SES AI CORPORATION The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three months endedMarch 31, 2022 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the years endedDecember 31, 2021 and 2020 and the related notes contained in Exhibit 99.1 of Amendment No. 1 to the Current Report on Form 8-K filed with theSEC onMarch 31, 2022 (the "Super 8-K Amendment"). This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements within the meaning of the federal securities law are based on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in the Company's Annual Report on Form 10-K filed with theSEC onMarch 31, 2022 (the "2021 Annual Report"). Unless the context otherwise requires, references in this section to "the Company", "we", "us" and "our" refer to the business and operations ofSES Holdings Pte. Ltd. ("Old SES") and its consolidated subsidiaries prior to the Business Combination and toSES AI Corporation and its consolidated subsidiaries following the Closing. References in this section to our future plans that indicate the timing of when we expect such plans to be completed by a certain year mean at any point during that year.
Overview
SES is engaged in the development and production of high-performance,
Lithium-Metal ("Li-Metal") rechargeable battery technology for EVs and other
applications. Since our founding in 2012, we have been committed to developing
the world's most advanced EV batteries. Our Li-Metal batteries have been
designed to combine the high energy density of Li-Metal with cost-effective,
large-scale manufacturability of conventional Lithium ion batteries.
We are a pre-commercialization stage company with no revenue to date. During the
three months ended March 31, 2022 , the Company spent $12.6 million on research
and development activities, of which $8.6 million was reimbursed by original
equipment manufacturers of automotives ("OEM Partners ").
We have incurred the following net losses for the periods noted:
?
months ended
? We have an accumulated deficit of approximately
inception through
Business Combination
OnFebruary 3, 2022 (the "Closing Date"),Ivanhoe Capital Acquisition Corp. ("Ivanhoe"), aCayman Islands exempted company, andWormhole Amalgamation Sub Pte. Ltd. , aSingapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe ("Amalgamation Sub"), consummated the previously announced business combination (the "Business Combination") pursuant to which, among other things, Amalgamation Sub merged with and into Old SES, with Old SES surviving the Business Combination as a wholly-owned subsidiary of Ivanhoe. In connection with the closing of the Business Combination (the "Closing"), Ivanhoe migrated out of theCayman Islands and domesticated as aDelaware corporation prior to the Closing (the "Domestication") and changed its name to "SES AI Corporation ." 29
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In connection with the Business Combination, the Company raised$326.1 million in gross proceeds, including$274.5 million private investment in public equity (the "PIPE Financing") at$10.00 per share of the Company's Class A common stock, par value$0.0001 per share ("Class A Common Stock"), prior to the payment of transaction costs and other amounts, and a contribution of$51.6 million of cash held in Ivanhoe's trust account net of redemption of Ivanhoe Class A common stock held by Ivanhoe's public stockholders.
Upon Closing, the following occurred:
Each share of Old SES common stock, excluding shares held by the Company's
Chief Executive Officer and certain entities affiliated with him (the "SES
? outstanding immediately prior to the Closing was cancelled and converted into a
number of fully paid and nonassessable shares of Class A Common Stock at an
exchange ratio of 5.9328 ("Exchange Ratio"), rounded down to the nearest whole
number;
Each share of Old SES common stock held by the
outstanding immediately prior to the Closing was cancelled and converted into a
? number of fully paid and nonassessable shares of the Company's Class B common
stock, par value
Ratio, rounded down to the nearest whole number;
Each Old SES restricted share that was issued, outstanding and subject to
restrictions (including vesting) immediately prior to the Closing was assumed
? by the Company and converted into a number of shares of restricted Class A
Common Stock at the Exchange Ratio, rounded down to the nearest whole number,
which remain subject to the same terms and conditions as were applicable prior
to the Closing; and
Each Old SES option that was outstanding immediately prior to the Closing,
whether vested or unvested, was assumed by the Company and converted into an
? option to acquire Class A Common Stock with the same terms as were applicable
prior to the Closing, except for the number of shares exercisable and the
exercise price, each of which was adjusted using the Exchange Ratio, rounded
down to the nearest whole number.
