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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-27 · 104 added, 99 removed, 118 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

On February 3, 2022 (the “Closing Date”), SES consummated its previously disclosed business combination (the “Business Combination”).

Prior to the closing of the Business Combination, Ivanhoe Capital Acquisition Corp.

(“Ivanhoe”), a Cayman Islands exempted company, migrated out of the Cayman Islands and domesticated as a Delaware corporation (the “Domestication”) and changed its name to “SES AI Corporation.” On the Closing Date, SES AI Corporation and Wormhole Amalgamation Sub Pte.

Ltd., a Singapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe (“Amalgamation Sub”), consummated the Business Combination, which was accounted for as a reverse recapitalization.

Under this method of accounting, SES AI Corporation was treated as the “acquired” company for financial reporting purposes.

Except as otherwise provided herein, our financial statement presentation includes (i) the historical operating results of Old SES prior to the Business Combination;

(ii) the combined results of SES and Old SES following the Closing;

(iii) the assets and liabilities of Old SES at their historical cost;

and (iv) SES’s equity structure for all periods presented.

See “Note 3 – Business Combination” set forth in Part II, Item 8 of this Annual Report on Form 10-K, for additional information.

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.

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There can be no assurance that future developments affecting us will be those that we have anticipated.

Our actual results and the timing of events may differ materially from those expressed or implied as a result of various factors, including those set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, references in this section to “the Company,” “we,” “us” and “our” refer to the business and operations of SES Holdings Pte.

(“Old SES”) and its consolidated subsidiaries prior to the Business Combination and to SES 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.

We are a pre-commercialization stage company engaged in the development and production of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technologies for electric vehicles (“EVs”), Urban Air Mobility (“UAM”), which encompasses electric vehicle take-off and landing (“eVTOL”) technology, and other applications.

Our actual results and the timing of events may differ materially from those expressed or implied as a result of various factors, including those set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” 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.

We are a leading developer and manufacturer of high-performance, AI-enhanced Lithium-Metal and Li-ion rechargeable batteries for EVs, UAM, drones, robotics, BESS and other applications.

Our differentiated battery technology has been designed to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Lithium-ion (“Li-ion”) batteries and will help to promote the transition from the global dependence on fossil fuel-based automotive vehicles to clean and efficient EVs and help enable an era of electric transportation in the air.

Our mission is to facilitate the widespread adoption of sustainable electric transportation, both on land and in air, by creating best-in-class, high energy density Li-Metal batteries centered around long-range performance and safety.

To assist in achieving this mission, we have partnered with leading global original equipment manufacturers (“OEMs”), General Motors (“GM”), Hyundai Motor Company (“Hyundai”), and Honda Motor Company, Ltd.

(“Honda”), among other strategic partners, under joint development agreements (“JDAs”) to jointly develop and produce our Li-Metal battery cells and technology.

SES’s mission is to accelerate the world’s energy transition through material discovery and battery management.

To assist in achieving this mission, we have partnered with leading global OEMs, including GM, Hyundai, and Honda, among other strategic partners, under JDAs and service contracts to develop and produce our Li-Metal battery cells and technology.

We have transitioned from the development and production of A-Sample batteries to B-Sample batteries with specifications required by OEMs for their EVs.

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We are also conducting research and development activities to further improve the performance, quality and cost of our battery technology by focusing on the following key areas, all of which we expect to help us achieve our commercialization goal, at our facilities in Woburn, Massachusetts in the United States, Shanghai, China, and Chungju, South Korea.

These areas include:

These activities include:

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 and UAMs at a large, global scale.

We are developing processes and upgrading equipment to scale up the manufacturing of our current cell design from three to nine Ah capacity to 50 Ah and 100 Ah.

We are developing processes and upgrading equipment to scale up the manufacturing of our current cell design from three to nine Ah capacity to 50 Ah and 100 Ah capacity.

● Module and Pack Design :

Li-Metal cells must be integrated into modules and packs as part of their integration into vehicles.

