revenue through UZ Energy. We continue to see growing demand for our commercial and industrial energy storage solutions, and our global footprint is expanding. Earlier this month, we provided a business update that highlighted our strong start to the year. Today, I want to add some additional context on the commercial traction we are seeing. We have now entered the North American market through our multi-year distribution agreement with ATG EPower, a leading North American distributor of renewable energy and energy storage solutions that has been operating in the clean energy sector since 2001. This contract valued at approximately $20 million over 3 years gives us immediate access to ATG EPower's established distribution network across residential, commercial, and industrial customer segments. This new contract builds on UZ Energy's existing customer base in Australia, the Middle East, and Europe, and reflects our strategy to grow the ESS business, both geographically and through the on-premise integration of our Molecular Universe predict capabilities into the hardware offering and Edgebox. Energy Storage Systems are financial assets for our customers. The value depends on delivering consistent long-term performance. Our ability to provide both the hardware and an intelligent operating system that predicts battery health and reduces maintenance cost is a key differentiator. Turning to drones, we made progress in our drone cell business during the first quarter that I want to walk through I am pleased to report that we have completed the conversion of our manufacturing line at our Chungju, South Korea facility from EV pouch cells to drone-format pouch cells. This facility, which produced the world's first 100 Amp-hour lithium metal cell back in 2021, has been NDAA-compliant since 2021. Our plans are for the converted line to gradually ramp up to an annual capacity of over 1 million drone cells and incorporates our AI for Manufacturing capabilities to ensure quality and cost-effectiveness. Early this month, we began shipping NDAA-compliant cells produced in our Chungju factory to prospective defense and commercial drone customers for evaluation and qualification testing. Customer interest has been strong, and we are encouraged by the engagement we are seeing. The U.S. defense drone market, in particular, continues to be where we see the most consequential near-term opportunity, and our NDAA-compliant manufacturing capability in Korea positions us well relative to competitors who lack NDAA-compliant supply chains. We continue to explore additional NDAA-compliant manufacturing capacities in Southeast Asia and expect to have more to update on this front later this year. On materials, our pipeline continues to build through the Molecular Universe platform; both SES and our customers have been discovering new electrolyte materials for applications beyond our current cell production. We now have approximately half a dozen customers who have progressed through second-phase testing of materials discovered through the platform. And the overall number of customers in our pipeline has increased. The progression of existing customers through the testing pipeline represents positive momentum. We remain on track with the Hisun joint venture to leverage their 150,000-ton annual global capacity to produce these materials at commercial scale as demand materializes. And on the Molecular Universe, we recently introduced Version 2.5 of the platform, which represents our fifth major iteration since we launched in 2024. Version 2.5 delivers upgraded capabilities across our 6 AI-powered workflows; app, search, formulate, design, predict, and manufacture, along with expanded enterprise on-premise deployment options and covering both lithium and sodium chemistries. During the quarter, a major global battery manufacturer committed to a multi-year subscription of our Molecular Universe Search-in-a-Box product, which we view as a validation of the platform's value to the world's leading battery companies. While the direct on-premise revenue from the Molecular Universe continues to build and is expected to make a modest direct contribution in 2026, its biggest impact remains the IP and competitive advantages it drives across our ESS, drone, and materials businesses. We will continue to explore how best to demonstrate and unlock the Molecular Universe value over the course of the year. As we look to the remainder of 2026, our priorities remain clear: execute on the ESS opportunity through UZ Energy and our growing distribution network, advance our drone cell business towards commercial-scale customer engagement, deliver on the materials pipeline, and continue developing the Molecular Universe as both a revenue stream and a competitive advantage. I want to thank the team for their continued execution and thank all of you for your continued interest in SES AI. And now here's Jing for financial updates.

