SES AI Q3 2026 Earnings Call Transcript

SES AI (NYSE:SES) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/310176029

Summary

SES AI reported third-quarter 2026 revenue of $6.6 million, a 31% increase from the previous quarter, with energy storage contributing 47% of revenue.

The company narrowed its GAAP net loss by approximately 25% from the previous quarter to $13.4 million, and its non-GAAP net loss to $10.7 million.

SES AI completed ramping up its Chungju facility to produce 1 million NDAA-compliant drone cells annually, with plans to expand capacity to 3 million cells by mid-2027.

The company’s ‘Flywheel’ strategy focuses on three components: Charge (energy storage), Fly (drone cells), and Discover (Molecular Universe), with a significant emphasis on the drone business as a growth priority.

Molecular Universe 4.0 has been launched and is under evaluation by major battery manufacturers; it is expected to drive future revenue through software and materials sales.

SES AI maintained its full-year 2026 revenue guidance of $30 to $35 million, implying significant revenue growth in the fourth quarter from drone orders and ESS seasonality.

The company holds $137 million in liquidity with no debt and has initiated a reverse stock split to maintain its NYSE listing and attract institutional investors.

Full Transcript

OPERATOR

We will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Kyle Pilkington, Chief Legal Officer. Kyle, please go ahead.

Kyle Pilkington (Chief Legal Officer)

Hello everyone and welcome to our conference call covering our third quarter 2026 results. Joining me today are Qi Chao Hu, Founder and Chief Executive Officer, and Ray Liu, Chief Financial Officer. We issued our shareholder letter earlier today, which provides a business update, our financial results, and the operating milestones we will report against going forward. You will 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 today’s discussion contains forward-looking statements within the meaning of applicable securities legislation. These statements are based on our expectations as of today and involve risks, assumptions, and uncertainties that may cause our actual results and performance to differ materially from those expressed or implied in these statements. These risks include, but are not limited to, those described in our latest earnings release and in our filings with the SEC, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements made on this call.

On this call we will discuss 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 the most directly comparable GAAP measures can be found in our latest earnings release. With that, I’ll pass it over to Qi Chao.

Qi Chao Hu (Founder and Chief Executive Officer)

Thanks, Kyle. Last quarter we made three commitments and I want to start by walking through where each one stands. First, we said Chungju would reach an annual scale of 1 million NDAA-compliant cells for drone applications, and today I’m pleased to announce that we’ve completed the ramp up in the third quarter and this line is now producing and delivering cells to our customers. Second, we said our net loss would narrow in the second half, and today we reported quarterly earnings results including a roughly 25% narrowing in our net loss.

And third, we said Molecular Universe 4.0 was coming, and today Molecular Universe 4.0, our M Lab system, is now in evaluation with leading battery manufacturers. That progress reflects a sharper focus in how we allocate capital, organize the company, and measure our execution. SES makes high-performance lithium batteries for drones and unmanned systems, and we make them in our own NDAA-compliant factory in Korea. And today, the largest share of our revenue comes from energy storage, where our battery intelligence software sets us apart with the rest of materials and Molecular Universe, our battery materials discovery platform. We’re excited today to walk through our Flywheel concept, which is a new way to describe our business, but is entirely consistent with the strategy we have been executing since earlier this year.

These businesses work as one engine, which we think of as the SES Flywheel comprised of three components: Charge, Fly, and Discover. Charge, our energy storage business, is our revenue base today. Fly, our drone cells, scales next. And Discover, our Molecular Universe business, compounds over time. The engine runs from discovery to deployment. Molecular Universe discovers better materials. Better materials make better cells, and better cells win drones and energy storage customers.

What we learn from those customers feeds back into Molecular Universe. So each turn is faster than the last. Today, that engine is accelerating fastest in drones and that acceleration is what will allow us to scale profitably over time. Each part has a job: Charge is where our battery intelligence sets us apart. Fly is where we are directing our incremental capital, and Discover is the advantage that makes the other two better. We will start with Fly because it’s our priority and then cover Charge and Discover.

