Ideal Power Inc. (IPWR) Q1 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Ideal Power First Quarter 2021 Results Conference Call. Today’s conference is being recorded. Following today's presentation, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Carolyn Capaccio. Please go ahead.

Thank you, Operator. Good. Thank you and good afternoon, everyone, and thank you for joining Ideal Power’s first quarter 2021 conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power’s first quarter 2021 financial results press release is available on the company’s website at idealpower.com. Before we begin, I’d like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects are forward-looking, and maybe subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company’s SEC filings for a list of associated risks. We would also refer you to the company’s website for more supporting industry information. Now, I will turn the call over to Ideal Power’s President and CEO, Dan Brdar. Dan?

Thank you, Carolyn. Good afternoon, everyone. And welcome to our first quarter 2021 financial results conference call. I’ll begin by giving you an update on our progress and achievements on our strategy to commercialize our B-TRAN semiconductor power switch technology. I'll also update you on our objectives for 2021, which are to complete multiple fabrication runs for the NAVSEA program, leading to a final device demonstration in mid-2022 and to complete the steps in our B-TRAN strategy to enable commercialization. Then Tim burns, our CFO, will take you through the numbers. During the first quarter, we made continued progress toward our 2021 B-TRAN commercialization objectives, and we're on track to make our prospects for B-TRAN, as a differentiated technology, addressing a large and growing market a reality. Let's begin with our work with the US Navy. For those of you who maybe new to Ideal Power, we're working with the Naval Sea Systems Command or NAVSEA, in collaboration with Diversified Technologies or DTI on the development and demonstration of a B-TRAN enabled direct current medium voltage circuit breaker, as part of the US Navy's strategic focus on ship electrification. In the second quarter of 2020, we signed a $1.2 million subcontract with DTI and the contract is funded under the Department of Defense’s Rapid Innovation Fund. The purpose of which is to accelerate the commercialization of high-value high-impact technologies. Our project with DTI for NAVSEA is intended to develop and demonstrate a B-TRAN enabled high-efficiency 12-kilovolt medium voltage direct current circuit breaker for the US Navy, with a subsequent objective of introducing a family of medium voltage DC circuit breaker products, incorporating B-TRAN for sale to the military, industrial and utility markets. The first major milestones under the program are complete and evolve successful wafer fab fabrication runs, conducted by Teledyne, our fabrication partner. We tested and selected wafers from those runs for dicing and packaging into B-TRAN devices and incorporated the results from the runs into device and manufacturing process improvements for subsequent runs. For die from the most recent run, we package the die, utilizing a new packaging design, developed by the University of Texas at Austin's Semiconductor Power Electronics Center, which I'll discuss in more detail later on the call. We began the next fabrication run with Teledyne in April, and we expect this run to finish later this quarter. The completion of this fabrication run is the next major milestone under the program. As you can see, the development process is iterative, performing multiple wafer fabrication runs to assess trade offs between maximum theoretical device performance and manufacturability and incorporating our findings and adjustments into the next run. The objective of these successive fabrication runs is to optimize the device design for performance and manufacturability and we plan a total of five runs over the two year program, aiming to deliver an optimized device near the end of the year with the final demonstration of a 12-kilovolt medium voltage DC breaker in mid-2022. The project is regularly reviewed by the Navy, and we continue to make solid progress toward the program objectives. As I mentioned under the NAVSEA program, the University of Texas at Austin's Semiconductor Power Electronics Center initial design of a new B-TRAN device packaging in a collaboration with a commercial packaging firm, the UT Austin design was recently modified to enhance its ability to be manufactured in high volume to incorporate the size, electrical connections, form factor and thermal management, required to integrate a semiconductor device into an end user product design. The packaging firm fabricated the packaging materials and assembled trial packages to ensure good mechanical fit and ease of assembly. Those trial assemblies went well and as I previously mentioned, they subsequently package die from the second fabrication run under the NAVSEA program. These packaged devices are now undergoing testing and characterization, using the new device driver also designed by UT’s Semiconductor Power Electronics Center. This packaging design will be utilized for future B-TRAN dies under both the NAVSEA program and our customer engineering prototype sampling program and resembles those commonly available for commercial IGBTs, which we believe can speed customer adoption. The Navy has made ship electrification, a high priority initiative, as it can significantly enhance the energy efficiency of ship operations, improve their operational flexibility and lower operating costs. Distributed power on ships, makes them less vulnerable to attack by lowering their noise signature and enhancing their stealth capabilities, and B-TRAN technology offers substantial size, heat, and loss reduction over continuously conducting semiconductor devices such as IGBTs without using complex, large and heavy liquid cooling systems. We're very excited about the progress being made under the NAVSEA program, and this progress continues to benefit our overall validation and commercialization efforts. In addition to this program with the US Navy, we're pursuing other opportunities for government funding. The Department of Energy recently issued a new round of solicitations and in collaboration with both existing and new partners, we submitted multiple proposals for government funding this quarter. Our efforts in this area were aided by our February hiring of a new Vice President of Business Development, with an extensive network in the electric vehicle and renewables markets that enabled us to attract the attention and collaboration of several potential partners for these opportunities, representing diverse applications, including electric vehicles, UPS systems and power converters for renewable energy applications. Partnering for government funding opportunities may lead to the development of additional B-TRAN naval products and further commercial opportunities. We recently released a B-TRAN information sheet, which is available on our website that provides the technical community with detailed information on B-TRAN operating characteristics, as well as information regarding the packaging and driver design and operation. This serves as the fundamental technical information for Ideal Powers customer sampling program and is being used to facilitate potential customers' technical evaluation of the device. We're currently engaged with a wide variety of companies in our business development efforts. We hope to be able to name some of the companies in the future. We do want to give you a flavor of who some of these companies are or what they do. Our discussions, include two of the world's largest automobile manufacturers who are interested in the potential of B-TRAN for use in EV-traction drives. Our engagement with them and their technical teams is very promising for the long-term benefit B-TRAN can bring the EV market. Our automotive companies move slowly in the adoption of new