Our active development efforts are focused on the integration of our Li-Metal cells in modules to enable our Li-Metal cells to perform as intended once they are integrated into modules and vehicles.

● Artificial Intelligence (“AI”) Software and Battery Management Systems (“BMS”) :

Software is critical to ongoing monitoring of battery health and safety.

Our active development efforts are focused on the integration of our Li-Metal cells in modules to enable our Li-Metal cells to perform as intended once they are integrated into vehicles.

● AI Software and BMS :

Software is critical to the ongoing monitoring of battery health and safety.

We continue to develop AI algorithms to diagnose battery cell-related health issues, develop 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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We continue to explore methods of recycling that are productive and cost-effective.

We continue to make improvements to our two A-sample production lines, one in China and one in South Korea, which are producing large 50 Ah and 100 Ah Li-Metal cells.

We expect to convert our third EV A-Sample production line dedicated for making cells for UAM applications.

In addition, we expect to launch our fourth and fifth production lines in 2024, which will be dedicated to B-sample EV cells.

Furthermore, in June 2023, we entered into a new lease for a facility near our Woburn facility where we have built an electrolyte foundry, which we started using in January 2024.

This facility will focus on novel electrolyte molecule discovery and synthetic pathway development.

As the joint development of Li-Metal batteries with our OEM partners continues to progress, we transitioned from A-sample to B-sample battery development in the last quarter of 2023.

We expect that this will lead to an increase in our headcount and footprint of our research and pre-production pilot facilities as we expand our existing facilities and enter into new facilities.

After B-Sample, we plan to transition to C-Sample in 2026, which we then expect to enable us to commence commercial production of our technology in 2027.

We expect this transition to commercial production to lead to future research facilities and, eventually, commercial production manufacturing facilities in the United States, which will significantly increase our materials consumption and the rate of cash utilization over time.

Finally, we expect to explore opportunities for partial vertical integration, both upstream and downstream, to ensure scalability of our battery cells and battery technology.

Upstream, we intend to explore integrating vendors of key materials of our cells and providers of key equipment and engineering capabilities, such as cell assembly, anode processing, chemical processing and safety testing.

Downstream, we plan to explore integrating providers of key engineering capabilities, such as battery state-of-health monitoring software, charging optimization software, battery module development and recycling.

Results of Operations

The discussion of our results of operations for the year ended December 31, 2021 can be found in “ Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission on March 16, 2023, which is incorporated herein by reference.

Factors Affecting Operating Results

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 to date, have spent $53.9 million, $42.2 million and $31.5 million on

research and development activities, which is prior to credits received by our OEM partners under the JDAs, and have incurred net losses of $53.4 million, $51.0 million, and $31.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, and had an accumulated deficit of $198.7 million and $145.3 million from our inception through December 31, 2023 and 2022, respectively.

Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate and our ability to generate revenue in the future that is sufficient enough 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.

The following table sets forth our operating results for the periods indicated:

Operating Expenses

Year Ended December 31,

The following table sets forth a comparison of our operating results for the periods indicated:

Years Ended December 31,

(in thousands)

Revenue from customers

Cost of revenue

Operating Expenses

Research and development

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Total operating expenses

Loss from operations

Further, we have incurred net losses of $100.2 million and $53.4 million for the years ended December 31, 2024 and 2023, respectively, and have an accumulated deficit of $298.9 million and $198.7 million from our inception through December 31, 2024 and 2023, respectively.

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.

Factors Affecting Operating Results

Revenue from Customers

In October 2024, we began to generate revenue from our principal business activities.

We generate revenue from two primary sources:

● Product revenue generally consists of Li-Metal battery cells and battery materials, such as electrolyte, sold to automotive OEMs and other manufactures .

● Service revenue generally consists of services for the design and development of Li-ion and Li-Metal battery materials in accordance with the customer’s specifications .

Revenue for the year ended December 31, 2024 was $2.0 million and was primarily attributable to service-related contracts from OEM and other manufacturers.

