Ideal Power Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 4 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Ideal Power First Quarter 2023 Results Call. At this time, all participants are in a listen only mode. At the end of management's remarks, there will be a question and answer session. Investors can submit questions anytime after the meeting is webcast by typing them into the Q and A button on the right side of the viewing screen. Sell side analysts may ask questions on the phone.

Operator

As a reminder, this event is being recorded. I would now like to turn the conference over to Jeff Kirschnerty. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thank you for joining Ideal Power's 1st Quarter 2023 Conference Call. With me on the call are Dan Bedard, President and Chief Executive Officer Ben Burns, Chief Financial Officer Ideal Power's Q1 2023 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 may be subject to a number of risks and uncertainties that could cause actual results to differ materially is not described in the call. Please refer to the company's SEC filings for the list of associated risks, and we would also refer you to the company's website for more supporting industry information.

Speaker 1

Now I'll turn the call over to Ideal Power's President and CEO, Dan Rodner. Dan?

Speaker 2

Thank you, Jeff. Good afternoon, everyone, and welcome to our Q1 2023 financial results conference call. I'll update you on our progress since the start of the Q1 and priorities for 2023 to commercialize our B TRAN semi connected technology. And then Tim Burns, our CFO, will take you through the numbers, after which we'll take your questions. This is an exciting year for us.

Speaker 2

We are really getting engaged with customers as we look to commercialize our technology. Our 2023 milestones are in our press release today and in the online webcast portal for this conference call. For those not familiar with them, our objectives for this year are: 1st, To launch our first commercial product, the SimCool Power Module, which is a multi diode V Tran module next, Complete Phase 1 of the multiyear development program with a top 10 global automaker in the Q2 of this year. Complete the first engineering run with a production fab in the Q2 of this year, deliver Package VTrans to DTI under the NAVSEA program in the first half of this year, introduce our 2nd commercial product, and intelligent power module in Q3 and delivered V TRAN samples for test and evaluation for our potential customers in the second half of the year. We're on track and remain confident we'll deliver on these milestones as we continue to execute our B TRAN commercialization roadmap.

Speaker 2

I'll discuss each of the expected milestones and our progress on them along with other developments. We're excited to have announced the introduction of our first Commercial products, the SIMCOOL power module. Our SIMCOOL is a multi diode B TRAN module well suited for the large growing solid state circuit breaker market. This market is projected to grow at a compound annual growth rate of over 6% to approximately $26,000,000,000 by 2027. With the clear advantages over electro mechanical breakers and IGBT based solid state circuit breakers, D Tran enabled solid state circuit breakers are ideal for a range of utility, industrial power control and military high power applications from 600 volts to many thousands of volts.

Speaker 2

We've targeted our initial product for the solid state circuit breaker market because B TRAN can be an enabling technology for the application due to its very low conduction losses. And we continue to see significant customer interest as a result of our program with the U. S. Navy. Also, similar to other industrial and renewable energy applications, The solid state circuit breaker application has a design cycle that's closer to a year, much faster than the multiyear automotive design cycle.

Speaker 2

We expect initial low volume sales of SIMCOOL to begin later this year and revenue starting to ramp up in 2024 as customers complete their solid state circuit breaker product designs. Moving back to the 2nd upcoming milestone. Late last year, we entered into a development agreement with a global top 10 automotive OEM. We're partnering with those automakers advanced technology development team to develop a custom B TRAN power module in collaboration with an innovative packaging company also selected by the automaker. This custom V Tran module is targeted for use in electric vehicle drivetrains in the automaker's next generation electric vehicle platform.

Speaker 2

This represents our 2nd engagement with the world's leading automotive manufacturers as another top 10 global automaker is in our test and evaluation program. This program is on an accelerated timeline to get the custom module production ready by 2025. That's the stated goal of the program. We're making excellent progress, having completed almost all the Phase 1 deliverables and expect to complete Phase 1 of this multi year development program later this quarter. Working closely with the automaker, we've already agreed on the scope of work and objectives for Phase 2 of the program with their engineering team and await final approval for the Phase 2 purchase order.

