Solid Power, Inc. (NASDAQ:SLDP) Q1 2023 Earnings Call Transcript May 8, 2023

Operator: Greetings. Welcome to the Solid Power Inc., First Quarter 2023 Financial Results and Business Update Call. Please note that this conference is being recorded. I will now turn the conference over to your host, Jennifer Almquist, Investor Relations for Solid Power, Inc. Thank you. You may begin.

Jennifer Almquist: Thank you, operator, and thank you, everyone, for joining us today. Joining me on the call today are Solid Power’s Interim Chief Executive Officer, President and Chairman, Dave Jansen; and Chief Financial Officer, Kevin Paprzycki. A copy of today’s press release is available on the Investor Relations section of Solid Power’s website at ir.solidpowerbattery.com. I’d like to remind you that parts of our discussion today will include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Solid Power disclaims any duty to update any forward-looking statements to reflect future events or circumstances.

For a discussion of the risks and uncertainties that could cause actual results to differ materially from those expressed in today’s forward-looking statements, please see Solid Power’s most recent filings with the Securities and Exchange Commission, which can be found on the Company’s website at ir.solidpowerbattery.com. With that, let me turn it over to Dave Jansen.

Dave Jansen: Thank you, Jen, and good afternoon, everyone. I appreciate you joining the call today. I will start with an update of our recent achievements. I will then provide a brief view of what’s ahead before passing the call over to Kevin for a review of the financials. After that, I’ll provide some concluding remarks and open the call for questions. 2023 is off to a solid start. I’m happy to announce that we have officially begun powder production from our electrolyte production facility. Production began in April, marking an important milestone for our path to commercialization. We’ve also made progress with both our 20-amp hour and EV cell development and remain on track with our objective to deliver EV cells to our partners by the end of the year.

I want to take a moment to express my kudos to the team and convey the magnitude of effort it took to bring our electrolyte facility online. Since announcing the electrolyte facility or as we call it, SP2, in September 2021, our team has overcome a challenging supply chain environment to bring in equipment from all over the world. This includes tanks, mills, dryers, pumps and materials handling equipment to name a few. The team also worked through time consuming municipal construction approvals and permitting processes. For the last three months, in particular, the team has conducted in-depth environmental health and safety audits as well as site acceptance testing for all of the equipment and processes. All the while, team laid the foundation for safe production, establishing manufacturing and materials handling processes while also hiring the talent needed to produce powder at a greater scale.

In addition to the hard work at SP2, it’s important to note that the operations team in our Louisville, Colorado facility, or SP1, continue to produce electrolyte at around 200% of design capacity to ensure we have the powder our cell team needed. The position we’re in today was truly a full team effort and I’m very proud of the team’s strong execution in getting us there. So what’s next? As our first batches of powder roll off the production line, we will begin comprehensive testing to ensure the characteristics and quality of the product are up to our standards. Specifically, we are measuring our powder against 12 internal metrics centered around things like viscosity, dryness, conductivity and particle side. We expect this process to take a quarter or 2.

As we demonstrate our ability to meet these performance targets, we expect to begin phasing out large-scale powder production SP1 and transition that work to SP2 which will supply powder for our 20-amp hour and EV cell production. In addition, as demand increases, we can further increase SP2 production and will continue to optimize our processes and demonstrate full SP2 production capability. We do have a few pieces of equipment to upgrade over the next couple of quarters, which will help optimize and increase production volumes. Over the next 12 months, we are working to secure demand and increase our powder production to a rate to 2 metric tons to 3 metric tons per month. The first use of that powder is earmarked for our SP1 cell builds. Powder production over and above the level required by our cell development activities is intended for additional potential customers, including BMW’s solid-state prototype line.

While we grow production at our SP2 facility, we are simultaneously focusing R&D efforts on our next generation of electrolyte with a focus on conductivity, cost and performance. We are excited about the potential of this next generation of products, though it is a ways out from commercialization. On our last call, we discussed that we have been engaging potential customers for our electrolyte powder and making plans to deliver a sample product. The intent is to pave the way for future electrolyte supply agreements independent of our current partner activities. I want to take a moment to provide some additional color with respect to our strategy here. Specifically, I want to clarify the types of customers we are focusing on, how we’re prioritizing our efforts and the timing of potential commercialization of our current generation of electrolyte product.

With respect to potential customers, we are initially focusing on three primary groups: auto OEMs, current battery producers and developers of new battery technology. We speak to potential customers, both inside and outside of the automotive and battery industries frequently, including aerospace and defense, storage, alternative transportation, medical device and consumer electronics. However, to be clear, our immediate focus has been and will continue to be on the automotive industry. This is because automotive is such a large addressable market. Our partners are the intended end users from our current battery design. And the market generally is acting with a sense of urgency with respect to upgraded battery technology. Down the road, once we have fully developed product and established partners, we can begin to expand more aggressively and broadly into other battery reliant industries.

In terms of timing, while we’re excited about expanding our customer base, it will take some time. First, in order to begin sampling, we have to execute contracts to protect our intellectual property. Second, the companies we are talking with want to sample product produce at scale to ensure we have the ability to meet future demand. Third, after we have provided electrolyte samples, it will take time for potential customers to evaluate what we send them. Testing our product requires available production capacity at our customers’ battery production facilities. While many potential customers are excited to test our electrolyte, limited capacity within the organizations may delay their ability to test our product. It’s also highly probable that customers will have feedback on our power and additionally want to customize the characteristics of our product to suit their specific needs.