Additionally, (i) in connection with the Domestication onFebruary 2, 2022 , 6,900,000 shares of Ivanhoe's Class B ordinary shares held by the Sponsor converted, on a one-for-one basis, into shares of Class B Common Stock and at Closing converted into an equal number of Class A Common Stock and (ii) at Closing, holders of Old SES common stock, redeemable convertible preferred stock, options and restricted shares received 29,999,947 earn-out shares of the Company's common stock. Prior to the Business Combination, Ivanhoe had issued 9,200,000 public warrants ("Public Warrants") and 5,013,333 private placement warrants ("Private Warrants" and collectively "Warrants") which were assumed by the Company at Closing. Each whole Warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of$11.50 per share. Pursuant to the Warrant agreement, a Warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means only a whole Warrant may be exercised at a given time by a warrant holder. The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Ivanhoe was treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Old SES with the Business Combination treated as the equivalent of Old SES issuing stock for the net assets of Ivanhoe, accompanied by a recapitalization. The net assets of Ivanhoe are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Old SES.
Key Trends, Opportunities and Uncertainties
As a pre-commercialization stage company, we believe that our performance and
future success depend on several factors that present significant opportunities
for us but also pose significant risks and challenges, including those
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discussed below, and the Risk Factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A. of the 2021 Annual Report.
Partnering with Industry-Leading OEMs
We have maintained a strong partnership with General Motors ("GM") since 2015,
when GM led our Series B financing, and since then, GM has invested
approximately $70.0 million in our Company, including its investment in the PIPE
Financing. GM is one of the world's largest car companies, and has voiced its
desire to be a leader in EVs. GM has announced plans to launch more than 30 new
EV models by 2025 and only sell zero-emission vehicles by 2035. Our
collaboration initially involved close technical and research and development
collaboration on SES's battery technology. In February 2021 , we entered into a
joint development agreement ("JDA") with GM , valued at over $50.0 million , under
which we will work with GM to develop an A-Sample battery cell with a capacity
of almost 100 Ah.
We have also fostered a partnership with Hyundai, another global automobile
leader. In December 2020 , we entered into a pre-A Sample JDA with Hyundai. In
May 2021 , Hyundai made an investment of $50.0 million in our Series D plus
funding round and signed an A-Sample JDA, under which we and Hyundai are
collaborating to develop an A-Sample battery cell. We believe the Hyundai JDAs
align our interests with those of Hyundai and will facilitate further
collaboration in designing and developing our technology and products. Hyundai
has also purchased $50.0 million of our Class A Common Stock in the PIPE
Financing.
In December 2021 , Honda became the third global automobile leader to enter into
an A-Sample JDA with us. Honda purchased $75 million of our Class A Common Stock
in the PIPE Financing as the single largest PIPE Financing investor.
The JDAs with GM , Hyundai and Honda do not represent commitments by these
manufacturers to purchase our Li-Metal battery cells and are focused only on
development. Although the JDAs have set timeframes for the attainment of certain
development milestones, these timeframes are objectives only and may be subject
to ongoing elaboration and change by the parties. The JDAs also do not prohibit
GM , Hyundai, Honda or SES from entering into new agreements with other
automobile companies.
We believe that our products will experience swift market adoption due to our
current strategic partnerships with global leading OEMs GM, Hyundai and Honda.
We plan to collaborate with other OEMs to expedite such adoption and increase
market acceptance of our Li-Metal battery over time. We expect to form strategic
joint ventures with one or more battery makers or OEMs to support the build-out
of our Expansion I Facility (as defined below).
Product and
Our product development activities concentrate on making further improvements to our battery technology, including improvements to battery performance and cost. Major development efforts include, but are not limited to:
Scale-up: Our design is further being customized with and validated by several
OEMs. Based on our collaborations with OEMs, we believe that a roughly 100 Ah
? cell-size manufactured at GWh scale (five to seven cells-per-minute) is needed
to achieve commercialization in EVs at a large, global scale. We are developing
processes and equipment to scale up the manufacturing of current cell design
from three to nine Ah capacity to approximately 100 Ah.
Module and pack design: Li-Metal cells must be integrated into modules and
? packs as part of their integration into vehicles. We have active development in
integration of our Li-Metal cells in modules to ensure that our Li-Metal cells
perform as intended once they are integrated into modules and vehicles.
