SES AI (SES) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, March 4, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Founder and Chief Executive Officer — Qichao Hu
• Chief Financial Officer — Jing Nealis
• Vice President, Investor Relations — Kyle Pilkington

TAKEAWAYS

• Revenue -- $4.6 million for Q4, representing a $2.6 million or 124% increase year over year, and $21 million for the full year, nearly tenfold growth from 2024.
• Revenue Composition -- 2025 included $13.6 million in one-time service revenue from Honda and Hyundai contracts; this is not expected to repeat in 2026.
• Revenue Guidance -- 2026 revenue forecast is $30 million to $35 million, representing anticipated growth of 43% to 67% with approximately 65% from ESS and the remainder from drones and materials, primarily weighted toward the second half.
• Gross Margin -- Q4 GAAP gross margin was 11.3%; Q4 non-GAAP gross margin was 11.7%; full-year GAAP and non-GAAP gross margin were 53.8% and 55.7%, respectively, driven by mix shift toward ESS products with lower margins.
• Operating Expenses -- Q4 GAAP operating expenses decreased 40% year over year to $18.2 million; Q4 non-GAAP operating expenses fell 44% to $13.5 million; full-year GAAP operating expenses dropped 15% to $93.9 million; full-year non-GAAP operating expenses fell 11% to $73.0 million.
• Adjusted EBITDA -- Q4 adjusted EBITDA loss of $13.8 million, a 40% improvement from 2024; full-year adjusted EBITDA loss of $52.6 million, a 23% year-over-year improvement.
• Net Loss -- Q4 GAAP net loss was $17.0 million ($0.05 per share); Q4 non-GAAP net loss was $11.8 million ($0.04 per share); full-year GAAP net loss was $73.0 million ($0.22 per share); full-year non-GAAP net loss was $53.2 million ($0.16 per share); all showed improvement over 2024.
• Liquidity -- Ended 2025 with $200 million liquidity, at the top end of guidance.
• Cash Utilization -- $10.4 million used for operations in Q4 and $58.4 million for the year; $3.3 million on UZ acquisition, $2.9 million in CapEx, and $1.6 million on share repurchases.
• CapEx and Financial Discipline -- CapEx-light business model confirmed; 2026 CapEx expected to remain in single-digit millions, mainly for the South Korea facility conversion and Southeast Asia contract manufacturing evaluation.
• ESS Segment -- ESS is identified as the largest near-term revenue driver for 2026 with projected gross margins of around 15%.
• Drones Segment -- Drones revenue expected to ramp strongly in the second half of 2026, with gross margins anticipated north of 20% as volume increases.
• Materials Segment -- Materials business, selling electrolyte materials via the Hyphen JV, expected to achieve 10%-20% gross margins.
• Molecular Universe -- SaaS revenue from the molecular universe is described as "building momentum" and expected to contribute modestly in 2026; its primary value is highlighted as driving IP and competitive advantage across business units.
• OEM Services -- C-sample development for Honda and Hyundai is on hold; focus shifted to selling electrolyte materials and software integration.
• UZ Energy Acquisition -- Provided ESS data and hardware sales, enabling new operating system offerings and supporting a recent multiyear $20 million contract.
• NDAA Compliance -- Korea facility has been NDAA compliant since 2021 and will be converted to produce drone cells; expansion into Southeast Asia is planned for compliant large-scale cell manufacturing.
• Operating Expenses Outlook -- 2026 operating expenses projected to decline by approximately 15% from 2025, reflecting further G&A and R&D reductions and increased efficiency from internal AI tools.

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RISKS

• "the C-sample is on hold." for auto OEM joint ventures, indicating a pause in commercialization efforts for lithium-metal battery mass production due to reduced OEM investment in next-generation technology.
• Logistics constraints delayed shipments at year-end, causing approximately $1.5 million of revenue to be pushed out to 2026.
• Management noted, "but no one is investing in mass-scale production of next-gen technology," highlighting a challenging market environment for EV and battery technology adoption.