Thank you, Qichao. I will walk through our financial results for the first quarter of 2026. Given that our current 3 business unit structure took shape in the fourth quarter of 2025, with the integration of UZ Energy and the launch of our drone cells and materials initiatives, we will present our first-quarter results on a sequential basis compared to the fourth-quarter of 2025, which we believe provides the most meaningful view of our operating projections. Revenue for the fourth quarter of 2026 was $6.7 million, representing a 47% increase over the $4.6 million in the fourth quarter of 2025. As a reminder, the fourth quarter of 2025 was impacted by approximately $1.5 million of revenue that was pushed into the first quarter, which benefited Q1 results. Our revenue growth reflects the continued growth from UZ Energy's ESS product revenue and early contributions from our drone cells and MU subscription revenue. We are reaffirming our full-year 2026 revenue guidance of $30 million to $35 million. Our Q1 gross margin on a GAAP basis was 18.1%, compared to 11.3% in the fourth quarter of 2025. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue. Our Q1 non-GAAP gross margin was 18.3%, compared to 11.7% in the fourth quarter of 2025. The sequential improvement from Q4 2025 reflects margin improvements from the UZ ESS business and higher margin from sampled drone sales and new subscription revenue. Turning to operating expenses, our GAAP operating expenses for the first quarter of 2026 were $19.1 million, compared to $18.2 million for the fourth quarter of 2025. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization, first-quarter operating expenses were $14.3 million, compared to $13.5 million for the fourth quarter of 2025. Our GAAP net loss for the first quarter was $12.1 million, a $0.04 loss per share, compared to a GAAP net loss of $17 million, or a $0.05 loss per share in the fourth quarter of 2025. I want to remind everyone that our GAAP net loss in any given quarter can be meaningfully impacted by non-cash mark-to-market movements in the fair value of our sponsor earn-out liabilities, which are required to be remeasured each reporting period under GAAP. In Q1 2026, we recorded a $4.2 million non-cash gain related to these liabilities. These non-cash gains or losses are not reflective of our underlying operating performance. And we believe, excluding them, provides a clearer picture of the progress we are making in the business. Excluding stock-based compensation, depreciation, and amortization, change in fair value of sponsor earn-out liabilities, and including interest income, our non-GAAP net loss for the first quarter was $11.1 million, or $0.03 loss per share, compared to a non-GAAP net loss of $11.8 million, or $0.04 loss per share, in the fourth quarter of 2025. Adjusted EBITDA for the first quarter of 2026 was a loss of $12.8 million, compared to a loss of $13.8 million in the fourth quarter of 2025. We believe this continued progress reflects the positive operating leverage beginning to emerge in our business as revenue scales, combined with our sustained focus on financial discipline and cost management across the organization. We remain on track to deliver approximately 15% reduction in full-year operating expenses that we guided on our last call. A detailed reconciliation of GAAP net loss to Adjusted EBITDA and non-GAAP net loss per share is included in the financial tables at the end of the Shareholder Letter. We utilized approximately $20 million in cash for operations during the first quarter, consistent with our operating plan. We exited the first quarter with a strong liquidity position of approximately $178 million. Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiatives. On a housekeeping note, we expect to file a new S-3 shelf registration statement concurrent with our 10-Q, as our current shelf expires on April 28. This is a routine administrative filing to maintain our financial flexibility. We believe the first quarter demonstrates steady execution against the plan we laid out. Revenue is on plan, costs are coming down, and our multi-revenue-stream platform is taking shape. We are well-capitalized, financially disciplined, and positioned to deliver on our full-year outlook. Lastly, on a personal note, this is my last earnings call with SES. I am grateful for the opportunity to have helped build SES's financial foundation during the past 5 transformative years of the company. SES is well positioned to capitalize on the momentum it has built, and I look forward to seeing the growth story unfold. Thank you Qichao, my colleagues, our Board, and our shareholders for the trust and support along the way. Thank you. With that, I will hand the call back to the operator.

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

So, just on the evaluation and qualification tests, can you talk about the typical timeline? How long might it take to transition those into firm purchase orders?

Derek, are you referring to drones qualification or electrolyte, which one?

Drones.

Drones. Qualification typically 1 to 2 quarters and then we've started those later. So, most of the qualifications actually have been completed, and now it's just making those in our Korea facility and have the customers come in and do the supply-chain audit, making sure all the cathode powder, the anode powder, the processing actually take place in Korea.

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

Probably in the next quarter, and then this last quarter, we did have one of the largest battery companies that actually signed up to the Molecular Universe Search-in-a-Box. So only 1 of the 6 features. And then we have a few more in the pipeline that are interested in Formulate-in-a-Box, Predict-in-a-Box, and also other features of the tool.

And then one final 1 for me. On the drones, again, what's the split between defense and commercial interest? Can you maybe break that out for us at all?

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

Your next question comes from the line of Winnie Dong with Deutsche Bank.

