Solid Power, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance. For additional discussion, see “Cautionary Note Regarding Forward-Looking Statements” above. The forward-looking statements are dependent upon events, risks, and uncertainties that may be outside of our control. Our actual results could differ materially from those Solid Power, Inc. | 2024 Form 10-K | 35 Table of Contents discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Report under “Part I, Item 1A. Risk Factors,” as such descriptions may be updated or amended in future filings we make with the SEC. Unless indicated otherwise, the following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated statements and notes thereto in this Report. We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law. Overview Solid Power is a U.S.-based leader in solid-state battery technology and manufacturing processes. Our core technology is a sulfide-based solid electrolyte material, which replaces the liquid or gel electrolyte used in traditional lithium-ion battery cells. We believe our electrolyte technology has the potential to enable a step-change improvement in battery cell performance beyond what is currently achievable in conventional lithium-ion battery cells, including improved energy density, battery life, and safety performance. We are currently targeting the EV market due to the size and perceived demand for next generation battery technology but believe our technologies can have a broader application as they mature. Key Factors Affecting Operating Results We are a research and development-stage company and have not generated significant revenue through the sale of our electrolyte or licensing of our cell designs. Our ability to commercialize our products depends on several factors that present significant opportunities but also pose material risks and challenges, including those discussed in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this Report, which are incorporated by reference. Prior to reaching commercialization, we must improve our products to ensure they meet the performance requirements of our customers. We also will have to continue to negotiate commercial agreements with our customers on terms and conditions that are mutually acceptable. To satisfy anticipated demand, we will need to scale production of our electrolyte. All of these factors will take time and affect our operating results. Since many factors are difficult to quantify, our actual operating results may be different than currently anticipated. Revenue generated to date has primarily come from performance on research and development licensing agreements and government contracts. We will need to continue to deploy substantial capital to expand our production capabilities and engage in research and development programs. We also expect to continue to incur administrative expenses as a publicly traded company. In addition to meeting our development goals, commercialization and future growth and demand for our products are highly dependent upon consumers adopting EVs. The market for new energy vehicles is still rapidly evolving due to emerging technologies, competitive pricing, government regulation and industry standards, and changing consumer demands and behaviors. Basis of Presentation We currently conduct our business through one operating segment. As a research and development company with no commercial operations, our activities were conducted primarily in the United States as well as Republic of Korea. Our historical results are reported under U.S. generally accepted accounting principles (“GAAP”) and in U.S. dollars. Results of Operations During the year ended December 31, 2024, we increased capital and operational investments centered on expanding our electrolyte capabilities and advancing our cell designs. Our most significant capital investment in 2024 was the EIC, which is designed to develop, improve, and test electrolyte manufacturing processes. Our operational investments were focused on the strategic enhancement of our research and development workforce, strengthening our presence in the Republic of Korea, as well as efforts to improve electrolyte and cell performance. Revenue We have entered into various collaborative arrangements for research and development efforts related to our technologies. In 2024, we generated revenue of $20.1 million, which represented a $2.7 million, or 16%, increase compared to our 2023 revenue of $17.4 million. This increase was driven primarily by our performance on the SK On Agreements, with strong execution on the line installation agreement and completion of key steps in the transfer of our technology, which together accounted for $11.8 million of our 2024 revenue. We intend to continue executing on the SK On Agreements and anticipate an increase in revenue in 2025 as we achieve Solid Power, Inc. | 2024 Form 10-K | 36 Table of Contents milestones under the SK On Agreements. The decrease in government revenue in 2024 was related to the completion of certain government grants in 2023 and the timing of entry into the Assistance Agreement with DOE. While there can be no assurance that we will continue to receive funding under our government contracts and grants in the amounts we expect or at all, government revenue may increase in 2025 compared to 2024 as we execute on the Assistance Agreement and begin facility engineering and construction of a pilot electrolyte line using a continuous manufacturing process. ​ Operating Expenses ​ Our operating expenses consist primarily of research and development costs focused on improving the performance of our electrolyte and cell designs. In 2024, operating expenses were $125.5 million, an increase of $17.5 million compared to our operating expenses of $108.0 million in 2023. This increase was largely attributable to a 