SES AI Aktie

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 Law Officer; Kyle, please go ahead.

Hello, everyone, and welcome to our conference call of the 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, are 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 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 for 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 Hu.

Thanks, Kyle. Thanks, everyone, for joining that. 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 Li 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 reported 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 use 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 multiyear distribution agreement with ATG Power, 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 ATTE Power's established distribution network across residential, commercial and industrial customer segments. This new contract goes on UC 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 momentary universe predict capabilities into the hardware offering and Engebo. 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 Chengdu South Korea facility from EV pulp cells to drone format cord cells. This facility, which produced the world's first 100 empower lithium metal call back in 2021 has been NDA 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 NDA compliance cells producing Chengdu 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 NDA compliant manufacturing capability in Korea positions us well relative to competitors who lack NDA compliance supply chains. We continue to explore additional NDA 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 Molefe 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 Raizen joint venture to leverage their 150,000 ton annual global capacity to produce these materials at commercial scale as demand materializes.

And on the Moleciuniverse, 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 as 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 multiyear subscription of our molecular universe search in the 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 IT 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 using 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 us [indiscernible] Energy and the launch of our drone sales 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 UC Energy's ESS product revenue and early contributions from our drone sales 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% and compared to 11.7% in the fourth quarter of 2025. The sequential improvement from Q4 2025 reflects margin improvements from the UG ESS business and higher margin from sample phone 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 $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 noncash mark-to-market movements in the fair value of our sponsor earnout 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 noncash 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 earnout 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 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 scale, 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 [indiscernible] 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 [indiscernible] 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 to Chica, 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 time line? 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 cattle powder, the 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, one of the largest battery companies that actually signed up to the moly universe to 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 formulating in the box, predict in the box and also other features of the tool. .

Got it. And then 1 final 1 for me. On the drones, again, what's sort of 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 sale is to use like the same drones could be used for defense colleagues commercial in biology to customers that come in. So we focus a lot on customers that want NDA compliance and then only the customers that actually want to get defense contracts would really push for NBA compliance. We don't have a specific breakdown between defense and nondefense, but because also the 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 multiyear distribution agreement with ATG Power. 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, like 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 products with solar and then distribute that to their customers.

Got it. 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 inco term, we will be able to recognize the product revenue, that's correct. .

And then on UC, you've achieved close to $7 million, I think 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 sort of 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 the sales 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 USS and then Russ spoke between drones and materials. .

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

Wanted to start maybe with ESS and your pension of the hardware offering Edge box, you could maybe a little time to speak in how that plays into the sales cycle, maybe what some of the benefits of it are.

Last part of your question again, the sales cycle and then the part after that.

Yes, just maybe some of the benefits of ad and edge box to your offerings and how maybe helping the sales cycle.

Yes. So the hardware is pretty competitive and basically, you purchase sales and you integrate those into a container. And then 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 the error. So having this edge box the edge box 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 [indiscernible] this picks up them.

And it can give a really accurate estimation of that. So is the are being 7%, 10%, now we're talking about 3% or even less. And then the other benefit it's itself on the cloud, which have customers don't like. It's totally secure. 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 potline, basically, SES 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 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 a 2 to 3 rounds of testing each around about 1 quarter. So we talked about 6 to 9 months of testing. And then towards the end of the last round of testing, then the customer will go through what's called commercial qualification basically the check for the plant and also check for all the toxicity, the per 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 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 end of second round of qualification.

And maybe just 1 more quick modeling 1 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 sells or qualifying selves 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. Like all that investment we made for EV and then turned out, we excellently built 1 of the largest drone pole manufacturing factories outside of China. So we have a lot of customers that 1 NDA compliant cells come to us. And the market price for NDA compliance 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 has been have been completed. And now a lot of that is actually supply chain audit and cost schedule.

Okay. 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 obviously could be a much bigger piece of business. I'm just trying to understand the pipeline looks by 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 NDA compliant cells. And then really -- so we actually had some shipment recently. So we expect revenue in Q2 for the NDA compliant sales and then started to pick up 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 NDA compliance 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.

Good afternoon. Thank you for attending today's SES AI Fourth Quarter and Full Year 2025 Earnings Results Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions]

I would now like to pass the conference over to your host, Kyle Pilkington, Chief Legal Officer.

Hello, everyone, and welcome to our conference call [ during ] our fourth quarter and full year 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.

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. On this call, we are introducing non-GAAP financial measures as 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 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 in [ value ] in 2025 with full year-end revenue of $21 million compared to a little over $2 million for 2024. Jing will walk through our financials and the outlook shortly. This tremendous growth was due to the final contributions from our services agreement with Honda and Hyundai as we completed our DV development work with [ them ].

We also had 3.5 months of revenue from the acquisition of [ US ] Energy for our energy storage ESS business. While we are pleased to report full year revenue in the range of our previously issued guidance, as the milestone we reached [ and ] the year-over-year growth we are expecting from full year contributions in our three revenue-generating business units and for recognizing potential value in the molecular universe that has us really excited.

I'm very proud that we made more progress in the past year than the previous 10-plus years combined. This development of the molecular universe has been up for us. SES continues to be well positioned to solve the issues of battery development and safety requirements with the molecular universe, our own in-house [ Arasience ] company we have been able to help customers overcome standard time line in the adoption of new technology. We also have [ a ] how energy transition needs are requiring more integration of AI software and hardware along with precise battery health monitoring.

As we described before, SES has three revenue-generating business units. ESS, [ loans ] and materials. ESS, which is the largest market for [ Tres ] is bigger than EVs and bigger than drones. At Battery World 2024, we announced our entry into the ESS market and through our acquisition of UZ Energy, we are now serving customers across the globe, from Australia to Europe to the Middle East, and now we are entering the North American market. The [ U.S ]. business is our largest near-term revenue driver. UZ Energy leader in commercial and industrial ESS and has sold almost [ 1 ] gigawatt hours of hardware to customers ranging from [ residential ] C&I to great.

We are now able to collect the large amount of historical ESS [ LFT ] graphite data and then for all future using products, we plan to incorporate our predict feature from moat universe into a small box to achieve near 0 sales charge [ SoC ], degradation, health, safety and other SLX algorithms and automated nondisruptive retail operation. which helps improve UE's ability to predict battery health and reduce maintenance costs for customers. Energy Source systems are financial assets. The value to our customers depends on delivery consistent and long-term performance.

