Ideal Power Inc (IPWR) 2020 Q2 法說會逐字稿

Good day, everyone. Welcome to the Ideal Power Second Quarter 2020 Results Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Carolyn Capaccio of LHA. Please go ahead, ma'am.

Thank you, and good afternoon, everyone. Thank you for joining Ideal Power's Second Quarter 2020 Conference Call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer.

Ideal Power's second quarter 2020 press release is available on the company's website at idealpower.com.

Before we begin, I'd like to remind everyone that the statements made on the call and on the 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 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 investor information.

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

Thank you, Carolyn. Good afternoon, everyone, and welcome to our second quarter 2020 conference call. I'll begin by giving you an update on Phase 2 of our commercialization program and our recently announced U.S. Navy sponsored contract and outline our priorities for the rest of the year. Then Tim Burns, our CFO, will take you through the numbers.

Before we get started, a quick note on COVID-19. In early May, our staff returned to the office upon expiration of the Texas stay-at-home order, and we're observing safety protocols and best practices, including wearing masks, practicing social distancing, and following all applicable guidelines to keep our team safe. Additionally, our fabrication and device packaging partners and key suppliers continue to operate and are producing parts for our testing and evaluation and to support our partnering and demonstration efforts. We're performing and enhancing our internal device testing capabilities and continue to leverage our partners' external equipment and facilities as necessary to supplement our capabilities. Overall, the impact from the pandemic has been manageable without significant disruption. Our supply chain remains intact, and our development and commercialization time line remains on track.

During the second quarter of 2020, we significantly advanced Phase 2 of our B-TRAN commercialization plan, which entails the fabrication of parts and the delivery of samples to potential partners for evaluation.

With respect to development, as we previewed to you on prior calls, and announced earlier this week, in June, we secured our first U.S. government funded demonstration project. We signed a $1.2 million contract to partner with Diversified Technologies, or DTI, on the development and demonstration of a B-TRAN-enabled direct current circuit breaker as part of the U.S. Navy's strategic focus on ship electrification. Ship electrification is a high priority initiative in the U.S. Navy due to the enormous operational benefits they can provide. Ship electrification can significantly enhance the energy efficiency of ship operations and improve their operational flexibility, thereby greatly reducing the high cost in both dollars and lives associated with the acquisition, handling and transportation of fuel for vessels in forward-operating areas. It also allows for distributed power on ships, making them less vulnerable to attack and reduces the reliance on inefficient, noisy rotating equipment such as combustion engines, thereby lowering the noise in turbo ship and enhancing its stealth capabilities.

The key element of the program is the development of a highly efficient family of solid-state DC breakers. The primary challenge with solid-state DC breakers has been the large amount of heat generated by their continuously conducting semiconductor devices such as IGBTs. To dissipate the heat generated from conventional IGBTs, prior solid-state breaker designs have required complex cooling -- liquid cooling systems that add to their size and cost and has several moving parts such as pumps that reduce their reliability. Due to the greater than 50% reduction in conduction losses, a B-TRAN-based breaker could be air cooled, and as a result, B-TRAN becomes an enabling technology for the application.

This 2-year, $3 million project is funded under the Department of Defense's Rapid Innovation Fund, the intent of which is to accelerate the commercialization of high-value, high-impact technologies for the United States Naval Sea Systems Command and was awarded to DTI by NAVSEA. The project's objective is to develop and demonstrate B-TRAN-enabled, high-efficiency 12-kilovolt medium voltage direct current circuit breaker for the U.S. Navy.

We're very excited to be working with DTI, who possesses expertise designing and building solid-state MVDC circuit breakers. Under previous government-funded efforts, they designed and built solid-state breakers with conventional IGBTs, and as a result, have developed significant expertise in solid-state breaker design and control. They're also acutely aware of the limitations imposed by the high conduction losses of conventional IGBTs.

The U.S. Navy selected this project because of B-TRAN's unique low production loss capability as an enabling technology for an air-cooled breaker design.