Advanced AI software and battery management systems ("BMS"): Software iscritical to ongoing monitoring of battery health and safety. We continue to
? develop advanced AI algorithms to diagnose battery cell-related health issues,
develop advanced control algorithms and charging methods to enhance cycle life
and safety, and port such software on to a BMS that could be integrated into a
battery pack.
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Advanced materials and coatings: We continue to research and develop advanced
? electrolyte and anodes to further improve cycle life and safety. In addition,
we also continue to develop novel methods of laminating or depositing lithium
metal anode that can be deployed at commercial GWh scale.
Cathode materials and design: We develop our Li-Metal cells for a variety of
? different cathode materials, cathode design and cathode processing methods that
can provide ultra-high energy density and/or significant cost-reduction.
Lithium metal recycling: Along with other battery components that are already
? being recycled today, Li-Metal foil will also need to be recycled in the
future. We continue to explore methods of recycling that are productive and
cost-effective.
With 61 granted patents, 57 pending patent applications as ofMarch 31, 2022 and ten years of research and development experience, we have a history of technological innovation. We have a strong research and development team, including employees with expertise in all aspects of the development process, including materials science, chemistry, engineering and software. We intend to make significant investments in research and development and the recruitment of top technical and engineering talent to improve our battery technology. As we grow our team and the size of our proposed 1 GWh pilot facility inChina that is expected to be completed by 2023 and operational by 2024 (the "Pilot Facility"), our materials consumption and the rate of cash utilization as a function of time will also increase significantly.
Commercialization
We are currently working to develop and produce A-Sample batteries with specifications required by OEMs for their EVs, with the goal of enabling commercial production in 2025. As of the date of this Quarterly Report, Phase I of our Pilot Facility has been completed and is ready-to-use. We will continue to enhance our production processes to enable volume manufacturing in a cost-effective manner. We expect to complete our 1 GWh Pilot Facility andSouth Korea facility by 2023, followed by a 10 GWh joint venture plant, which is expected to be built in 2023 and 2024 and operational by 2025 and to ramp up to 30 GWh by 2027 (our "Expansion I Facility"). Additionally, we expect to complete a 30 GWh facility in 2026 that will ramp to 70 GWh by 2028 (our "Expansion II Facility"), which would represent an additional expansion of our existing facilities. In total, we expect to have more than 100 GWh of capacity by 2028.
Competition
The battery market, like the EV market it services, is fast-growing, extremely competitive and driven by the innovation of both large incumbents and emerging entrants like SES. We acknowledge that the incumbents and other emerging entrants may have greater resources to invest in advancing their technologies, access to more potential customers, or strategic relationships with OEMs (or other third parties) that may give them a competitive edge. We further acknowledge that these disparities, where they exist, have the potential to harm our business, results of operations or financial condition.
Capital Needs
We have incurred net losses and negative cash flows from operations since our inception. Assuming we experience no significant delays in the research and development of our Li-Metal battery, we believe that our cash resources are sufficient to fund the completion of our Pilot Facility and creation of our Expansion I Facility. For more information, see "-Liquidity and Capital Resources" below.
Government Regulation and Compliance
There are government regulations pertaining to battery safety, transportation of
batteries, use of batteries in vehicles, factory safety and disposal of
hazardous materials. We will ultimately have to comply with these regulations to
sell our batteries into the market.
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Impact of COVID-19
Since the emergence of a novel strain of coronavirus ("COVID-19") in December
2019 , the COVID-19 pandemic has caused general business disruption throughout
the United States and worldwide. The effects and potential effects of COVID-19,
include, but are not limited to, its impact on general economic conditions,
trade and financing markets, changes in customer behavior and has created
significant uncertainty in the overall continuity in business operations. The
spread of COVID-19 has also disrupted the manufacturing, delivery and overall
supply chain of EVs and EV batteries, and has led to a global decrease in
vehicle sales in markets around the world. In particular, the COVID-19 crisis
may cause a decrease in demand for EV batteries if fleet operators delay
purchases of EVs or if fuel prices for internal combustion engine vehicles do
not create enough of an incentive to accelerate the migration from internal
combustion engine vehicles to EVs, an increase in costs resulting from efforts
of manufacturers of EVs or EV batteries to mitigate the effects of COVID-19,
delays in EV manufacturers' schedule to full commercial production of EVs, as
well as disruptions to these supply chains, among other negative effects.
