Ideal Power Inc (IPWR) 2014 Q4 法說會逐字稿

Good day and welcome to the Ideal Power fourth-quarter 2014 earnings conference call. As a reminder, today's conference is being recorded.

At this time I would like to turn the conference over to Matt Hayden, Chairman of MZ North America.

Thank you. Good afternoon, everyone, and thank you for taking the time to listen to Ideal Power's fourth-quarter and full-year 2014 earnings conference call. Your hosts today are Mr. Dan Brdar, Chairman and CEO, and Mr. Tim Burns, the Company's CFO.

Dan will provide a business update including recent commercial orders and product announcements, while Tim will discuss the financial results. A press release detailing the earnings crossed this afternoon at 4:00 PM Eastern and is also available on the Company's website at IdealPower.com. Following management's prepared comments, we will open the floor to questions for those dialing in and also for those participants joining via webcast.

Before we begin the formal presentation, I would like to remind everyone that some 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 than those described in the conference call. Please refer to the Company's SEC filings for a list of all associated risks.

In addition, we also encourage visitors to visit the Company's website at IdealPower.com to find supporting industry and other information that will help you to understand the products and also the markets in more detail.

At this time I would like to turn the call over to Dan. The floor is yours.

Thank you, Matt, and thanks, everyone, for joining us today.

Since this is our 2014 year-end call, I want to provide a summary of what we accomplished during the quarter and the past year and discuss our recently announced deals. After that I will turn the call over to our Chief Financial Officer, Tim Burns, to review the quarterly and fiscal year financials. Following Tim's review of the financial data, I will provide a preview of what we see coming in 2015 and provide some insight as to how to measure our progress.

Before I review the quarter and the year, I want to summarize our strategy and the disruptive nature of our technology platform for those who may be new to Ideal Power.

Ideal Power is, at its heart, a technology company that has developed a patented, completely new approach to power conversion. Our Power Packet Switching Architecture is a technology platform that has broad applicability to many types of power conversion markets. Our PPSA technology offers the ability to perform power conversions with transformerless isolation.

What does this mean in practical terms? It means our PPSA technology can provide power conversion with electrical isolation that is 1/5 the size and weight of a conventional power converter at higher efficiency, higher reliability, and lower costs than conventional power conversion systems.

Power conversion is a huge addressable market, more than $50 billion a year by published estimates, and is projected to grow to $70 billion a year by 2020. Power conversion is used not just in energy storage, solar, and other renewable markets, but also in automobiles, air-conditioning systems, computers, and many applications and devices we use or rely on every day.

As a small company, we need to be very focused in selecting our initial markets and introducing our technology since we don't have the resources to pursue all of the opportunities and markets that are potentially available to us at one time. We need to develop best-in-class products that showcase the unique advantages and attributes of our technology.

A key part of our strategy is to use a very capital efficient business model that is asset-light and highly scalable. Our approach is not to build factories and huge sales and service teams, but to create products that use the advantages of our technology to enable our go-to-market partners and their customers the ability to achieve superior returns on investment using our products compared to other choices they have in the market.

For our first markets, we have chosen to focus on renewable energy applications and in particular applications that involve energy storage. Due to the rapidly designing cost of batteries and increasing utility demand charges for commercial and industrial customers and the growing use of micro-grids, there is a significant macro trend associated with energy storage. These are new markets without entrenched players and offering high growth rates expected to be in excess of 100% per year.

As a result, we have chosen to focus on standalone storage applications, particularly for commercial and industrial customers; the combination of solar and storage, since these technologies will be increasingly deployed together; and micro-grid applications that are enabled by rapidly declining battery costs. These markets allow us to demonstrate the high degree of flexibility of our technology. Unlike conventional power converters that require multiple products to accommodate various applications and geographies, our technology is unique in that the core hardware is largely software-enabled. Using PPSA technology, our product hardware is the same for storage, solar, wind, and micro-grids, as well as 50 hertz and 60 hertz markets.

The changes to accommodate these different applications and geographies are done in software, not hardware. This allows us to aggregate volume across a variety of markets to rapidly drive down the cost curve and avoid the time and cost intensive process of developing, testing, and supporting many different products for each application and market.

In reviewing the quarter and full fiscal year, we've made significant progress on all fronts that has us very exciting about the coming year and positions us well to execute our business plan. Our progress includes a dramatic expansion of our intellectual property, advancements in our next-generation PPSA technology using bidirectional switches, new products, product awards for innovation, increasing order flow from our existing customers, and new high-profile channels to market.

As with any disruptive technology, intellectual property is a key asset and is an essential element to block potential competitors from capitalizing on our development efforts. The depth and breadth of our strategy is key to protecting our technology and enabling broadscale commercialization.

To date we have had 19 patents issued in the US and three issued internationally. One of our key objectives in 2014 was to significantly expand the scope of our intellectual property portfolio. Our efforts were focused on broadening the international coverage of our core patents and expanding the scope of our portfolio.

As a result of those efforts, we now have issued patents on our core technology in places such as Europe and China. In addition, we now have close to 100 pending patent applications that cover a broad range of technology advances, production techniques, control algorithms, and applications of our technology.