technology. The feedback we've received from their technical teams has been very positive. And we're impressed by the size of the teams and resources they're bringing to these evaluations. We're also in discussion with one of the world's largest providers of power converters for solar energy. Our low loss and by directionality are of particular interest as solar is increasingly being coupled with energy storage. Our business development team is also engaged with several companies that supply electronic traction and propulsion systems, variable Frequency motor drives and battery chargers to the EV and locomotive market. Another company is a Global Fortune 500 company that provides a wide range of power products, and is looking at B-TRAN for their EV charging systems. We're also engaged with multiple companies that provide DC-to-DC and AC-to-DC power supplies for an industrial, military, medical and EV applications. While each of these will progress at their own pace, we're seeing significant resources being brought to the evaluation from both large and small companies. We will continue to add more companies to this pipeline in the coming months as we raise the visibility of B-TRAN within the potential power equipment manufacturers. Not all these engagements will result in a formal agreement. Some may want a different type of commercial arrangement, while others may ultimately want a product configuration, different than what we're currently providing the sampling program. As the program gathers momentum and we gather more device feedback will determine a set of common requirements across applications that can then be incorporated into an intelligent power module. Offering an intelligent power module, rather than the discrete device should accelerate B-TRANs commercial adoption and we're on track to bring this module to market in 2022 as part of our B-TRAN commercialization. Crucial to the next phase of device development and optimization is bringing additional talent and leadership in-house. After hiring Jeff Knapp, as our VP of Business Development in February, we announced last week that we made another key hire naming Dr. Jiankang Bu, our Vice President of Engineering. Jiankang is an accomplished engineer and power semiconductor device design leader with 20 years of experience in leading every aspect of power semiconductor development, including power semiconductors, for electric vehicles and hybrid electric vehicle applications, as well as significant experience with conventional power semiconductor devices such as IGBTs and MOSFETs. He also has significant experience working with semiconductor foundries and wafer processing. He has authored and co-authored numerous publications and has over 30 patents to his name. Jiankang will further expand our in-house expertise and direct the continued advancement of our B-TRAN technology and products, including the design of intelligent power module we will offer for commercial sale. To ensure sufficient supply capacity for the large potential customers and to mitigate supply chain risk, we began the process of qualifying a second domestic semiconductor fabrication partner. We completed our technical screening of wafer fabrication companies and selected a fabrication partner for qualification runs scheduled to start later this month. We expect this run to be completed next quarter. In addition to mitigating supply chain risk having a second fabrication partner also gives us more flexibility to provide both devices and data that are not subject to the restrictions of our ITAR and confidential requirements of the NAVSEA program. The wafer fabricator, we're qualifying has stronger experience making bipolar devices, and we look forward to reporting our progress with them, in addition to our continued work with Teledyne. We made significant progress in assembling all the essential elements, needed to support B-TRAN through customer engineering sampling and into commercialization. This year we strengthened our balance sheet, added highly qualified power semiconductor business development and engineering leaders to the team, develop new packaging and driver designs, completed a major milestone under the NAVSEA program, signed sampling agreements with new partners and build a strong pipeline of new customer engagements that includes large automobile companies, renewable energy equipment providers and power supply manufacturers for a wide range of applications. Looking at the B-TRAN patent estate, we currently have 62 issued B-TRAN patents, with 25 of those issued outside of the United States, and 22 pending B-TRAN patents. During the first quarter, we had our first patent issuance in South Korea. Our current geographic coverage now includes North America, China, Japan, South Korea and Europe, with the potential to expand coverage into India. Our focus for 2021 remains twofold, to retrieve our milestones, under the NAVSEA program, with a target of delivering an optimized device near year-end for corporation into the demonstration of a 12 kilovolt MVDC breaker in mid-2022 and to complete the steps in our B-TRAN strategy to enable commercialization, in 2022. Our recent submissions to the DOE and other government entities underscore our collaboration with DTI in the NAVSEA project has potentially catalytic, broadening our access to a wide range of opportunities to demonstrate B-TRAN's power semiconductor performance characteristics, over conventional power switches, including bi-directionality, higher efficiency and lower cooling requirements, and that smaller OEM product designed, as a potential high impact technology for a variety of applications. We look forward to being able to discuss customers, the customer sampling program participants in more detail, as we put additional sampling agreements in place, in the coming months, in order to gather feedback from customers that will be used to prepare the intelligent power module, for initial commercial sales in 2022. We're excited about the number and caliber of companies would engage with us on our business development efforts. We're focused on high growth addressable segments within the overall $6 billion IGBT market, that we plan to target for initial commercial sales, including electric vehicles, electric vehicle charging, solar and wind energy, energy storage and data center on an uninterruptible power supplies. We're looking to establish strategic, developmental, commercial partnerships, building commercial momentum and laying the foundation for future B-TRAN revenue streams. We'd like to remind everyone that the transition from sampling to commercial sales will vary by market segment and individual customers. And we expect to continue to add potential customers and applications to the engineering sampling program overtime, while simultaneously commercializing B-TRAN's for markets and applications already in the sampling program. Going forward, we'll announce sampling agreements, as we're able provide additional color on the types of companies in our commercial discussions and utilize our strong balance sheet in our efforts to establish relationships, as an attractive partner to major players in growing segments. Our R&D program will move in lockstep with customer sampling, incorporating feedback and refining our product offering and pursuit of initial commercial agreements, targeted to provide our first commercial revenue in the second half of 2022. We continue to progress well on our plans, as we focus on bringing a differentiated patented technology that can significantly improve the efficiency and economics of Electric Vehicles, EV charging, solar wind power, energy storage and data center UPS systems. We're particularly excited to be commercializing such an impactful technology, at a time when our target markets of Electric Vehicles, EV charging, renewable energy and data centers have such a robust long-term growth ahead of them. Now, I'd like to hand the call over to our Chief Financial Officer, Tim Burns for review of our first quarter of 2021 financial results. Tim?