The pandemic has resulted in government authorities implementing many measures
to contain the spread of COVID-19, including travel bans and restrictions,
quarantines, shelter-in-place and stay-at-home orders, and business shutdowns.
We have also previously been, and are being, affected by temporary manufacturing
closures, employment and compensation adjustments, and impediments to
administrative activities supporting our start-up and manufacturing plans.
Following the re-opening of non-essential businesses and the easing of
restrictions on non-essential in-person work, since January 1, 2021 , we have
ramped up research and development hiring and increased our investment in
in-person work. Currently, we anticipate that research and development expenses
will increase significantly for the foreseeable future as a result of additional
hiring of scientists, engineers and technicians and investment in additional
plant and equipment for product development, building prototypes and testing of
battery cells. However, recent spikes in COVID-19 cases in Shanghai resulted in
government-mandated temporary shutdowns at our Shanghai location. As a result of
these measures, we have had to limit the number of employees and contractors at
that manufacturing facility, which as of May 12,2022 , has caused a delay of over
a month in our development, testing and manufacturing efforts and in our product
schedule and our ability to obtain materials from our suppliers in the affected
area. If our workforce is unable to work effectively, including due to illness,
quarantines, government actions or other restrictions in connection
with COVID-19, our operations will be adversely affected.
We continue to monitor closely the impact of COVID-19 on all aspects of our
business and geographies, including its impact on our employees, suppliers,
business partners and potential distribution channels and customers. The extent
to which the COVID-19 pandemic may continue to affect our business will depend
on continued developments, which are uncertain and cannot be predicted. Even
after the COVID-19 pandemic has subsided, we may continue to suffer an adverse
effect to our business due to possible longer-term global economic effects of
COVID-19, including any economic recession. If the immediate or prolonged
effects of the COVID-19 pandemic have a significant adverse impact on government
finances, it would create uncertainty as to the continuing availability of
incentives related to EV purchases and other governmental support programs. In
addition, a recurrence of COVID-19 cases or an emergence of additional variants
or strains could cause other widespread or more severe impacts depending on
where infection rates are highest.
Components of Results of Operations
We are an early-stage growth company in the pre-commercialization stage of development, and conduct our business through one operating segment. We have not generated any revenue from sales to customers, and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Our ability in the future to generate revenue sufficient to achieve profitability will depend largely on the successful development of our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results
of
operations.
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Research and Development
Research and development expenses consist primarily of costs incurred for
salaries and personnel-related expenses, including stock-based compensation
expense, for scientists, experienced engineers and technicians, expenses for
materials and supplies used in product research and development, process
engineering efforts and testing, as well as payments to consultants, patent
related legal costs, depreciation, and allocated facilities and information
technology costs. As we attempt to develop a battery cell with acceptable
performance, yields and costs, we anticipate that research and development and
related expenses will increase significantly for the foreseeable future as a
result of additional hiring of scientists, engineers and technicians and
investment in additional plant and equipment for product development, building
prototypes and testing of battery cells.
General and Administrative
General and administrative expenses consist primarily of costs incurred for salaries and personnel-related expenses, including stock-based compensation expense, for our finance, legal and human resource functions, expenses for director and officer insurance, outside contractor and professional service fees, audit and compliance expenses, legal, accounting and other advisory services, as well as allocated facilities and information technology costs including depreciation. We continue to rapidly expand our personnel headcount to support our growth and operations as a public company. Accordingly, we expect our general and administrative expenses to increase significantly in the near term and for the foreseeable future.
Upon commencement of commercial operations, we also expect to incur customer and sales support and advertising costs.
Interest income
Interest income primarily consists of interest earned on our cash and cash equivalents, which are primarily invested in money market funds.
Other (expense) income, net
Other (expense) income, net consists primarily of change in fair value of
sponsor earn-out liability, certain Business Combination related transaction
costs that were attributable to the assumption of the sponsor-earnout liability,
foreign exchange gains or losses and forgiveness of the unsecured note payable
under Paycheck Protection Program ("PPP") established pursuant to the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and
administered by the U.S. Small Business Administration ("SBA").