Cost of Revenue

Cost of revenue includes materials, labor, depreciation and amortization expense, inventory, freight costs, and other direct costs related to manufacturing our products and service contracts.

Labor consists of personnel-related expenses such as salaries, benefits, and stock-based compensation.

We anticipate that cost of revenue will continue to increase as we enter into new revenue contracts.

Cost of revenue for the year ended December 31, 2024 was $0.8 million primarily attributable to personnel costs.

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.

We are an early-stage growth company that has just begun the commercialization stage of development and conduct our business through one operating segment.

We have spent $81.5 million and $44.9 million on research and development activities, which is prior to credits received by our OEM partners under the JDAs during the years ended December 31, 2024 and 2023, respectively.

Research and development expenses consist primarily of costs incurred for personnel-related expenses, including salaries, benefits, and stock-based compensation expenses, 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.

Research and development expenses for the year ended December 31, 2024 increased $41.5 million, or 135.2%, to $72.1 million, compared with $30.7 million for the year ended December 31, 2023.

The increase primarily resulted from a $9.1 million increase in personnel costs mainly attributable to our growth in headcount to support our operations.

Further, there was a $5.1 million increase in facility costs due to rent, maintenance, utilities and depreciation expenses, a $3.3 million increase in expenses for lab consumables and material supplies to support activity in our research and pre-production facilities, a $1.1 million increase in professional fees and consulting costs, and a $1.5 million increase in other lab related services.

These increases were partly offset by a $2.8 million decrease of stock-based compensation expense that primarily related to the completion of the derived service period and the accounting for forfeited awards for the earn-out shares during 2023 , a $2.5 million decrease in computer and software development costs due to a change in project specifications and timelines , a $1.4 million decrease in JDA pass through costs, and a $10.7 million increase in credits to research and development expense from billings to our JDA partners .

We expect research and development expenses to significantly increase in 2024 compared with 2023 as we attempt to develop a battery cell with acceptable performance, yields and costs due to hiring, materials, engineering, and technical staff for product development, building prototypes and testing of battery cells.

The increase primarily resulted from a $14.6 million decrease in reimbursements from our JDA partners due to culmination of a couple of JDA activities.

In addition, there was a $10.5 million increase in lab consumables and material supplies and JDA equipment expenses, a $9.2 million increase in personnel costs mainly attributable to salaries, benefits and stock-based compensation expense associated with higher headcount to support new materials discoveries and all in on AI initiatives, and a $4.4 million increase in computer and software development costs due to AI infrastructure spend.

Further, there was a $2.7 million increase in facility costs due to newly commissioned electrolyte foundry .

We expect research and development expenses to remain consistent in 2025 compared with 2024.

Out-of-Period Adjustment

During the year ended December 31, 2023, an expense of $2.0 million related to Earn-Out Restricted Shares was erroneously reversed upon a former employee’s departure.

This misstatement resulted in an understatement of research and development expense by $2.0 million for the year ended December 31, 2023, as well as an understatement of additional paid-in capital as of December 31, 2023, by the same amount.

The Company corrected this misstatement during the year ended December 31, 2024, which resulted in a $2.0 million overstatement of research and development expense for the year ended December 31, 2024, with a corresponding impact on APIC.

The correction of $2.0 million is included in the increase of $9.2 million noted in the above paragraph.

In accordance with ASC 250 – Accounting Changes and Error Corrections, the Company evaluated the materiality of the misstatement from both quantitative and qualitative perspectives for the prior period errors and concluded that it was immaterial to both the prior period and the current period.

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.

Upon commencement of commercial operations, we also expect to incur customer and sales support and advertising costs.

General and administrative expenses for the year ended December 31, 2023 decreased $4.1 million, or 8.0%, $47.5 million, compared with $51.6 million for the year ended December 31, 2022.

This decrease primarily resulted from a $3.7 million decrease in insurance expense due to lower premiums incurred to cover potential liabilities under our indemnification obligations to our directors and certain officers of the Company compared to the prior year period, a $3.5 million decrease in transaction costs incurred in the prior year as a result of the Business Combination completed in February 2022 with no comparable costs in the current year period, and a $1.9 million decrease in marketing and public relations expenses due to a decrease in promotional events compared to the prior year period .