Historically, us supplied only the hardware to customers, mostly [ LT ] and grass lithium-ion cells. Now since we acquired UZ, as has the opportunity to provide an operating system to the hardware and sell customers a complete package to meet their USS needs. We are seeing some early traction with us sales efforts as they were able to sign a multiyear $20 million contract with a major distributor recently at the Intersolar Conference Loans for the next business unit, I want to highlight.

The drones [ base ] requires high image density and high power density batteries to achieve longer flight time and greater payload. This is where our lithium metal on high silicon carbon lithium ion batteries really shine. The U.S. defense drones market in particular is what we see the most consequential near-term opportunity, and we'll be voting most of our attention and investment. This worth spending a moment on why the drone market is a natural fit for deploying our lithium metal [ anode ] and proprietary electrolyte.

One, and drone battery needs double the end density of conventional lithium ion. Ultimately, you need at least 400 watts per kg to be state-of-the-art and a realistic road map to your 500 molest win. In other words, range and payloads matter. Drone batteries need a high sea rate and power for the drone to maneuver and accelerate, we saw for this.

Third, drone batteries need to be manufactured at scale. We've demonstrated this in our PVB sample development. Fourth, drone batteries need abundant and inexpensive material and the military demand to the supply chain to be National Defense Authorization Act for NDAA compliant. We recently announced we expect to convert our EV B sample line in [ Trubiouth ] Korea facility to manufacture NDA compliance cells for drones. This is the same facility that we've develop and build the world's first 100 power largest within metal cell back in 2021. And this facility has been NDA-compliance since 2021.

To meet the drone demand, we plan to convert our lines from EV [ pulp ] 100 cells to 10 pulp cells. In this line, we're also planning to deploy our AI for safety and AI for manufacturing to ensure quality and cost effectiveness. In addition to our Korea facility, we're also exploring even larger NDA compliance and more versatile cell form factor no country capacities in Southeast Asia. We'll have more update on our NDA compliant manufacturing capacity nations later this year. Our third revenue-generating business unit is materials.

Both FCS and our [[indiscernible] have also been discovering new [indiscernible] for other applications that we don't build sales for currently. Last fall, we announced a JV with [ Hisun ] to leverage their 150,000 ton annual global capacity to produce these materials at a commercial scale to supply to other battery manufacturers for consumer electronics and assets. At this time, we are anticipating that the [ Ryzen ] JV will only produce materials for molecule universe discoveries. Through the molecular universe, we discovered six breakthroughs that are currently being tested by over 40 customers.

These breakthroughs, which will be the basis of the revenue we expect from this business in 2026 in one, [ beta-synthase ] in stores for EV applications, two better cycle and power density for drones. Three, better low-temperature cycle life and power density for heavy-duty trucking four, [indiscernible] and longer life for consumer electronics. This beaches and low temperature performance for ESS and EVs and better cyclic in storage for consumer electronics. We also have a pipeline of new breakthroughs that are being tested by customers, which we expect will provide further potential revenue for this business.

[ Last ] not least is what we have been referring to as our own AI science company. That is, of course, molecular universe. I want to be clear on how we view the role in this company. While SaaS revenue continues to build momentum and is expected to make a small contribution in 2026, this business contribution is the inherent value of this business on its own and the IP that drives competitive advantage in the [ U.S ]. drone and materials business. Molecular universe has the potential to become a modern day inside later with battery being [ value ] 1, provides extremely valuable scientific data and intuition to [ AF ] science models.

Over the course of the year, we will continue to explore how we can best demonstrate for unlock and use value. In terms of demonstrating that value, I will point to our recent investor presentation. In that presentation, we noted there are several AI for science companies that are either pre-revenue or have less revenue than the MU that have already passed valuations exceeding $1 billion through private capital raises. These are the closest comps to the molecular universe, so with [ TCI ] on how well these transactions have one.

So we're really excited about the long-term value of molecular universe as a platform, not just for batteries, but all as well as the near-term revenue growth from drones, materials and ESS operating systems. Our priorities for 2021 and beyond are one, leverage the new business unit leadership and structure to execute on the ESS and drone sales opportunities ahead of us.

We've [ brought ] on industry veterans to lead these efforts as well as hardware, software integration sale. Second, actually on the conversion of our NDA compliant line in Korea from EV sales to drone cells and line up additional capacity in Southeast Asia that is also NDA compliant. First, continue the growth of us Energy's existing hardware business in Australia, Middle East and Europe and began expansion into the U.S. Fourth, delivery on existing novel electrolytes discover biomolecular universe in the materials business and expand our pipeline.

Fifth, leverage [ used ] material discovery capabilities to accelerate new product development and continue to focus on our CapEx-light business model in U.S. sales and materials to offset the projected R&D spend in the [ Blake ] universe.

Before I turn it over to Jing, 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 fourth quarter and full year of 2025 and provide context on how we're deploying our capital to support SES AI's long-term growth and the strategies Qichao outlined earlier. Revenue for the fourth quarter of 2025 was $4.6 million, representing a $2.6 million or 124% increase year-over-year. Full year revenue came in at $21 million, in line with our guidance, but impacted primarily by logistics constraints that delayed shipments at the end of the year, resulting in approximately $1.5 million of revenue being pushed out to the first quarter of 2026.

As Qichao noted earlier, revenue for full year 2025 was within our previously issued guidance range of $20 million to $25 million and was up nearly tenfold from the prior year. A year in which we first achieved revenue generation. Our Q4 gross margin on a GAAP basis was 11.3%, driven by the higher mix of ESS product sales in the quarter, which carries a lower margin profile relative to our service revenue.

On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue, our Q4 non-GAAP gross margin was 11.7%. For full year 2025, our GAAP and non-GAAP gross margin was 53.8% and 55.7%, respectively. As we have noted previously, we expect gross margin to vary from quarter-to-quarter as our revenue mix across products, SaaS and [ thesis ] evolve. We expect the gross margins on our product revenue to improve as we scale volume and optimize the cost structure through our CapEx-light business model and JV partnerships.

Turning to operating expenses. Our GAAP operating expenses for the fourth quarter of 2025 were $18.2 million, compared to $30.4 million for the same period prior year, a 40% decrease year-over-year. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization. Fourth quarter operating expenses were $13.5 million compared to $24.2 million for the same period prior year, a 44% decrease. For full year 2025, our GAAP operating expenses were $93.9 million, compared to $110.5 million in 2024, a 15% decrease.