While the number of issued and pending patents is important, what is more important is the strength of that patent portfolio. As part of our IP planning, we work closely with outside experts to assess the breadth and depth of our intellectual property position and we're exiting the year with a well-integrated portfolio and international coverage. The resulting portfolio, which will continue to grow, is increasingly focused on building an international patent estate that provides broad and deep coverage for our technology and the many addressable markets we may choose to pursue.

A key element of our technology roadmap is the development of bidirectional switches for our PPSA technology. The bidirectional switch development has been pursued with the assistance of a $2.5 million grant from the Department of Energy's Advanced Research Projects Agency. The bidirectional switches are targeted for implementation in the next generation of our technology and are expected to produce several substantial competitive advantages that should enable long-term cost and performance leadership for our power conversion systems.

The bidirectional switches are silicon-based devices that are expected to enable us to increase our product efficiency from 96.5% to an excess of 98%. The result of this improvement will allow us to double our power density. In effect, we will be able to produce 60 kilowatts from the same small size box that today produced 30 kilowatts. This will produce a significant reduction in the cost of our products, in addition to the operating benefits of higher efficiency.

Also, each bidirectional switch will take the place of what is done today with four conventional devices such as IGBTs and diodes. This reduces the number of points of potential failure and results in a higher inherent reliability. The significant reduction in size and cost and corresponding increase in efficiency and reliability opens up several new multibillion-dollar, well-established markets for our technology that have previously relied on conventional power conversion technology.

During 2014 we engaged multiple third-party experts to conduct detailed simulations of the projected performance of our bidirectional switch design. Using computer simulations to predict the performance of silicon-based devices is common practice in the industry and it's a very effective tool to identify potential improvements to the design and predict the effect of those enhancements on the performance of the devices. The results of these third-party simulations allowed us to settle on the switch design that we are currently having fabricated for testing. We now have completed multiple fabrication runs of the switches and have identified additional intellectual property that is the basis of several new patent applications that cover how the bidirectional switches are controlled and operated, and also how they are manufactured.

Our next step in this process is to use several of the new switches in a prototype to fully characterize the switch performance in our engineering lab. This testing will provide validation of the simulation work and likely identify some additional improvements for the next-generation devices.

To date we have been very pleased with the predicted performance of the switches and the ability of our supplier to produce the switches based on our design. We're excited about the potential this development activity represents for us and we will be announcing the results of the prototype testing later this year, as well as our plans for commercialization.

Also during the year, we introduced a series of new products that are driving revenue for us in 2015. While our 30 kilowatt product is the basis for our 2014 orders, we also did some extensive work in collaboration with our market channel partners to understand where the market is headed. Three primary themes emerged from that work.

The first was the inevitable convergence of solar and storage. Solar is increasingly going to be coupled with storage to make solar a firm, dispatchable resource and to mitigate the grid instability issues created by intermittent generation technologies. Today, using conventional technologies, a combined solar and storage solution takes multiple products and considerable system engineering to make them work together as an integrated system.

We introduced our 30 kilowatt hybrid product that puts the functionality of a solar inverter and a battery converter into one compact design. This product was selected at Intersolar in Germany for product innovation. As a small US company, it is great validation of our products and our technology to win an award competing against 3,000 other companies, most of whom are much bigger than Ideal Power.

The second theme that came out of our market research was that planned storage installations were getting larger as commercial and industrial customers are moving to deploy storage behind the meter to mitigate utility demand charges and take control of their rising electricity costs. In response to this, we introduced our 125 kilowatt family of products that provide a larger building block for installations of 125 kilowatts up to greater than a megawatt in size. This product is drawing new market channel partners and is expected to begin contributing significantly to our revenue in the second half of 2015.

Our first 125 kilowatt product will be shipped to Koda Energy in March and we received several additional orders for the product that I will discuss in a few minutes. The third market theme is the growing demand for micro-grids. The declining cost of batteries has now enabled them to be used in conjunction with and often in place of diesel gen sets.

The high cost of fuel, challenges to delivering fuel to many locations around the world, and the poor power quality produced by gen sets has made this market ripe for innovation. One of the great advantages of our technology is that we are input-agnostic. We can work with any type of battery chemistry; can incorporate multiple generation sources simultaneously such as solar, wind, and diesel engines, and make them all work together seamlessly and efficiently.

We estimate there are approximately 1 billion people globally without access to a power grid and another billion dependent on expensive diesel generators for electricity, so a large market exists for providing superior office grid solutions integrating storage, solar, and diesel generators. For many applications, these systems can have a two-year financial payback by dramatically reducing the amount of diesel fuel used for power generation.

The market for commercial, solar, and energy storage and the market for off-grid micro-grids using solar and energy storage are both in the early stage, but are forecast to roughly double annually for the next several years, creating a new power converter market of almost $1 billion by 2018. During 2014, we announced an alliance with EnerDel, who is developing a mobile hybrid micro-grid platform that incorporates lithium-ion batteries, a small diesel gen set, and our power converter. The first of our hybrid converters we shipped to them for their mobile platform and the testing of that system has gone well and is ready for deployment.

We're also working with multiple new customers that are specifically focused on the rapidly growing micro-grid market. We will be making additional announcements about those new alliances later this year.

As a result of the strong demand we are seeing for micro-grid capability, we added micro-grid forming capability to our control algorithms for all new products and yesterday announced adding that capability to our existing 30 kilowatt product. As part of that upgrade, we also added the capability to make our units work in both 60 hertz markets, such as the US, and 50 hertz markets such as Europe and parts of Asia.