Three things follow from the flywheel. First, drones and unmanned systems are our central growth priority and that’s where our incremental capital is going. Second, energy storage is our revenue base today and we lead with battery intelligence. Third, Molecular Universe has matured into a platform that powers our own cells and software, and is expected to generate revenue on software. Now let me go deeper on Fly, our drone business, because that’s the center of our future growth opportunity. Drone makers choose batteries based on range, speed, payload, power density, and where those batteries are made. SES has more than 14 years of experience in high-energy and high-power density cells, including lithium metal, no-free, and high-silicon lithium-ion. Our Molecular Universe lets us develop and tailor those cells quickly, whether a customer needs low-temperature performance, high-temperature performance, fast charging, or a specific chemistry.

We manufacture these cells in our own factory in Chungju, Korea. Since 2021, we have invested over $100 million in the factory and retooled its modern production equipment specifically for drone cells. Unlike most of our competitors who rely on contract manufacturers, we own our capacity, supply chain, and design, giving us control over quality, cost, and delivery. In the third quarter, we completed the ramp up of our Chungju production line to an installed capacity of 1 million NDAA-compliant cells per year, and the line has been running since early October. The plant earned ISO 9001 certification for NDAA-compliant drone cells. We believe this installed capacity of 1 million NDAA-compliant drone cells per year is the largest anywhere in the world. Today we’ve hosted dozens of customers and government official visits, including half a dozen customer quality audits, and many of those customers are recent award recipients of the U.S. Government’s drone dominance program.

The market is moving in our favor. U.S. and allied defense customers are moving their battery supply chains away from China, and more customers now require NDAA-compliant supply or, at a minimum, supply from outside China. Our Korea factory delivers allied-nation manufacturing and our supply chain is built to serve both requirements. We now have more than 50 drone makers and pack integrators in our pipeline that are seeking NDAA cells, and about half a dozen have audited our line so far.

Our drone revenue has come mostly from sample sales. Since our Chungju line started producing at scale in October, we expect to see a more meaningful revenue impact from the drone business starting in Q4 as sample orders convert to mass production purchase orders. The ongoing dialogues we’re having with customers point to potential demand exceeding 3 million NDAA-compliant cells per year, which is why we’re beginning a staged expansion in Korea. A new higher-speed line is designed to take our capacity from 1 million to 3 million cells per year.

The increased capacity will mainly come from relieving bottleneck steps in the process, and we expect the incremental capital expenditure to be around $5 million. We expect the line to reach that increased capacity by the end of the second quarter of 2027. Next, turning to Charge, our energy storage business, ESS remains our largest source of revenue today, contributing about half of our revenue in the third quarter. What sets us apart in energy storage is battery intelligence. Our BMS, EdgeBox, and SOX software are built on our deep knowledge of cell chemistry, and they help operators use capacity more efficiently, extend useful life, and operate more safely. So why are customers choosing our systems?

Industry estimates for battery state of charge and state of health are often off by 7% to 10%, leading customers to buy extra capacity to compensate for that error. Our EdgeBox brings that error to about 3% or less, so customers can buy less capacity for the same project. EdgeBox runs on the customer’s own site so their operating data stays private, and it’s trained on the specific cells inside each system, which supports safer operation. That intelligence also helps our economics.

Since EdgeBox can monitor and balance cells from different suppliers, we can buy from multiple vendors and production lines instead of depending on a single source, which increases our pricing negotiation leverage when buying cells while reducing our costs. Overall, we’re very pleased with the continued progress we’re seeing across ESS, and we’re confident that we’ll continue seeing strong demand. Lastly, Discover. We built Molecular Universe to discover battery materials faster, and it has delivered. It sits behind the performance of our drone cells and behind the algorithms in our ESS software. SES is the single best customer success story for Molecular Universe. The models are now mature enough to sell directly to battery manufacturers. Molecular Universe 4.0 is a closed-loop system called M Lab that integrates dry data predicted or simulated from advanced models and wet experimental data collected from autonomous labs.