On a non-GAAP basis, full year operating expenses were $73 million versus $82.3 million in 2024, an 11% decrease. The year-over-year improvement in operating expenses on both GAAP and non-GAAP basis reflects the progress we have made in optimizing our cost structure while continuing to invest strategically in Molecular Universe platform and our commercial growth initiatives.

Adjusted EBITDA for the fourth quarter of 2025 was a loss of $13.8 million compared to a loss of $23.2 million in the fourth quarter of 2024, representing a 40% improvement. For the full year 2025, adjusted EBITDA was a loss of $52.6 million compared to a loss of $81.5 million in the full year 2024 in 23% improvement year-over-year. We believe this growth reflects the positive operating leverage beginning to emerge in our business as revenue scales, as well as our sustained focus on financial discipline and cost management across the organization.

Our GAAP net loss for the fourth quarter was $17 million or $0.05 loss per share. Excluding stock-based compensation, depreciation and amortization, changes in fair value of sponsor earnout liabilities and including interest income, our non-GAAP net loss for the fourth quarter was $11.8 million or $0.04 loss per share. This is an improvement over 2024 fourth quarter's GAAP net loss of $34.5 million or $0.11 loss per share and non-GAAP net loss of $19.9 million or $0.06 loss per share.

For the full year 2025, our GAAP net loss was $73 million, or $0.22 loss per share compared to a GAAP net loss of $100.2 million or $0.31 loss per share in 2024. On a non-GAAP basis, full year net loss was $53.2 million or $0.16 loss per share compared to a net loss of $66.4 million or $0.21 per share in 2024. The year-over-year improvement on both GAAP and non-GAAP basis reflects the progress we are making in scaling revenue and managing our cost structure as we advance customer engagement, develop the molecular universe platform and position the distance for growth in 2026.

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. I want to highlight that our GAAP net loss in any given quarter can be meaningfully impacted by noncash mark-to-market movement in the fair value of our sponsor earned liabilities, which are required to be remeasured each reporting period under GAAP.

These noncash gains or losses are not reflective of our underlying operating performance. And we believe, excluding them, provides a clearer picture of the progress we're making in the business. This is one of the reasons where we're introducing adjusted EBITDA beginning this quarter. We utilized $10.4 million in cash for operations during the fourth quarter and $58.4 million for the full year 2025.

We deployed $3.3 million on the UZ acquisition and $2.9 million on CapEx and returned $1.6 million to shareholders through share repurchases during 2025. This improvement in cash utilization is consistent with the adjusted EBITDA progress I noted earlier and reflects the financial discipline we have maintained as we scale the business. We exited 2025 with a strong liquidity position of $200 million, coming in at the top end of our previously communicated expectation of ending the year between $195 million and $200 million.

Our CapEx-light business model remains the core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiatives. For full year 2026, we expect revenue to be in the range of $30 million to $35 million. representing approximately 43% to 67% growth over full year 2025 revenue. As Qichao noted earlier, our full year 2025 revenue included onetime contribution from OEM services contracts.

If we compare the growth expected from the three businesses on an apple-to-apple basis, the revenue growth rate is even higher. On the margin front, our three businesses carry different profiles and the mix may shift as we scale our ESS hardware business, which will represent the largest share of revenue in 2026 is expected to operate at around 15% gross margin. As we layer in the hardware software bundle and grow the operating system attach rate, we see a potential path to expanding margins in that business over time. Our drone sales business is earlier in this commercial ramp, but we expect gross margins north of 20% as volumes build through the year.

Our materials business, which will sell electrolyte materials, through our joint venture with Hisun. It's also a product business, and we expect it to carry a margin profile in the 10% to 20% range. On a blended basis, we expect consolidated gross margin to be around 15%, with room to improve year-over-year as we scale. Our operating expenses for full year 2026, we expect approximately 15% further reduction from the 2025 level. This reflects our continued investments in the molecular universe platform, while we are committed to financial discipline, we believe this level of investment is appropriate given the long-term value we're building and the early commercial traction we're seeing from MU driven material discoveries.

We are not anticipating meaningful growth in operating expenses beyond this level, and we'll continue to evaluate opportunities to improve operating leverage as revenue scales and to accelerate the monetization of the MU platform. On capital expenditures, we continue to operate a CapEx-light model at the core financial discipline. For 2026 we expect CapEx to remain in the single-digit million, primarily directed towards the conversion of South Korea facility from EV cells to NDAA compliant grown cells, as well as the evaluation of contract manufacturing capacities in Southeast Asia.

We entered 2026 with $200 million in liquidity and we are well funded to scale and grow, can us the financial flexibility to execute on the opportunities ahead of us. We believe 2026 will be the year in which the full architect of our multi-revenue stream platform comes together and began to deliver. We are well capitalized, financially disciplined and positioned to execute on that vision. We appreciate your continued support and confidence in SES AI. Thank you.

Now I will turn the call back to the operator.

[Operator Instructions] The first question comes from Derek Soderberg with Cantor Fitzgerald.

On the final contribution from the Honda and Hyundai development work. Just was wondering what sort of next for that program? You sort of proven manufacturability recently. Obviously, your technology is sort of game changing for the EV market, what's next for that, those relationships and Hyundai, when are you going to commercialize that for EVs?

Derek. So in terms of next step, previously, the next step was to go from B sample to C sample. And I think now, I mean there's no surprise that the EV market is slowing down and almost no automaker is investing in next-gen battery technology. And I don't mean like early-stage better technology in terms of A and B samples.

But no one is investing in mass scale production of next-gen technology, which is C sample, which is what we were trying to get to next. So we hit all the technical milestones, but the C sample is on hold. And then so in terms of next step with the OEMs, we are focusing on selling materials. Selling materials that we have developed the [ laser ] materials we are [ foreseeing ] on that. And in terms of the full-blown with the metal C sample, then we'll see when the market returns.

But the technology is there, and this is why we've been forcing on converting the lines for drones production and also applying the the AI for safety, the battery analytics software that we developed for EV for ESS market. So yes, in terms of next steps for the OEMs, we're focusing on material supplies and then also converting the line for drone applications and using the the safety analytics software for ESS.

Got it. And then just quickly, what was the onetime service amount? Can you quantify that impact to fiscal '25?

Jing, do you want to take that?

Yes. So for 2025, the service revenue was $13.6 million. Those are primarily driven by the Honda and Hyundai service agreement. So that's the onetime service agreement we were talking about.