Speaker 2

In Phase 2, we'll work closely with the automaker's innovative packaging company to integrate B TRAN dies into the power module design. Phase 3 will be an extensive testing of the custom module incorporating B TRAN devices to meet automotive certification standards, which are pretty substantial. So it's really us and the packaging company working independently in Phase 1 And then Ideal Power providing devices to the packaging company for incorporation into the module in Phase 2. And then Phase 3 is all about certification of the module itself, so it can be the core of the powertrain inverter for their next generation electric vehicles. We went through a considerable technology competition to be chosen for the program and we'll need to continue to meet the program milestones and performance expectations as the program progresses.

Speaker 2

What we've learned during the technology selection process and Phase 1 to date reinforces the competitive advantage we knew we could bring to electric vehicles as automakers innovate to find ways to reduce electric vehicle cost, while simultaneously improving vehicle range. Let's turn to the supply chain necessary to support our sales as we start to ramp volumes in 2024 as customers complete their product design cycles. We're nearing the completion of a full process flow engineering run at a wafer fabricator with high volume production capability. Testing results for in process wafers have proceeded very well and we're pleased with both the performance and overall quality of the wafer fabrication and the technical capability of the wafer foundries manufacturing team. This run is expected to be completed later this month and they are ready to immediately begin to run to support our SimCool first builds in the next phase of our automotive custom module program.

Speaker 2

This wafer fabricator is also already certified to automotive standards, which make them a qualified supplier for our automotive program and reflects the high standards, capabilities and quality of their wafer fabrication. Also, we've engaged a 2nd high volume wafer fabrication partner to complete a similar full process flow run. The 2nd wafer fab is very experienced in manufacturing bipolar devices such as IGBTs and a detailed review of our process flow went very well. We're now ready to begin an actual wafer run at their production facility. These two sources are in very different parts of the world with world class experience and capabilities and they're eager to be engaged in new technologies such as D TRAN.

Speaker 2

Dual sourcing for wafer fabrication with no exposure to China will provide us with sufficient supply capacity for the large customers we're engaging. Our dual sourcing strategy will allow us to proactively secure the necessary production capacity, components and services for partners in disparate geographies, mitigating supply chain risk. Let's turn to our DoD funded NAVSEA program with the U. S. Navy for a B TRAN enabled solid state circuit breaker.

Speaker 2

We're excited to have completed our first volume shipment of packaged and tested B TRAN devices to our partner on the project, Diversified Technologies or DPI. We also provided DTI one of our customer evaluation kits that includes our driver to assist them in the completion of their driver design for the medium voltage direct current circuit breaker demonstration. We expect our 2nd volume shipment to DTI in the next couple of days. And as we finish the current wafer runs, Pricing, packaging and testing will provide the remaining deliveries in the next couple of weeks. We'll continue to support the program throughout the demonstration of the D TRAN enabled circuit breaker.

Speaker 2

In the meantime, DTI has identified another circuit breaker opportunity that they want to pursue with us, building on the work we're doing together for the Navy. On the technology development front, the testing we've been doing in our lab on the devices we shipped to the Navy enabled our team to identify and implement what we believe is a patentable innovation in how we drive and control V TRAN that's enabled us to realize an additional 20% improvement in connection losses. This change does not require any changes to our V Tran die design or packaging. It's being implemented in the driver that we're using in our customer evaluation program and subsequent intelligent power module products. This latest improvement means B TRAN conduction losses can be more than 5 times better with bidirectional circuits using IGBTs with Biodes.