SUMMARY

SES AI Corporation (NYSE:SES) reported substantial year-over-year revenue and margin improvements across all major financial lines, with optimism for multi-segment growth in 2026 driven by energy storage systems, drones, and materials. Management highlighted the strategic integration of both hardware and AI-enabled software within the ESS and drone businesses, enabling new contract wins—such as a multiyear $20 million ESS hardware deal—and positioning for high-margin revenue growth through operating system bundles. The company's molecular universe platform generated six new materials breakthroughs within a year, now under evaluation by over 40 customers, and is expected to unlock incremental value primarily through intellectual property and future product development. Capital deployment remained disciplined, with the company maintaining $200 million in liquidity and indicating continued CapEx-light investment focused on NDAA-compliant cell production and global manufacturing expansion. Customer feedback and industry trends prompted a pivot away from auto OEM battery mass production efforts, reallocating resources toward near-term opportunities in drones, ESS, and material sales, and leveraging proprietary AI for both operational efficiency and product innovation.

• Qichao Hu referenced a recent JV with Hyphen to leverage "150,000 ton annual global capacity" for commercial-scale material production, exclusively supplying products discovered via molecular universe.
• Drones business targets large customers, with Hu stating they "will order in the range of single-digit millions to, potentially, more than $10 million a year," as NDAA compliance and rapid U.S. defense market growth drive demand.
• The company is installing its Predict feature and "edge box" technology in ESS systems, which enables automated, nondisruptive recalibration and could enhance asset longevity and performance monitoring for customers.
• Molecular universe is being positioned as a platform comparable to "AI for science" companies that have achieved "valuations exceeding $1 billion through private capital raises," with ongoing SaaS revenue ramp but primarily serving as a competitive technological and IP asset.
• 2026 guidance assumes no recurrence of one-time 2025 OEM service revenue, as confirmed by Jing Nealis: "guidance is really just ESS, drones, and materials."

INDUSTRY GLOSSARY

• ESS (Energy Storage Systems): Large-scale battery infrastructures designed to store and release electrical energy, serving grid, commercial, or industrial applications.
• NDAA-compliant: Conforming to the U.S. National Defense Authorization Act requirements, especially regarding domestic and allied sourcing for defense and critical supply chains.
• Molecular Universe: SES AI Corporation's proprietary AI-driven scientific platform for accelerated material discovery and predictive analytics across battery technologies.
• B-sample / C-sample: Stages of battery or component development; B-sample indicates advanced prototyping for technical validation, C-sample is intended for pre-production and mass manufacturing readiness.
• Edge box: Hardware module integrating battery data analytics for state-of-health, charge, and safety assessment at the system level, including automated recalibration and performance monitoring features.

Full Conference Call Transcript

Kyle Pilkington: Covering our fourth quarter and full year 2025 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer, and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4:00 PM 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. 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 are introducing 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.

Qichao Hu: Thanks, Kyle. Everyone, for joining today. We had an exciting 2025 with full-year revenue of $21 million compared to a little over $2 million for 2024. Jing will walk through our financials and the outlook shortly. This tremendous growth was due to the final contributions from our services agreements with Honda and Hyundai, as we completed our EV development work with them. Also had three and a half months of revenue from the acquisition of Uzi Energy for our energy storage ESS business.

While we are pleased to report full-year revenue in the range of our previously issued guidance, as a milestone we reached and the year-over-year growth we are expecting from full-year contributions in our three revenue-generating business units, and for recognizing potential value in the molecular universe that has us really excited. I am very proud that we made more progress in the past year than the previous ten plus years combined. This development of the molecular universe has back ends up for us. SES AI Corporation continues to be well positioned to solve the issues of battery development and safety requirements.

With the molecular universe, our own in-house AI science company, we have been able to help customers overcome standard timeline in the adoption of new technology. We also have a front c2c how energy transition needs are requiring more integration of AI software and hardware along with precise battery health monitoring. As we described before, SES AI Corporation has three revenue-generating business units: ESS, drones, and materials. ESS, which is the largest market for batteries, is bigger than EVs and bigger than drones. At Battery World 2024, we announced our entry into the ESS market.

And through our acquisition of Fuji Energy, we are now serving customers across the globe, from Australia to Europe to the Middle East, and now we are entering the North American market. The ESS business is our largest near-term revenue driver. UC Energy is a leader in commercial and industrial ESS and has sold almost a gigawatt hours of hardware to customers ranging from residential to C&I to grid.