Got it. So for '26, you don't expect any of that to sort of recur just given what Qichao just explained or guidance is really just ESS, drones and materials. And I was wondering if you could sort of break that down for us or help us try to understand by segment. ESS, drones, materials. Can you help us kind of quantify how each of those contribute to the guidance range? And then any help sort of modeling kind of the first half or second half? What portion of revenue in the first half, second half, anything like that would be helpful.

I can take that. So yes, yes, for 2026 guidance, given is the first year we're giving guidance, including all three business units. So we -- first of all, we wanted to be more conservative to start the year. As far as breaking down the revenue sources, ESS going to still be a large portion of our revenue. So of that 30 to 35 guidance, the range, I would say, probably around 65% will come from ESS at least.

And then the remaining portion will be drones and materials. And then for those two, we're expecting it to be more second half of the year low [ in ] given we're still in the ramping and business development stage. So those two are going to be more towards the second half of the year. So -- but percentage wise, around 65% from ESS and the remaining for those two.

The following comes from Winnie Dong with Deutsche Bank.

Just curious, if we look out to maybe like the next 2 to 3 years, if we just look at the different business areas, yes, there's [ strong ] materials. And also, you have [ to ] molecular universe as well. how would you characterize like the growth profile of each of these areas in the next 2 to 3 years? Which one has maybe the potential for the largest growth if there's a way to think about it? And then separately, for molecular universe, I know you've been talking about different tiers of revenue from larger corporations and smaller ones. Could you share currently what might be the largest bottleneck for adoption from these customers? And then I have a follow-up.

Yes. We -- on the first one, from a size of revenue and the product perspective, ESS and drones, we expect these to grow very rapidly especially on ESS after we acquired UZ. We're not just selling the hardware anymore. Now we're adding this predict feature on top. So that's really exciting because now we are turning a regular UPS battery pack into an asset that the asset owners can use for energy trading, so like supply and demand.

And on the demand side, you have conventional [ VTP ] software but on the supply side. no of the VPP software can have as an accurate and advanced monitoring of the battery health battery safety, better degradation and all the parameters than ours. So we have a really precise estimation of of the set of health of the battery, so that gives you better. It's almost like we say that the energy trade it's almost like having [ Warren ] buffer at your fingertip when it comes to energy trading if you know that level of precise health of your battery. So that we are really excited about this Edge box enhanced virtual power plant, especially with those tool that we can add and help both use this hardware. So that's -- yes.

And in drones, so it's all about supply chain. It's all about being NDA compliant and supply into U.S. and allied drones. And then also with the new drones dominance program, -- we've had this line in Korea, and it's been NDA compliance since 2021. We built this line for GM. It was 100-hour dose metal cells, we're converting that to 10 npower cells for for drones.

So we have an advantage because we have this asset. It's been in the compliance since 2021. And then that market is also growing very rapidly, especially under the new drones dominance program. So I think these are the most exciting from the size of revenue growth. And as Jing mentioned earlier, the bulk of the revenue from this year 2026, we expect will come on these two areas.

In terms of molecular universe, we are making very exciting progress and we're getting some of the largest battery companies and car companies to sign on to this this platform, and we expect to make some announcements in the coming months. And I think in terms of bottleneck, I think just is just new.

For example, [indiscernible] has been using drug discovery a lot, not so much in materials, not so much on chemicals and not so much in in batteries. So it's just new. But finally, as we said, we use that platform and then we demonstrated that that we could actually indeed use that and develop 6 new materials. I mean, previously, it was -- it would take you a few years to discover one material. And when we've discussed six materials in just over about 9 months, 9 months to a year.

And then later, we'll add more features to it, and hopefully, we can get to six new materials per month and per week. So that acceleration of rate of discovery, that's something we're quite excited about.

Got it. Thank you for the detailed response. And then I wanted to ask the question about OpEx in 2026. It seems like you're characterizing a spending level that is lowered in 2025, and that is going to likely sustain at this 2026 [ vulnerable ] quarter basis.

Can you maybe just understand the reason for that, if you're looking to grow these different areas of the business, what is it that you've done that I guess, allows you to not have to spend further to grow the business.

I can address that. So I think the 2026 reduction partially is coming from just being disciplined on spending cash on OpEx in general. We have been reducing G&A and also R&D expenses year-over-year if you go back to 2023, 2024, 2025 year-over-year, we're managing our costs very efficiently. So that's that part.

And second, the MU as an internal tool for AI for science is creating a lot of efficiencies. So -- and also as part of growth into these three businesses, we're more focused as far as spending cash on product development related R&D and then there will be growth as far as spending wise on the SG&A side like sales and marketing, but it's not linear to the revenue growth. So overall, together, including R&D and SG&A we forecast this year to be lower than last year and then sustain at least for the foreseeable future.

[Operator Instructions] The next question comes from [ Colin Rusch ] with Oppenheimer.

Can you talk a little bit about the drone market and the volume of customers you're working with and how mature those relationships are in terms of working through the design process. and potentially being able to announce a purchase award here over the next, call it, several quarters.

Yes. The Jones market is really going through a lot of pressure to change supply chain with NDA compliance requirements. And then we are focusing on some of the top customers, [ resemble ] customers that will order in the range of single-digit millions to financially more than $10 million a year. Yes. So we have many focus on those larger customers. And we actually started testing engagement with them last year.

Last year was really when everyone tried to change the supply chain. And I think if a major Jones manufacturer hasn't changed the supply chain by now, I think it's almost a bit too late. So a lot of testing engagement started last year. And then now we are are just in the final stage of converting the lines. For example, right now in Boston, we can make pilot scale less than 100,000 cells per year. In Korea, we can make about 200 to 300 cells per year. We're trying to expand that. And then in Southeast Asia, we're also looking to expand to several million cells. This all for -- this is all NDA compliant sales for drones customers.

Excellent. And then obviously, you had some really meaningful success at the molecule level, leveraging some of the AI capabilities. I'm curious about your ability to leverage some of that know-how into pack level design and even into system integration design and modeling out some of the duty cycles that that may be just to accelerate some of the adoption as you look at some of the robotics and drone opportunities?

So you're saying we can apply those [ two ] pack level and sell cell level?

Yes, at the pack level and and even the system level design beyond that pack level?

Yes, we're starting to add that feature. We've got some requests from automakers that want to do the design and then predict features at the past and system level. So we are adding those features. And then also for energy storage, right now, we are adding molecule universe predict into the systems. [ The ] we put that in the small box, we call the Edge box and then that works at the cell level and also the tend system level.