For these reasons, we believe it could be a year or two before we’re officially signing up new customers, which dovetails nicely with our time line for increasing production. Turning to cell development. With respect to our 20-amp hour sales, our team has continued to drive improvements in cell manufacturing processes. Over the last couple of quarters, yields for our 20-amp hour cells have increased to meet both our and our partners’ expectations. We’ve also seen greater consistency within the 20-amp hour cells we’re producing as we progress towards our commercialization targets. Our team brought online additional equipment and capabilities, including CT and X-ray technology that are important to the characterization and quality assurance. With these improvements, we are now better positioned to support our partners as they continue working with these cells for module development.

With respect to our EV cells, as we begin our shift towards EV cell production, our focus will be on optimizing assembly and carrying over the lessons learned from the 20-amp hour cells. By building on our 20-amp hour improvements, we believe we remain on track with our time line to provide A sample EV cells to our partners by the end of the year. That includes cells for BMW’s demo car program. There are still significant challenges ahead. Car cell production will bring increased complexity and quality challenges. We also have to integrate the SP2 powder. While we’re making good progress scaling the strong safety performance we saw in smaller cells, we could have faced additional challenges as we scale up to the EV cells. These types of challenges are expected and are what our team faces every day in developing world-changing battery technology.

To that point, we believe we are well positioned and continue to expect we will enter formal automotive qualification this year. With that, I will hand over to Kevin to take you through our financial results. Kevin?

Kevin Paprzycki: Thanks, Dave. Good afternoon, everyone. I’ll start off with an overview of our financial results and position. Then I’ll review our ’23 financial outlook and discuss our cash investments briefly. Our first quarter ’23 revenue of $3.8 million was in line with our expectations. In addition to government contracts, which have made up most of our historical revenue, we saw new revenue from our BMW agreement in the first quarter. First quarter ’23 operating expenses were $25.1 million, up $11.6 million from Q1 of last year. This increase represents our expansion of cell and electrolyte development efforts, which drove increased labor and materials and increased SG&A expenses to support our operations. Our first quarter ’23 operating loss was $21.3 million and net loss was $19.2 million.

Turning to our balance sheet and liquidity position. During the first quarter, we invested $19.7 million in operations and $11.6 million in CapEx. Most of this CapEx went towards our SP2 production facility as we progressed towards startup. Both operational and CapEx spending were well in line with our ’23 plan. We ended the quarter with total liquidity of $468.2 million, consisting of cash, marketable securities and long-term investments. Given the recent turmoil in the banking sector, I want to take a moment to give some color on our investments. All of our cash investments are held at leading global banks. These institutions have top-notch investment capabilities, strong balance sheets and solid credit ratings. These banking partners have helped us invest our cash into Grade A corporate and government securities with an average maturity of 15 months or less.

This is part of a laddered program that has helped us achieve cash yields in the neighborhood of 4% to 5%. Prior to last year, we had an agreement with Silicon Valley Bank that required us to use SVB for commercial banking. After this agreement ended, we migrated our cash to our current partners. At the time of SVB’s collapse, we no longer held any invested cash there. However, we did have a couple of million dollars that was moved to SVB for vendor payments when the bank’s assets were frozen. While those payments were delayed, it was freed up pretty quickly, and I’m glad to say we had no loss of cash. We feel confident in the global banking relationships we keep today and are glad to say we do not have direct exposure at the regional or local banking level.

Looking ahead to ’23, we are reiterating all of our guidance for the year. Just to reiterate, our revenue is expected in the range of $15 million to $20 million. Total combined cash investment in the range of $120 million to $140 million. And again, this breaks down into $70 million to $80 million of expected operational investment and a capital investment between $50 million and $60 million. This leaves us with expected liquidity in the range of $355 million to $375 million. With that, I’ll now turn the call back to Dave.

Dave Jansen: Thanks, Kevin. Before I turn the call over for questions, I want to quickly touch on the ongoing search for a permanent Chief Executive Officer. We continue to make good progress. And at this time, our Board is encouraged by the quality of candidates. We are being diligent throughout this process, and we look forward to sharing more with you when the time is right. In the meantime, we remain confident in the team we have in place. As we demonstrated in this quarter, Solid Power’s current team has the ability to drive shareholder value and become the leading producer of solid-state electrolyte. With that, let’s open it up to questions. Operator?

Q&A Session

Operator: Thank you. We will be now conducting a question-and-answer session. [Operator Instructions] Our first question comes from Mike Shlisky with D.A. Davidson. Please proceed with your question.

Operator: Thank you. Our next question is from Vincent Anderson with Stifel. Please proceed with your question.

Operator: [Operator Instructions] Our next question comes from Greg Pendy with Chardan. Please proceed with your question.

Operator: Thank you. Our next question is from Mike Shlisky with D.A. Davidson. Please proceed with your question.

Operator: Our next question is from Vincent Anderson with Stifel. Please proceed with your question.

Operator: There are no further questions at this time. I would like to turn the floor back over to Mr. Dave Jansen for closing comments.

Dave Jansen: Thank you, all, for joining us today, and we look forward to updating you again next quarter.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.