30% increase in electrolyte production in 2024 compared to 2023. This resulted in a corresponding increase to our production costs, such as materials, lab supplies, and hazardous waste removal. In 2025, we expect production costs to be consistent with 2024. Although we anticipate increasing electrolyte production in 2025, we intend to offset the increase in production cost with more favorable pricing on input materials and hazardous waste disposal. The increase in operating expenses in 2024 also resulted from equipment purchases made in the performance of the SK On Agreements, which accounted for $8.2 million of our operating expenses in 2024. In 2025, we expect expenses associated with the execution of the SK On Agreements to increase in correlation with an increase in revenue as we achieve the next milestones under the SK On Agreements. Additionally, we had an increase in costs related to scaling our operations in the United States and the Republic of Korea in 2024. Overall, we expect operating expenses to increase in 2025 compared to 2024 as we continue to focus on our collaborative arrangements and research and development efforts. ​ Nonoperating Income and Expense ​ Our nonoperating income and expense consists of interest income earned on our investments, the non-cash change in our fair value of our warrant liabilities, and non-recurring expense items. In 2024, nonoperating income and expense was $10.1 million, a decrease of $15.0 million compared to our nonoperating income and expense of $25.1 million in 2023. This decrease was driven in part by the reduced cash balance of our investments in 2024, which resulted in a lower actual book return of our investments. As a result, interest income in 2024 was $17.7 million, a decrease of $2.6 million compared to interest income of $20.3 million in 2023. The decrease in nonoperating income and expense was also due to a change in the fair value of our warrant liabilities that drove a year-over-year increase in expense of $9.4 million as well as a $2.0 million non-cash loss on the disposal of assets. ​ Liquidity and Capital Resources Sources of Liquidity The sale of equity has historically been our primary source of cash, with a smaller portion of cash coming from achievement of performance milestones under agreements with our partners and our government contracts. As of December 31, 2024 and 2023, we had total liquidity as set forth below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ (in thousands) ​ 2024 2023 ​ Cash and cash equivalents ​ $ 25,413 ​ $ 34,537 ​ Available-for-sale securities ​ 302,057 ​ 381,071 ​ Total liquidity ​ $ 327,470 ​ $ 415,608 ​ ​ As of December 31, 2024, contract receivables were $1.4 million, deferred revenue was $3.2 million, and total current liabilities were $20.0 million. As of December 31, 2023, contract receivables were $1.6 million, deferred revenue and deferred revenue from related parties was $0.8 million, and total current liabilities were $15.9 million. ​ Short-Term Liquidity Requirements Our short-term liquidity requirements include operating and capital expenses needed to further our research and development programs and to install our continuous electrolyte production line. We anticipate that our most significant capital expenditures in 2025 will relate to facility engineering and construction of a pilot electrolyte line using a continuous manufacturing process and improvements to our cell development capabilities. Solid Power, Inc. | 2024 Form 10-K | 37 Table of Contents We anticipate our total combined capital expenditures and cash flow from operations for 2025 will be between $100 million and $120 million, excluding any benefit from the Assistance Agreement. We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets. Long-Term Liquidity Requirements We believe that our cash on hand is sufficient to meet our operating cash needs and working capital and capital expenditure requirements for a period of at least the next 12 months. Longer-term, we believe we have adequate liquidity to support our operations until we generate adequate cash flows from electrolyte sales and/or licensing activities or we raise additional capital. We also believe that we have adequate cash on hand for our stock repurchase program should we choose to execute additional share repurchases. We may require additional liquidity sources if there are material changes to our business conditions or other developments, including changes to our operating plan; development progress or delays; negotiations with OEMs, cell manufacturers, or other customers; market adoption of EVs; supply chain challenges; competitive pressures; and inflation. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. We also may opportunistically seek to enhance our liquidity through equity or debt financing, if such financing becomes available to us on terms that we consider favorable. If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects. Stock Repurchase Program On January 23, 2024, we announced that our Board approved a stock repurchase program authorizing us to purchase up to $50 million of our outstanding common stock. Under the stock repurchase program, we may purchase shares of our common stock from time to time until the repurchase program expires on December 31, 2025. The shares of common stock may be purchased on the open market, in unsolicited negotiated transactions, or in any manner that complies with the provisions of Rule 10b-18 of the Exchange Act. Management’s decision to repurchase shares will depend on a number of factors, such as the price of our common stock, economic and market conditions, and corporate and regulatory requirements. During the year ended December 31, 2024, we repurchased 5,704,401 shares of common stock at an average cost of $1.59 per share for an aggregate cost of approximately $9.07 million. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2024 2023 Net cash and cash equivalents used in operating activities ​ $ (63,899) ​ $ (58,261) Net cash and cash equivalents provided by investing activities ​ ​ 64,204 ​ 42,502 Net cash and cash equivalents provided by (used in) financing activities ​ ​ (9,429) ​ ​ 173 ​ Cash used in operating activities: Cash used in operating activities increased $5.6 million from 2023 to 2024 primarily due to increased research and development costs related to improving our electrolyte and cell designs and increased electrolyte production. The increase in cash used in operating activities was also due to increased direct equipment costs associated with execution of the SK On Agreements, with a portion of these costs reflected in Prepaid expenses and other current assets in the Consolidated Balance Sheets as of December 31, 2024. The increase in cash used in operating activities was partially offset by increased cash received from customers, with $21.1 million of cash received from customers in 2024 compared to $12.6 million of cash received from customers in 2023. Cash provided by investing activities: Cash provided by investing activities increased $21.7 million from 2023 to 2024 primarily due to increased proceeds from purchases and sales of available-for-sale securities, which provided $86.8 million of proceeds in 2024 compared to $77.6 million of proceeds in 2023. The increase in cash provided by investing activities was partially offset by capital expenditures for construction of the EIC in 2024 and cash used for our investment in a strategic partner in the Republic of Korea. Solid Power, Inc. | 2024 Form 10-K | 38 Table of Contents Cash provided by (used in) financing activities: Cash used in financing activities increased $9.6 million from 2023 to 2024 primarily as a result of cash utilized for the repurchase of $9.07 million of our common stock under the stock repurchase program. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements, as defined under SEC rules. Critical Accounting Estimates Our discussion and analysis of financial condition and results of operations are based on our financial statements included elsewhere or incorporated by reference in this Report. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. We base our estimates on past experience, technical analysis and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates. Our critical accounting estimates are those that materially affect our financial statements and involve difficult, subjective, or complex judgments by management. A thorough understanding of these critical accounting estimates is essential when reviewing our financial statements. We believe that the critical accounting estimates listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above. Valuation of Private Placement Warrant Liability Description Judgments and Uncertainties Effect if Results Differ From Assumptions ​ ​ ​ The private placement warrant liability is classified as a liability, in accordance with Accounting Standards Codification (“ASC”) 815 – Hedge Accounting, as they do not satisfy the criteria to be classified as equity based on the indexation criteria. Public and private warrants are recorded at their fair value at the date of issuance, and subsequently remeasured at each reporting period end. Any change in value is recognized through the consolidated statements of operations. Valuation of private placement warrants requires that we make significant judgments and assumptions related to the fair value based on the Black-Scholes model including term, stock price, volatility and the selection of guideline public companies, risk free rate and dividend yield. If we were to change our judgments or estimates used in valuation of private warrants, it could cause a material increase or decrease to the gain or loss realized from the change in fair value of private placement warrants, and to the underlying warrant liability. ​ ​ ​ ​ Solid Power, Inc. | 2024 Form 10-K | 39 Table of Contents Collaborative Revenue Description Judgments and Uncertainties Effect if Results Differ From Assumptions ​ ​ ​ We recognize revenue from our research and development collaboration agreements representing joint operating activities in accordance with ASC 808 – Collaborative Arrangements. These agreements include the following components: parties to the contract are active participants, both parties are exposed to significant risks and rewards, and both parties are dependent on the commercial success of the efforts under the contract. Our revenue recognition accounting methodology requires us to make significant estimates and assumptions, and to apply professional judgment. ​ Our collaborative arrangements are recognized over time using the input measurement method utilizing labor hours in relation to total labor hours anticipated to satisfy the combined performance obligation. ​ Collaborative revenues from cost-based contracts are recognized based on costs incurred during each period plus any earned fee. Contract costs include all direct labor, subcontract costs, costs for materials and indirect costs related to the contract performance that are allowable under the provisions of the contract. Collaborative revenues from fee-based contracts are recognized based on costs incurred to meet contractually defined milestones and deliverables along with our assessment of achievement of those measurable deliverables under the contract or based on appropriate over time methods. ​ If we were to change our judgments or estimates, it could cause a material increase or decrease in the amount of revenue or deferred revenue that we report in a particular period. ​ ​ ​ ​ ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item. ​ ​ Solid Power, Inc. | 2024 Form 10-K | 40 Table of Contents