It runs fully on-premise and air-gapped at customer sites, and continuously fine tunes all the customers’ autonomously generated data. We officially launched Molecular Universe 4.0 at a recent ABA conference, and several of the world’s largest battery manufacturers are actively evaluating M Lab solutions today. Additionally, we know that security is the major reason customers choose us. Battery makers will not let proprietary data leave their premises or be used to train outside models, and Molecular Universe runs fully on-premise and air-gapped, providing customers with the flexibility and adaptiveness needed to support a wide range of security requirements. As I mentioned earlier, Molecular Universe is the Discover part of our flywheel and it’s what makes each turn faster than the last. It enables faster development of our own cells and software, drives subscription and materials revenue from customers, and delivers key intellectual property we build along the way.

Over the next three to five years, we believe Molecular Universe will power the majority of our product development. In closing, we have leading technology, our own production facility, and at the end of Q3 we have approximately $137 million in liquidity with no debt. What we need to demonstrate now is execution, qualification, orders, shipments, and repeat customers. That’s what our team is focused on, and I want to thank them for their hard work this quarter. I will now hand it over to Ray for the financial update.

Ray Liu (Chief Financial Officer)

Thank you, Chee Chou. I’ll walk through our third quarter 2026 financial results. Third quarter revenue was $6.6 million, up 31% from $5.1 million in the second quarter. Energy storage represented approximately 47% of revenue, with the balance from materials and, to a lesser extent, drone cell samples. Our GAAP gross margin was 4.9% in the quarter compared to 22.6% in the second quarter, primarily due to lower-margin sales of older ESS hardware inventory due to line and product upgrades.

Currently, our ESS team is upgrading from the older 5 kilowatt-hour product to a 16 kilowatt-hour product, which is highly anticipated in the market for 2027. Turning to operating expenses, our GAAP operating expenses for the third quarter were $18.7 million compared to $20.3 million in the second quarter, a decrease of approximately 8%. Our GAAP net loss for the third quarter was $13.4 million, or $0.04 per share, compared to a GAAP net loss of $17.9 million, or $0.05 per share, in the second quarter. The third quarter included non-cash gains of $1.8 million from the change in fair value of our sponsored earnout liabilities and $2.2 million from the change in fair value of deferred consideration related to the UZ Energy acquisition.

Excluding changes in sponsor earnout liabilities, stock-based compensation, and depreciation and amortization, and including interest income, our non-GAAP net loss for the third quarter was $10.7 million, or $0.03 per share, compared to a non-GAAP net loss of $13.1 million, or $0.04 per share, in the second quarter. Adjusted EBITDA for the third quarter was a loss of $12 million compared to a loss of $14.6 million in the second quarter. Turning to balance sheet and capital allocation, we ended the third quarter with cash, cash equivalents, and short-term investments of approximately $137 million and no debt, compared to approximately $163 million at the end of the second quarter. That change includes $9.2 million we used in September to repurchase 16.2 million shares at an average price of $0.57 per share. We saw that as an optimistic use of capital that reflects our confidence in the long-term value of SES AI.

We have approximately $19.1 million remaining under our repurchase authorization. Excluding the buyback, our net cash used in the quarter was approximately $16.5 million. Our capital priority follows the flywheel Qiqiao described: fund drone manufacturing readiness and customer qualification first, keep energy storage capital efficient, and keep Molecular Universe spending focused on supporting our products and its own commercial growth. In October we filed a proxy statement seeking stockholder approval for a reverse stock split, which is designed to broaden our eligibility for institutional ownership and support our continued NYSE listing. We believe this supports the long-term success of the business in three ways. First, maintaining our NYSE listing supports our standing with customers, partners, and employees. Second, it opens our business up to a broader base of long-term institutional holders who can bring more stable ownership and liquidity.

And third, it lets more investors evaluate SES AI on what matters: qualifications, orders, shipments, and repeat customers. This action simply removes a barrier for our business, but the value we create over the long term will come from our own execution. Turning to our outlook, we’re reiterating our full-year 2026 revenue outlook of $30 to $35 million. Revenue through the third quarter was $18.4 million, so the outlook implies fourth quarter revenue of approximately $11.6 to $16.6 million. With that, I’ll turn it back to Qi Zhao.