In conventional power converters 50 and 60 hertz products require different hardware designs. In our technology it is done through software, demonstrating the tremendous flexibility of our technology and also allows us to aggregate volume across geographies and markets to rapidly drive down the cost curve. As part of our announcement yesterday, we also announced that the first of the new micro-grid-capable 30 kilowatt units will go to Boeing as part of a multiunit order we received from them this week.

We're excited about being selected by a company with the brand recognition, global reach, and deep technical expertise of a company like Boeing and to be a key part of their new business initiative. While we are not able to talk more about it at this time, it is a new application for our products that will again demonstrate the flexibility of our technology and its ability to work with all types and sources of power generation.

In addition to the progress on IP, new technology, and new products, 2014 was also the year that we laid the commercial foundation to enable 2015 to be our breakout year commercially. We put in place alliances and volume purchasing agreements with customers we believe are the leaders in stationary energy storage systems for the commercial and industrial market. These include the alliance agreements we announced with Sharp Electronics and Green Charge Networks.

We also advanced the state of both of those relationships and our relationship with Koda Energy to the point where all three are now ordering in volume. Due to our strong order closure rate in the fourth quarter, we closed the year with over 9.5 megawatts of total commercial orders since the beginning of 2014. Several of these customers also developed options for customer financing, which is playing a significant role in accelerating the adoption of energy storage by commercial industrial customers, who prefer to purchase a complete solution for mitigating their utility demand charges.

We ended the year with more than $2 million of order backlog, almost twice our product revenue for all of 2014. As evidenced by some of our recent announcements, we have continued to add to that backlog since the first of the year and are excited about the strong top-line growth we are targeting for 2015.

In addition to the strong order flow that we are now seeing from system integrators like Koda Energy, Green Charge Networks, and Sharp, we are continuing to add new channels to market that can utilize our products for a variety of applications. We'll be announcing several new alliances and market channel partners in the coming months, several of whom are well-recognized brands with global reach that are interested in using our products due to their flexibility, small weight and size, high efficiency, quiet operation, and attractive cost.

Partnering with strong global brands like Sharp and Boeing is key in bringing visibility to Ideal Power and our technology, and also reinforces our credibility in the market due to our association with them. New partners we are working with know and understand that global companies would not risk their brand image without extensive due diligence on us as a company and the capability and performance of our products. This is also helping us shorten our cycle for partnering efforts.

We introduced our most recent global partner this week with the announcement of our agreement with Gexpro, a division of Rexel Holdings. While not a household name for people not familiar with the energy industry, they are a global leader in the distribution of products and services for the energy world.

Before their acquisition by Rexel Holdings, they were known as GE Supply and they distribute products for the best global brands in the industry, companies such as GE, AB -- ABB, LG Electronics, Panasonic, and many others. This relationship provides us an entirely new sales channel to reach commercial and industrial customers and the electrical system installers that serve them.

With a network of 2,300 branches in 38 countries, they provide a massive global footprint to provide products and services to, literally, millions of customers. They see energy storage as a major growth avenue and will be placing company resources behind this initiative.

Subsequent to our announcement this week, we received our first order from Gexpro for approximately 1 megawatt of products comprised of 30 kilowatt and 125 kilowatt units. These units will be available in their warehouses through what is already turning out to be significant interest as a result of our announcement earlier this week.

While we are excited about this new relationship, it is the beginning of a more comprehensive initiative we are pursuing with them. We will be providing additional announcements regarding the expansion of our relationship with them in the coming months that are specifically targeting the solutions that large industrial companies are looking for for storage-based applications.

In addition to the global brands, we are also targeting companies that are bringing out new storage solutions that are potentially more cost-competitive than lithium ion-based batteries. One such example is our recent partnership with Eos. As a result of the successful demonstration in 2014 with Eos for the Con Ed project, Eos has selected us as one of their key system partners. This success resulted in the order we announced this week for more than 1 megawatt of our products.

We are looking forward to continuing to build on our success with them and are planning additional announcements on alliances with other battery suppliers. It also demonstrates that our technology is truly battery-agnostic and our products provide a compelling solution for all types of existing and new battery technologies coming to the market.

To support our increasing order flow and to be prepared to support both our new partners and the order forecast from our existing customers, we brought on a new contract manufacturer to build our products. The new manufacturer has considerably greater production capacity compared to the Company we have been working with and are now successfully ramped up and in volume production. We have been very pleased with the quality of their work and the rigor of their manufacturing processes. As we add new channels to market and incorporate their sales forecasts into our planning, we will regularly assess the capacity and scalability of our contract manufacturer in key suppliers.

Before I provide a look at what is pending in 2015, I'm going to turn the floor over to Tim Burns to review the financial results.

Thank you, Dan. I will run through the fourth-quarter and the full-year financial results. Total revenue for the first quarter was $504,000 consisting of product revenues of $373,000 and the balance coming from grants. Total cost of revenue was $694,000, which included $146,000 in grant research and development costs.

Operating expenses, which includes $690,000 in research and development spending, totaled $1.8 million, yielding a net loss of $2 million. Total revenue for 2014 was $1.8 million, with $1.2 million in product sales, up $800,000 from 2013, and $579,000 in grants. Total cost of revenue was $2.3 million, which included $643,000 in grant research and development costs.