Speaker 2

We're in the process of now incorporating this improvement in our driver and capturing the innovation in a patent application. Our beach rent is moving into commercialization at a great time when renewables, energy storage and electric vehicles are in the early stages of their adoption. They still have the largest part of their growth curve ahead of them. Automotive manufacturers are finding that with ETRAN, there's a path to reduce power semiconductor costs, the 2nd largest production cost in electric vehicles and improved vehicle range to mitigate driver range anxiety. The inherent bidirectionality and lower losses of V TRAN are also well suited to renewables coupled with energy storage, making renewable energy a dispatchable resource and improving the usable kilowatt hours from these systems.

Speaker 2

Moving on, we're on track to launch our 2nd commercial product in the Q3, which will build on the multi bag packaging design of SIMCOOL and add a bidirectional intelligent driver. This product will target renewables, particularly renewables such as solar and wind coupled with energy storage, standalone energy storage, EV charging and other industrial end markets. This product revenue will start in 2024 and ramp up in late 2024 and into 2025 as it gets through customers' OEM product designs. Moving on to our test and evaluation program. Since the announcement of our custom module development program with a top 10 global automaker and achievement of several of our milestones under the Navy program, we've had an increasing number of companies engaging with us to learn more about our technology and participate in our B TRAN test and evaluation program.

Speaker 2

The participants in the program include another top 10 global automaker, EV charging company, commercial electric vehicle company, leading provider to the solar industry, Afford's Global 500 Power Management Company and several others covering each of our target market segments. This quarter, we added a global Tier 1 automotive supplier as part of this program. This Tier 1 supplier is evaluating V TRAN for use in its electric vehicle inverter, bidirectional charging and circuit protection applications. Their interest resulted from the announcement of our custom module development agreement with a global top 10 automaker. We also added And Forbes Global 500 leader in diverse power management markets to the program roster.

Speaker 2

This company will evaluate D TRAN initially for use in solid state circuit breakers and its Smart Infrastructure division. We plan to deliver e tran customer kits for evaluation to test through the test and evaluation program participants in the second half of this year following the completion of our deliveries to the Navy. These customer kits will include the improvements to our I discussed earlier, and will consist of a packaged B TRAN device driver, test board and safety enclosure to facilitate and accelerate the evaluation process. As you know, our test and evaluation program will remain an embedded process in our sales and marketing effort and a source of input for our next generation of products. We'll continue to add additional potential customers to the program.

Speaker 2

Through the test and evaluation program, we'll gather valuable feedback on their application specific product requirements and potentially secure product development or other commercial agreements. This engagement will allow us to get a good handle on customers' technology evaluation processes, the product design cycles and their commercial plans. Since the start of the year, we've submitted several proposals for government funding opportunities with the Department of Energy, Air Force, NASA and other government entities in collaboration with commercial entities and universities, including other companies in the semiconductor ecosystem. Proposed topics include solid state circuit breakers, grid applications, renewables and next generation D TRAN technology. We've also established collaborations with universities and commercial entities to pursue funding under the CHIPS Act as the funding programs are implemented.

Speaker 2

In addition, we're involved in multiple regional hubs that are being established under the act. Our competition for these programs is high. They provide us an opportunity to collaborate with current fabrication partners and prospective customers both to advance the state of our technology and pursue additional application specific demonstrations of B TRAN. Looking at our expanded B TRAN patent estate, We currently have 74 issued B TRAN patents, with 32 of those issued outside the United States and 22 pending B TRAN patents. Our current geographic coverage for our patents includes North America, China, Japan, South Korea, India and Europe, all representing our high priority patent coverage geographies.

Speaker 2

As part of our product development and introductions, we're expanding our patent efforts to include what we believe to be high value on our packaging designs and driver, including the innovative approach to driving and controlling D TRAN that I discussed earlier as both are unique to the bidirectional nature of our technology. Moving on, we recently issued a Movie Tram white paper. This white paper includes recent testing results using our driver and devices with our double sided packaging. It shows switching characteristics and waveforms using bidirectional double pulse testing, which is important for customer technical teams. A link to

Speaker 1

the new white paper is

Speaker 2

on our website. We attended this year's Applied Power Electronics Conference in March. Our technical white paper, ETRAN Optimization and Performance Characterization, was selected for presentation at the conference. Our booth was very well attended and it generated significant new interest from large industrial companies in our test and evaluation program. In summary, we're thrilled that we introduced our first commercial product, made our first volume shipment to DTI on the NAVSEA program with clear line of sight to completing the remaining volume shipments, made improvements to further reduce feed transduction losses and are adding new potentially high volume companies our test and evaluation program.

