Ideal Power Inc.
Q4 2020 Earnings Call Transcript

Published: 18 Mar 2021

[Operator:]

Good day. And welcome to the Ideal Power Fourth Quarter 2020 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Carolyn Capaccio from LHA. Please go ahead.

[Carolyn Capaccio:]

Thank you, Kevin, and good afternoon, everyone. Thank you for joining Ideal Power’s fourth quarter 2020 conference call. With me on the line are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power’s fourth quarter and full-year 2020 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, and we would also refer you to the company’s website for more supporting industry information.

[Dan Brdar:]

Thank you, Carolyn. Good afternoon, everyone. And welcome to our fourth quarter and full-year 2020 financial results conference call. I’ll begin by giving you an update on our progress and achievements toward our strategy to commercialize our B-TRAN semiconductor architecture technology. I'll also describe our objectives for 2021 which are the work towards completion of the NAVSEA program for 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. Throughout 2020, we sustained our momentum toward our commercialization goals, and are moving into 2021 with continued excitement about our prospects for B-TRAN as a differentiated technology addressing a large and growing market and with a balance sheet strengthened by our recent equity offering to help make those prospects a reality. Let’s start our discussion with our work with United States Navy. Our work for the Naval Sea Systems Command or NAVSEA in collaboration with Diversified Technologies or DTI remains on schedule. As a background, in the second quarter of 2020, we signed a $1.2 million subcontract with DTI on the development and demonstration of a B-TRAN enabled direct charge medium voltage circuit breaker as part of the U.S. Navy's strategic focus on ship electrification. The contract is funded on 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 from NAVSEA is intended to develop and demonstrate a B-TRAN enabled high-efficiency 12-kilovolt medium voltage direct current circuit breaker for the U.S. 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. As we discussed with you on our last call, during the fourth quarter, we completed the first major milestone in the program, the first wafer fabrication run conducted by Teledyne and we tested and selected wafers for dicing and packaging into B-TRAN devices using our lab-based packaging design. The results from this testing were incorporated into the device and packaging design and manufacturing process improvements for subsequent runs. We recently completed the second major milestone in the program and are in receipt of the wafers from Teledyne’s second fabrication run incorporating those design and manufacturing process improvements and we're now testing and selecting these wafers for dicing and packaging into B-TRAN devices.

[Tim Burns:]

Thank you, Dan. I will review fourth quarter and full year 2020 financial results. In the fourth quarter, we recorded approximately $274,000 of grant revenue totaling $428,000 of grant revenue for the year with offsetting costs of grant revenue as we continued our work on the Navy funded NAVSEA demonstration project under the DTI contract, which began in late June. Fourth quarter 2020 operating expenses were $1.1 million, compared to $0.8 million in the fourth quarter of 2019. The increase in operating expenses in the core was due to higher research and development spending. Full-year 2020 operating expenses were $4.1 million, compared to $3.1 million in full-year 2019. The full-year increase in operating expense is related to B-TRAN wafer fabrication and driver development spending, as well as higher non-cash stock compensation expense. Fourth quarter 2020 net loss was $1.1 million, compared to $0.8 million in the fourth quarter of 2019 as a result of higher research and development expenses. Net loss in the full year 2020 was $7.8 million, inclusive of non-cash warrant inducement expense of $3.7 million, compared to $3.9 million in full-year 2019. The full year 2019 net loss included a $0.8 million loss from discontinued operations relating to the PPSA operations, which we sold in September 2019.

[Operator:]

Thank you. Our first question today comes from Ruben Roy with The Benchmark Company.

[Ruben Roy:]

Thank you. Thanks for taking my questions and Congrats, again, for the continued progress through your end and so far in '21. Dan, I wanted to drill in a bit on the upcoming sampling programs. It's great to hear about the driver progress over at UT. And you did talk about some additional runs that are going to be happening at Teledyne over the next few quarters, several quarters, as you're working with NAVSEA. What needs to happen to get sort of the sampling out to your other customers going, do you need to get several more runs going, do you need a data sheet that you have the driver? Maybe you could just help us understand kind of the timing and puts and takes of getting your actual samples to the customers?