Provision for Income Taxes
Provision for income taxes consists of an estimate for state and foreign income
taxes based on enacted rates, as adjusted for allowable credits, deductions,
uncertain tax positions, changes in deferred tax assets and liabilities, and
changes in the tax law. We maintain a full valuation allowance against our net
deferred tax assets because we believe it is more likely than not that these
deferred tax assets will not be realized.
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Results of Operations
Comparison of the three months ended
The following table sets forth our historical operating results for the periods indicated (amounts in thousands):
Three Months Ended
March 31, $ %
2022 2021 Change Change
Operating expenses:
Research and development $ 4,067 $ 2,983 $ 1,084 36 %
General and administrative 15,130 1,456 13,674 939 %
Total operating expenses 19,197 4,439 14,758 332 %
Loss from operations (19,197) (4,439) (14,758) (332) %
Other income (expense): Interest income 23 2 21 nm Loss on change of fair value of Earn-Out liability (7,688)
- (7,688) nm Other (expense) income, net (160) 842 (1,002) nm Total other income, net (7,825) 844 (8,669) nm Loss before income taxes (27,022) (3,595) (23,427) (652) % Provision for income taxes (11) - (11) nm Net loss (27,033) (3,595) (23,438) (652) % Other comprehensive income (loss): Foreign currency translation adjustment 109 (14) 123 (879) % Total comprehensive loss$ (26,924) $
(3,609)
"nm" means not meaningful.
Operating Expenses: Research and Development
Research and development expenses increased$1.1 million , or 36%, to$4.1 million for the three months endedMarch 31, 2022 , from$3.0 million for the three months endedMarch 31, 2021 . The increase primarily resulted from a$2.1 million increase in personnel cost mainly attributable to our growth in headcount in support of our ongoing research and development efforts for battery cell development, including increased stock-based compensation expense of$0.6 million , of which$0.5 million relates to restricted earnout shares issued as part of the Business Combination transaction inFebruary 2022 , and a$0.6 million increase in expenses for lab consumables and material supplies related to our increased research and development activities during the three months endedMarch 31, 2022 . These increases were partly offset by a$1.5 million transfer of research and development expenses to general and administrative expenses due to refinement of allocation of expenses based on cost centers for the three months endedMarch 31, 2022 .
Operating Expenses: General and Administrative
General and administrative expenses increased$13.7 million , or 939%, to$15.1 million for the three months endedMarch 31, 2022 , from$1.5 million for three months endedMarch 31, 2021 . This increase in general and administrative expenses primarily resulted from$4.6 million of transaction costs in connection with the Business Combination. In addition, there was a$3.8 million increase attributable to our growth in headcount in preparation for operating as a public company, which includes$2.6 million of stock-based compensation expense, of which$1.1 million relates to restricted earnout shares issued as part of the Business Combination transaction inFebruary 2022 . Further, there was a$1.3 million increase in insurance expense to cover potential liabilities under our indemnification obligations to our 35
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directors and certain officers of the Company and a$1.2 million increase in professional fees and outside services associated with external consulting, legal, audit and accounting services. Furthermore, there was a$1.2 million increase in fees related to marketing, public relations for the Company, and expenses related to new office located inSouth Korea and a$1.5 million increase in allocation of costs based on cost centers for the three months endedMarch 31, 2022 primarily due to cost rationalization efforts.
Interest Income
Interest income for the three months ended
Other (expense) income, net
Other (expense) income, net decreased by$8.7 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , to other expense, net of$7.8 million from$0.8 million of other income, net. The decrease was the result of a charge of$7.7 million associated with the change in fair value of Sponsor Earn-Out liability and a decrease of$1.0 million in other income primarily from a gain recognized for PPP loan forgiveness during the three months endedMarch 31, 2021 .