The net loss was $6.9 million, consistent with our expectations.

The $2.5 million Department of Energy ARPA-E grant has been fully funded as of year-end, so will not have grant revenue or grant research and development costs in 2015 for this program. We're going to introduce backlog for the first time and we will report it on a quarterly basis going forward.

We ended December 31 with a backlog of just over $2 million. As a general rule, backlog will be converted to revenue within an average of about six months. We anticipate strong revenue growth in Q1 with first-quarter revenue approaching total product revenues for all of 2014. In addition, we anticipate reaching positive gross margins in the first half of the year, possibly as early as Q1 with improvement in gross margins during the back half of 2015 validating our business model and the inherent leverage it provides.

At December 31, 2014, our balance sheet had just under $8 million in cash and cash equivalents and no debt. Our cash balance is sufficient to meet our strategic plan for 2015. We have a federal NOL in excess of $15 million, which will shield us from income taxes as we become profitable.

At December 31, 2014, we had just over 7 million shares of common stock outstanding and just under 10 million shares outstanding on a fully diluted basis, which includes approximately 1.6 million warrants and 1.4 million options outstanding.

I will now turn it back over to Dan. Dan?

Thanks, Tim. Looking forward to 2015, we believe our business is clearly at an inflection point.

In 2014 we put the commercial foundation in place and this year is about execution and expanding our commercial reach, both in terms of channels to market, producing new products and new applications for our technology, and entering new geographies for our products. Entering 2015, we already have backlog that is almost twice our product revenue for all of 2014. Our existing customers are successfully ramping their businesses and we are focused on seeing them succeed and continuing to bring them new and innovative products to give them a continued reason to keep us as their source for power conversion systems.

Koda Energy, Sharp, and Green Charge Networks are clearly leaders in the battery energy storage system business and we are proud to have them as our customers and are committed to their success. We are adding additional world-class partners and channels to market with global reach such as Rexel and Gexpro. We have several more such relationships in development that we will be announcing during the course of the year. The new alliances we are bringing on this year will broaden our geographic reach and also enable us to penetrate other high-priority market verticals such as micro grids.

As our business ramps, the high degree of leverage in our business model will become readily apparent in our financials. We anticipate our gross margins turning positive in the very near term and continuing to improve as our order volume grows. Accompanying this will, of course, be growth in our top line with an increasing amount of our product revenue coming from our new 125 kilowatt product family.

In order to protect our technology position and to build on the strength of our intellectual property, we continue to aggressively pursue patents around our core technology and its application. As I mentioned previously, with close to 100 new patent applications pending in the patent office, we will see our domestic and international patent portfolio grow significantly to broaden our global patent coverage for the PPSA technology and its use.

The next generation of our PPSA technology continues to make good progress and we are pleased with the potential performance of our bidirectional switch development. The third-party simulations of our bidirectional switch design confirms our expectations and we are looking forward to testing the new bidirectional switches in our engineering lab later this year. We will be making announcements about their performance and our commercialization plans as part of maintaining our long-term advantages in efficiency, performance, cost, and reliability, and to keep our products at the leading edge in the market.

In addition, the bidirectional switch development opens new established markets for us, power conversion, that allow us to significantly expand our market penetration and attract new partners and customers. As we progress through 2015, we are well-positioned to execute our business plan. You'll be able to readily measure our progress this year by our rapidly growing backlog, new products, new customers, and channels to market; new applications and geographies for our products; significant expansion of our IP portfolio; and the next generation of technology that promises to keep us in a leadership position.

We look forward to keep you apprised of our progress on these activities and the continued growth of our PPSA branded products in the future. I plan on presenting at the ROTH Capital Conference in California and the Northland Capital Conference in New York during March. I will also plan some additional meetings around these events. If you have an interesting meeting, please confirm a time with Matt Hayden from MZ Group.

At this time I would like to open up the call to questions from our participants. Operator?

(Operator Instructions) Philip Shen, ROTH Capital Partners.

This is actually Justin Clare on for Philip Shen. First off I guess, given your new hybrid and 125 kilowatt product introductions, could you share what the product mix is of your $2 million backlog and possibly how you expect that to change throughout the year?

Yes, the backlog right now is predominantly on our 30 kilowatt battery converter product. There is some backlog related to actually both the hybrid and the 125, but as we look forward into the year that will be shifting more and more, particularly towards the 125 in the back half of the year. But the hybrid's contribution will increase as well.

So really, for the first half of the year, we are looking at the 30 kilowatt battery converter driving the revenue and in the back half it will be a mix.

Okay, great. Thank you. Then moving on to margins. I know last quarter you had mentioned a target of maybe 30% to 40% gross margin. I was wondering: do you have a sense for what kind of volume you need to hit that? Then also, do you need to introduce the new bidirectional switch technology to hit that target?

So the answer the first question is no, we don't need to introduce the bidirectional switch technology to hit that target. I think it is probably in a few hundred units to actually get to the 30% margin; 30%, 40% is the product margin target. So as we look into 2015 and into 2016, with our volume growth we should be, particularly in 2016, much closer to that target.