Our part of the program kicked off in late June. To date, our first fabrication run has begun, and we expect to receive dies early in the fourth quarter. We expect packaging and testing of first run to take place in Q4, after which we plan to start the second fabrication run. As part of the program team, we'll be working with the University of Texas at Austin's Microelectronics Research Center to develop a new packaging design for the die that will also be able to be used for our engineering sampling program.

UT's microelectronics center is a center of excellence for advanced power semiconductor design and high-density power electronics and brings a world-class team and facilities to complement our internal development efforts. The packaging we've been using to date is designed as a lab-based package and the new packaging design will provide the electrical connections, form factors and thermal management required for a commercial semiconductor package that will physically resemble conventional packaging design to facilitate their adoption by end users.

Our collaboration with DTI will help establish the viability or shift toward medium-voltage DC power distribution by delivering extremely fast fault interruption, low fault currents, low conduction losses, flexible programmable coordination, bidirectional operation and electrical isolation, which are key factors to the reliable and safe operation of DC power systems.

As part of the program's objectives, DTI's goal is to introduce a family of medium voltage DC circuit breaker product incorporating B-TRAN a result of the demonstration for sales to military, utility, industrial markets. Our goal is to further substantiate our B-TRAN power semiconductor technology performance characteristics versus conventional power switches, specifically, higher efficiency, lower cooling complexity and fewer components and demonstrate B-TRAN as a potential game changer for distributed DC networks, both within and outside the military, supporting a wide variety of emerging applications.

B-TRAN-enabled medium voltage DC circuit breakers could potentially be used in various industrial and utility applications, including medium- to high-voltage DC transmission and distribution systems and new electrical generation, such as solar and wind that are DC based. This partnership is a potential material catalyst for Ideal Power.

Over the 2-year program, we plan a total of 5 runs over 6 quarters, aiming for optimized device delivery in late next year, with a final demonstration of a 12-kilovolt MVDC breaker in the second half of 2022.

The program plays an important role in our commercialization efforts and brings a wide range of benefits as a result of our involvement. First, the military is often the first adopter, and in many cases, the driver for the development and validation of new technologies. The success means full-scale validation for B-TRAN's capabilities and necessary visibility and credibility with other prospective partners and for other applications. The program underwrites a significant development cost for us as it covers multiple semiconductor fabrication runs and provides a new device packaging design that will also be applicable for commercial end users as well.

The outcome also provides a direct path to unique and highly differentiated end-user products for military, utility, industrial applications to support the increasing use of DC-based power distribution and transmission in micro-grid systems. It also raises Ideal Power's visibility within the government-funded research, development and demonstrations community as a strategic partner and technology provider.

And lastly, it enhances our opportunities for partnering and collaboration efforts with other companies for commercial and government-funded programs and products.

During the quarter, we also made strong progress on our engineering sampling program. We completed the fabrication qualification process with Teledyne, our new semiconductor fabrication partner and released next-generation parts to our semiconductor partners for fabrication. Subsequently, we completed B-TRAN fabrication run with Teledyne and are preparing dies to be packaged for internal testing and characterization. The run allows us to expand and update our documentation and with packaged devices in hand, generate initial B-TRAN data sheet for the technical community, laying the groundwork for additional program runs necessary for next steps. Learnings from the run also helped refine and optimize the manufacturing process and device design.

Additionally, in an effort parallel to the packaging design, I mentioned a moment ago, we're collaborating with UT Austin's Microelectronic Research Center to design a new current source driver to be used in our engineering prototype sampling program. In the case of both the NAVSEA program and the UT Austin driver development efforts, Ideal Power retains the royalty-free intellectual property rights we need to widely adopt the results of these programs for our own commercialization program. The first design of the new driver hardware is complete and the initial units are out for fabrication.

In the coming months, we'll work closely with UT to develop and validate the driver design and programming, which will be followed by an updated design focused on shrinking the physical size of the driver and removing features used only for debugging purposes.

With respect to our B-TRAN IP, we currently have 56 issued B-TRAN patents, with 20 of those issued outside of the United States and 27 pending B-TRAN patents.