Next question comes from Mark Shooter from William Blair.

I believe I heard you say that the auto OEM JVs are on hold. Could you clarify that a bit? And then I'm seeing that the industry is, especially [ auto ] industry is kind of move away from lithium metal. However, at the same time, I'm seeing some local competitors actually enter the public markets here with our lithium metal product. So -- is any of the engagement appetite with your OEM customers changed around lithium metals? How are you looking at this?

Yes. So I mean, we were developing pure lithium metal as well as hybrid lithium metal and silicon anode, and we met all the technical requirements. It's just in terms of OEM appetite for high energy density batteries, I would say, back in 2021, the OEM appetite for high energy density batteries was very high. But now, and that's still there, but maybe at R&D level, a sample level and demo car level, but not at C sample level, which is like mass production. And and I'm not seeing any other OEMs that's going to mass production with a [ nation ] chemistry. There's a lot of price pressure, cost pressure and most OEMs are switching to just [ LFP ] graphite.

Yes. Okay. And that makes a lot of sense. And that justifies what we're seeing, too. So that confused me a bit. But switching gears to the ESS market, which is rapidly growing, that is a fragmented market with many different levels to it. And I'm wondering what do you see as the most value add? Where would you play? What is the strategy for the UZ Energy acquisition? And what section of that energy storage market would you play in? And why are you most advantaged to that section?

Yes. Exactly. The ESS market is very fragmented. It's got a long tail. And and the benefit that we bring to the U.S. market currently does not have a stable widespread operating system, maybe except for Tesla. But in the U.S., it is at Tesla in [ the ] long tail very fragmented. So what we can provide is almost like the Android version. And then -- so for commercial industrial and for data center applications, the asset owners actually want to use their battery packs for energy trading, but they're not able to do that and are not able to differentiate if they use conventional virtual power plant software.

So what we can do is because we actually collect the data from the battery, we can have a very accurate estimation of sales charge, still [ health ], sale safety degradation, power all these different features. What that means is when you do the trading, supply and demand. Demand is set by the market by weather, by if there's any major sporting events. But the supply, that's that's set by accurate estimation of [ SOX ] and then that we can provide. So that's where this Edge box enhanced virtual power plant, really shines. So I think the value that we can provide -- we can provide this operating system to not just use these battery packs, but to multiple of the long tail, this fragmented market.

There are no questions from queue. So I'll pass back over to Kyle Pilkington.

Thank you. As within our past earnings calls, we offered investors the opportunity to submit questions in advance and we'll cover a brief selection of those questions now. The first question is, is there a binding definitive agreement with top material yet? And can you generally provide some details on current NDAA compliance status?

Yes. So that material is one of the options we are exploring. And then as I mentioned earlier, we've had this Korea facility since 2021. It's been NDA compliance in 2021. And then we are focused on converting those to produce drones, batteries. And then in addition to our own career facility, we're also looking at options in Southeast Asia and then potentially offer better pricing, better value and larger scale to customers. And again, they're all NDA compliant. And actually, we just updated our website and now we have updated drones battery product brochure that's on the website. So and then the cells are NDA compliant.

Great. I think we have time for one more. So the question is, with Wildcat and BMW and Ionics and [ Portia ] securing JDAs for AI dream materials, how is SES protecting its molecular universe data advantage to ensure it doesn't lose OEM partners to lease specialized private competitors?

So I think we announced that we're offering molecular universe to the public mid last year after these other announcements were made. And then what universe, if we look at the latest version of [ Mi ] Universe 1.5, and we have a 2.0 coming out soon, it really is a game-changing platform for battery development in the EV space. So we're seeing a lot of the OEMs and battery companies actually using this platform.

Great. That's all we have for the investor questions. So I'll pass it back to the operator to conclude the call.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

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.

Good afternoon. Thank you for attending today's SES AI Second Quarter 2025 Earnings Release and Call. My name is Jaylene, I'll be your moderator for today. [Operator Instructions] I would now like to turn the conference over to our host, Kyle Pilkington. Please proceed.

Hello, everyone, and welcome to our conference call covering our second 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 p.m. this afternoon, 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 the latest earnings release and in our SEC filings. This afternoon, we will review our business as well as the results for the quarter.

With that, I'll pass it over to Qichao.

Thanks, Kyle, and thanks, everyone, for joining today. We had another strong quarter with significant progress achieved on key product revenue development and profitability milestones. And recently, in third quarter, we continued that momentum to grow our profitability and revenue through an acquisition agreement that leverages our strength in Molecular Universe battery materials discovery and safety monitoring capabilities with an established player in the energy storage space.

In the first quarter, since the public release of Molecular Universe, I'm pleased to see that we now have more than 30 companies that have begun trial testing the enterprise level and many more in the pipeline. Our mission is to accelerate the world's energy transition through material discovery and battery management. We are excited to see Molecular Universe helping human scientists to be more creative and develop new products much faster. Since our launch of All-in on AI a year ago, we have been progressing through 4 stages.

The first is chatbot. We achieved this milestone with the original launch of Molecular Universe 0. Molecular Universe is a powerful LLM specifically trained on the world's most comprehensive battery domain expertise, combined with the world's largest and most accurate battery relevant molecule property databases, computed through our recent advancement in GPU-accelerated large-scale computation chemistry algorithm.

The second is AI agent. We achieved this milestone with last month's introduction of Deep Space in Molecular Universe 0.5, an agentic capability that can conduct senior scientist level battery research. This phase can reduce product development time from years to just tens of minutes. The ROI on this capability for battery development teams is tremendous.

The third is physical AI. This is where we are right now. Physical AI is the integration of molecular universe with physical systems, including drones, humanoid robotics, EV, UAM and the largest of all, energy storage systems or ESS. We are on track with EV B-sample development with our EV OEM customers and growing revenue from our AI-enhanced lithium-ion and lithium metal cells for drones and UAM. And our recent agreement to acquire UZ Energy launches us into ESS physical AI by providing the opportunity to integrate UZ's ESS hardware with Molecular Universe material discovery platform, LFP and sodium-ion for ESS and precise battery health monitoring system.

