Solid Power, Inc.: Form 10-Q for the period ended Mar 31, 2024

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 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 and under “Part I, Item 1A. Risk Factors” of our 2023 Form 10-K, 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 results of operations and financial condition and liquidity relates to our current continuing operations and should be read in conjunction with the consolidated financial statements and notes thereto of this Report and our 2023 Form 10-K. 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 developing solid-state battery technology for EV and additional markets served by battery manufacturers.

Our core technology is our proprietary solid electrolyte material, which replaces the liquid or gel electrolyte used in traditional lithium-ion batteries. We believe that our electrolyte material can improve driving range, battery life, safety performance, and battery costs.

We are also developing solid-state cells with our electrolyte, with the aim of commercializing our technology by selling our electrolyte material and licensing our cell designs. This approach is capital light, unlike other battery manufacturers who require significant production facilities and equipment. This strategy allows us to focus on our core strengths of electrolyte production and solid-state technology development.

We currently produce our electrolyte on a pilot manufacturing line, which is used in our cell development and for customer sampling. We currently develop our cells on our two pilot lines, producing multiple cell sizes to both support our partners and refine cell designs. Longer-term, we expect our pilot lines to focus on research and development.

We have partnered with industry leaders BMW, Ford Motor Company, and SK On and will continue to work closely with our partners to improve cell designs, produce electrolyte material, and commercialize our technology. Our products are currently in the development stage and require further research and improvement before we can commercialize our technology.

Recent Business Highlights

• Entered into the SK On Agreements with strong early execution on technology transfer and line installation.
• Expanded electrolyte sampling with shipments to multiple potential customers.
• A-2 Sample cells remain on track with end-of-year delivery target.

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 for us 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 and safety requirements of our customers. We also will have to continue to negotiate licensing and supply contracts with our customers on terms and conditions that are mutually acceptable. We will need to scale production of our electrolyte material to satisfy anticipated demand.

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 we currently anticipate.

Our revenue generated to date has primarily come from performance on research and development licensing activities and government contracts. We continue to deploy substantial capital to expand our production capabilities and engage in research and development programs. We also expect to continue to incur significant 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 to date have been limited and were conducted primarily in the United States. Our historical results are reported under GAAP and in U.S. dollars.

Results of Operations

Comparison of the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

During the three months ended March 31, 2024, we continued to expand and accelerate our development efforts through increased capital and operational investments. We continued to invest in talent while expanding our facilities, production equipment, and capabilities. We expect to continue to increase our spending in all operational areas through the remainder of 2024 in order to execute our development strategy.

The following table is a consolidated summary of our operating results for the periods indicated:

(in thousands)

NM = Not meaningful

The key factors driving our results of operations for the three months ended March 31, 2024, including our increased operating loss as compared to the corresponding period in 2023, were as follows:

• Revenue – revenue from the execution of our JDAs and collaborative arrangement deliverables drove the overall increase for the period, while revenue from performance on government contracts decreased slightly. We expect revenue to increase in the remainder of 2024 as we execute on our deliverables under our JDAs and other collaborative arrangements.
• Direct costs – our direct costs decreased for the period primarily as a result of accelerated completion of JDA milestones. We expect direct costs to increase in the remainder of 2024 as we execute on our deliverables under our JDAs and other collaborative arrangements.
• Research and development – our research and development costs increased for the period primarily as a result of increased labor and material costs as we expanded the development efforts of our battery cells and electrolyte material. We expect our research and development costs to remain at increased levels as we continue increasing the pace and scope of our development efforts.
• Selling, general and administrative – our selling, general and administrative expenses increased for the period primarily due to additional use of outside professional services and additional planned hiring and workforce development associated with increasing our headcount. We expect our selling, general and administrative expenses to increase as a result of additional planned hiring and workforce development to, among other things, support our Korean operations.
• Operating expenses – non-cash stock-based compensation costs increased for the period across research and development costs and selling, general and administrative expenses related to our increased headcount.
• Nonoperating income – our nonoperating income increased for the period due to a decreased loss on fair value adjustment of warrant liabilities and an increase in interest income.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of cash have historically been derived from the sale of equity, with a small portion coming from performance on our JDAs, government contracts, and other collaborative arrangements.

As of March 31, 2024 and December 31, 2023, we had total liquidity, as set forth below:

(in thousands)

Short-Term Liquidity Requirements

Our short-term liquidity requirements include operating and capital expenses needed to further our research and development programs and to further optimize our pilot production lines and electrolyte manufacturing capabilities. We anticipate that our most significant capital expenditures for the remainder of 2024 will relate to finishing construction of our electrolyte research facility and enhancing the capabilities of our electrolyte production facility. 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 and longer term until we generate adequate cash flows from licensing activities and/or electrolyte sales. 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 need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, development progress, negotiations with OEMs, cell manufacturers, or other suppliers, market adoption of EVs, supply chain challenges, competitive pressures, inflation, and regulatory developments. 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 of common stock 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 three months ended March 31, 2024, the Company repurchased 3,186,638 shares of common stock at an average price of $1.52 per share for an aggregate cost of approximately $4.96 million.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented:

(in thousands)

Cash used in operating activities:

Cash used in operating activities increased from March 31, 2023 to 2024. The increase was primarily attributable to our operating loss, which was driven by a continued increase in direct and research and development costs. We expect cash used in operating activities to increase as we accelerate the pace and scope of our development efforts and work to achieve commercialization of our products.

Cash provided by (used in) investing activities:

Cash provided by (used in) in investing activities increased from March 31, 2023 to 2024 primarily due to net effect of proceeds from the sales of marketable securities and decreased capital expenditures for property, plant and equipment. As our production processes are scaled for commercialization, especially with respect to our electrolyte material, we expect capital expenditures to increase.

Cash provided by (used in) financing activities:

Cash used in financing activities for the three months ended March 31, 2024 was primarily related to the net effect of cash utilized for the stock repurchase program, partially offset by cash received from the exercise of stock options. Cash provided by financing activities for the three months ended March 31, 2023 was primarily from the exercise of stock options. We expect our cash used in financing activities to increase as we execute share repurchases through the remainder of 2024.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Estimates

There were no significant and material changes in our critical accounting policies and use of estimates during the three months ended March 31, 2024 as compared to those disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our 2023 Form 10-K.

Recent Accounting Pronouncements

See Note 2 of our unaudited financial statements included in this Report as well as Note 2 of our audited financial statements included in our 2023 Form 10-K for more information.

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.

Evaluation of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controls. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024.

Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2024 covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our business, prospects, reputation, results of operations, and financial condition, as well as the price of our common stock and warrants, can be affected by a number of factors, whether currently known or unknown, including those described in “Part I, Item 1A. Risk Factors” of our 2023 Form 10-K. When any one or more of these risks materialize from time to time, our business, reputation, results of operations, and financial condition, as well as the price of our common stock and warrants, can be materially and adversely affected. There have been no material changes to our risk factors since our 2023 Form 10-K.