Derek Soderbergh

Derek Soderbergh asked if Legence could quantify the impact of larger job sizes on its Q3 results and describe the trend in job size within the backlog, identifying which end markets are influencing this. He also sought clarification on the extent to which synergies were embedded in the full-year 2026 guidance, specifically distinguishing between cost and revenue synergies.

Answer

CFO Stephen Butts stated that while he couldn't quantify the exact impact of larger jobs, Legence is seeing an increasing proportion of revenue from them, though the average job size remains lower than some peers due to significant maintenance, service, and retrofit work. Growth in the data center and technology market, with its larger new facilities, drove some Q3 growth, and Legence is bullish on the future retrofit market for data centers. CEO Jeff Sprouw added that larger projects in healthcare, semiconductor, and life sciences also lead to recurring revenue work. Regarding synergies, Jeff Sprouw clarified that no cost synergies are expected in the short run (offset by incremental costs), and revenue synergies are typically not modeled into guidance due to the time required to materialize, despite historically generating significant uplift.

Derek Soderbergh asked if Legence could quantify the impact of larger job sizes on Q3 results, discuss trends in job size within the backlog, and identify influencing end markets. He also sought clarification on the extent to which synergies were embedded in the full year 2026 guidance.

Answer

Jeff Sprouw, CEO, stated he could not quantify the specific impact of larger jobs but noted an increasing proportion of revenue from them, driven by the data center and technology end market. He also expressed bullishness on the future retrofit market for data centers. Jeff Sprouw clarified that no cost synergies are expected in the short run (2026) as incremental costs offset them, and revenue synergies are typically not modeled in guidance due to the time required to bear fruit, despite historically generating significant uplift.

Derek Soderbergh inquired about the origin and structure of the Hyzen JV, the specific battery types its electrolyte enables, and the expected monetization strategy for Molecular Universe (MU) as a SaaS business versus material supply. He also sought an update on the number of companies trialing MU and the status of negotiations with medium to large-sized OEMs.

Answer

CEO Qichao Hu explained that the Hyzen JV arose from Molecular Universe enterprise users requesting commercial supply of new electrolyte formulations discovered via MU, particularly for improving low-temperature LFP ESS performance, high-voltage LCO cells, and 12% silicon lithium-ion EV cells. He clarified MU's monetization includes both SaaS subscriptions (individual, enterprise, on-premise tiers) and material supply, with material revenue projected to be significantly higher. He updated that nearly 40 enterprises have trialed MU, with a focus on on-premise deployment for larger clients.

Derek Soderbergh inquired about the origin and structure of the Hyzen joint venture, its connection to Molecular Universe, the types of batteries its electrolytes will enable, and the expected monetization strategy for Molecular Universe, including its growth as a SaaS business versus material supply. He also asked for an update on the number of companies trialing Molecular Universe and the status of negotiations with large OEMs for joint development.

Answer

CEO Qichao Hu explained that the Hyzen JV was formed at the request of Molecular Universe enterprise users who wanted SES AI to supply materials discovered through the platform. SES AI controls 90% of the JV, which contract manufactures new electrolyte formulations for LFP ESS batteries (improving low-temperature performance), high-voltage LCO cells for cell phones, and 12% silicon lithium-ion cells for EV applications (improving cycle life). Mr. Hu clarified that Molecular Universe monetization is a mix of SaaS platform subscriptions (individual, enterprise tiers, and on-premise 'MU in a box' solutions) and material supply, with material revenue expected to be significantly higher. He updated that nearly 40 enterprise companies are now trialing Molecular Universe, with many moving towards on-premise deployment for larger enterprises.

Derek Soderbergh of Cantor Fitzgerald inquired about the recent and forecasted impact of tariffs on financial results, the assumptions behind the raised revenue guidance, and the next significant growth drivers for the rotating electric and braking business segments.

Answer

CFO David Lee detailed that the net tariff impact decreased to $1.4 million from $4.6 million in the prior quarter and is expected to continue declining sequentially. While acknowledging tariff pass-throughs contributed to the raised sales guidance, he and CEO Selwyn Joffe emphasized that the majority of the increase was from record organic sales growth. Selwyn Joffe identified the professional installer market as a key growth area for the 'Quality Built' brand and noted that the brake-related business, particularly brake pads, is still in its early stages with substantial runway for expansion in North America and globally.

Derek Soderbergh from Cantor Fitzgerald inquired about the reduced impact of tariffs in the first quarter versus the prior quarter and the assumptions behind the increased full-year revenue guidance. He also asked about the next significant growth drivers for the rotating electric and braking business segments.

Answer

CFO David Lee detailed the decrease in net tariff costs from $4.6 million in the prior quarter to $1.4 million in Q1, expecting a continued sequential decline. While acknowledging tariff pass-throughs contribute to the raised guidance, he and CEO Selwyn Joffe emphasized that the majority of the record sales growth is organic. Selwyn Joffe identified major growth opportunities in the professional installer market with the 'quality built' brand, continued expansion in brake-related products, and the emerging brake pad business.

Derek Soderbergh of Cantor Fitzgerald inquired about the financial impact of tariffs in the current quarter compared to the last, and the underlying assumptions for tariffs in the updated full-year guidance. He also asked about the next significant growth opportunities for the company's rotating electric and braking business segments.

Answer

CFO David Lee explained that the net tariff impact decreased significantly to $1.4 million this quarter from $4.6 million previously, and is expected to decline sequentially going forward. While the raised sales guidance includes tariff pass-throughs, Lee stated the specific breakdown is confidential. CEO Selwyn Joffe added that the record sales were primarily driven by organic growth, not tariffs. Joffe also identified major growth opportunities within the professional installer market for the 'Quality Built' brand, continued expansion of the brake product lines, and potential future global expansion.

Derek Soderbergh of Colliers Securities asked for an assessment of the Sony PlayStation 5 licensing deal, specifically regarding satisfaction with the royalty rate and future pricing power with other gaming controller manufacturers. He also questioned if current operating expense levels could support the company's strategic initiatives.

Answer

Interim CEO Jared Smith expressed strong satisfaction with the Sony PS5 agreement's economics and long-term potential, adding that ASPs for other gaming peripherals vary but can be higher for premium devices. CFO Aaron Inkerman confirmed that the current operating expense structure is sustainable and provides ample room to fund key initiatives in a disciplined manner.