[Dan Brdar:]

Sure. There’s a whole party of things that are happening. For those that are kind of already in the queue in the road, engaged with, we already shared information with them in terms of device performance and some features about the driver but there'll be more information coming off the driver. For those that are likely to be candidates, we're going to be putting together a bigger product information sheet that was to put on the website that will give people a lot of information about the device, its operation, visual things, the technical team we're looking at in terms of operating parameters, but also information about the physical package in terms of its size, its dimensions and also information about the driver itself. As it relates to actually getting the physical samples in people's hands, we are already having multiple copies of the driver that has now been designed and tested, already made sense. That's done by a third-party PCB firm. So those are actually into and we will make more of those as we go along. And then for the devices themselves, it will either be, we’ll take some from NAVSEA with their cooperation, or we'll do an additional run that they get in just for the customer sampling program. We'll have some flexibility and it's really going to be up to the discussion we have to have with NAVSEA in terms of how many they will let us use for the sampling program, because it's not going to be a big portion of a run versus what needs to be used to satisfy the NAVSEA program.

[Ruben Roy:]

So you also mentioned sort of the new packaging design, which has improved on your lab-based packaging designs that you're already using. And it sounds the encapsulation of that B-TRAN commercial package at some point is going to be similar to an IGBT. Maybe you could just walk me through how to think about that from a footprint perspective, how does it work with the driver in some of these end markets, is the PCB going to be encapsulated in the package itself? And it's going to be a consistent package across some of these end market applications that you're targeting?

[Dan Brdar:]

For the package itself, for those that are familiar with wide IGBTs, the package discrete devices, it will look just like an IGBT with a fourth lead instead three leads. So if you're familiar with what a TO-247 looks like for IGBT, it's very much like that, the same dimensions, the only difference is just a fourth connection. For the sampling program, the driver and the packaged B-TRAN will be physically separate. And the B-TRAN package is basically soldered to the driver. So you can -- if you want to test multiple devices, you can solder/desolder the packaged B-TRAN, and it’ll give you one driver you can use for all of those. Our expectation is that based on what we're seeing for performance of devices and also the early feedback that we're getting from people that we're engaging with on a sampling program is, the B-TRAN itself is going to likely be identical for all the applications, because we don't have to do the typical trade-offs, the IGV manufacturers do whether trading off conduction loss versus current tails, and so the nature of B-TRAN eliminates a lot of those IGBT specific operating issues. So at least for the foreseeable future, the B-TRAN value will be the same regardless of the application. The packaging will likely be the same. For most applications, we may ultimately go to some bigger packages that have multiple die in a package just work in compliant with IGBTs. And changes that are application-specific are more likely going to end up being reflected in the driver versus the actual wafers that we have to fabricate….

[Ruben Roy:]

I guess the last question for you. And then I just had a quick one for Kim. Just on sort of the timing of how to think about '22 and as we get the later stages commercialization and revenues. You guys have been talking about potentially working with DTI on additional circuit breaker products as you flow through this. Now see the objectives et cetera and potentially have circuit breakers for sale to other customers industrial and otherwise. What's your thinking there in terms of timing of revenue, you think we'll be seeing kind of circuit breaker packaged products out in market. And then beyond that we'll start to see some sales of actual B-TRAN devices into other markets, or do you think it's going to just depend and maybe we'll see a little bit of both as we kind of go through '22?

[Dan Brdar:]

I think we'll actually see B-TRAN device sales probably before we see circuit breaker sales. And it really comes from two reasons. One is, while B-TRAN wants to bring out a variety of products. In fact, you're obligated to come out with a variety of products for the Navy and for the military more broadly. That is a longest sales cycle in terms of just having military does things. There's an interest and ability to sell them to industrial and utility markets. But that's not DTI's strong seat. So, we fortunately are not constrained in our relationship with DTI for the program. So, I think once the demonstration itself is successful, we'll actually engage with other companies that are more targeted at the utility and industrial segment. And actually, this will give them an opportunity to have something that would be a unique and differentiated product compared to what they already have. So, I expect to ultimately end up with multiple players who are bringing a B-TRAN they sell to be greater to market. But from what we're seeing, I think there's going to be earlier opportunities for things particularly related to electric vehicles, electric vehicle charging, and renewable for actually selling B-TRANs, particularly those have yet to be integrated power module.