These decreases were partly offset by a $3.0 million increase in personnel costs mainly attributable to our growth in headcount to support our operations as a public company, $0.7 million increase of stock-based compensation expense that primarily relates to our annual grant of RSUs and PSUs issued in April 2023, and a $1.3 million increase in professional fees related primarily to increased accounting and audit related expenses, legal fees to support our operations as a public company, and recruiting and consulting services .

General and administrative expenses for the year ended December 31, 2024 decreased $9.1 million, or 19.1%, to $38.4 million, compared with $47.5 million for the year ended December 31, 2023.

This decrease primarily resulted from a $5.2 million decrease in personnel-related expenses, including stock-based compensation expense, that relates to lower stock-based compensation due to forfeitures from headcount reductions.

In addition, a $1.7 million decrease in general liability insurance costs due to lower rates, and a $3.3 million decrease in audit fees, legal expenses and professional and consulting fees due to change in auditors and nonrecurring prior period expenses.

These decreases were partly offset by a $1.0 million increase in rent and facility costs due to expansion of facility in our headquarters office and a $0.3 million increase in expenses related to investor relations, repairs and maintenance, and information technology services .

Non-Operating Items

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During the year ended December 31, 2024, we had interest income of $15.0 million compared with $16.7 million for the year ended December 31, 2023.

This $10.5 million increase was primarily due to an increased investment in marketable securities and higher interest rates during 2023 when compared with 2022.

This $1.7 million decrease was primarily due to a decrease in investment balances resulting from cash used in operations .

Change of Fair Value of Sponsor Earn-Out Liabilities

During the year ended December 31, 2023, we incurred a $6.8 million gain compared with a $25.4 million gain for the year ended December 31, 2022 associated with the change in fair value of the Sponsor Earn-Out liabilities.

This $18.6 million decrease in gain on the change in fair value of the Sponsor Earn-Out liabilities is tied to SES’s stock price.

During the year ended December 31, 2024, we incurred a $5.3 million loss compared with a $6.8 million gain for the year ended December 31, 2023 associated with the change in fair value of the Sponsor Earn-Out liabilities.

This $12.1 million decrease in gain on the change in fair value of the Sponsor Earn-Out liabilities is tied to SES’s stock price, continued volatility in the stock price or changes in the expected term.

See “Note 11 – Sponsor Earn-Out Liabilities” to the consolidated financial statements for additional information.

Miscellaneous Income (Expense), Net

During the year ended December 31, 2023, we had miscellaneous income of $0.4 million, compared with miscellaneous expense of $1.8 million for the year ended December 31, 2022.

This $2.2 million decrease in miscellaneous expense was primarily the result of the accounting for certain postemployment benefits recorded in the prior year, partially offset by unrealized and realized foreign currency loss primarily due to the strengthening of the Chinese renminbi and South Korean won compared with the U.S.

Benefit (Provision) from Income Taxes

Benefit from income tax was $0.9 million on pre-tax loss of $54.3 million for the year ended December 31, 2023 compared with income tax expense of $1.3 million on pre-tax loss of $49.7 million for the year ended December 31, 2022.

During the year ended December 31, 2024, we had miscellaneous expense of $0.5 million, compared with miscellaneous income of $0.4 million for the year ended December 31, 2023.

This $0.9 million increase in miscellaneous expense was primarily due to $0.7 million loss on sale of assets and $0.6 million of interest expense related to our unearned government grant liability that was not incurred in prior year.

These increases were partly offset by receipts of government subsidy, and unrealized and realized foreign currency gains due to the weakening of the Chinese renminbi and South Korean won compared with the U.S.

(Provision) Benefit from Income Taxes

Income tax expense was $0.2 million on pre-tax loss of $100.0 million for the year ended December 31, 2024 compared with an income tax benefit of $0.9 million on pre-tax loss of $54.3 million for the year ended December 31, 2023.