Speaker 2

We're also very much on track to meet the key milestones and objectives I outlined for this year. ECredion's unique architecture potentially leading to lower cost and improved performance for OEM products. E tran has the potential to displace conventional power semiconductor solutions in many Including electric vehicles, renewable energy, energy storage, solitoid circuit breakers and motor drives. Now, I'd like to hand the call over to our Chief Financial Officer, Tim Burns, to review the Q1 financial results. Tim?

Speaker 3

Thank you, Dan. I will review Q1 2023 financial results. We recorded minimal grant revenue for the Q1. At March 31, grant revenue of $36,724 remains to be recognized under the Navy funded NAVSEA program. In the Q2 of 2023, we expect to recognize revenue related to the NAV C program as well as revenue from Phase 1 of the custom module development program with the top 10 global automaker.

Speaker 3

Operating expenses were $2,600,000 in the Q1 of 2023 compared to $1,900,000 in the Q1 of 2022, driven primarily by higher research and development expenses due to additional semiconductor fab runs and related wafer costs. Operating expenses were also impacted by higher personnel costs and reflect higher stock based compensation Although we expect higher research and development spending in the balance of 2023, atorabovethatseenthe1stquarter, We continue to expect some quarter to quarter variability in operating expenses, particularly our research and development spending due to the timing of semiconductor fabrication runs and other development activities and hiring as well as the potential impact of additional government funding. We expect to keep general and administrative in 2023 close to 2022 levels, excluding the impact of stock based compensation expense, despite the impact of inflation on the cost of services. Sales and marketing spending is expected to increase modestly in 2023 from 2022 levels due to hiring and costs associated with commercialization efforts, including new product launches. Net loss in the Q1 of 2023 was 2 point $5,000,000 compared to $1,900,000 in the Q1 of 2022.

Speaker 3

Q1 2023 cash burn was $1,800,000 on the lower end of our guidance of $1,800,000 to $2,000,000 and down from $2,100,000 in the Q4 of 2022. We expect Q2 2023 cash burn of approximately $1,800,000 to $2,000,000 and full year 2023 cash burn of approximately $8,000,000 to $8,500,000 Cash and cash equivalents totaled 14 point $5,000,000 at March 31, 2023. Given our planned cash burn, which remains modest, We have ample liquidity on our balance sheet to fund operations through 2024 as we commercialize our technology and also to be a well capitalized partner for the broad spectrum of companies that are either already participating or that we expect to participate in the testing and evaluation of our V tray technology as well as a global top 10 automaker has engaged us for our development program. We have an asset light business model and licensing is part of our strategies we've discussed on prior At March 31, we had 5,931,569 shares outstanding, Up slightly from December 31 and 1,040,248 warrants outstanding, unchanged from year end. Including 844,275 stock options, restricted stock units and performance stock units outstanding, We had 7,816,092 diluted shares outstanding at March 31.

Speaker 3

At this time, I'd like to open up the call for questions. Operator?

Operator

At this time, we are conducting a Q and A session. Investors can submit their questions within the meeting webcast by turning them into the Q and A button on

Speaker 2

the right

Speaker 3

inside of

Operator

the viewing screen. Turning the call back over to Jeff Christiansen.

Speaker 1

Thank you. Gentlemen, the first question that was submitted is what differences have you seen in working with the production fab Compared to your work with development fabs? Good question.