If I could just add to that, one of the things that we see over time is there will be price pressure that will show up in the storage market, and we view the bidirectional switch as a way for us to maintain a competitive advantage for the longer term. Not just from a performance standpoint, but also the ability to protect those margins even when price pressure starts to show up in the marketplace for storage systems as a whole.

Okay, that's helpful. Thank you. Maybe just one more for me then, just a housekeeping question. Considering that you are rolling out new products and you are making R&D investments to develop your new technology, can you give us an idea of how your OpEx will trend through the year?

Our OpEx, from a G&A perspective, will remain relatively flat. Our R&D will increase, particularly with the bidirectional switch development, and there are some costs associated with rolling out those new products that will have a contribution here in the later half of the year. But on the flip side of that we expect pretty significant revenue growth and additional contracts from them.

All right, that's it for me, guys. Thank you.

Colin Rusch, Northland Capital Markets.

Thanks for taking the question. Can you talk little bit about the sales cycle at this point?

Now with the backlog that have got, how quickly do you think that turns over? Are you expecting to be able to turn that backlog three, four times a year, or is that kind of a once or twice a year kind of turn over?

I think a lot of it is, as we look at the forecast that we get from our existing partners, the ability to absorb those units is really paced by their ability to install. So what I would expect is during the course of the year as they get more proficient, their ability to place an order with us, complete an installation, and commissioning it their end customer is going to shorten.

I would guess that we are probably going to see that backlog turn probably 2 to 3 times a year for 2015. I think what is more important is what are we getting in terms of new customers that are coming in that are adding to that existing backlog. Because we are seeing that the folks like Gexpro and others that we're going to be announcing are really targeting a different customer base.

So we think that while they are all going to start and go at their own pace as they ramp up their businesses, the ability just to continue to bring on more of them is going to give us some ability to really get several players ramped up and driving some pretty significant revenue for us in the back half of 2015 and into 2016.

What are you seeing with third-party finance folks in terms of being able to underwrite residual value and performance over an extended period of time at this point?

It looks to be a pretty significant accelerator. If you look at Green Charge Networks, for example, they raised $56 million with K Road and it was really around project finance. If you look at folks like Stem, they are doing the same thing. If you look at Koda Energy, they have the backing of Fortress.

So the ability to bring a complete solution so you can actually get out of the hole capital appropriation cycle with the commercial and industrial customer seems to be a pretty significant issue in terms of driving the sales cycle to closure quickly. You can largely make it a no-risk decision for the customer if you could take the technology risk out of their hands, bring financing, and do a performance-based contract that guarantees savings, which is what we are seeing increasingly be the model out there.

Help me understand what the bottleneck is. Clearly, you have been qualified with all these customers. They have all raised money. Underwriting hurdles have been, it sounds like, passed through.

So what is inhibiting you, or them, to accelerate during the growth of this market in what sounds like a pretty significant way in the fairly short-term?

We actually see them accelerating. The folks that at the beginning of 2014 were ordering units five and maybe 10 at a time are backordering by the hundred. So I think they are actually off and running, and it's a matter of them just getting multiple installers -- the ability to actually install the units in a way that they are comfortable with. It looks to us as though they are actually moving forward pretty aggressively.

Okay. And then help me understand the backlog with those hundreds -- those orders by the hundred. Why aren't we seeing bigger backlog numbers then?

Our backlog we reported 12/31 was largely related to Koda, Green Charge, and Sharp, the battery energy storage system integrators that we are working with. As we roll into 2015, we are starting to add additional customers and channels outside of that core base and we will continue to see backlog growth throughout the year.

Should we be thinking about those as not purchase orders, but indications of where their demand is going to be for this year? If we're talking about hundreds of orders, we're talking about 30 (multiple speakers) 3 of the 10 megawatts type orders rather than what we're seeing in a little bit smaller chunks so far.

We have not received purchase orders for all of 2015 from any of our customers. What we report in backlog is actually committed customer POs and it may be for a few months to six months out, so we will be turning over that backlog and reporting increased backlog throughout the year as those customer orders grow.

For example, the megawatt that we announced with Gexpro, the megawatt with Eos, we have Boeing orders; none of those are in that backlog number since it was as of December 31.

Thanks so much, guys. I appreciate it.

[Carlos Herrera, MDB Capital].

Good afternoon. Thank you very much for the presentation. We have a couple of questions related to the market you are addressing right now.

Do you identify any new technologies that will scale into the general markets that will be naturally matching with your device right now?

Actually, there's several. We see several new battery chemistries that are reaching commercialization. We see some new players coming into the small-scale fuel-cell space. We see a considerable uptick in the activity surrounding small-scale wind, so it's pretty interesting that we are seeing a real push towards all things distributed generation.

And regardless of the source, they are all potential candidates for us because our technology is pretty flexible in terms of its ability to work with any of those technologies.

Perfect. And in terms of the isolation, do you see any valuable solutions for customers that need isolation, for example?

Anybody that wants isolation today really has to go with a conventional technology and add the cost, weight, and expense of a transformer. We don't see anything out that that is even remotely similar to our technology that can provide the transformalist approach to isolation that we have. And we have got such a strong patent position around it I think it would be pretty difficult for someone to come up with anything that is even remotely similar to it.