[Ruben Roy:]

Okay, excellent. Great. And just a quick follow-up for Tim. Tim, you mentioned a couple of the areas that you're targeting for use of funds, all understandable, given you're kind of where we are with progress on the technology? One thing you did note, which I found interesting was the qualification potentially for an additional domestic wafer fabrication partner? What's kind of driving that at this point? Is it just kind of making sure you have multiple sources as you get closer to commercialization? Or is there something going on at Teledyne or otherwise, that's driving, kind of how you're thinking about an additional partner there?

[Tim Burns:]

Yes, Ruben, let me take first half and then Dan can add his thoughts. There's a couple of things that’s driving it. We're engaged with some customers who will potentially be adopting our technology, whose volume demand is going to be very big, if we're successful with them. We know from the things that Jeff has done them in the past and things that I've done, some of them in the past, they will require a second source, it's not an option, it wouldn't matter if we were making things that excel, they'll require a second source for risk mitigation, because the impact to them from a loss of supplies is trivial. We view it also is an opportunity just as our own risk mitigation that we will let Teledyne like the team, the facilities, they have great expertise. But we want to make sure that for example, the fab that we work with Teledyne in California if there was an earthquake, right, we don't lose the ability to run wafers. So, we think it's part of our risk mitigation. It makes sense to do it too. So, we're basically just getting ahead of what we know the customer push is going to be to make sure there's a second source.

[Operator:]

Our next question comes from Don Slowinski of Winslow Asset Group.

[Don Slowinski:]

Dan, as you collaborate with these new high profile targets as you put it, and I might be a little crossover with what you discussed with Ruben, but what end markets seem closes at hand although than Navy and could you provide maybe real world examples where B-TRAN is displacing existing IGBTs. And also just additionally, are there greenfield opportunities we haven't discussed?

[Dan Brdar:]

Yes. When you think about sort of the things that are greenfield, the DC circuit breaker is one those where there isn't a market without a better semiconductor selection which we can provide. When we think about some of the more mature markets, let’s call it mature, things like electric vehicles, a significant push is going on across the board in electric vehicles to improve efficiency, because semiconductor losses are actually a major contributor to the inefficiencies that currently exist for electric vehicles and electric vehicle charging. So a significant improvement in power switches for electric vehicles means either more range of batteries, or they cut the batteries with the highest cost component, if they wanted to reduce that cost component get the same model range, a better set of conductor switch will allow them to do that. Secondly, if you think about what's going on with solar energy and energy storage, unfortunately, solar is kind of peaking from a power converter standpoint, in terms of efficiency, there's not much way to get better. So you need a new technology to do that. And the alternatives have been, they're trying to move to silicon carbide, which has been a long challenging process, and expensive. Here with B-TRAN particularly coupled with storage, where you can take advantage of bidirectionality, you can significantly impact the amount of useful energy that's available from that system to sell versus just staying with traditional solar connectivity.

[Don Slowinski:]

So are there existing electric vehicle manufacturing? Would you be displacing IGBT technology within that electric vehicle segment that’s manufactured now? Or is there -- or would you be displacing IGBT technology within that electric vehicle segment that's manufactured now or is there another competitive technology?

[Dan Brdar:]

Yes. It's predominantly IGBT that we're competing against in that segment. Now electric vehicles also MOSFETs for some of the things where it’s really high switching frequency, but IGBTs generally don't play in this end market space. So it's really going after the IGBT market, particularly as people look at, frankly, traction drives as they try to do more efficient onboard storage devices. So it's really going to be all about leveraging where IGBT is playing in that marketplace today.

[Operator:]

Our next question comes from of individual investor.

[Unidentified Analyst:]

Dan, I want to get a better understanding of how you function your comprehensions technologically. Do you, in fact, have your own technical team or you’re undertaking people, or is most of the technological advancement coming from the partners that you're working with University and Teledyne and DTI and so on?