Speaker 2

Quite a bit. There's a few things that are really Stantal in terms of the development fabs versus the production fabs. First is the production fabs, we can go to larger wafers And we're running at the development fab. So we can literally produce twice as many devices out of a wafer because of the larger wafer size. Probably one of the biggest differences, the production fabs have a lot of automation.

Speaker 2

Where development fabs, there's a lot of things that are done manually, and that drives two things. It drives very long cycle times to complete a run. And it also drives a lot of scratches As the wafers are handled manually, what we have seen with this first run-in the production fab It was already better than anything we've done at a development fab in terms of the device performance and just the yield per wafer, Even though we're working on a larger wafer than the development fab. So pretty substantial improvement across the board in terms of volume, cycle time and quality.

Speaker 1

Thank you. The next question submitted is, you mentioned Thorpe's Global 500 Power Management Market Leaders. What kind of products do those companies make? And what are some examples of those types of companies?

Speaker 2

The Power management companies are companies that make things like protective relays for utilities, circuit breakers, they make power converters for renewable energy, A whole variety of power electronics equipment for high power applications. The companies that you typically think of that are in that group are companies like Siemens, Eaton, ABB, Schneider, very large well recognized companies in the power space.

Speaker 1

Thank you. Our next question submitted in is what you referenced you will have 2 high volume fab partners. Can you quantify their volume capacity?

Speaker 2

Yes. Let me answer that just a little bit differently. Let's talk about their available volume capacity because they're all running No, other products as well. The one that we have just finished, they are a Very deliberate kinds of firm. Right now, they have available that we could tap into capacity to make about 250,000 units a year.

Speaker 2

The other one that we are starting has the capacity to do well over $1,000,000 a year of actual available capacity that we can tap into. So between the 2 of them, we think we've got plenty of capacity for the near term and hopefully have the opportunity to get them to sort of compete against each other a little bit for our business both in terms of Cost and quality.

Speaker 1

Okay. Thank you. Yes, investors, we appreciate your questions and you could submit your questions by clicking on that button in the webcast portal. Our next question that was submitted is, what you mentioned that you realized an additional 20% improvement in Conduction losses. Are there specific applications or target markets that will benefit most from this impairment?

Speaker 2

Yes. The ones where you're continuously conducting things like circuit breakers in particular will benefit us even though the applications where you're doing A lot of switching like energy storage coupled with solar will benefit from it as well. And just to give people some context, Improvements in losses in semiconductors are usually pretty hard to come by. So when we discovered that we could do something that Really didn't affect the need to change what we are making in the fabs at all and get a 20% improvement. It was pretty exciting day around here for sure.

Speaker 1

Okay. Thank you. Next question, EVs and Renewables are 2 markets that garner most of the attention, But your SIMCOOL is targeting solid state circuit breakers where B TRAN is enabling technology. Could you provide additional color on this Specific market opportunity, why you chose the Semcool as your first product and why it should excite investors?

Speaker 2

Yes. One of the reasons is when you look at industrial products like circuit breakers, the design cycle is a lot shorter. Typically, An industrial company can design a new product in a year or sometimes even less versus the automobile cycle, I think most people realize It's a long design cycle to get through that whole process. It's 3 to 5 years depending on the company. So we chose it partly because it's a faster path It will be our early revenue while we go through these automotive qualification programs.

Speaker 2

But it's also one where we are truly an enabling Technology. Solid state circuit breakers have made been made before with traditional semiconductors like IGBTs. But if you can bring something that has Dramatically lower losses, it results in a solution that really becomes viable for the marketplace versus something that's more of a technical curiosity, which is

Speaker 1

Thank you. There are no other questions at this time. Dan, do you have any closing remarks?

Speaker 2

I just want to thank everybody for joining our call today. We've made great progress over the 1st few months of the year and on our path to commercialize our technology. And our talented team is on track for a successful 2023 and seeing the milestones that we've laid out there for people to monitor our progress. Well, we appreciate the opportunity to share our progress, and we look forward to speaking with you again on the next call.

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Ideal Power Q1 2023
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