We are now able to collect the large amount of historical ESS LFP graphite data, and then for all future products, we plan to incorporate our Predict feature from molecular universe into a small box to achieve near-zero drift state of charge (SOC), degradation, health, safety, and other SOX algorithms, and automated nondisruptive recalibration, which helps improve UC's ability to predict battery health and reduce maintenance costs for our customers. Energy storage systems are financial assets. The value to our customers depends on delivering consistent and long-term performance. Historically, UC supplied only the hardware to customers, mostly LFP and graphite lithium-ion cells.

Now since we acquired UZ, SES AI Corporation has the opportunity to provide an operating system to the hardware, and sell customers a complete package to meet their ESS needs. We are seeing some early traction with UZ's sales efforts as they were able to sign a multiyear $20 million contract with a major distributor recently at the InterSolar Conference. Drones are the best business unit I want to highlight. The drones market requires high energy density and high power density batteries to achieve longer flight time and greater payload. This is where our lithium metal and high silicon carbon lithium-ion batteries really shine.

The U.S. defense drones market in particular is what we see as the most consequential near-term opportunity, and we are devoting most of our attention and investment. It is worth spending a moment on why the drone market is a natural fit for deploying our lithium metal anodes and proprietary electrolyte. One, a drone battery needs double the energy density of conventional lithium-ion. Ultimately, you need at least 400 Wh/kg to be state of the art, and a realistic road map to 500 Wh/kg to win. In other words, range and payload matter. Drone batteries need a high C-rate and power for the drone to maneuver and accelerate. We have solved for this.

Third, drone batteries need to be manufactured at scale. We have demonstrated this in our EV B-sample development. Fourth, drone batteries need abundant and inexpensive material, and the military demands that the supply chain be National Defense Authorization Act or NDAA compliant. We recently announced we expect to convert our EV B-sample Cheongju, South Korea facility to manufacture NDAA-compliant cells for drones. This is the same facility where we developed and built the world's first 100 Ah largest lithium metal cell back in 2021, and this facility has been NDAA compliant since 2021. To meet the drone demand, we plan to convert our lines from EV pouch 100 Ah cells to 10 Ah power cells.

In this line, we are also planning to deploy our AI for safety and AI for manufacturing to ensure quality and cost effectiveness. In addition to our Korea facility, we are also exploring even larger NDAA-compliant and more versatile cell form factor manufacturing capacities in Southeast Asia. We will have more to update on our NDAA-compliant manufacturing capacity and locations later this year. Our third revenue-generating business unit is materials. Both SES AI Corporation and our molecular universe users have also been discovering new intellectual materials for other applications that we do not build cells for currently.

Last fall, we announced a JV with Hyphen to leverage their 150,000 ton annual global capacity to produce these materials at a commercial scale to supply to other battery manufacturers for consumer electronics and ESS. At this time, we are anticipating that the Hyzon JV will only produce materials for molecular universe discoveries. Through the molecular universe, we discovered six breakthroughs that are currently being tested by over 40 customers. These breakthroughs will be the basis of the revenue we expect from this business in 2026. Include one, better in stores for EV applications. Two, better in density for drones. Three, better low temperature cycle life and power density for heavy duty trucking.

Or better cycle life and longer life for consumer electronics. This and low temperature performance for ESS and EVs. And six, better cycle life and storage for consumer electronics. We also have a pipeline of new breakthroughs that are being tested by customers, which we expect will provide further potential revenue for this business. Now last but not least is what we have been referring to as our own AI for science company. That is, of course, molecular universe. I want to be clear on how we view the MU's role in this company.

While its SaaS revenue continues to build momentum, and is expected to make a small contribution in 2026, its biggest contribution is the inherent value of this business on its own, and the IP that drives competitive advantage in the ESS, drone, and materials business. Molecular universe has the potential to become a modern-day encyclopedia, with battery being its volume one. Provides extremely valuable scientific data and intuition to AI for science model. Over the course of the year, we will continue to explore how we can best demonstrate or unlock MU's value. In terms of demonstrating that value, I will point to our recent investor presentation.

In that presentation, we noted there are several AI for science companies that are either prerevenue or have less revenue than the MU that have already packed valuations exceeding $1 billion through private capital raises. These are the closest comps to the molecular universe. So we are keeping an eye on how well these transactions have performed. So we are really excited about the long-term value of molecular universe as a platform, not just for batteries, but all science, as well as the near-term revenue growth from drones, materials, and ESS operating systems.