My first question is on the multi-year distribution agreement with ATG EPower. I was wondering if you can help us understand the relationship if this is like a wholesale relationship and of the $20 million order over 3 years, what kind of shipment cadence we should be thinking about?

Similar to what I just mentioned, it's a wholesale distribution, and then they help us bundle the UZ products with solar and then distribute that to their customers.

So essentially, once you ship it to them, you will be able to book revenue. That's how the set of it.

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

Yes, yes. So it's based on shipments, yes, once we ship it, based on the Incoterm, we will be able to recognize the product revenue, that's correct.

And then on UZ, you've achieved close to $7 million, some were spilled over from 4Q, what is like the typical seasonality of this business? And I understand that maybe it can be a little difficult. Since you're spreading across all different regions. But like holistically, is there a seasonality that we should be looking at for this business?

I think overall, the energy storage business globally have some seasonality depending on the region. And Q2, Q3 usually are higher than Q4, but it also depends on the local incentives available like Australia, everybody is trying to secure something to be installed before the incentives go away, and in Europe, there are a lot of incentives going on before it goes away. So there are certainly season based on the region. However, because UZ sells to many regions globally is not tied to a particular place. So, I think for this year, at least, we see growth quarter-over-quarter. With some seasonality, but I wouldn't put a lot of emphasis on that. But Q2, Q3 are probably higher.

And then maybe just a follow-up. Within the $30 million to $35 million, what is baked in, in terms of like contribution from materials and some of the other efforts that you guys have in place?

What's the breakdown?

Yes.

I think we expect this year to come predominantly from ESS and then rest split between drones and materials.

Your next question comes from the line of Dave Storms with Stonegate.

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

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

Yes, just maybe some of the benefits of adding Edgebox to your offerings and how maybe helping sales cycle?

Yes. The hardware is pretty competitive and basically, you purchase cells and you integrate those into a container. And then in the industry, the accuracy, the error is typically 7% or even as high as 10%. So not so accurate. And then as a result of that, for example, if your project only needs 10 kilowatts, you will buy 14-kilowatt hours to basically allow for that error. So having this Edgebox. The Edgebox does 2 things. One is we can very accurately tell the state of charge, the state of health, safety, energy, power, basically, what we call AISPEX, I mean there's 6 of them. And it can give a really accurate estimation of that. So instead of error being 7%, 10%, now we're talking about 3% or even less. And then the other benefit it's itself on the cloud, which a lot customers don't like. It's totally secured. It's in a box that we actually put on-premise. So you also have data security. So the main benefit of that is now that instead of buying more capacity to allow for the inaccurate estimation, you can buy less. So the customers can save cost. And for some of the customers that want to participate in Virtual Power Plant, basically, energy trading and then sell electricity back to the grid. And because we have a more accurate estimation than your peers, you can bid in a more competitive price. And also you can -- when you make the decision of whether or not to participate and the trade-off versus sacrificing the battery health, you can have a more accurate estimation of that trade-off?

And then maybe just turning to materials. It was mentioned that there's several companies completing their second phase. Maybe just thoughts around timing through this next step, this third phase as they advance towards commercial-scale supply discussions?

So, typically, it's 2 to 3 rounds of testing each around about 1 quarter. So, we talked about 6 to 9 months of testing. And towards the end of the last round of testing, then the customer will go through what's called commercial qualification basically, they will check for the plant and also check for all the toxicity, the special chemical permits needed for any special materials inside the formulation and then making sure it's complying to all the necessary local environmental toxicity, chemical regulation. And then, so overall, the testing 6 to 9 months and then another quarter for the commercial qualification. But again, we started a lot of this last year. So now we are -- with all of these customers, we are towards the end of the second round of qualification.

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

Jing, do you want to take that?

Yes, I'll take that. So -- we are taking lot of actions to further reduce our operating expenses starting from Q1. So you should be able to see the full quarter impact starting from Q3, there will be a little bit of a reduction in Q2, but not full quarter. But starting Q3, the full quarter impact should be coming in. So than Q4, maybe slightly lower than Q3.

[Operator Instructions] Your next question comes from the line of Sean Milligan with Needham.

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

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

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

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

There appear to be no further questions at this time. Ladies and gentlemen, this concludes the SES AI First Quarter 2026 Earnings Call. Thank you all for joining. You may now disconnect.