The fourth is revenue machine. The world's energy transition ultimately needs real physical products with software and hardware integrated. We expect exciting revenue growth to come from 5 areas of focus. These include: A, software and service. This will come from our Molecular Universe tool platform, subscriptions and development projects from cell and materials makers. B, materials. We are producing and selling novel electrolytes and other battery materials discovered through Molecular Universe. C, sales. We are producing and selling AI-enhanced lithium metal and high-silicon lithium-ion cells using electrolytes discovered through Molecular Universe for drones, UAM and humanoid robotics. And D, EV development service. This is the original project that deployed the Molecular Universe with B-sample development with leading EV OEMs for lithium metal cells.

E, and last but certainly not least, ESS. We will be producing and selling ESS hardware and software solutions that deploy safe and long cycle life materials and precise health monitoring from Molecular Universe. This is where we expect to not only grow UZ Energy's core business, but also leverage that integration with Molecular Universe. To implement this platform strategy, we already have the world's best material discovery team.

We have been busy recruiting more top talent and looking for inorganic acquisition opportunities such as the one with UZ Energy that accelerates and extends this strategy. The reason that so many people are excited about our molecular universe platform and want to join us is that they see SES AI uniquely has all the ingredients required to build the best AI platform for energy transition. Some large battery companies don't dedicate enough resources to train AI models, such as cleaning and organizing data, developing large-scale computation algorithms and purchasing computing power and other large pure AI companies simply don't have access to high-quality battery data.

People that join SES AI will have unparalleled access to high-quality battery data that are not available anywhere else, ranging from single molecule to formulations, to cell levels, both through actual experiments and high accuracy simulation. And they will be able to sell products that are not just safer and demonstrate better performance than their competition, but improve much faster. We will share more updates on all of this in the coming months.

Now here's Jing Nealis for financial updates.

Thank you. I will discuss our financial performance for the second quarter of 2025 and provide some context on how we are deploying our capital to support SES' long-term growth and the platform strategy Qichao mentioned earlier. Revenue for the second quarter was $3.5 million with a 74% gross margin. Our Q2 revenue was primarily driven by contracts with our automotive OEM customers to develop AI-enhanced lithium metal and lithium-ion battery materials for EV applications.

As noted in our pre-announcement, we affirmed our full year 2025 revenue guidance of $15 million to $25 million. We utilized $10.8 million in cash for operations in the second quarter, which was a 51% decrease from Q2 2024 and a 53% decrease from Q1 2025. We have been emphasizing our operational discipline for the past few quarters and the significant reduction in cash usage in operations is a result of executing our plan to deploy capital effectively while growing our top line.

We concluded the quarter with a strong liquidity position of $229 million with no debt. We also announced an agreement to acquire UZ Energy. I'm very excited about this strategic move to provide us the foothold in the fast-growing global ESS market and propel us forward as we expedite the implementation of intelligent energy storage solutions to address the escalating power needs of the AI era. We have a tremendous opportunity to grow the UZ Energy business from approximately $10 million to $15 million in projected revenue for the full year 2025 to exponentially larger growth in the coming years, together with the market share gains in the $300 billion global ESS market.

We'll continue to allocate our capital to focus on our AI platform enhancements and growth to support our global commercial readiness through 2025 and beyond through organic growth and acquisitions. We have also allocated capital to share repurchases. While we didn't complete any repurchases during the second quarter, in the third quarter, we have repurchased and canceled 871,754 shares for a total investment of $1.1 million or roughly $1.27 per share. In summary, we remain financially disciplined with substantial liquidity and no debt, positioning us for scalable and long-term growth. We appreciate your continued support and confidence in SES AI. Thank you.

Now I will turn the call back to the operator.

[Operator Instructions] Our first question comes from Winnie Dong with the company, Deutsche Bank.

I was wondering if you can tell us a bit more about UZ Energy, the genesis of that purchase and then how you plan to leverage that business on a go-forward basis? And then secondly, I think you mentioned that you are on the lookout for more M&A opportunities. I was wondering if you can elaborate a bit more on that. What kind of other companies you're looking for? What does the pipeline look like right now?

Yes, Winnie, on UZ, they were actually one of the earliest companies in ESS. 10 years ago, they used to take LFP cells for EV applications and then supply them for ESS applications. And so the rationale for UZ is really -- so for ESS, we talked about entering ESS end of last year. And then this is a really exciting market for us in addition to EV. And then they have good hardware capability, and they take cells and then integrate them into these ESS containers. And then ESS actually is now the #1 use for Molecular Universe, the LFP and the sodium chemistries.

So now that by integrating with UZ, now we have material development for [ LFP, ] sodium from Molecular Universe, and we have the hardware integration. And then we also get data. So one thing that makes Molecular Universe much more powerful than any other tools out there in the industry is access to high-quality real-world battery data that no other AI model in this field has. So now you have the new materials chemistry and then the hardware integration from UZ and then now the actual data. And then we can also add our Avatar, Molecular Universe on top of that to really ensure safety. So that integration really makes sense to us.

And then just on the second question on other opportunities, other M&A opportunities?

Yes. I think we're open to new opportunities and -- because Molecular Universe really empowers so many areas, not just at the material side, the material discovery side, but also material production and then also different applications, drones, ESS. So we're looking at a few other opportunities.

Our next question comes from Derek Soderberg with the company Cantor Fitzgerald.

Just I wanted to get an update on the UAM and drone opportunity. It feels like that opportunity is sort of the nearest for you guys to potentially get your lithium metal technology out there. What sort of needs to happen on the supply chain to ensure that, that ramp happens smoothly and is sort of the plan still to ramp the UAM or drone opportunities sort of next year? Is that still the time line? And then I've got a follow-up.

Yes. Actually, our revenue from drones and UAM has increased this year. And then a lot of the customers, especially in the U.S. want to move away from their current supply chain. And then we are in the process of updating and also certifying our Korea line so that it will be compliant to that request. But yes, that revenue is increasing.

And what kind of capacity -- revenue capacity do you think you guys have sort of for the drones and UAMs at this point?

We -- so in terms of capacity, we are now working -- so our current Korea line and also contract manufacturing partners, we can get to pretty high capacity. And then that capacity is much higher than the current orders we have.

Got it. So it doesn't sound like that's a huge issue there. Got it. And then just as my follow-up on the software piece, 30 companies trial testing. I know it's only been a few months now. But what do you think it's going to take to get one of those companies to sort of move to a joint development tier? Is it just a matter of time testing the platform? Is it sort of identifying a certain amount of cost savings with the R&D process? What do you think it's going to take to get one of those companies to a joint development here?