Our effective tax rate was (0.2)% and 1.6% for the years ended December 31, 2024 and 2023, respectively.

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Liquidity and Capital Resources

On February 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 of December 31, 2024, we had total cash and cash equivalents of $128.8 million, short-term investments in marketable securities of $133.7 million, and an accumulated deficit of $298.9 million.

As an early-stage growth company in the pre-commercialization stage of development, the net operating losses we have incurred since inception are consistent with our strategy and budget.

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.

To date, we have funded our operations through a combination of proceeds from the Business Combination and PIPE Financing and funding received through the sales of our redeemable convertible preferred stock.

These funds are expected to finance our principal sources of liquidity and ongoing costs, such as research and development relating to our Li-Metal batteries and the construction of additional manufacturing facilities.

In the future, if we are not able to fund our operations from cash flows generated from anticipated product sales, 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, issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions, as well as anticipated future revenue from product sales.

We believe that our cash on hand and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this Report, and also sufficient to fund us to commercialization.

However, additional funding may be required for a variety of reasons, including opportunities to build an integrated supply chain in the United States and delays in expected development of our Li-Metal battery cells.

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 an early-stage growth company that has just begun the commercialization stage of development, the net operating losses we have incurred since inception are consistent with our strategy and budget.

We expect to sustain substantial operating expenses, without generating sufficient revenues to cover expenditures, for a number of years.

Our ability to successfully develop our products and services, scale up our 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.

To date, we have funded our operations through a combination of proceeds from the Business Combination and subsequent equity private placement in 2022 and funding received through the sales of our redeemable convertible preferred stock.

We believe that our cash on hand and marketable securities resulting from these proceeds will be sufficient to meet our principal working capital and capital expenditure requirements and ongoing costs, such as research and development relating to our Li-Metal batteries and the construction of additional manufacturing facilities, for a period of at least 12 months from the date of this Annual Report on Form 10-K, as well as to full commercialization.

However, additional funding may be required during or after this period for a variety of reasons, including additional opportunities to purchase data and equipment to develop and train our AI models, develop commercial operations in the United States, business combinations or acquisitions, and delays in expected development of our Li-Metal battery cells.

If we need such additional funding beyond these existing short- to medium-term sources of liquidity, or if following commercialization, we are not able to fund our operations from cash flows generated from anticipated product sales, we expect that we will need to raise additional funds.

This may be through a variety of possible methods, including, but not limited to, entry into joint ventures or other strategic arrangements, issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions, as well as anticipated future revenue from product sales.

For more information about our at-the-market equity offering program with certain investment banks, through which we may offer and sell, from time to time, shares of Class A Common Stock having an aggregate offering price of up to $150.0 million, see “Part II, Item 9.B.

Other Information.”

Summary of Cash Flows

The following table provides a summary of our cash flow data for the periods indicated:

Year Ended December 31,

Years Ended December 31,

(in thousands)

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Effect of exchange rate changes on cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

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, expenditures and reimbursements related to our JDAs, and 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.

Our cash flows used in operating activities to date have been comprised of payroll, revenue from customers, consumables and supplies related to research and development, expenditures and reimbursements related to our JDAs, and facilities expense and professional services for general and administrative activities.

As we continue to grow as an early commercialization company, we expect our cash used in operating activities to increase before we start to generate any material cash inflows from our operations.

Net cash used in operating activities of $66.1 million for the year ended December 31, 2024 was primarily attributable to net loss of $100.2 million, as adjusted for non-cash operating items such as stock-based compensation expense of $19.9 million, depreciation and amortization expense of $8.3 million, accretion income from available-for-sale short-term investments of $7.2 million, a loss on change in fair value of Sponsor Earn-Out liabilities of $5.3 million, and a loss on sale of fixed asset of $0.7 million.

These non-cash operating items were combined with a $8.4 million working capital inflow.