Our current geographic coverage now includes North America, China, Japan and Europe, with the potential to expand coverage into South Korea and India. Ideal Power's technology is transformational in both its bidirectional switching and its ability to solve immediate problems prevalent in power electronics applications such as solid-state circuit breakers, through its simplicity, lower switching and conduction losses, lower user costs and improved and more compact thermal management. Our aim in Phase 2 of our commercialization plan is to position ourselves with proven packaged solid-state engineering device prototypes, coupled with the device driver be put into prospective partners' hands for additional testing by their engineering teams in their products. This will be a crucial step in gathering real-world performance data, but that enables us to develop commercially ready devices for production.

In the second half of the year, we'll pursue 2 parallel paths as part of Phase 2 commercialization, our demonstration project with NAVSEA to provide a full-scale demonstration of an application where B-TRAN is the enabling technology and our engineering sampling program.

Now that the NAVSEA program has been announced, we'll look to leverage that program to create and develop additional collaborations with other companies to secure further opportunities for demonstration and market development.

Overall, we're on schedule for Phase 2 commercialization plan. Our 2 main objectives for the remainder of 2020 are to complete the first fabrication run and packaging design under the NAVSEA project and complete the new current source driver to support making package engineering prototype samples and drivers available for potential customers and partners.

Phase 3 will then aim to establish strong partnerships and other strategic relationships in our initial target segment in the $4.9 billion IGBT market, namely the U.S. Department of Defense and the data center UPS markets, opening up these segments for initial commercial sales of B-TRAN power switches.

Before I turn the call over to Tim, I want to thank our warrant holders for their continued support. Last week, we completed an early warrant exercise transaction, the proceeds of which provide us additional resources to devote to our commercialization plan while avoiding the need to access the capital markets in the current volatile environment. Ideal Power is advancing our development and commercialization goals, and we expect the momentum to continue given our technology's strong performance, the visibility the technology is gaining and the positive strong reception by our partners. We're on our way towards beginning our operational execution and realizing our B-TRAN technology's tremendous commercial potential in a large addressable market.

Now I'd like to hand the call over to our Chief Financial Officer, Tim Burns, for a review of our second quarter 2020 financial results. Tim?

Thank you, Dan. I will review second quarter 2020 financial results. In the second quarter, we recorded a small amount of grant revenue with offsetting cost of grant revenue as we signed and began work on the DTI contract in late June.

Second quarter 2020 operating expenses were $0.8 million compared to $0.9 million in the second quarter of 2019. The decrease in operating expenses in the quarter was due to lower general and administrative expenses, including lower legal fees and lower facilities costs due to the sublease we entered into during the third quarter of last year.

Second quarter 2020 net loss was $0.8 million compared to $1.3 million in the second quarter of 2019. The decrease in net loss is primarily due to a $0.3 million loss from discontinued operations in the second quarter of 2019 associated with the PPSA business that we divested in September of 2019. We also had a lower loss from continuing operations due to a reduction in our operating expenses.

Second quarter 2020 cash used in operating activities was $0.7 million, slightly lower than cash used in operating activities in the second quarter of 2019. Cash and cash equivalents totaled $1.8 million as of June 30, 2020.

During the second quarter, we received a $0.1 million Paycheck Protection Program loan to temporarily subsidize payroll and facilities costs in the business landscape impacted by the COVID-19 pandemic. We expect the loan will be forgiven, but cannot provide assurance that will be granted forgiveness of the loan in whole or in part. As a result, long-term debt outstanding at June 30, 2020, was $0.1 million.

As a reminder, as we are singularly focused on development and commercialization of our B-TRAN technology, we are well positioned with a strengthened balance sheet and an asset-light operating model. Our burn rate remains approximately $0.7 million to $0.7 million in cash per quarter, subject to both the timing of and variability in expenditures and refinements to the B-TRAN development and commercialization plan.