Our priorities for 2026 and beyond are one, leverage the new business unit leadership and structure to execute on the ESS and drone cell opportunities ahead of us. We have brought on industry veterans to lead these efforts as well as hardware and software integration build. Second, execute on the conversion of our NDAA-compliant line in Korea from EV cells to drone cells, and line up additional capacity in Southeast Asia that is also NDAA compliant. Third, continue the growth of UC Energy's existing hardware business in Australia, Middle East, and Europe and begin expansion into the U.S. Fourth, deliver on existing novel electrolytes discovered by the molecular universe in the materials business and expand our pipeline.

Fifth, leverage MU's material discovery capabilities to new product development, and it is continue to focus on our CapEx-light business model in ESS sales and materials to offset the projected R&D spend in the molecular universe. Before I turn it over to Jing, I want to express my gratitude for our teams who are working super hard to make all of this happen, and thanks to all of you for being on this journey with us. And now here is Jing for financial updates.

Jing Nealis: Thank you. I will discuss our financial performance for the fourth quarter and full year of 2025 and provide context on how we are deploying our capital to support SES AI Corporation's long-term growth and the strategies Qichao outlined earlier. Revenue for the fourth quarter of 2025 was $4.6 million, representing a $2.6 million, or 124%, increase year over year. Full-year revenue came in at $21 million, in line with our guidance but impacted primarily by logistics constraints that delayed shipments at the end of the year, resulting in approximately $1.5 million of revenue being pushed out to 2026.

As Qichao noted earlier, revenue for full year 2025 was within our previously issued guidance range of $20 million to $25 million and was up nearly tenfold from the prior year, a year in which we first achieved revenue generation. Our Q4 gross margin on a GAAP basis was 11.3%, driven by the higher mix of ESS product sales in the quarter, which carries a lower margin profile relative to our service revenue. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue, our Q4 non-GAAP gross margin was 11.7%. For full year 2025, our GAAP and non-GAAP gross margin was 53.8% and 55.7%, respectively.

As we have noted previously, we expect gross margin to vary from quarter to quarter as our revenue mix across products, SaaS, and services evolve. We expect the gross margins on our product revenue to improve as we scale volume and optimize the cost structure through our CapEx-light business model and JV partnerships. Turning to operating expenses. Our GAAP operating expenses for the fourth quarter of 2025 were $18.2 million compared to $30.4 million for the same period prior year, a 40% decrease year over year. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization, fourth quarter operating expenses were $13.5 million compared to $24.2 million for the same period prior year, a 44% decrease.

For full year 2025, our GAAP operating expenses were $93.9 million compared to $110.5 million in 2024, a 15% decrease. On a non-GAAP basis, full-year operating expenses were $73.0 million versus $82.3 million in 2024, an 11% decrease. The year-over-year improvement in operating expenses on both GAAP and non-GAAP basis reflects the progress we have made in optimizing our cost structure while continuing to invest strategically in the molecular universe platform and our commercial growth initiatives. Adjusted EBITDA for the fourth quarter of 2025 was a loss of $13.8 million compared to a loss of $23.2 million in the fourth quarter of 2024, representing a 40% improvement.

For the full year 2025, adjusted EBITDA was a loss of $52.6 million compared to a loss of $81.5 million in the full year 2024, a 23% improvement year over year. We believe this growth reflects the positive operating leverage beginning to emerge in our business as revenue scales as well as our sustained focus on financial discipline and cost management across the organization. Our GAAP net loss for the fourth quarter was $17.0 million or a $0.05 loss per share. Excluding stock-based compensation, depreciation and amortization, changes in fair value of sponsor earn-out liabilities, and including interest income, our non-GAAP net loss for the fourth quarter was $11.8 million or a $0.04 loss per share.

This is an improvement over 2024 fourth quarter's GAAP net loss of $34.5 million or a $0.11 loss per share, and non-GAAP net loss of $19.9 million or a $0.06 loss per share. For the full year 2025, our GAAP net loss was $73.0 million, or a $0.22 loss per share, compared to a GAAP net loss of $100.2 million or a $0.31 loss per share in 2024. On a non-GAAP basis, full-year net loss was $53.2 million, or a $0.16 loss per share, compared to a net loss of $66.4 million or a $0.21 loss per share in 2024.