The working capital inflow was driven primarily by a $7.6 million increase in accrued expenses and other liabilities and a $3.9 million decrease in receivable from related party.

These working capital inflows were partially offset by working capital outflows of a $2.2 million increase in prepaids and other assets and a $1.0 increase in accounts receivable.

The increase in accrued expenses and other liabilities was primarily due to accruals for purchases of equipment for a JDA, accrued income taxes payable, and payroll related accruals.

The decrease in receivable from related party was driven by cessation of activity from a JDA.

The increase in prepaids and other assets was primarily due to AI infrastructure license and rental advance payments, license fees for software, and advance payments for research agreements.

The increase in accounts receivable is due to outstanding balances for earned but unbilled revenue.

Net cash used in operating activities of $56.4 million for the year ended December 31, 2023 was primarily attributable to net loss of $53.4 million, as adjusted for non-cash operating items such as stock-based compensation expense of $20.6 million, accretion income from available-for-sale short-term investments of $11.1 million, a gain on change in fair value of Sponsor Earn-Out liabilities of $6.8 million, and depreciation and amortization expense of $5.5 million.

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The increase in accounts payable was primarily due to an increase in accounts payable related to the purchase of property and equipment for the South Korea and Shanghai facilities offset by a decrease in vendor payables .

Net cash used in operating activities of $46.5 million for the year ended December 31, 2022 was primarily attributable to net loss of $51.0 million, as adjusted for a gain on change in fair value of Sponsor Earn-Out liabilities of $25.4 million, stock-based compensation expense of $22.8 million, depreciation and amortization expense of $2.6 million and accretion income from available-for-sale short-term investments of $2.4 million, partially offset by a $6.4 million working capital inflow.

The working capital inflow was driven by a $6.8 million increase in accrued expenses and other liabilities and a $5.5 million decrease in receivable from related party, partially offset by a $4.0 million decrease in accounts payable and a $1.6 million increase in prepaids and other assets.

The increase in accrued expenses and other liabilities was primarily due to advanced payments received under the JDAs, accrued income taxes payable, payroll related accruals and the accounting of certain postemployment benefits.

The decrease in receivable from related party was driven by activity from a JDA.

The decrease in accounts payable was primarily due to the payment of transaction costs related to the Business Combination and PIPE Financing partially offset by an increase in accounts payable related to the purchase of property and equipment for the South Korea facility.

The increase in prepaids and other assets was primarily due to insurance costs to cover potential liabilities under our indemnification obligations to our directors and certain officers.

Investing Activities

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Investing activities include purchases of investments, maturities of investments, and purchases of property, plant, and equipment.

The change in net investments activities, combining purchases and maturities, as well as the change in capital spending are discussed below.

Purchases and Maturities of Investments – Net purchases of short-term investments were $48.5 million for the year ended December 31, 2023, compared with net proceeds from maturities of short-term investments of $281.4 million for the year ended December 31, 2022.

The $232.9 million decrease in net purchases was driven by the nature and time to maturity for the treasury securities included in our portfolio in the current year.

Purchases and Maturities of Investments – Net proceeds of short-term investments were $120.4 million for the year ended December 31, 2024, compared with net proceeds from maturities of short-term investments of $48.5 million for the year ended December 31, 2023.

The $71.9 million increase in net proceeds was driven by the nature and time to maturity for the treasury securities included in our portfolio in the current year and cash needs for operations.

Capital Spending – Capital expenditures were $12.2 million and $15.8 million for the years ended December 31, 2024 and 2023, respectively.

These expenditures primarily related to purchases of lab machinery and equipment, lab tools and instruments and leasehold improvements to our facilities in the United States, Shanghai and South Korea.

We expect capital expenditures to significantly increase in 2024 compared with 2023 as we continue to invest in the build out of our manufacturing pre-production facilities and expand into new facilities.

These expenditures primarily related to purchases of lab machinery and equipment, lab tools and instruments and leasehold improvements to our facilities in the United States.