Provision for Income Taxes
The provision for income taxes for the three months ended
Liquidity and Capital Resources
OnFebruary 3, 2022 , as a result of the aforementioned Business Combination and PIPE Financing, we raised$282.9 million in net proceeds. Prior to that, since our inception we raised approximately$269.9 million of funding through the sales of our redeemable convertible preferred stock. As ofMarch 31, 2022 , we had total cash, cash equivalents and restricted cash of$426.6 million and an accumulated deficit of$121.3 million . As an early-stage growth company in the pre-commercialization stage of development, the net losses we have incurred since inception are consistent with our strategy and budget. We believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least the next 12 months, and also sufficient to fund the completion of our Pilot Facility and creation of our Expansion I Facility. However, additional funding may be required for a variety of reasons, including, delays in expected development. The proceeds raised from Business Combination and PIPE Financing will be used in future research and development activities and are sufficient for the building of manufacturing prototyping lines to facilitate the production of pre-manufacturing batteries by 2024. We have yet to generate any revenue from our business operations, and since inception, we have not achieved profitable operations or positive cash flows from our operations. We plan to finance our operations with a combination of proceeds from the Business Combination, capital from investors, and if required in the future, loans from financial institutions, as well as anticipated future revenue from product sales. Our ability to successfully develop our products, commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity and/or debt financing and, over time, our ability to generate positive cash flows from operations. As a result of the capital-intensive nature of our business, we expect to sustain substantial operating expenses, without generating sufficient revenues, to cover expenditures for a number of years. Over time, we expect that we will need to raise additional funds through a variety of possible methods, including, but not limited to, entry into joint ventures or other strategic arrangements, the issuance of equity, equity- related or debt securities or through obtaining credit from financial institutions. These funds are expected to finance our principal sources of liquidity, ongoing costs such as research and development relating to our batteries and the construction of manufacturing facilities, including the creation of our Expansion I Facility and Expansion II Facility. 36 Table of Contents If we were to require additional funding or otherwise determined it was beneficial to seek additional sources of financing or enter into other arrangements as described above, we believe that our debt-free balance sheet would enable us to access financing on reasonable terms. However, there can be no assurance that such additional capital would be available on attractive terms, if at all, when needed, which could be dilutive to stockholders. We may be forced to decrease our level of investment in product development or scale back our operations. Furthermore, the cost of debt could be higher than anticipated. There can also be no assurance that positive cash flow from operations can be achieved or sustained.
Cash Flows
The following table provides a summary of our cash flow data for the periods indicated (amounts in thousands):
Three
Months Ended
2022 2021
Net cash used in operating activities $ (14,815) $ (3,139)
Net cash (used in) provided by investing activities (2,659) 12,026
Net cash provided by financing activities 282,944 -
Cash Used in Operating Activities
Our cash flows used in operating activities to date have been primarily comprised of payroll, consumables and supplies related to research and development, facilities expense and professional services for general and administrative activities. As we continue to ramp up hiring for research and development headcount to accelerate our engineering efforts, we expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from our operations. During the three months endedMarch 31, 2022 , operating activities used$14.8 million in cash. The primary factors affecting operating cash flows during this period were a net loss of$27.0 million , which included a non-cash charge attributable to change in fair value of Sponsor Earn-Out liability of$7.7 million , stock-based compensation expenses recognized in the amount of$3.2 million , and expense of$0.4 million related to depreciation and amortization. The changes in operating assets and liabilities consist of a decrease in receivables from a related party of$0.4 million mainly attributable to JDA activity, a decrease of$5.9 million in prepaid expenses and other current assets primarily due to an increase in insurance costs to cover potential liabilities under our indemnification obligations to our directors and certain officers, an increase of$5.4 million in accounts payable, including$4.6 million for fees incurred in relation to the Business Combination and the PIPE Financing, an increase of$0.6 million in accrued compensation, a decrease in lease liabilities by$0.3 million and an increase of$1.2 million in accrued expenses and other liabilities primarily attributable to advance payments received from our OEM partners. During the three months endedMarch 31, 2021 , operating activities used$3.1 million in cash. The primary factors affecting operating cash flows during this period were a net loss of$3.6 million , which included non-cash expenses of$0.4 million related to depreciation and amortization and$0.1 million related to stock-based compensation, as well as a gain of$0.8 million related to the forgiveness of the PPP note payable. The changes in operating assets and liabilities consist of an increase in prepaid expenses and other assets by$0.4 million mainly attributable to prepaid rent, and a decrease of$0.5 million in accounts payable due to timing of payments offset by an increase of$1.7 million in accrued compensation and other liabilities primarily attributable to accrued bonuses.
