SES AI - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $3.527 million with 74% gross margin; net loss was $22.651 million (-$0.07 EPS). Revenue declined sequentially from Q1 ($5.793 million) but improved materially year over year from $0 in Q2 2024.
• Full-year 2025 revenue guidance of $15–$25 million was reaffirmed; quarter-end liquidity was $229 million with no debt, and cash used in operations fell to $10.8 million (-51% YoY, -53% QoQ).
• Strategic catalysts: launch of MU-0.5 (agentic “Deep Space”) to accelerate battery R&D; agreement to acquire UZ Energy to enter the $300B ESS market, with CFO highlighting UZ’s projected $10–$15 million 2025 revenue and an intent to scale substantially thereafter.
• Post-quarter, the company repurchased and canceled 871,754 shares for ~$1.1 million (~$1.27/share), signaling confidence and capital discipline; management reiterated focus on disciplined M&A and share repurchases.

What Went Well and What Went Wrong

What Went Well

• Gross margin of 74% on Q2 revenue, driven by high-margin services with automotive OEMs; MU enterprise traction surpassing 30 trial users, including new Japanese OEMs.
• Operational discipline: cash used in operations reduced to $10.8 million; strong liquidity of $229 million with no debt.
• Strategic expansion: MU-0.5 released with agentic capabilities (“Deep Space”) to compress R&D timelines from years to minutes; agreement to acquire UZ Energy to integrate ESS hardware with MU for data-driven improvements.
  • “We are excited to leverage UZ’s strong marketing team and hardware platform… to expand our market share in not only the global $300 billion ESS market but specifically in the United States” — Qichao Hu.

What Went Wrong

• Sequential revenue decline: Q2 revenue of $3.527 million vs. $5.793 million in Q1; sustained operating losses with Q2 net loss of $22.651 million despite improved cash burn.
• Continued elevated R&D and G&A spending, though both trended down QoQ (R&D $19.087 million; G&A $6.520 million).
• Consensus estimates (S&P Global) were unavailable, limiting beat/miss context for EPS/revenue; investor focus likely shifts to execution milestones (MU conversions to paid/JDAs, UZ integration and ESS pipeline) [GetEstimates – no data].

Transcript

Operator (participant)

Good afternoon. Thank you for attending today's I Second Quarter twenty twenty five Earnings Release and Call. My name is Jayla, and I'll be your moderator for today. All lines will be muted in the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the conference over to our host, Kyle Pinkham. Please proceed.

Kyle Pilkington (Chief Legal Officer)

Hello, everyone, and welcome to our conference call covering our second quarter twenty twenty five results. Joining me today are Qi Chiaohu, Founder and Chief Executive Officer and Jim Neelis, Chief Financial Officer. We issued our shareholder letter just after four p. M. This afternoon to provide the 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 scs.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 Qi Qian.

Qichao Hu (Founder, Chairman & CEO)

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 Our AI a year ago, we have been progressing through four stages. The first is chatbot. We achieved this milestone with the original launch of Molecular Universe Zero. 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. These states 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 Uzi 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 five 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're 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.

And last but certainly not least, ESS. We'll 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 UC 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 Uzi Energy that accelerate and extend this strategy.

The reason that so many people are excited about our molecular universe platform and want to join us is that they see SCS 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 FCS 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 Jeanne Ellis for financial updates.

Jing Nealis (CFO)

Thank you. I will discuss our financial performance for the 2025 and provide some context on how we're deploying our capital to support ICS' long term growth and the platform strategy Qichao mentioned earlier. Revenue for the second quarter was 3,500,000.0 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 preannouncement, we affirmed our full year 2025 revenue guidance of 15,000,000 to 25,000,000.

We utilized 10,800,000.0 in cash for operations in the second quarter, which was a 51% decrease from q two twenty twenty four and a 53% decrease from q one twenty twenty five. 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 229,000,000 with no debt. We also announced a agreement to acquire UC 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 error.

We have a tremendous opportunity to grow the UC Energy business from approximately $10,000,000 to $15,000,000 in projected revenue for the full year 2025 to exponentially larger growth in the coming year together with the market share gains in the 300,000,000,000 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 $1,100,000 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 SDS AI. Thank you. Now I will turn the call back to the operator.