Yes. This is a really interesting area, and then it's so new because the use of AI is just not that widely used in the battery industry as it is in other industries. So I think we are really close to a few large ones. And I think the key is really seeing that this is not just a platform, but actually it can deliver a solution that's much better than the best human scientists can.

So right now, some of the largest battery companies are giving challenge to Molecular Universe and see if it can solve problems that the smartest human scientists cannot. And once we can demonstrate that, then I think that's game over, and then it will be the start of a wide adoption of Molecular Universe. It needs to solve a problem that's harder and it cannot be solved by the best human scientists.

Our next question comes from John Roy with the company Water Tower Research.

Great. I wanted to continue on the Molecular Universe. What is the overall general feedback from the enterprises that are currently using it? Are they wanting a lot more features? What's the -- what are they doing with it mostly?

Yes. So in terms of a tool platform, it's already more accurate and more powerful than any other tools out there. And then a lot of the companies instead of asking for more features, they want more accurate results. And then -- and one test they're doing is actually giving a really hard test that human scientists cannot solve. So if you use Molecular Universe as a scientific curiosity chatbot, then it already outperforms anything else out there. But then if it's -- so now the task is can it solve a problem that human scientists cannot solve, like a problem that's intrigued the human scientists and then -- for a long time and then the team has not been able to solve. So that's what we're trying to do next.

Great. And do you have any expectations when the next release might be coming and what some of those features might be? I mean, are you putting in costs? Sorry, I haven't gotten into the tool that much and manufacturability issues into the system yet.

Yes. So we expect the next version to be sometime in September, October time frame, and then that will include more accurate cell level data. So then the prediction will be even more accurate.

There are no more questions registered in queue. I'd like to pass the conference back over to our hosting team for closing remarks.

[Audio Gap]

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.

Welcome to today's fireside chat with SES AI, that's the ticker symbol as SES. I'm your host, John Roy. I cover technology companies here at Water Tower Research. And today, I'm joined by Dr. Qichao Hu of SES, who's the Chairman and Founder and CEO. I should mention that SES AI's safe harbor statements can be found on their website. Also, this fireside chat may not be reproduced or a written transcript distributed without the express written consent of Water Tower Research. Qichao, thanks so much for doing this. I really appreciate it.

Thank you, Joe.

So for those who are not familiar with SES AI, maybe a quick overview would be helpful.

Sure. So we started back in 2012 and -- to develop a very high energy density lithium metal battery. And then we were the first to enter automotive A-sample and B-sample using lithium metal, and we're on track to C-sample. And then also recently, we decided to bring this material discovery platform that we demonstrate success with lithium metal to other chemistries, including lithium-lithium ion, LFP and sodium to other chemistries and other applications. And then we also launched this platform called material -- called Molecular Universe. And then this platform just in the last 2 months that we launched it, it's been very popular.

Yes. So let's talk about Molecular Universe in a minute. But more broadly, you're going to a multi-strategy business model. So you're going to have batteries and you're going to have an innovative software AI-driven platform. Does that radically change the kind of trajectory of where you guys are headed?

Yes. So I know it's a bit -- it sounds complicated to explain, but actually, it all comes together and it's all connected. So if you think of SES as like a tree, at the trunk, the foundation is the material discovery platform, Molecular Universe, which we have used and it demonstrated success for high energy density lithium metal and silicon. And then in terms of the branches, we have 1 branch that is electrolyte.

We actually produce and sell the electrolyte that users find using Molecular Universe and also drones. We have commercialized lithium metal and high silicon lithium-ion batteries using the electrolytes discovered by Molecular Universe for drones applications. So we sell these batteries and also energy storage. We also sell the LFP and the sodium batteries using electrolytes discovered by Molecular Universe for energy storage market.

So while it sounds complicated, it really is 1 cohesive strategy. And then we do believe that by having this really strong software and hardware together, we're building a very strong moat. A very defensive strategy and portfolio. And actually, the revenue that we are getting and also expect to get from the materials, the drones, batteries, the energy storage batteries and the subscription to the Molecular Universe software actually might make us probably the first battery company in the U.S. to actually breakeven and much sooner than we expect.

So breakeven is also -- always a great thing to have. Now in the fourth quarter of '24, you saw some revenue that was booked from Molecular Universe. I think those from your OEM partners? Were these the first real deals for Molecular Universe?

Yes. So -- and then back then, we did use Molecular Universe to make progress in terms of discussing additives for silicon lithium-ion cells. That's different from the lithium metal B-samples that we were working on and also other electrolyte companies that were using this platform to come out with new formulations and materials.

Great. Now I know along the way, you're obviously gathering a bunch of data in the course of your development. How are you using this data for the different markets you're trying to target?

So we actually don't gather customer data. And the way we do it -- it's a great question. Most great AI companies have their own data. If you look at all the big AI companies, they definitely have their own data. But in the battery field, the AI companies in this field don't have their own battery data, and that's been a big disadvantage. So we actually generate our own data. We build cells. We build batteries, and then we systematically test, synthesize different materials, different molecules and then build batteries with different cathode, anode cell chemistry combinations, different electrolyte formulations, different charge and discharge environments, temperature.

And then every half year to a quarter, we will go through a massive round of these different cell designs and then collect the data from the testing and use it to train this model. So we actually systematically generate our own data. And that, to us, has been the cleanest and the best label, best quality data to train the model. In terms of customers, we don't take data from the customers. It's like data, the privacy and security.

So we have this Molecular Universe that's on the cloud, that's trained purely on our own data. And then we will have child Molecular Universe models that will be installed on-premise to each of the customers. And then that version of a model gets trained on the customers' own data, but then that version never gets sent back to the cloud or get shared with other customers.

Right. Okay. I get it. So you really want to have customers on their own data. Recently, you rolled out version, what was it 0.5 -- maybe you can give us a little color on just the regular adoption with MU and the adoption of 0.5?

Yes. So we rolled out the original version 0, Molecular Universe 0 back in April. And then since then, we've had several thousands of free users and then tens of large battery companies. Actually, most of the major battery companies are trial testing enterprise versions? And then they really liked it, and the feedback has been quite phenomenal. And people are impressed with the output, the accuracy, how relevant the answers are compared to just general models like OpenAI or Grok or some of the more battery specific models.

Then one feedback they had was, okay, Molecular Universe 0 was great at answering questions. Can it actually solve problems? So there's a difference between answering your question and actually solve a problem. And then so -- and then the key feature we rolled out in Molecular Universe 0.5, this new version is called Deep Space. And then in the original version, we have a feature called Ask, and then basically, you ask a question, and it can answer it. It's based on a very advanced large-language model that's fine tuned specifically for the battery domain.