The year-over-year improvement on both GAAP and non-GAAP basis reflects the progress we are making in scaling revenue and managing our cost structure as we advance customer engagement, develop the molecular universe platform, and position the business for growth in 2026. A detailed reconciliation of GAAP net loss to adjusted EBITDA and non-GAAP net loss per share is included in the financial tables at the end of the shareholder letter. I want to highlight that our GAAP net loss in any given quarter can be meaningfully impacted by noncash mark-to-market movements in the fair value of our sponsor earn-out liability, which are required to be remeasured each reporting period under GAAP.

These noncash gains or losses are not reflective of our underlying operating performance, and we believe excluding them provides a clearer picture of the progress we are making in the business. This is one of the reasons why we are introducing adjusted EBITDA beginning this quarter. We utilized $10.4 million in cash for operations during the fourth quarter, and $58.4 million for the full year 2025. We deployed $3.3 million on the UZ acquisition, and $2.9 million on CapEx, and returned $1.6 million to shareholders through share repurchases during 2025. This improvement in cash utilization is consistent with the adjusted EBITDA progress I noted earlier and reflects the financial discipline we have maintained as we scale the business.

We exited 2025 with a strong liquidity position of $200 million, coming in at the top end of our previously communicated expectation of ending the year between $195 million and $200 million. Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiative. For full year 2026, we expect revenue to be in the range of $30 million to $35 million, representing approximately 43% to 67% growth over full-year 2025 revenue. As Qichao noted earlier, our full-year 2025 revenue included one-time contribution from OEM services contracts.

If we compare the growth expected from the three businesses on an apples-to-apples basis, the revenue growth rate is even higher. On the margin front, our three businesses carry different profiles, and the mix may shift as we scale. Our ESS hardware business, which will represent the largest share of revenue in 2026, is expected to operate at around 15% gross margin. As we layer in the hardware-software bundle and grow the operating attach rate, we see a potential path to expanding margins in that business over time. Our drone cells business is earlier in this commercial ramp, but we expect gross margins north of 20% as volumes build through the year.

Our materials business, which will sell electrolyte materials through our joint venture with Hyphen, is also a products business, and we expect it to carry a margin profile in the 10% to 20% range. On a blended basis, we expect consolidated gross margin to be around 15% with room to improve year over year as we scale. Our operating expenses for full year 2026 we expect approximately 15% further reduction from the 2025 level. This reflects our continued investments in the molecular universe platform while we are committed to financial discipline. We believe this level of investment is appropriate given the long-term value we are building and the early commercial traction we are seeing from MU-driven material discoveries.

We are not anticipating meaningful growth in operating expenses beyond this level, and we will continue to evaluate opportunities to improve operating leverage as revenue scales and to accelerate the monetization of the MU platform. On capital expenditures, we continue to operate a CapEx-light model as a core financial discipline. For 2026, we expect CapEx to remain in the single-digit millions, primarily directed towards the conversion of the South Korea facility from EV cells to NDAA-compliant drone cells, as well as the evaluation of contract manufacturing capacities in Southeast Asia. We entered 2026 with $200 million in liquidity, and we are well funded to scale and grow, giving us the financial flexibility to execute on the opportunities ahead of us.

We believe 2026 will be the year in which the full architect of our multi-revenue stream platform comes together and begins to deliver. We are well capitalized, financially disciplined, and positioned to execute on that vision. We appreciate your continued support and confidence in SES AI Corporation. Thank you. Now I will turn the call back to the operator.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1. If for any reason at all you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star 1. The first question comes from Derek Soderberg with Cantor Fitzgerald. You may proceed.

Derek Soderberg: On the final contribution from the Honda and Hyundai development work. Just was wondering, you know, what is sort of next for that program? You sort of proven manufacturability recently. Obviously, your technology is sort of game changing for the EV market. You know, what is next for those relationships, Honda and Hyundai? When are you going to commercialize that for EVs?