But we do scan pretty regularly. When we go to the trade shows, we make sure that we see what people are talking about introducing for new products. And through 2014 we didn't see anybody that had anything even closely resembling our technology.

Thank you and a final question. We have seen that in the industry the major key players are very interested. Are some of them evaluating your technology for insertion of their offers that you know?

When you say key players, they take many shapes and forms. There are folks that are out there in the solar space that are moving into storage. There are battery companies that are out there. There are other solar inverter companies.

We actually had quite a string of folks coming through and we think we're going to have some very interesting announcements here in the very near term about some other very large players that are creating a relationship with us as a way to enter the storage market and take advantage of what our technology has to offer. But you will actually see several of those this year.

Thank you, guys.

Marcel Herbst, Herbst Capital Management.

Good afternoon and thanks so much for taking our question. Can you remind us again how many of the larger system integrators you have design wins with? And maybe give us a little color on your pipeline there.

The major system integrators that we see today that are actually putting hardware on the ground are -- there are three of them. There's Sharp Electronics, Green Charge Networks, and Koda Energy. We see several others that are coming to this market in 2015 and we're actually going to be announcing some relationships with them.

We've also seen several folks who want to buy from someone like a Gexpro or someone else that is a large brand that can bring a consolidated system, so you will some approaches like that as well. But from the players that we see that are actually doing the most in terms of installs, it looks like we've captured all of them.

The only when we haven't captured yet is Stem. Stem made some significant awards as part of some of the utility programs that are out there, but we are working to bring them a solution as well because we understand what they are looking for and we think is a good path to actually capture their business here this year as well.

And regarding the Rexel distribution partnership, can you give us a broad idea of what kind of annual revenue potential this can have for Ideal Power?

It could be pretty significant here. We know what they are targeting. They haven't let us share that with folks, but they could become a pretty significant source for us.

I think some of the things that we are talking about announcing here in the coming months as an expansion of that relationship will give you some color in terms of the size of the commitment they are making to all this. But we expect them to be a pretty significant piece of our revenue coming out of 2015.

Great, thank you very much.

Don McKiernan, Landolt Securities.

Thanks. You guys have done a phenomenal job in the last year and a half and congratulations. It's very, very exciting.

I kind of have a general sense that -- 1 megawatt, of course, is a thousand kilowatts and isn't that roughly about 33 units in terms of the 30 kilowatt converters?

Yes, that's correct.

All right. So that would translate into about $400,000 in revenue at $12,000 apiece. Am I correct in that number?

It would be a little less than that because when people order in volume we give them a discount, but you're not too far off.

All right. So when you talk about on your press release 9.5 megawatts of business, granted they are not in the backlog because they are not firm purchase orders, but you are really looking at maybe something closer to $4 million in revenue out there from just the announced opportunities that we have had in the last six to nine months.

Just to clarify that, the 9.5 megawatts number that you are referring to, that was our orders since the beginning of 2014. So that would include the 2014 revenue, which is about $1.2 million, as well as the backlog which is just over $2 million.

Right. And then subsequent to year-end you have had like a megawatt out of the Rexel deal and maybe some other things, so --.

Yes, a megawatt out of Eos and we announced Boeing (multiple speakers)

Boeing and there is a couple other smaller orders we haven't announced.

Right, right. Then on your website, maybe I read this wrong, but it said the bidirectional switch would be begun to be used in your products in 2015. Granted it may be the end of 2015, but that translates to me that you will have a product ready to go this year into the marketplace. Does that sound right?

It won't necessarily be in the marketplace. It will be in a prototype that we are testing. We will probably exercise it pretty heavily before we finalize that design and send it off for third-party certification.

Okay. So once you bring it to market, will this be a significant catalyst to growing your business? I mean you already have enough catalysts right now, but will this be kind of a real transformative piece?

We think it absolutely will be, because it not just makes our products even more competitive. When you start to get to very high efficiency and very compact size, it starts to open up some other very mature markets that we have chosen not to try and enter with the current state of the technology. Things like motor drives and traction drives and all kinds of things that use conventional power conversion.

So it really opens up a whole new channel of partners and I think it starts to introduce some interesting licensing opportunities for us as well.

And there's nothing like it on the market, right? Nobody has (multiple speakers)?

No, there isn't, no.

Is breakeven, on a quarterly run rate basis, about $5 million or $6 million? Is that about right today?

Yes, we haven't talked about that specifically. We have said it's about 2,000 to 4,000 units if you look at our baseline 30 kilowatt product. And the reason for the range there, it just depends on our cost to develop additional products and also additional applications. So we have some control over that obviously in terms of where we fall in that range, but we have been in a range of 2,000 to 4,000 units on an annualize volume basis.

All right. Then your platform on your PPSA technology, you have been introducing new products on a regular basis. I'm assuming you've got plenty more to bring out on this platform. I mean you've got a --.

We have more ideas than we have people and time.

Wow, good. And then last question on the EV market, electric vehicle; I haven't made any comments today on that. Is that kind of slow to develop? Any thoughts there?

It is slow to develop. Our real fit in the EV market is when they have to include buffer storage to actually make the economics work.

What we are seeing is, at least for the early rounds of what's being installed, a lot of it is just simple straightforward charging. Low-cost, get as many in as possible to build some basic infrastructure.