Cash Used in Investing Activities
Our cash flows pertaining to investing activities, to date, have been composed
of investments in short-term securities, purchases of property and equipment
mainly related to lab machinery and equipment, various lab tools and instruments
and patents attributable to lithium salt production and lithium battery
management technologies, which were
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offset by the proceeds from maturities of our short- term investments. We expect the costs to acquire property and equipment to increase substantially in the near future as we build out our manufacturing Pilot Facility. During the three months endedMarch 31, 2022 , investing activities used$2.7 million in cash, primarily for purchases of property, plant and equipment and software. During the three months endedMarch 31, 2021 , investing activities provided$12.0 million in cash. The primary factor affecting cash provided by investing activities for this period was proceeds from short-term investment maturities of$13.1 million for the three months endedMarch 31, 2021 , partially offset by cash used for the purchase of property and equipment of$0.3 million and cash used for the purchase of short-term investments of$0.8 million .
Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended
There were no cash flows related to financing activities during the three months
ended
Debt InApril 2020 , we applied for and received$0.8 million in the PPP loan. We received full forgiveness of all our debt under the terms of the program inFebruary 2021 and recorded a gain of$0.8 million in other income in our consolidated statement of operations and comprehensive loss for the year endedDecember 31, 2021 . As of the date of this filing, we have no debt obligations outstanding.
Contractual Obligations and Commitments
The following table summarizes our material contractual obligations for cash expenditures as ofMarch 31, 2022 , and the years in which these obligations
are
due:
Payments Due by Period
Less than 1-5 More than
Total 1 Year Years 5 Years
(in thousands)
Contractual Obligations:
Purchase Obligations (1) $ 18,992 $ 18,992 $ - $ -
(1) Includes commitment under the construction and fit-out agreement to build a
preproduction facility in
Off-Balance Sheet Arrangements
The Company is not party to any off-balance sheet arrangements, as defined in
the rules and regulations of the
Critical Accounting Estimates and Judgments
Our financial statements have been prepared in accordance withU.S. GAAP. In the preparation of these unaudited condensed consolidated financial statements, we are required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed financial statements, as well as the reported expenses incurred during the reporting periods. We consider an accounting estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the unaudited condensed financial statements. Our significant accounting policies are described in Note 2 - Basis of Presentation of our accompanying unaudited condensed consolidated financial statements 38
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as of and for the three months endedMarch 31, 2022 included in this Quarterly Report on Form 10-Q. We consider the following to be our critical accounting estimates as described below. Stock-Based Compensation Description Judgments and Effect if Results Differ Uncertainties From Assumptions We record stock-based Under the provisions of If we were to change any compensation expense ASC Topic 718, we of these judgments or according to the determine the appropriate estimates, it could cause
provisions of ASC Topic fair value model to be a material increase or 718 - Stock Compensation. used for valuing
decrease in the amount of
ASC Topic 718 requires all share-based issuances and stock-based compensation
share-based awards to the amortization method expense reported
employees, including for recording compensation
grants of employee stock cost, which can be
options, to be recognized impacted by the following
in the financial assumptions:
statements based on their ?
fair values. expected term
Prior to the Business ?
Combination, the grant expected volatility
date fair value of Old SES ?
common stock was expected dividend yield
historically determined by ?
its board of directors risk-free interest rate
with the assistance of
management and an
independent valuation.
Post Business Combination,
as our common stock is
publicly traded, the fair
value of our common stock
is based on the closing
market price on the date
grants are made.
Earn-Out Restricted Shares
Description Judgments and Effect if Results Differ
Uncertainties From Assumptions
The Earn-Out Restricted Under the provisions of If we were to change any
Shares are accounted for ASC Topic 718, we of these judgments or
as a single tranche equity determine the appropriate estimates, it could cause
award issued to employees fair value model to be a material increase or
subject to time and share used for valuing decrease in the amount of
price vesting hurdle. share-based issuances and earn out reported in
These Earn-Out Restricted the amortization method stockholder's equity.