Qichao Hu: Yeah. Derek, so in terms of next step, previously, the next step was to go from B-sample to C-sample. And I think now, I mean, there is no surprise that the EV market is slowing down, and almost no automaker is investing in next-gen battery technology. And I do not mean, like, early-stage battery technology in terms of A- and B-samples, but no one is investing in mass-scale production of next-gen technology, which is C-sample, which is what we were trying to get to next. So we hit all the technical milestones, but the C-sample is on hold. And then in terms of next step with the OEMs, we are focusing on selling materials. Selling materials that we have developed.

The electrolyte materials, we are focusing on that. And then in terms of the full-blown lithium metal C-sample, then we will see when the market returns. But the technology is there, and this is why we have been focusing on converting the lines for drones production and also applying the AI for safety, the battery analytics software that we develop for EV, for ESS markets. So but, yeah, in terms of next steps for the OEMs, we are focusing on material supplies and then also converting the line for drone applications and using the safety analytics software for ESS.

Derek Soderberg: Got it. And then just quickly, what was the one-time service amount? Can you quantify that impact to fiscal 2025?

Qichao Hu: Sean, you want to take that?

Jing Nealis: I, yeah. So for 2025, the service revenue was $13.6 million. Those are primarily driven by the Honda and Hyundai service agreement. So that is the one-time service agreement we were talking about.

Derek Soderberg: Got it. So for 2026, you do not expect any of that to sort of recur just, you know, given what Qichao just explained?

Jing Nealis: Correct. You know, guidance is really just ESS, drones, and materials. And I was wondering if you could sort of break that down for us or help us, you know, try to understand by segment, you know, ESS, drones, materials. Can you help us kind of quantify how each of those contribute to the guidance range? And then any help sort of modeling kind of the first half or second half, you know, what portion of revenue in the first half, second half, anything like that would be helpful.

Jing Nealis: I can take that. Yeah. For 2026 guidance, given it is the first year we are giving guidance including all three business units, so we, first of all, we wanted to be more conservative to start the year. As far as breaking down the revenue sources, ESS is going to still be a large portion of our revenue. So of that $30 to $35 million guidance, the range, I would say probably around 65% will come from ESS at least, and then the remaining portion will be drones and materials. And then for those two we are expecting it to be more second half of the year loaded, given we are still in the ramping and business development stage.

So those two are going to be more towards second half of the year. So but percentage-wise, around 65% from ESS and the remaining for those two.

Derek Soderberg: Got it. That is helpful. I will pass it on.

Qichao Hu: Thank you.

Operator: Thank you. The following comes from Winnie Dong with Deutsche Bank. You may proceed.

Winnie Dong: Hi. Thank you for taking my question. Just curious, if we look out to maybe, like, the next two to three years, if we just look at the different business areas, you know, yes, there is raw materials, and also you have the molecular universe as well. How would you characterize, like, the growth profile of each of these areas in the next, you know, two to three years? Which one has maybe the potential for the largest growth, if there is a way to think about it? And then separately, for molecular universe, I know you have been talking about, you know, different tiers of revenue from larger corporations and smaller ones.

Could you share, like, currently what might be the largest bottleneck for adoption from these customers? And then I have a follow-up. Thanks.

Qichao Hu: Yeah. On the first one, from a size of revenue and the product perspective, ESS and drones, we expect these two to grow very rapidly, especially on ESS with we acquired UZ. We are not just selling the hardware anymore. Now we are adding this Predict feature on top. So that is really exciting because now we are turning a regular UPS battery pack into an asset that the asset owners can use for energy trading. So it is supply and demand.

And then on the demand side, you have conventional VPP software, but on the supply side, no other VPP software can have as accurate and advanced monitoring of the battery health, battery safety, battery degradation, and all the parameters than ours. So we have a really precise estimation of the state of health of the battery, so that gives you an advantage. It is almost like we say this in energy trade, it is almost like having Warren Buffett at your fingertip when it comes to energy trading, if you know that level of precise health of your battery.

So we are really excited about this edge box enhanced virtual power plant, especially with this tool that we can add on top of UC's hardware. So that is ESS. And then drones, so drones is all about supply chain. It is all about being NDAA compliant and then supplying to U.S. and allied drones. And then also with the new drones dominance program, we have had this line in Korea, and it has been NDAA compliant since 2021. We built this line for GM. It was a 100 Ah lithium metal cells. Now we are converting that to 10 Ah cells for drones. So we have an advantage because we have this asset.

It has been NDAA compliant since 2021, and then that market is also growing very rapidly, especially under the new drones dominance program. So I think these two are the most exciting from a size of revenue growth. And then, as Jing mentioned earlier, the bulk of the revenue from this year, 2026, we expect will come from these two areas. In terms of molecular universe, we are making very exciting progress, and we are getting some of the largest battery companies and car companies to sign on to this platform, and we expect to make some announcements in the coming months. And I think, in terms of bottleneck, I think it is just new.

For example, AI for science has been used in drug discovery a lot, not so much in materials, not so much in chemicals, and not so much in batteries. So it is just new. But, finally, as we said, we use that platform, and then we demonstrate that we could actually indeed use that and develop six new materials. I mean, previously, it was like it would take you a few years to discover one material. Then we have discovered six materials in just over about nine months, nine months to a year. And then later, we will add more features to it, and, hopefully, we can get you 60 materials per month and per week.

So that acceleration of rate of discovery, that is something we are quite excited about.

Winnie Dong: Got it. Thank you for the detailed response. And then I wanted to ask a question about OpEx in 2026. It seems that you are characterizing a spending level that is, you know, lower than 2025. And that is going to likely sustain at this 2026 level on a go-forward basis. Can we maybe just understand the reason for that? You know, if you are looking to grow, you know, these different areas of the business, you know, what is it that you have done that, I guess, allowed you to, you know, not have to spend further to grow the business. Thanks.

Jing Nealis: I can address that. So I think the 2026 reduction partially is coming from just being disciplined on spending cash on OpEx in general. We have been reducing G&A and also R&D expenses year over year to go back to 2023, 2024, 2025. Year over year, we are managing our cost very efficiently. So that is that part. And second, the MU as the internal tool for AI for science is creating a lot of efficiencies. So and, also, as part of growth into these three businesses, we are more focused as far as spending cash on product development related to R&D.

And then there will be growth as far as spending-wise on the SG&A side, like sales and marketing, but it is not linear to the revenue growth. So overall, together, including R&D and SG&A, we forecast this year to be lower than last year and then sustain at least for the foreseeable future.

Winnie Dong: Got it. That is helpful. Thank you.

Qichao Hu: Thank you.

Operator: As a quick reminder, if you would like to ask a question, please press star followed by 1. Next question comes from Colin Rusch with Oppenheimer. You may proceed.

Colin Rusch: Thanks so much, guys. You know, you talk a little bit about the drone market and the volume of customers you are working with and how mature those relationships are in terms of working through the design process, and potentially being able to announce, you know, a purchase award here over the next, you know, call it several quarters.

Qichao Hu: Yeah. The drones market is really going through a lot of pressure to change supply chain with the NDAA compliance requirements. And then we are focusing on some of the top customers. For example, customers that will order in the range of single-digit millions to, potentially, more than $10 million a year. Yes. So we are mainly focused on those larger customers. And we actually started testing, engaging with them last year. Last year was really when everyone tried to change the supply chain. And I think if a major drones manufacturer has not changed the supply chain by now, I think it is almost a bit too late. So a lot of the testing engagement started last year.

And then now we are just in the final stage of converting the lines. For example, right now in Boston, we can make a pilot scale, less than 100,000 cells per year. In Korea, we can make about 200 to 300 cells per year. We are trying to expand that. And then in Southeast Asia, we are also looking to expand to several million cells per year. These are all NDAA-compliant cells for drones customers.

Colin Rusch: Excellent. And then, you know, obviously, you had some really meaningful success at the molecule level leveraging some of the AI capabilities. I am curious about your ability to leverage some of that know-how into pack-level design and even into system integration design and modeling out some of the duty cycles that may be just accelerates with the adoption as you look at some of the robotics and drone opportunities.

Qichao Hu: So you are saying how we can apply this to pack level and sub cell level?

Colin Rusch: Yeah. You know, at the pack level and even the system-level design, you know, up beyond, yeah, that pack level.

Qichao Hu: Yeah. Yeah. We are starting to add that feature. We have got some request from automakers that want to do the design and then Predict features at the pack and system level. So we are adding those features. And then also for energy storage, right now, we are adding molecular universe Predict into the systems. So the Predict, we put that in a small box. We call that edge box. And then that works at a cell level and also the pack and system level.