We are also starting to see pressure in places like California to start to put buffer storage in, because that infrastructure is creating its own set of issues. So I think as that infrastructure starts to mature a little bit more that's when you'll start to see us get folded in, because we are not interested in competing in just a simple charger market. We really wanted to include the buffer storage, because that is where we can really show the advantages of our design.

Well, thank you very much and have a great 2015. Thanks.

Mike Cahill, Crispin Capital.

Dan, thanks for a great quarter and it's nice to see all your hard work translating into revenue. I had a question on the first-quarter guidance. I wasn't sure -- when you said that the revenue could be almost as much as 2014, was that in reference to the 2014 product revenue or the total revenue? Thank you.

It is product revenue and we actually -- I did mention during the prepared comments that the ARPA-E program is fully funded, so we would not expect any more revenue for that program.

Right, I did hear that, but thank you for the clarification. Thank you.

John Bronzo, Nudge Capital.

Thanks for taking my questions. The first question I have is to piggyback a little bit off of Colin's question. Could you talk a little bit more about your production turn and your lead time? Just sort of what kind of time has to go by between when an order is placed and we you can actually -- when a customer can actually take delivery?

In the agreements that we have with the system integrators, what we sign up to with them is a 90-day lead time. As we start to ramp the production itself, that lead time will actually shorten. We expect it to get down to closer to 60 days.

Now that is assuming that we don't want to have anything already sort of in WIP or in inventory or shortening those cycles. Right now we are trying to make sure we don't tie up cash for those sort of things, but today is about 90 days. It's largely driven by not the contract manufacturers' timeframe to actually build the product. It's really to get some of the long lead parts, like the heat exchanger on the unit or the enclosure, that's unique to our product.

Got you, thanks. And if I can just ask one more, with respect to 2015, could you maybe expand on some of your expectations for any licensing agreements or any deals this year in that sense?

I think the licensing is really -- it's more a function of the folks that we work with. There are some players that are in the queue who will probably never do a license with us. It's just -- doesn't fit their business model. They don't want to actually be in the mode of having to make product and that's fine.

There are some that, depending on how quickly their business grows, are probably going to want to move at least to a purchasing license. I would be surprised if we saw those happen in 2015. I think all of them need to get to pretty high levels to actually justify the resources that they have got to commit to go manage a supply chain and contract manufacturers.

On the bidirectional switch development, I think we really need to get to showing that that is now working in a product out in the field which will be later in 2015. So I think until we can demonstrate operating data on a fully implemented unit with the bidirectional switch it would be premature to do licensing. So I would expect 2016 to be the earliest that we would see any kind of an arrangement there.

Thanks a lot. Appreciate that and congrats on a good quarter.

Jared Mayer, Confido Holdings.

Thanks for the call today. Just taking a step back for a minute, given the adaptability of the technology; help shed some light on how management looks at choosing the best markets to go after and sort of the chronology of rolling out in those markets and allocating resources to exploiting them.

For us, it's really all about looking at where can we bring our product where it will have a unique set of attributes and where we can capture the best possible price for it, because our objective is to get to profitability as quickly as possible.

So to give you an example, we could sell our 30 kilowatt unit as a solar inverter. We have no interest in doing that because the solar -- the plain solar space highly commoditized, a unit that we sell as a battery converter for $10,000 or $11,000 we would have to sell for $7,000 or $8,000 to sell as a solar inverter.

So we really look for what are the markets that are growing quickly; have the ability to really value our technology, monetize that value, and the price that we can get from them. And for us to move into those space it takes the minimum amount of modification and development largely to the firmware, since the hardware is pretty adaptable.

So while we look at all the things that we can go do, we really staying pretty focused on first starting with storage, storage plus solar since that's a different kind of application, micro-grids, and some of the other ones that are things we could do. We're really not spending much time on because it's an opportunity cost issue for us.

Okay. And just to follow-up from that; as you focus on those three areas that you mentioned, what is the sales ramp and just partnership ramp look like? How would you look to grade yourself going out, let's say, two, three quarters in terms of what investors should expect to see?

I think you should expect to see two or three significant new arrangements by the summer and you will probably see at least another one in the fall. Probably more at the rate things are accelerating, the number of people that are coming to see us.

Is there a cap there, though, just in terms of the resources that you have to allocate to those partnerships?

Not really. It doesn't take a lot to support these once we get them through initial startup. It's really making sure that we get them up the learning curve on understanding the product and technology. If we have to add another application engineer or two to support the growth of their business, it's a relatively small expense in terms of the magnitude of revenue it can drive.

Lastly from me, given your current cash are you expected to be fine with through the end of 2015 and revenue starting to pick up, in 2016 what does that look like in terms of your capital position in terms of the potential need for a raise?

We filed an S-3 on December 1, which was the first day we were actually eligible for that filing, and that was really to provide us flexibility in the case -- in any event that we needed or wanted to raise additional capital. An S-3 is a three-year instrument, so it is not something that we necessarily would look to use here in the short term, but it does give us the flexibility that there are business opportunities that would require a short-term investment in the business.

It is in excess of our strategic plan. There's always the opportunity, when you have that in place, to go to the capital markets and try to bring additional capital into the business. But what a raise would look like, I'm not sure I can really answer that question because until those opportunities present themselves and we evaluate those opportunities, we don't have plans for a specific raise.

Understood. That's it for me. Thanks, guys.

Mark Bronzo, Nudge Capital.

Thanks for taking my question. I have a few questions.

Obviously, you're developing the business with Sharp and Koda and Green Charge. Can you expand a little bit so I can understand better the real potential with the micro-grids? Obviously not just with Boeing, but is there a lot of opportunity on this market place besides Boeing and how large could that marketplace be?

Then if you could touch on the recent deal that you folks did with Eos Energy. What was interesting to me about that deal was in New York, and I expected you to be working more with utilities in California or Texas. I just wanted to get a sense for how large that market is. Do you expect to see other deals like that with other stakes? If you could give us a little more color there, that would be great.

Sure, let me start with Eos. When you look at where the markets are, it's become bicoastal. The commercial and industrial market today is really driven by demand charges, and the highest demand charges in the country right now are actually in Boston. So Boston key market; New York has both high time of use and demand charges and then, of course, California.

New York has always been a little bit tougher to penetrate because Con Ed was not one that was embracing of new technologies coming in, which is why I thought it was really good to see Con Ed as really a sponsor for the demonstration that Eos did. With it going successful, they were able to actually make some decisions about where they are going with their business and they have got some pretty significant opportunities that are follow-ons in that area and we are glad they picked us as part of that. We think they have got some pretty interesting announcements coming.

And part of what really gives them a competitive advantage is their chemistry is projected to be very low cost compared to the traditional lithium-based opportunities that are out there. The other thing that we are seeing is with the existing partners that we have, Green Charge Networks and Sharp and others, they are actually now pursuing opportunities in the New York and East Coast area as well.

So California is -- what usually happens, it kind of starts the trend and then it goes to the East Coast. So you are going to see installations and orders in the New York area and Boston and elsewhere in the Northeast this year get announced as those markets are starting to take off as well.

Can you give us a sense what you think the potential for that market is?

The standalone storage market itself, it's hundreds of megawatts of addressable opportunity, which -- while it is interesting to us, part of why we are focused on micro-grids is from everything that we are seeing, the micro-grid opportunity is going to be even bigger just because you have so many people around the world that are dependent on diesel fuel and don't have access to the grid.

We see power actually kind of following what happened with telephones. If you look at India and China and North Africa, they didn't put in hard lines for phones. They just skipped it and went straight to cellular. Power is going to do the same thing.

Rather than build the grid infrastructure, it's going to micro-grids because those technologies have now become very cost competitive, and you are displacing power that would be made with really high-cost fuel that is going to be also difficult to get to a lot of those locations. So from everything we are seeing, micro-grids are projected to grow like 20-fold over the next 10 year and actually would significantly eclipse just standalone storage.

So if I'm understanding what you are saying, then the micro-grid opportunity is more of an international opportunity than domestic? Am I getting that right, or am I --?

It is. There are domestic opportunities for it. You see a lot of college campuses and hospitals that really want to have the ability, in the case of power outages, to be isolated and continue to have complete power for their facility. But when you look at places that just need a basic supply of power, the micro-grid is going to be an answer for a lot of the international opportunities, which is why you're going to see us doing more and more with folks that have global reach.

Obviously these were all good problems to have, but my next question is priority of focus. You are getting -- the good news is you are getting orders from a variety of different spaces. As a small team, Dan, how are you managing and making sure nothing slips through the cracks operationally?

There is several things we are doing. Gexpro is a perfect example of one of the things that we are doing to sort of make sure we stay focused.

We have endless inquiries that come in of people that are doing projects. We would tie up a lot of people a lot of time to try to figure out the right solution for them. We don't really have the ability to support folks that are doing two-, three-, four-unit opportunities. We really want people that are doing 200-, 300-, 400-level opportunities.

A company like Gexpro is exactly what they do. They support electrical installers and others that might be doing projects. We get them trained on the technology can -- literally can offload that. From a technology standpoint and a product standpoint, part of what we do also is we make sure that we are not getting out sort of over our skis here with new opportunities that come along.

If you look at units that we are shipping, whether it's going to a wind power application, which we have orders in hand for that, whether it's going for standalone storage, whether it's going for micro-grids, for us it's not a new product. There may be some things that we learn that we want to make some improvements in the firmware, but we are fortunately not having to turn entirely new designs to do these. It's really leveraging the core design of that 30 kilowatt product and just expanding its capability.

Things can get pretty far afield from that and we've actually had several of these here just in the last couple of months that we've looked at. We just said interesting, but we're not going to do it; we just can't lose focus. Because if we don't have really stellar successes right out of the gate, it just makes it harder to recoup from that.

The last question I have is in terms of contract manufacturing, I know you announced that you are dealing with a second outsourcer. Are you able to release the name of who you are working with there?

We haven't, mostly because we don't want our competitors to know who we are using, but it is a company in the US in the Midwest.

Okay, that's fine, that's all I needed. All right, guys, thanks for your time.

This does conclude our question-and-answer session. I will turn the call back to Dan Brdar for closing.

Thank you very much, operator, and I want to thank everybody for joining us today. We hope you are as excited about what 2015 looks like as we are. We think we are going to have a lot of great things to be talking about in future calls and we will be looking forward to keeping you apprised of our progress. Thank you very much.

This does conclude today's conference call. Thank you again for your participation and have a wonderful day.