As Dan mentioned, on August 5, we completed an early warrant exercise transaction with certain of the company's Series A warrant holders. The transaction raised approximately $2.5 million in net proceeds, strengthening our cash position and enabling an orderly exercise of the warrants. We intend to use the net proceeds to fund B-TRAN commercialization and development and for working capital and other corporate purposes. In the transaction, Series A warrant holders were issued new Series C warrants to purchase up to aggregate of 705,688 shares of the company's common stock at an exercise price of $8.90 per share, through a private placement, as an incentive for them to exercise their Series A warrants early.

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

(Operator Instructions) We'll take our first question from Don Slowinski with Winslow Asset Group.

Dan, in your June presentation, you had a 5x proven conduction loss improvement. And I assume that since this NAVSEA contract is a 12-kilovolt system that you can't get that type of improvement. Can you talk about the different types of improvement that B-TRAN offers in the different markets that you're addressing? And then just look at your pipeline and talk about what you think the low-hanging fruit is and how you could plug that in.

Sure. We -- the 5x is looking at a true bidirectional switch. What we are doing, when you think about the military and what their needs are in terms of applications and robustness, we have been conservative in partnership with DTI in terms of how we want to rate these devices. We want to make sure that we have a good demonstration. So we're actually going to be rating them pretty conservatively. We had a review with the Navy as recently as yesterday, and it's pretty clear to them that the potential for the technology is much more than the 50% that we're saying here, but we don't want to set expectations that we can't meet. The driver for them and for anything that's going to use DC systems or these conduction-loss issues, so for the Navy, it's a little bit unique in that they actually want a bidirectional system, because they want to be able to have zones on the ship where they can redirect power, and they may not necessarily know where the load is coming from if the ship is damaged for some reason or if they have to take part of the infrastructure out for repair. So bidirectionality actually is one of their unique requirements. But even for one-directional device, for DC breakers, there's a lot of opportunity because studies have shown that DC distribution and transmission systems are actually cheaper. And there's going to be so much infrastructure involved that is DC based that there is a real market that has been looking for a solution. We look at companies like ABB and others who have made some very big complicated IGBT-based solid-state breakers that just haven't been commercially successful, largely because of all the heat that they generate and the efficiency impact that comes from that. So we think that the DC market in general is a good early target market. We think the UPS market is another good one, simply because of the fact that if you look at data centers, all the power has to flow through the UPS systems. So the semiconductor switch used in there are then continuously conducting, generating heat, and a low-loss switch like a B-TRAN can actually significantly impact that performance, particularly if you look at things like a data center, where the electricity cost is the biggest operating component for most of these facilities.

Great. And just one follow-up. Are you aware if NAVSEA or Diversified is testing other solutions? And when do you feel time frame wise, the validation of B-TRAN will occur through your current effort with them?

Well, I think we'll see validation next year. This is going to be something where we're going to do several runs. They're going to deliberately break devices to make sure they understand what the margin is in the design. The Navy has actually looked at and funded IGBT versions of this kind of breaker previously. In fact, DTI was one of the ones that did some of that work. But unfortunately, as I mentioned earlier, it resulted in too much heat, which meant a liquid cooling system, which the Navy just wants no parts of.

(Operator Instructions) We'll next go to Orin Hirschman with A Investment Partners.

AIGH. Can you just go over the time frame, again, when you actually are hoping to have sampling done, it's like Q1 of 2021? And do the -- are the customers already expecting something when you wound up with your sort of customers and if those customers primarily in one area, meaning, for example, in power backup systems, for example?

Yes. We expect to start sampling later this year. The sampling program is probably an ongoing thing, simply because we want to have the opportunity to start discussions with a variety of segments. Our focus is going to be on the UPS sector because of the impact that the technology can have. We've identified the customers that we want to target. We've already had some discussions with some of them. But we'll also be putting some other samples out with some of the market segments that just typically take a long time. And the example I'll give you is electric vehicles. We've been approached by one of the major auto manufacturers when they heard about our technology. We don't expect to see business from the automobile sector for quite some time because they're very slow to adopt new technology. They have long design cycles. But you have to start those discussions and get them exposed to the technology at some point in time.