Thank you, Dan. I will review first quarter 2021 financial results. In the first quarter, we recorded approximately $242,000 in grant revenue with offsetting cost of grant revenue, as we continued our work on the Navy funded NAVSEA demonstration project under the DTI contract, which began in mid-2020. Operating expenses in our net loss were flat at $0.9 million in both the first quarters of 2021 and 2020. First quarter 2021 cash used an operating and investing activities was $0.9 million, compared to $0.8 million in the first quarter of 2020. Our first quarter cash burn was consistent with the guidance we provided on our year-end call in March. We expect our cash burn to increase throughout 2021 as we invest in both sales and marketing in research and development. We expect the cash burn of approximately $1 million to $1.1 million in the second quarter of 2021 with an expectation of a full year cash burn of approximately $4.5 million. As previously reported during the first quarter, we raised $21.2 million in net proceeds through an underwritten public offering of common stock. In the first quarter, we also raised $3.3 million from the exercise of options and warrants. With our strengthened balance sheet, we will be better able to support and be a more attractive partner to the larger corporations that we expect to participate in our customer sampling program, as well as modestly build our internal research and development capability, and our product design team, which began with bringing on Dr. Jiankang Bu as our Vice President of Engineering. As an example we expect to bring driver design expertise in area where we're now relying on third parties in-house. Two, modestly build out our commercial team and front end talent to support our customer sampling program, and B-TRAN commercialization, engaging in additional domestic semiconductor fabrication partner, now that we're engaging with large companies in our customer sampling program, and for general corporate and working capital purposes. Cash and cash equivalents totaled $26.8 million at March 31, 2021. Our debt outstanding remains $0.1 million as of March 31, 2021, and represented a Paycheck Protection Program loan we received last year to temporarily subsidize payroll and facilities costs in the business landscape impacted by the COVID 19 pandemic. Earlier this week, forgiveness of our PPP loan was granted by the SBA. As a result, we no longer have any outstanding debts. As of March 31, we had 5,872,046 shares outstanding and 1,040,248 warrants outstanding. Including 430,937 stock options outstanding, our diluted shares outstanding was 7.3 million shares at March 31. Our balance sheet gives us ample liquidity, particularly given our planned continued modest cash burn to fund multiple years of operations. And we are well capitalized partner for the larger companies that we expect to participate in our customer sampling program. At this time, I'd like to open up the call for questions. Operator?

Thank you. [Operator Instructions] And first of all go to Shawn Severson with Water Tower Research.

Hello. Thanks for taking my questions guys. I just wanted to go back to the EV opportunity and expand on that a little bit. Help me understand the value proposition that you're bringing as in maybe I'm not seeing quantify the enhanced performance or really what it's -- really the impact that would have on let’s say on EV's performance?

Yeah, based on the discussions that we're having with the EV folks, the real interest is the fact that we'll be trying does two things for them. One, that it's, it's bi-directional, so when you start looking at both attraction drive and regenerative braking systems having bi-directional power flows is really attractive to them, but more importantly, it's the lower losses associated with B-TRAN. The losses and electric vehicle, a substantial part of it are due to a semiconductor power switches. And if you look at the improvement that you can get with B-TRAN compared to a regular semiconductor, it directly translates into 7% to 10% more range out of the batteries on a vehicle. So it has a significant impact in terms of the range that you get out of the batteries which is the most expensive component on the electric vehicle.

And so is this something that looking at model years. I mean are we talking 2023, 2022 to help me give some perspective on the timing of it?

Yeah, we don't have better visibility to that yet. We have to understand a little bit further in terms of what the uptake cycle is for the automotive manufacturers. Their design cycles tend to be long. So we look at the EV space, we would expect to see deployment of B-TRAN and EV charging systems before we actually get them into automotive vehicles because there's a fairly long cycle of certification and evaluation that the automobile folks go through for any new technology.

Understood. Thank you.

[Operator Instructions] Moving on, we'll go to Don Slowinski with Winslow Asset Group.

Good afternoon. Thanks for taking my call. And congratulations on the progress you're making this quarter. Can you answer my auto range question, but I do have a couple of those if you don't mind. The additional government funding opportunities, if you could just go into a little bit more on the number of these opportunities, the timing and maybe the potential size?

Yeah we have three that are in the multimillion dollar range. One of which includes, it's basically a truck source inverter for wind energy. There's another one that is a UPS based incorporation of B-TRAN and a more advanced version of B-TRAN. And then the third one, I don't recall what is up top my head. And then, those are each potentially $2 million to $3 million a piece, and then we also submitted another proposal in collaboration with DTI because DTI is pretty happy with what we're doing on the Navy program for an AC circuit breaker. Now the timing of those are understanding as it selections get made sometime in the October, November timeframe. Now, the odds of these are always long. It's probably one in 10. But what's interesting is, for all the three big proposals, they are all new partners that we are participating with. So it's interesting how we're actually starting to see new and pretty significant players that want to collaborate with us for some of these opportunities as B-TRAN getting further advanced here, and as we've gotten validation as a result of the Navy program.

Okay, sounds good. And just one separate question in regards to form factor, you've stated in the past the size advantages to the B-TRAN technology, but at the same time you're stating that the size you're offering through the sampling program is the same as an IGBT. So sounds like there's a little bit of a disconnect there, but if you could clarify that strategy is it just so that you can get people to see something that's a same form factor, but then as you go down the road, you'll be able to get them to take advantage of the additional size or smaller benefits going forward?

Yes, sorry, there is confusion about that. The B-TRAN package device will be about the same size as an IGBT. But where the size factor comes in is in all power electronics, the size of the device is driven by the surface area that you need to dissipate the heat from the power switches. So it's the actual product that incorporates B-TRAN that can get smaller because you only have half as much heat you have to dissipate. So the surface area can be a lot smaller, which is what drives the size of enclosures for things like power converter. So it's really an overall product size shrank not just the size of the B-TRAN. So if you think about it, you're not going to get this performance improvement, but if you're making a power converter, for example, your enclosure which is typically one of the most expensive parts on the filler material gets smaller, the heat sinks, go into power converter, get smaller, the fans that typically are used to cool devices get smaller. So the size impact is really on the OEM product not so much to B-TRAN itself because of the lower heat that's generated.

To less thermal management parts or dedication size as well.

Exactly.

Okay. All right. That makes a lot of sense. Well, great job on the progress so far this year and look forward to talk to you soon.

Thank you.

[Operator Instructions] We will take our next question from David Schneider, Private Investor.

Hi. Just one question regarding the vehicle chargers. Out on highways and gas stations are currently installing chargers. So would your client go in a chargers that at people homes and apartment buildings or where do you think they would go?

For our product because of the fact that’s really well-suited for high voltage, I get most likely see them in the highway install chargers, particularly the fast charging installations where you really need to have the ability to also incorporate buffer batteries in case you are trying to charge a vehicle at times of peak demand on the grid.

Okay. I got that. Clearly that would be, you know, we have a chicken and egg issue regarding people buying electric vehicles versus the ability to recharge them. You need the recharging capability as more becomes available then there's less barrier for people to go and buy electric vehicles. So can you tell us anything that will get us over the fear that you may miss this window due to a rush of building the charging infrastructure?

Yes, the build out of the infrastructure is going to take years. You know, while there's been a lot that's invested -- it's still a fraction what it ultimately is going to be. When you think about over the longer term, electric vehicles right now are still a very small percentage of those that are out there. So the need for just that continued build out, as there gets to be more and more electric vehicles on the road is going to take a decade. And now we're actually starting to see support from the current administration and others from a policy standpoint, it's also going to drive some longer term infrastructure around the deployment of charging stations. So I think we are -- we may not have caught the very beginning of it. But I think it's certainly an investment, it's going to go in the infrastructure globally for many years to come.

Okay. That's good. The other thing is it's really quite interesting that when you did your stock offering it was such a small offering. And in the beginning of your conference call today, you discuss, really very small cash burn, and that you have enough cash left. I guess, from your words on figuring two to three years would that be right?

I would expect it to be longer than that. But, yeah.

Yeah. So it's, to me that's pretty amazing, having analyzed, literally hundreds and hundreds of companies over for my career, it's a pretty, it's just amazing. But on the other hand, your market cap is so small that most actively managed funds are helping your company say oh, this is so small, we can't even look at. So, in hindsight, if you had raised more money than you need more funds, can actually look at your company and on other side, but it's a good thing that you did not have to raise that amount. But it's just you're in an interesting situation.

We had an opportunity to raise more. I mean the offering was more than three times oversubscribed. But it's -- no matter what amount you raise, it's all dilutive to your existing shareholders. So we don't want to raise more money than we need to. And we wanted to have enough money, so we'd be viewed as a strong partner for some of the large companies, that we're currently engaged with. And if we need to raise money and somewhere down the road, as we continue to make progress, it can be at a much higher valuation. So it's just treating the shareholders better.

And moving on, we'll go to Cody Acree with Benchmark.

Hey guys. Thanks for taking my questions. I guess, to the last discussion about to ask and I guess, with Low Burn now that you do have the balance sheet, could you, if you expand that your engineering base. Could you accelerate any of these programs or take on new programs that may get you toward commercialization faster?

Yeah. It's one of the things that give us some flexibility. And I'll give you an example, some of the automobile makers that we're talking to, while we're bringing out a single package die, coupled with a driver for the Teledyne power module. The some of the automobile guys actually want a different configuration. They want a multi-dyed package. We have the capital now that if there was significant incentive on their part to go do something, we actually have the ability to actually go tackle something, like that, whereas before, we would have had to be very singular in terms of what we bring out. And we're also using that money to basically expand the capability of the team too. There's economics well so much, but it does give us flexibility in terms of who we engage with, what we can commit to do, and the capability that we can bring in-house that we've previously had to relying on for third-party services.

Has your balance sheet improved, when the balance sheets, open the doors for any engagement or any discussions, whereas any prior that we would have been viewed as maybe a little too at risk.

Yes. With some of the large companies, it was pretty clear early on and just from other CEOs that I've talked to that are small companies doing similar kinds of things and other industries. The large companies are reluctant if you don't have a strong balance sheet, because their concern is, while they might like your technology that in order to really see it, serve their purpose, you start to look to them as being your bank, and they just don't want that. They want to get technology that's driven in volume, so they get the benefit of the lower cost. But they're always leery of small companies if they're not well capitalized. So I think it's really helped us accelerate some of the engagement with some of the big players and open the door to a few new ones that we probably would have had a hard time getting their attention.

Got you. And then lastly, as you said a high level with the developments in the multiple end applications, you’re targeting – you’re markets targeting. Could you just give us your best shot on a walk to revenue? And any thoughts on which verticals may start to generate before others.

Yes. I would think that you're going to see both EV charging and renewable energy, particularly solar and solar coupled with storage first. I think you'll see the UPS systems come after that. And then lastly will be the electric vehicles themselves. Although the EV guys have the ability to spend money to do a significant volume for us in terms of just reliability testing and qualification of parts, but in terms of true revenue that that segment could generate that will be the last segment that I would expect to see revenue.

And I guess with new charging renewables, what is the window that you're shooting for, I guess, not to give the most prediction, but would you expect to be able to see that in either first half -- second half of 2022 or just a year in general.

We expect to see that to start to happen in the second half of 2022 and then ramp up into 2023.

Okay. Very good. All right, thank you, guys.

Sure, thanks.

And that concludes our question-and-answer session. I'd like to turn it back to management for any additional or closing comments.

Well, thank you everyone for joining our call today. Later this month, we'll be presenting at the 16th Annual Meeting Virtual Technology and Media conference. Everyone have a good day, and we'll speak to you again when we report our second quarter results. Thank you.

And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.