Qi Chao Hu (Founder and Chief Executive Officer)

Thanks, Ray. Let me leave you with three takeaways. So first, we did what we said we would do. Chengju reached an installed capacity of 1 million NDA-compliant cells a year. The line is now producing and delivering cells to customers, and our net loss narrowed from the second quarter. Second, drone remains a strategic focal point for our business and growth opportunity. We have cell technology built on more than of experience, our own production facility in Korea, and more than 50 customers in our pipeline moving toward qualification and production. Additionally, I’m personally and directly overseeing operations at our Chengju plant.

Third, we are reiterating our 2026 outlook and we have given you clear milestones to measure us against each quarter: qualifications, orders, shipments, and repeat customers. Reassured by the positive momentum our business is exhibiting, the flywheel that I described is working. Charge is our revenue base today, Fly is moving into qualification, and Discover is the engine that propels the Charge and Fly to accelerate even faster. And I look forward to continuing our focused execution on the key strategic priorities that will deliver growth and scale across our business in the coming quarters.

With that, operators, please open the line for questions.

OPERATOR

We will now begin the question and answer session. To ask a question, please press star one. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from Dave Storms with Stonegate. Please go ahead.

Dave Storms (Analyst)

Morning, and thank you for taking my questions. Wanted to start maybe with the guidance, obviously implying a pretty strong sequential step up. Just curious as to what’s baked into that. Should we expect some pretty significant drone deliveries or purchase orders in the quarter since the line has been up since October? And then additionally, maybe any color on the margin profile, given the recent lumpiness, that you might expect in the fourth quarter.

Qi Chao Hu (Founder and Chief Executive Officer)

So I can address the first part and then Ray can do the margin. So typically for the fourth quarter, if you look at ESS, yes, we do have seasonality, and Q4 typically has the highest revenue, much higher than the other quarters. We saw that last year too. So that’s for ESS. And then with drones, yes, absolutely. And I mentioned this in the shareholder letter, we can’t disclose names, but recently we have received orders from several of the participants and winners of the Drone Dominance Program Gauntlet Challenge. Those started coming in October, November, and those will definitely contribute to revenue on the drone side. So Q4, we are quite confident that we can meet the guidance because of the seasonality in ESS and also this flooding of POs coming in starting in October for drones.

Ray Liu (Chief Financial Officer)

Yes. So, Dave, on the margin side, as Chichao mentioned, ESS is primarily seasonal and in Q4 we see a stronger pipeline and stronger demand. But in the meantime, we’re trying to use this opportunity to sell out some of our older inventory. As we mentioned for Q3, we are shifting the line from a 5 kilowatt-hour product to a 16 kilowatt-hour. So we still have some of the older inventory left. We want to sell those. So I think we see margins coming down because we want to put this on market and generate the sales and have a fresh start for next year in terms of the ESS business.

So, yeah, we’re selling it at a slightly lower margin, lower price, just to clear out those inventories.

Dave Storms (Analyst)

Understood. Appreciate all that commentary. And then maybe for my follow-up, I did want to ask one around Molecular Universe. Very exciting to see starting to roll that out further, I guess. Are there any early milestones that we should keep an eye out for? How are those conversations progressing with customers? And really what should we be looking out for in the next couple quarters as that starts to gain more traction?

Qi Chao Hu (Founder and Chief Executive Officer)

Can you say the first part of your question again? This is about which part?

Dave Storms (Analyst)

With regards to Molecular Universe, you know, MU 4.0.

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah, so MU 4.0 came out, and this is different from the previous versions. The previous versions were all just web updates, the cloud version. MU 4.0 is M Lab. So it has the cloud version, but it’s integrated with autonomous labs. And we are in active testing with two of the largest battery makers in the world. In the coming quarters, we’re hoping to start selling the entire systems, M Labs. These cover electrolyte optimization, electrodes, new molecule synthesis.

The M Labs cover most of the development work that a battery company will need for new battery development. So we’re hoping to actually start selling these M Lab systems in the coming quarters.