So we're going to be focused on things that are really benefit from the low-conduction loss like UPS systems. And we'll also be sampling some of the segments that really can benefit from a low-loss switch, things like motor drives, where you could use a matrix type converter or some of the renewable energy applications where they want bidirectionality for things like energy storage coupled with solar.

So 2 follow-up questions. One is on the energy storage side, let's say, where utilities are beginning to move to mass battery storage. Is this something that could be helpful in handling, especially the bidirectional aspect, loss aspect -- is the loss aspect also important enough here? Or is it just, it wasn't as small enough today as the existing IGBTs and other solutions, integrated type of solutions where the loss isn't such an issue? And is this important for those large lithium-ion battery forms or flow battery forms?

The losses are important for pretty much for any of these applications. The challenge is, at the end of the day, electricity is a commodity. And the 3 things that drive it are, the first, cost of your source of generation, the reliability of it and the efficiency of it. And efficiency can have a pretty big impact. So if there's an opportunity to significantly impact the efficiency, particularly at something like energy storage, where you're both charging and discharging. So you're getting hit with an impact in both directions, they can actually make a meaningful difference in terms of what the economics look like for those projects. Plus the ability to actually have power control with things like batteries and microgrids, you need bidirectional switching and control for those kinds of applications as well. So we think there's going to be plenty of opportunities to incorporate the B-TRAN technology into some of these energy storage applications, both mobile and stationary.

Okay. And just going back for a minute to the -- and do you think will those be amongst the first customer -- potential customers to sample? Is there any -- even one customer in that area that's already thinking about this?

We actually already have an agreement with one that we've already signed, that will be one of our early sample customers that is in that space.

That's great. And just going back to the electric car possibilities here. I would say, if I may humbly say that the key here is really just proving out what the efficiencies can make a difference in an actual electric car, in an actual real car on the road. And I've heard of one, not a competing technology, but a complementary technology, where they've actually been able to prove out a small percentage savings, which will continue to be a home run in a driver chip, modulation chip. I guess my question is, now that you've been approached, which is obviously news to everybody, you've been approached by one car manufacturer, electric car manufacturer. So I guess the question is, there are a lot of small guys and there's a lot of big guys. Can you just say if it's a big guy or a small guy? Because obviously, a big guy can afford to do a lot more than a small guy, on the other hand, small guy can be more nimble. But do you think you could progress this to an actual road test at some point over the coming year or so? And if so, can you do it with the original release of the product in terms of voltage? Or do you need to have a much higher voltage?

Over the coming year or so, I don't think so, just simply because the automobile manufacturers just don't move that quickly. I think for them, it's really understanding what the potential for the technology is, start to do some evaluation themselves. They typically actually play an interesting role, in that they actually can be a strategic partner where they fund development activities, particularly things that may be uniquely suited for their needs, so that you can actually have strategic partners with these folks that maybe don't result in any product sales until they get much further along in their technology evaluation and adoption process, but they can still play an important role in helping advance the state of the technology.

Okay. Will they be, at least, taking chips to play within the lab from you, you think?

I think so. Yes.

And again, a big guy or a small guy, both have advantage and disadvantages.

Well, we've been approached by one of the bigger guys. This was a while ago, but I think it's going to be some of the smaller guys that are actually going to be probably more innovative, simply because they can be more nimble and a little bit more aggressive. The challenge in the automobile sector for the big guys is when they make products, they are in the millions. And any kind of a technology issue that results in potentially a recall for them can cost an enormous amount of money. So they -- if you look at their adoption of silicon carbide MOSFETs, it's been a very slow process, but it's been important in terms of the development initiatives that has been put in the power semiconductor industry through and some of the monies that have gone into the development of those technologies.

All right. And it looks like at this time, we have no further questions. I'd like to turn it back over to Mr. Brdar for any additional or closing remarks.

Great. Well, thank you, everyone, for joining our call today. We will be presenting at LD Micro's the LD 500 online conference on September 2. So we invite you to tune into the webcast. In the meantime, have a great summer. Stay safe. And we'll speak to you again when we report on the third quarter. Thank you.

And that does conclude today's conference. We thank everyone, again, for their participation.