[Dan Brdar:]

The core B-TRAN technology in in-house. We have a great PhD that really is the lead for our semiconductor physics work who really drives the actual device design, who understands wafer fabrication processes, and he provides the technical direction to Teledyne. The driver we had outsourced that through the University of Texas at Austin part of that capability now that we actually have a driver and we know that it will go through its own generations of evolution and improvement is part of what we're looking to bring in-house as we add a few more people to the technical team. So we've done I think a pretty balanced blend of keeping our core technology in-house, and well protected and well patented and trade-off between patents and trade secrets, and then relying on third parties for things that are more commercially available like packaging designs and wafer fabrication.

[Unidentified Analyst:]

And how are those -- people at the University of Texas, for example, how are they compensated? Do they have some form of ownership or do they have some kind of participation on things finally here through the sales revenues and so on?

[Dan Brdar:]

Yes, well certainly you hit the part what was probably the biggest challenge of getting our agreement in place with the University of Texas. We were not willing to share any technology rights for any work that they were going to do. And we basically wanted to use them for their technical expertise, their facilities and to do a piece of design work. It took quite a few rounds of negotiations to finally get that. So ultimately, they are basically a high technology engineering service for us, although they don't like to have it looked at that way. That is essentially the function that they're performing. And we retain all the rights that came out of the work that they do.

[Operator:]

Our next question comes from .

[Unidentified Analyst:]

A little more on timing is kind of my question. And I know some of that might be hypothetical, or to just understand maybe just on the sampling program. And I know you said people will look at things over various times. But for example, if you're working with one or your five targets now and let's say you sign an agreement for them to sample, let's say by the end of second quarter. How long do you envision people are going through with a sermon, whether they want to use it give you feedback, I guess and the time you'll take to incorporate their suggestions for the driver, I guess, to get to agreements? I just want to -- kind of the timing, as you think about it. It is a full agreement capable by the end of the first quarter of 2022 when you envision maybe a first agreement, what might be some expectations that we could look at?

[Dan Brdar:]

It's going to vary based on the individual company, as we get a little further into this, we’ll have a better color on. The way we expect this to go based on discussions we're having so far is that, that’s engaged, we'll be getting feedback from them, and testing. So it's not a case of they go away for sigma and come back and tell us something. So it's part of their own evaluation work, the big idea is part of their own testing that they're going to do. There'll be a lot of collaboration with our technical team to make sure that they understand the device correctly. They understand the driver, how well it operates and then they understand the design margins that are built into the product. Some of them will want to drive things to validate design margin, some of them will just want to actually be able to replicate some of the information we're going to provide for them. So we'll be getting technical feedback from their team very quickly after they started working with the device. Now, getting the feedback in terms of what they ultimately want, and what the package looks like, I think that is probably going to take more time. And I think once we get a little bit further along with a couple of these players we will have a better sense of what that time period looks like. But it would be really just kind of guesswork on my part at this point.

[Unidentified Analyst:]

Okay. And question, if you add a second fabricator, and you're into 2022, is there out volume, I mean, could you guys break out 2 million devices, 3 million devices? What kind of volume would you be able to do?

[Dan Brdar:]

Well, with Teledyne, we can actually make all the other devices that we anticipate meeting over the next couple of years. And Teledyne, as I discussed with them, already has another facility identified where they could take this process to actually supplement what they could do fab rework within California. So for me, it's really a matter of let’s seek ourselves in case something were to happen to that fab. But also to make sure that if you're working, for example, the automobile makers, they think in millions of units, and they want to know that there's a path for you to get there. So, I think having multiple players that collectively can get you there I think has helped them feel comfortable that they don't have to worry about whether we can keep up with them if they start to adapt and ramp things up.

[Operator:]

As there are no further questions, I'd like to turn the call back to Mr. Brdar for any additional or closing remarks.

[Dan Brdar:]

Well, thanks everyone for joining our call today. We'll be presenting at the Investor Summit Virtual Conference next week. And we invite you to tuning into the webcast. In the meantime, everyone keep safe and we will look forward to speaking with you again when we report our first quarter results. Thank you.

[Operator:]

Ladies and gentlemen, that concludes today's conference call. Thank you for your presentation. You may now disconnect.