We expect capital expenditures to decrease in 2025 compared with 2024 as we continue to spend on AI related infrastructure rather than invest in manufacturing equipment.

Financing Activities

Net cash provided by financing activities of $3.3 million for the year ended December 31, 2023 was primarily attributable to proceeds received from a government grant and proceeds from the exercise of stock options.

Net cash provided by financing activities of $289.9 million for the year ended December 31, 2022 related to proceeds received from the Business Combination and PIPE Financing, net of transaction costs, and from a government grant.

Net cash provided by financing activities of $1.0 million for the year ended December 31, 2024 was primarily attributable to proceeds from the exercise of stock options.

Net cash provided by financing activities of $3.3 million for the year ended December 31, 2023 related to proceeds received from a government grant and proceeds from the exercise of stock options

Contractual Obligations and Commitments

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(2) Operating lease obligations represent the fixed lease payments for the noncancelable lease term, fixed lease payments for optional renewal periods where the Company is reasonably certain the renewal option will be exercised, variable lease payments that depend on an underlying index or rate in effect at lease commencement, and future minimal lease payments for executed but not yet commenced lease agreements.

Off-Balance Sheet Arrangements

As of December 31, 2023, we had a letter of credit issued by a financial institution totaling $0.6 million.

The letter of credit relates to deposits the Company is required to maintain under one of its operating leases agreements.

We have restricted cash that serves as collateral for this outstanding letter of credit that is included in other assets on our consolidated balance sheet.

No amounts have been drawn under the letter of credit.

Recent Accounting Pronouncements

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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 financial statements.

Our significant accounting policies are described in “Note 2 – Summary of Significant Accounting Policies” of our

accompanying consolidated financial statements included in this Annual Report on Form 10-K.

Our significant accounting policies are described in “Note 2 – Summary of Significant Accounting Policies” of our accompanying consolidated financial statements included in this Annual Report on Form 10-K.

We consider the following to be our critical accounting estimates.

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If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of stock-based compensation expense reported.

Judgments and Uncertainties

Effect if Results Differ From Assumptions

Revenue Recognition

We recognize revenue within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).

ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

To achieve this core principle, we apply the following five-steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Satisfaction of the performance obligation based on percentage of completion or cost to completion basis, which determines the amount of revenue to be recognized using either the output method or the input method.

Both methods are used in our contract revenue recognition.

We use estimation and judgment to determine the proper allocation of labor and overhead costs to these contracts.

Direct materials, labor, and overhead costs are used to estimate total cost to complete for the contract.

Adjustments to this total cost to complete estimate impact revenue recognition since actual costs for the period compared to total estimated contract costs to complete is used to determine the satisfaction of performance obligations for revenue recognition

If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue reported.

Earn-Out Restricted Shares

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of stock-based compensation expense reported.

Judgments and Uncertainties

Effect if Results Differ From Assumptions

Sponsor Earn-Out Liabilities

Certain Sponsor Earn-Out Shares are accounted for as a derivative liability measured at fair value, with changes in fair value recorded in the consolidated statement of operations and comprehensive loss at each reporting period, because the earn-out events that determine the number of Sponsor Earn-Out Shares to be earned back by the Sponsor include events that are not solely indexed to the common stock of the Company.

Certain Sponsor Earn-Out Shares are accounted for as a derivative liability measured at fair value, with changes in fair value recorded in the consolidated statements of operations and comprehensive loss at each reporting period, because the earn-out events that determine the number of Sponsor Earn-Out Shares to be earned back by the Sponsor include events that are not solely indexed to the common stock of the Company.

The fair value of our common stock, which is 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.

We determine the appropriate fair value model (Monte Carlo simulation) to be used for valuing the derivative liability to record the change in fair value in our consolidated statement of operations and comprehensive loss, which may be impacted by the following assumptions:

We determine the appropriate fair value model (Monte Carlo simulation) to be used for valuing the derivative liability to record the change in fair value in our consolidated statements of operations and comprehensive loss, which may be impacted by the following assumptions:

expected volatility

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis