Ideal Power Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

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. At this time, I would like to turn the conference over to Carolyn Capaccio. Please go ahead.

[Carolyn Capaccio:]

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.

[Dan Brdar:]

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.

[Tim Burns:]

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?

[Operator:]

Thank you. And first of all go to Shawn Severson with Water Tower Research.

[Shawn Severson:]

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?

[Dan Brdar:]

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.

[Shawn Severson:]

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?

[Dan Brdar:]

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.

[Shawn Severson:]

Understood. Thank you.

[Operator:]

Moving on, we'll go to Don Slowinski with Winslow Asset Group.

[Don Slowinski:]

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?

[Dan Brdar:]

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.

[Don Slowinski:]

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?

[Dan Brdar:]

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.

[Don Slowinski:]

To less thermal management parts or dedication size as well.

[Dan Brdar:]

Exactly.

[Don Slowinski:]

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.

[Dan Brdar:]

Thank you.

[Operator:]

We will take our next question from David Schneider, Private Investor.

[Unidentified Analyst:]

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?

[Dan Brdar:]

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.

[Unidentified Analyst:]

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?

[Dan Brdar:]

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.

[Unidentified Analyst:]

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?

[Dan Brdar:]

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

[Unidentified Analyst:]

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.

[Dan Brdar:]

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.

[Operator:]

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

[Cody Acree:]

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?

[Dan Brdar:]

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.

[Cody Acree:]

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.

[Dan Brdar:]

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.

[Cody Acree:]

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.

[Dan Brdar:]

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.

[Cody Acree:]

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.

[Dan Brdar:]

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

[Cody Acree:]

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

[Dan Brdar:]

Sure, thanks.

[Operator:]

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

[Dan Brdar:]

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.

[Operator:]

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