SES AI Corporation 2026 Q2 Earnings Call

Kyle, please go ahead. Hello, everyone, and welcome to our conference call covering our second quarter 2026 results.

Joining me today are Qichao Hu, founder and Chief Executive Officer, and Ray Liu, Chief Financial Officer. We issued our shareholder letter just after 4:00 P.M. today, which provides a business update as well as our financial results. You will find a press release with a link to our shareholder letter and 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 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 our latest earnings release and in our SEC filings. 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 will pass it over to Qichao.

Thank you, Kyle. SES is solving two of the most difficult challenges in energy storage: accelerating product development using AI for materials and building a robust supply chain to manufacture these products. We originally focused on EV and pivoted more than a year ago to ESS and drones applications. In Q2, we began seeing significant commercial milestones, and we are very excited about the path we are on. Our Q2 revenue grew by more than 40% compared to Q2 last year, and our gross margin improved from 18% to more than 22% due to our differentiated technology and robust supply chain. We are reaffirming our 2026 revenue guideline of $30 million-$35 million.

On accelerating product development using AI for materials, we released Molecular Universe MU-3.0, our first agentic workflow platform that works for sodium chemistry as well as lithium chemistry and can be integrated with autonomous labs deployed fully secured and on-premise. We shipped our first Search-in-a-Box order to one of the world's largest battery manufacturers, and some of the materials discovered by Molecular Universe have completed testing and entered pilot commercial deployment. On building a robust supply chain to manufacture these products, for ESS, this is our largest revenue-generating unit. We are making great progress, especially in the U.S. market. We were selected by Sol-Ark as a certified battery partner, and we brought on Paul Diemer, ex-CTO of Flex Power, to our board to help guide our ESS strategy.

We continue to hire a stellar team with background in leading AI data center total solution providers to execute and deliver our exciting ESS growth. For drones and unmanned systems, we are recruiting a team with a proven track record of selling to defense and commercial drones. We expect to start producing 1 million NDAA-compliant cells per year in about one month at our Korea plant. Based on the strong customer demand we are seeing, we are looking at taking orders well into 2028. I will dive into each topic separately. On ESS, while most competitors sell either pure hardware that do not have intelligent software or pure software that are not trained on real-world data, our Edgebox-enabled ESS systems are trained on the specific cells that we use in our hardware systems, allowing for one-to-one matching, accurate state of health, and safety management.

This prediction accuracy not only helps preventing fire and other incidents, this is tremendous saving for our customers across residential, commercial, industrial and data centers. One of the leading U.S.-based FCC-authorized inverter producers, Sol-Ark, certified our subsidiary, UZ Energy's low-voltage residential batteries for their hybrid inverter systems. We believe this certification with Sol-Ark will greatly accelerate the growth of UZ Energy's revenue in the U.S., especially given the recent FCC restrictions around foreign-produced inverters and other electronics. We were also honored to bring on Paul Diemer to our board of directors. Paul served as the CTO of Flex Power, where he ran critical and embedded power group that was responsible for delivering power solutions to data centers and other industrial systems. Paul also ran new EV product architecture at BorgWarner Inc. Paul's transition from EV to data centers is very similar to that of SES.

On drones and unmanned systems, we expect to complete the scale-up of our Korea-based NDAA-compliant cell production from 200,000 cells a year to 1 million cells a year in about one month. We expect to start producing at 1 million cells a year full speed starting this Q4. We have already hosted many of the largest American and allied drones makers for line audits, with many more in the queue later this year. We expect revenue contribution from NDAA-compliant cells produced in our Korea line to start in a meaningful way in Q4 this year, and really start to take off first half next year. Even at 1 million NDAA-compliant pouch cells, which we believe is one of the largest NDAA-compliant pouch manufacturing capacities in the world, and combined with our best-in-class energy density and performance, we are looking at securing orders well into 2028.

We are also seeking additional NDAA-compliant manufacturing capacities for both pouch and cylindrical cells to address the strong demand for these products. These cells will be for drones, but also broader unmanned and mobility applications. We recently announced a framework agreement with Doroni, where we will be responsible for designing and developing the complete battery pack for their H1-X eVTOL. It is a really cool two-seater. With Molecular Universe, we released MU-3.0. This is the most powerful and complete end-to-end workflow automation in energy storage. We sold a Search-in-a-Box module to one of the largest battery makers in the world, and we are trialing full MU-3.0 workflow integrated with autonomous labs, with many more. We do have competitors for AI for materials, but none offer solutions as complete, accurate, and most importantly, secure as ours. Many of our customers switch to MU after trying our competitors' offerings.

Many of our competitors try to offer building blocks in a cloud-based toolkit, but product development is more than a toolkit, and very few enterprise customers would allow their proprietary data to leave their premises or be used to train external models. It requires a fully secured on-premise integration of domain expertise, experimental data, and computation chemistry simulation full stack. Some of the materials discovered by Molecular Universe have completed testing and entered revenue-generating early-stage commercial pilot development. We expect to release MU-4.0 later this year. It will feature ability to generate new molecules based on desired properties, and it will be integrated with autonomous labs, A-Labs hardware, so users can generate or discover new molecules, synthesize them, validate them in full devices, and provide actual experimental data back to train their own foundation models, all fully secured on premise.

This flywheel connects simulation with experimental validation, can organize and generate high-quality data, and train models fully secured and on premise. Without humans in the loop, it can run much faster than humans ever can. I do think a lot of investors are underestimating Molecular Universe, especially purely through the lens of near-term monetization. I believe in the next 3 to 5 years, Molecular Universe will power majority of product development, definitely in energy storage, and expanding to complex fluids, and eventually other material applications. The SES team is solving two of the most difficult challenges in energy storage, accelerating product development using AI for materials, and building a robust supply chain to manufacture these products. We have a healthy cash runway, highly differentiated capability across products and manufacturing, and one of the most dedicated teams.

I am incredibly proud to work with our team on these critical challenges, even when the market may perhaps underestimate us. I would like to thank the team for their hard work. Now here is Ray for the financial updates.

Thank you, Qichao. I will walk through our second quarter 2026 financial results. Second quarter revenue was $5.1 million, compared to $6.7 million in the first quarter of 2026, and $3.5 million in the second quarter of 2025. Notably, this quarter validated our commercial momentum. For the first time, we saw revenue contribution across all product lines: ESS, drone battery cells, materials, and Molecular Universe. Our GAAP gross margin was 22.6% in the quarter, an improvement from 18.1% in the first quarter. The improvement was particularly driven by the ESS business, where we saw a higher mix of international sales and continued pricing discipline. Turning to operating expenses, our GAAP operating expenses for the second quarter were $20.3 million, compared to $19.1 million in the first quarter. The slight sequential increase was primarily due to a bad debt provision related to a legacy EV service contract.