Dave Storms (Analyst)

Understood. Thank you for taking my questions and good luck on the next quarter.

Qi Chao Hu (Founder and Chief Executive Officer)

Thank you.

OPERATOR

Your next question comes from Derek Soderbergh with Cantor Fitzgerald. Please go ahead.

Derek Soderbergh (Analyst)

Yeah, hey guys, thanks for taking the questions. Wanted to start with the purchase orders from the Gauntlet participants. How many customers was that? Was that two or three? And then what was kind of the expected cell volume with those purchase orders? And maybe if you can talk about the delivery window as well, that’d be helpful.

Qi Chao Hu (Founder and Chief Executive Officer)

So in terms of just the NDA pipeline for our Korea, we’re talking about more than 50, and then out of that, about a dozen. So if you look at the Drone Dominance Program Gauntlet Challenge participants, there’s about a dozen, and about half dozen of those we are actively shipping cells to. And these are not just samples, like 50, 100 samples. We’re talking about in the quantity of several thousand and into tens of thousands. We got the orders this quarter, trying to build and deliver them this quarter, and then move on to Q1.

So we go from thousands this quarter to tens of thousands starting Q1. It’s very fast.

Derek Soderbergh (Analyst)

Got it. That’s

Qi Chao Hu (Founder and Chief Executive Officer)

The line in Chengju is actually quite fast, but basically for most of the orders, we receive them and then we deliver in the same quarter.

Derek Soderbergh (Analyst)

Got it. That’s helpful. And just on that point with that production line, can you talk about unit cost at all? You know, sort of per cell. Is it sort of where it needs to be? Are there any improvements that you guys are making to the cost piece? Any sort of information on that sort of per cell cost would be helpful, thanks.

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah, I think in the next few quarters we can probably share more. This is the first quarter that this line is up and running. So obviously there is a lot of room that we have to optimize the cost, and the biggest piece in terms of optimizing the cost is basically improving the yield and the quality and the throughput. So all those will be improving.

Derek Soderbergh (Analyst)

Got it. And can you share what yield is roughly today on that line?

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah, so we’re going to share those things starting Q1 next year.

Derek Soderbergh (Analyst)

Got it. Looking forward to that. Thanks, guys.

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah. Okay,

OPERATOR

Your next question comes from Mark Shuter with William Blair. Please go ahead.

Mark Shuter (Analyst)

Hey, Chicho, just to build on Derek’s question before me, for 2027, how do you look at the capacity that you have in your facility now to deliver against, you know, that 3 million cells per year pipeline?

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah. So we already have 1 million cells, and then we’re adding the second 2 million. So by Q2 next year we’ll have 3 million. And then the entire year 2027, we think we can deliver at least 1 to probably 1.5 million qualified cells to customers. So that’s the target output for qualified cells, 1 to 1.5 million, NDA-compliant at least.

Mark Shuter (Analyst)

Okay, great, thanks. Shifting over to energy storage systems, what volumes are you producing in that business today? And similar, what do you think you can deliver in 27? And for your customers—or for you as well—do you receive any of the tax credits, either the manufacturing tax credits or, your customers, can they receive the investment tax credits?

Qi Chao Hu (Founder and Chief Executive Officer)

Yeah. So previously the main flagship product that we have was the 5 kilowatt-hour. And now we’ve come up with this 16 kilowatt-hour product. It’s actually more popular, and it’s been certified with Sol-Ark. We also announced partnerships with ATG and Sol-Ark, and they’re more excited about the 16 kilowatt-hour than the 5 kilowatt-hour. So we’re kind of killing our old product with this newer-generation product. Both ATG and Sol-Ark are quite excited about the 16 kilowatt-hour for 2027.

We’ll be able to give out more concrete guidance on just that—how much revenue we expect for ESS next year. In terms of tax credit, for now, the answer is no. But we are evolving part of the manufacturing to the U.S., so we’re discussing with U.S. distributors and want to see if we or our customers can start to capture some of the tax rebate next year.

OPERATOR

There appear to be no further questions at this time. This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.