Operator (participant)

We will now begin our question and answer session. At this time, if you would like to ask a question, it is star followed by one Our Our first question comes from Winnie Dong with the company Deutsche Bank. Winnie, your line is now open.

Winnie Dong (Director, Equity Research)

I was wondering if you can tell us a bit more about UV Energy, the the genesis of that 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 and A opportunities. I was wondering if you can elaborate a bit on more on that. You know, what kind of other companies are looking for? What does the pipeline look like right now? Thank you.

Qichao Hu (Founder, Chairman & CEO)

Yeah. We on U Z, they were actually one of the earliest companies in ESS. Ten years ago, they used to take LFP cells for EV applications and then supply them for ESS applications. And so the rationale for Uzi 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 sales and then it and then integrate them into these ESS containers.

And then ESS actually is now the number one used for molecular universe, the LP and the sodium chemistries. So now that by integrating with Uzi, now we have material development for LP's sodium from molecular universe, and then 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 from Uzi, and then and then now the actual data. And then we can also, add our avatar, like, universe on top of that to really ensure safety. So that integration, really makes sense to us.

Winnie Dong (Director, Equity Research)

Thank you. And then just on the on the second question on other opportunities other m and a opportunities?

Qichao Hu (Founder, Chairman & CEO)

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

Winnie Dong (Director, Equity Research)

Great. Thank you.

Operator (participant)

Our next question comes from Derek Soderbergh with the company Cantor Fitzgerald. Derek, your line is now open.

Derek Soderberg (Director - Senior Equity Research Analyst)

Keith, Jing, good to see you guys and hear from you. Just I wanted to get an update on the UAM and drone opportunity. It feels like that opportunity is sort of the nearest, you know, 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 sort of the plan still to ramp, you know, the UAM or drone opportunities sort of next year? Is that still the the timeline? And then I've got a follow-up.

Qichao Hu (Founder, Chairman & CEO)

Yeah. And, actually, our revenue from drones and, UAM, has increased this year. And then a lot of the customers, especially in The US, wanna move away from their current supply chain. And then we are in the process of updating and also certifying our career line so that it will be compliant to that request. But, yeah, that revenue is increasing.

Derek Soderberg (Director - Senior Equity Research Analyst)

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

Qichao Hu (Founder, Chairman & CEO)

We said so in terms of capacity, we're now working so our current career line and also country manufacturing partners, we can get to pretty high capacity. And then that capacity is much higher than the the current orders we have.

Derek Soderberg (Director - Senior Equity Research Analyst)

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 and D process? What do you think it's going to take to get one of those companies to to join development here? Thanks.

Qichao Hu (Founder, Chairman & CEO)

Yeah. This is a really interesting area, and then it's it's so new because the use of AI, it it's 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 then see if it can solve problems that the smartest human scientists cannot. And then once we can demonstrate that, then I think that's game over, and then it will be the start of a wide adoption of like universe.

It needs to solve a problem that's harder and it cannot be solved by the best human scientist.

Derek Soderberg (Director - Senior Equity Research Analyst)

Perfect. Really appreciate it. Thanks.

Operator (participant)

Our next question comes from John Roy with the company Water Tower Research. John, your line is now open.

John Roy (Managing Director)

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?

Qichao Hu (Founder, Chairman & CEO)

Yeah. So in terms of a tool platform is already more accurate and more powerful than any other tools out there. And then a lot of the the companies, instead of asking for more features, they want more accurate results. And then and the and the one test they're doing is actually given a really hard task that human scientists cannot solve. So if you use my universe as a scientific curiosity chatbot, then it already outperforms anything else out there.

But then if it's so now the the task is, can it solve a problem that, human scientists cannot solve? Like, a a problem that 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.

John Roy (Managing Director)

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?

Qichao Hu (Founder, Chairman & CEO)

Yes.

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

John Roy (Managing Director)

Great. Thanks so much.

Qichao Hu (Founder, Chairman & CEO)

Thank you.

Operator (participant)

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