This new Deep Space -- and then so when you ask the question instead of answering the question right away, it will ask questions about the question to get a much more comprehensive and complete picture of the context. For example, if you ask a question about I'm using A11 cathode and the silicon anode and I'm using a particular electrolyte formulation. I want you to recommend a new formulation that can improve low temperature fast charge like that. And then Deep Space will first ask you, okay, are you looking for a more academic answer or a more practical industrial answer? And then what about costs? Is cost a factor? How fast do you actually want your fast charge and how low is your temperature and basically ask more questions, and then you answer these questions, and then you will go away to think -- it will think for about 20 to 30 minutes.

It does take much longer than the previous version. But then it will provide solutions. It will provide several solutions that are very practical that can be implemented right away. So this is quite powerful. For example, in the traditional R&D process, a human scientist will basically still start with a question and then go through literature, trying to find state-of-the-art answers and then innovate on top of the answers by finding new materials to replace and then build cells and then test and develop it. That takes 6 years, sometimes even 8 years.

A lot of traditional R&D is basically spending resources on all the stuff that don't work. Like the definition of R&D is basically trying things that don't work. So if we can cut this and just go straight to a thing that works, that will save companies a lot of money. And in this Deep Space, it will provide you solutions in about 20 to 30 minutes that you would normally take 6 years or even more to get these answers.

And this is possible because of 3 things. One is we are using a multi-agent model compared to just 1 single LLM. And then this will also call our molecule database and it will call our cell performance data. So we have this multi-agent LLM that's connecting this material database with a cell level performance database. Actually, this linking of material properties with cell performance properties, this is something that battery companies have been trying to do. But so far, no battery company has been successful at doing. But I think Molecular Universe 0.5 is probably the closest at this, and we continue to improve and get closer to this goal.

All right. No, that sounds quite innovative. Now you said -- you mentioned enterprise customers were starting to get interested. Can you give us an idea of is 0.5 going to accelerate enterprise interest? Is that key to them going forward?

Yes. And I think this Deep Space. So I think Molecular Universe 0, it was all just -- it was mostly a very smart chatbot who will answer your question about any battery stuff. But with Deep Space it's starting to provide you with solutions. Things that you can take and go implement within 6 months in the line. So now this is becoming much more practical now. And we are getting more battery companies and also taking much more serious look at this and then actually getting ready to invest significant dollars at this effort.

Because actually, a lot of the battery companies to our surprise, have internal plans to reduce R&D costs because -- and also reduce R&D timing because most of these battery companies spend 5% of their revenue on R&D, and 80%, 90% of R&D is spent on doing things that don't work. So they definitely want to cut that part. And then that will save labor costs. That will save material costs. That would save CapEx. It will save a patent filing. It will save on -- and time, yes. Yes.

So -- and the more accurate and the more practical these solutions are, then these companies are starting to take a serious look at, okay, now this actually translates to dollars saved.

Right? Now you have multiple tiers in terms of your pricing model for Molecular Universe. Maybe you can give us a little bit of color on how that looks or an example of how that plays out.

Yes. So we have 5 tiers. We have Tier 1, which is an entry tier that is called research. It's free to anyone with a university e-mail. There are some restrictions in terms of size of database, number of the Deep Space searches, queries, you can make per month. And then there's Explorer and Team that's higher. You have access to more Deep Space queries per month and then Explorer at $150 per user per month, and then Team is like a discount team rate for Explorer?

So these 3 are the entry levels for individual users. And then enterprise and joint developments are more for companies. For now, enterprise, we found mostly battery companies and electrolyte companies. They want to use this tool and then how they use the tool and what they do with it. That's their business. If they discover new molecules, it's -- they patent that. Joint development is more for car companies, where they are less interested in using this as a tool. They are more interested in us using the tool ourselves and just provide them with a solution.

So that's more on the car companies. And we're seeing, I would say, the fastest growth in enterprise interest, battery companies, electrolyte companies and also cathode companies. We're actually quite surprised that cathode companies are interested in this because it was originally primarily for electrolyte, but a lot of cathode companies are very interested in this. But yes, we're seeing most of the interest -- growth coming from enterprise users, battery companies.

Yes. Interesting, interesting. So to kind of take a step back maybe, so how is Molecular Universe from your perspective, kind of change the business trajectory or growth outlook for SES?

Yes. So before we had Molecular Universe, people were confused about exactly what we do. And then we have all these segments, like batteries for drones, batteries for EV, batteries for energy storage. How are these connected? And then you are small company, how do you compete with the big guys, right? But now with Molecular Universe, it serves 2 things. One is it connects all these -- all this business. The batteries for drones, the batteries for EV, the batteries for ESS, all the electrolytes are developed using Molecular Universe. All the cell designs are developed using Molecular Universe, are validated through Molecular Universe, all the cell design platforms.

So Molecular Universe is the core that connects all these market segments. And also, we don't need to compete with the big battery players. We are supplying Molecular Universe to them. We use Molecular Universe and then come up with electrolyte designs. And then we sell the electrolytes to the big battery producers, they will counter manufacture the batteries for us, and then we sell the batteries to the drones, the EV and then the energy storage.

So with Molecular Universe, all these pieces come together. And we are seeing a much faster growth in our revenue and also a better margin. And that's why earlier I said, I really think with this portfolio of the various market segments and this core foundation of Molecular Universe, we can achieve breakeven sooner than we expect, much sooner than we expect.

Right. So is this also going to help with the predictability of your business model in terms of subscriptions and things?

Yes, yes.

So maybe you could just give us maybe 1 more step back and say, so what does the rest of 2025 look? And what is maybe some highlights that we might see in 2026?

So I think in terms of revenue, we are on track to the guidance we gave, and that's definitely quite surprising. And then we do want to have all these pieces, all these market segments finalized. And then we also plan to add additional manufacturing capacities and then additional marketing and sales channels to really grow these segments for drones, energy storage and then electrolytes for Molecular Universe. So I think we can expect more announcements in terms of how we actually add these capacities in these marketing and the sales channels to grow the revenue.

Great. Well, unfortunately, Qichao, I think we're going to have to leave it there. I really appreciate you joining us today for today's fireside chat. So everyone, to learn more about SES, you can go to their website or can go to research on the company on our website at www.watertowerresearch.com, I want to thank everyone for joining us today.

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Thank you.