Colin Rusch: Excellent. Thanks so much, guys.

Qichao Hu: Thanks.

Operator: Thank you. Next question comes from Mark Shooter with William Blair. You may proceed.

Mark Shooter: Hey, Qichao. Thanks for taking my questions here. I believe I heard you say that the auto OEM JVs are on hold. Could you clarify that a bit? And then I am seeing that the industry is, especially the auto industry, is trying to move away from lithium metal. However, at the same time, I am seeing some local competitors actually enter the public markets here with their lithium metal product. So has any of the engagement appetite with your OEM customers changed around lithium metal? I mean, how are you looking at this?

Qichao Hu: So, I mean, we were developing pure lithium metal as well as hybrid lithium metal and then silicon anode. Then we met all the technical requirements. It is just in terms of OEM appetite for high energy density batteries, I would say back in 2021, the appetite for high energy density batteries was very high. But now, and that is still there, but maybe at R&D level, A-sample level, and demo car level, but not at C-sample level, which is, like, mass production. And I am not seeing any auto OEMs that are going to mass production with a next-gen chemistry. There is a lot of price pressure, cost pressure, and most OEMs are switching to just LFP graphite.

Mark Shooter: Yeah. Okay. And that makes a lot of sense. And that justifies what we are seeing too. So that confused me a bit. But switching gears to the ESS market, which is rapidly growing. That is a fragmented market with many different levels to it. And I am wondering what do you see as the most value add? What is the strategy for the UZ Energy acquisition? And what section of that energy storage market would you play in, and why are you most advantaged to that section?

Qichao Hu: Yeah. Yeah. Exactly. The ESS market is very fragmented. It has got a long tail. And the benefit that we bring—so the ESS market currently does not have a stable widespread operating system. Maybe except for Tesla, but in the U.S., it is Tesla and then a long tail. Very fragmented. So what we can provide is almost like the Android version. And then, so for commercial industrial and then for data center applications, the asset owners actually want to use their battery packs for energy trading, but they are not able to do that. And they are not able to differentiate if they use conventional virtual power plant softwares.

So what we can do is, because we actually collect the data from the battery, we can have a very accurate estimation of state of charge, state of health, state of safety, degradation, power, all these different features. What that means is when you do the trading, it is supply and demand. Demand is set by the market, by weather, by if there is any major sporting events. But the supply, that is set by accurate estimation of SOX, and then that we can provide. So that is where this edge box enhanced virtual power plant really, really shines.

So I think the value that we can provide is we can provide this operating system to not just UC's battery packs, but to multiple of this long tail, this fragmented market.

Mark Shooter: Great. Thanks, Qichao.

Operator: There are currently no other questions queued, so I will pass it back over to Kyle Pilkington.

Kyle Pilkington: Thank you. As with in past earnings calls, we offered investors the opportunity to submit questions in advance, and we will cover a brief selection of those questions now. The first question is, is there a binding definitive agreement with Top Material yet, and can you generally provide some details on current NDAA compliance status?

Qichao Hu: Yeah. So Top Material is one of the options we are exploring. And then as I mentioned earlier, we have had this Korea facility since 2021. It has been NDAA compliant since 2021. And then we are focusing on converting this to produce drones batteries. And then in addition to our own Korea facility, we are also looking at options in Southeast Asia, and then potentially offer better pricing, better value, and a larger scale to customers. And again, they are all NDAA compliant. And actually, we just updated our website, and now we have updated drones battery product brochure that is on the website. So and then the cells are NDAA compliant.

Kyle Pilkington: Great. I think we have time for one more. So the question is, with Wildcat and BMW and AONIX and Porsche securing JDAs for AI-driven materials, how is SES AI Corporation protecting its molecular universe data advantage to ensure it does not lose OEM partners to these specialized private competitors.

Qichao Hu: So I think we announced that we are offering molecular universe to the public mid last year after these other announcements were made. And then with universe, we look at the latest version of universe 1.5, and we have a 2.0 coming out soon, it really is a game-changing platform for actually development in the EV space. So we are seeing a lot of the OEMs and the big battery companies actually using this platform.

Kyle Pilkington: Great. Thanks. That is all we have for the investor questions. I will pass it back to the operator to conclude the call.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your line.

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