Shares have a share price for recording compensation
vesting hurdle and are cost, which can be
also subject to forfeiture impacted by the following
if a recipient's service assumptions:
terminates prior to the ?
vesting. Pursuant to ASC expected term
718 - Stock Compensation, ?
we recognize stock-based expected volatility
compensation based on the ?
fair value determined as expected dividend yield
of Closing with the ?
assistance of management risk-free interest rate
and an independent ?
valuation. probability of change of
control
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Sponsor Earn-out Liability
Description Judgments and Effect if Results Differ
Uncertainties From Assumptions
Certain Sponsor Earn-Out We determine the If we were to changeany
Shares are accounted for appropriate fair value of these judgments or as a derivative liability model to be used for estimates, it could cause measured at fair value, valuing the derivative a material increase or with changes in fair value liability to record the decrease in the amount of recorded in the condensed change in fair value in earn out liability consolidated statement of our condensed consolidated reported. operations and statement of operations comprehensive loss at each and comprehensive loss, reporting period, because which may be impacted by the earn-out events that the following assumptions: determine the number of ? SponsorEarn-Out Shares to expected volatility be earned back by the ? Sponsor include events risk free rate that are not solely ? indexed to the common expected term stock of the Company. ? The fair value of our probability of change of common stock, which is control publicly traded, is used in determining the fair value of the derivative liability at each valuation date with the assistance of management and an independent valuation. 40 Table of Contents Leases Description Judgments and Effect if Results Differ Uncertainties From Assumptions We adopted ASC The measurement of lease If we were to change any 842, Leases, with an liability depends on of these judgments or initial application date expected lease term with estimates, it could cause ofJanuary 1, 2022 , using renewal options wherein it a material increase or the modified retrospective is reasonably certain that decrease in the amount of method with certain the renewal option will be ROU liability reported. optional transition exercised. Because the relief. Company's operating lease At the lease commencement does not provide an date, we recognized a implicit rate, the Company right-of-use ("ROU") asset estimates its incremental and a lease liability for borrowing rate at lease all leases, except commencement date for short-term leases with an borrowings on a original term of 12 months collateralized basis over or less. The ROU asset a similar term in a represents the right to similar economic use the leased asset for environment. the lease term. The lease Variable lease payments liability represents the dependent on an index or a present value of the lease rate are included in the payments under the lease. lease payments for lease Lease payments included in classification and the measurement of lease measurement based on the liabilities consist of (1) index or rate in effect at fixed lease payments for the measurement date the noncancelable lease (e.g., the later of the term, (2) fixed lease lease commencement date or payments for optional the initial application renewal periods where it date of ASC 842). is reasonably certain the Changes to variable renewal option will be payments based on an index exercised, and (3) or rate after the variable lease payments measurement date will that depend on an typically be recognized in underlying index or rate, profit and loss as based on the index or rate variable lease expense in in effect at lease the period of the change. commencement. Certain of A lessee would not the Company's real estate remeasure the lease lease agreements require liability and related ROU variable lease payments asset for a change in the that do not depend on an reference index or rate, underlying index or rate assuming future payments established at lease continue to be variable, commencement. Such based on future changes in payments and changes in that index or rate. payments based on a rate or index are recognized in operating expenses when incurred.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being
required to comply with new or revised financial accounting standards until
private companies are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can choose not to
take advantage of the extended transition period and comply with the
requirements that apply to non-emerging growth companies, and any such election
to not take advantage of the extended transition period is irrevocable.
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We are an "emerging growth company" as defined in Section 2(a) of the Securities Act and we have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. We will remain an emerging growth company under the JOBS Act until the earliest of (a) the last day of our first fiscal year following the fifth anniversary of Ivanhoe's IPO (December 31, 2027 ), (b) the last date of our fiscal year in which our total annual gross revenues are at least$1.07 billion , (c) the date on which we are deemed to be a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the previous three years.
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation of our accompanying unaudited condensed consolidated financial statements for the three months endedMarch 31, 2022 included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and their potential impact on our financial condition, results of operations and cash flows.
Other Information
The Company's website is www.ses.ai. Information contained on the Company's website is not part of this report. Information that we furnish to or file with theSEC , including the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through the Company's website as soon as reasonably practicable. The Company'sSEC filings, including exhibits filed therewith, are also available directly on theSEC's website at www.sec.gov. The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company's website at www.ses.ai. Accordingly, investors should monitor this channel, in addition to following the Company's press releases,SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this report.
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