SES earnings call transcript, November 12, 2026

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. Reagliations 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 Chi Chow.

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 sales 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 sales to our customers. Second, we said our net loss were narrow in the second half. And today we reported You say? Yes, you say. 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 MLAP 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. 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 a 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 molecule. 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'll start with fly, because it's our priority, and then cover charge and discover. Three things follow from the flywheel. First, drones and Omnian 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 also. 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, NO3, and high silicon lithium ion. Blanker 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 costs 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 US government's drone dominance program. The market is moving in our favor. US and outlet defense customers are moving their battery supply chains away from China, and more customers now require NDA compliant supply, or at a minimum, supply from outlet defense.

Outside China, our Korea factory delivers Ally 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 NDA sales. And if they'll have a . doesn't 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 NDA compliant sales 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 sales per year. The increased capacity will mainly come from release bottleneck steps in the process. And we expect the incremental capital expenditure to be around 5 million dollars. We expect the line to reach that increased capacity by the end of the second quarter of 2027. Next turn 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, HBox, and SOX software are built on our deep knowledge of cell chemistry. And they help operators use capacities 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 edge box brings that error to about 3% or less, so customers can buy less capacity. For the same project, edge box runs on the customer's own site, so their operating data stays private and is trained on the specific cells inside each system, which supports safer operation. That intelligence also helps our economics. Since edge box can monitor and balance sales 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 sales 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 MLAP. It 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-tune. All the customers autonomously generated data. We officially launched Molecular Universe 4.0 at the recent ABA conference, and several of the world's largest battery manufacturers are actively evaluating MLAP solutions today. Additionally, we know that security is a 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-gap. Providing customers with the flexibility and adaptiveness needed to support a wide range of security needs. As I mentioned earlier, Molecular Universe is the discovered part of our flywheel, and it's what makes each turn faster than the last. It enables faster development of our own sales 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 repeated 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 over to Ray for the financial update.

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 less 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 upgrade. Currently, our ESS team is upgrading from the old 5 kilowatt hour product to 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 gap net loss for the third quarter was $13.4 million, or 4 cents per share, compared to a gap net loss of $17.9 million, or 5 cents 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 sponsor earn-out liabilities. And the $2.2 million from the change in fair value of deferred consideration related to the UZ energy acquisition. Excluding changes in sponsor earn-out 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 3 cents per share. Compared to a non-GAAP net loss of $13.1 million or 4 cents 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 optimist. use of capital that reflects our confidence in the long-term value of SES. 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 Chi Chow described. Funds drone manufacturing readiness and customer qualification first. Keep energy storage capital efficient and keep molecular universe spending focused on the supporting our products and its own commercial growth. In October, we filed a proxy statement seeking stockholder approval for reverse stock split, which is designed to broaden our eligibility for instance.

institutional ownership and support our continued NYSE listing. We believe this supports the long term success of the business in three ways. First, containing 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 holder. who can bring more stable ownership and liquidity. And third, it lets more investors evaluate SES 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 Chi-Ciao.

Let me leave you with three takeaways. So first, we did what we said we would do. Chongzhu reached an installed capacity of 1 million NDAA-compliant sales a year. The line is now producing and delivering sales 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 14 years 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 Cheungju plant. Third, we are reiterating our 2026 outlook and we have given you clear milestones to measure as a. 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. I look forward to continuing our focus execution on the key strategic priorities.

Your first question comes from Dave Storms with Stonegate. Please go ahead.

Fitzgerald, please go ahead.