Ideal Power Inc. (NASDAQ:IPWR) Q4 2022 Earnings Call Transcript

Ideal Power Inc. (NASDAQ:IPWR) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good day ladies and gentlemen and welcome to the Ideal Power Fourth Quarter and Full Year 2022 Results Call. At this time, all participants are in listen-only mode. At the end of management’s remarks, there will be a question-and-answer session. As a reminder, this event is being recorded. I would now like to turn the conference over to Jeff Christensen. Please go ahead.

Jeff Christensen: Thank you, Sarah and good afternoon, everyone. Thank you for joining Ideal Power’s fourth quarter and full year 2022 conference call. With me on the call today are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power’s fourth quarter and full year 2022 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 from those described in the call.

Please refer to the company’s SEC filings for a list of associated risks and we would also refer you to the company’s website for more supporting industry information. Now I’ll turn the call over to Ideal Power’s President and CEO, Dan Brdar. Dan?

Dan Brdar: Thank you, Jeff. Good afternoon, everyone and welcome to our fourth quarter and full year 2022 financial results conference call. I’ll first give you an update on our progress since the start of the fourth quarter and priorities for 2023 to commercialize our B-TRAN semiconductor technology. And then Tim Burns, our CFO, will take you through the numbers, after which we’ll take your questions. So let’s begin. We’re excited to have announced the introduction of our first commercial product, The SymCool power module. The SymCool is a multi-die B-TRAN module targeted primarily for the solid-state circuit breaker market. Since the announcement of our DoD funded project with the U.S. Navy and NAVC for a B-TRAN-enabled solid-state circuit breaker, we’ve had an increasing number of companies looking to learn more about our technology.

Offering the initial shipment of working devices to our partner on the project, DTI, we’ve been approached by multiple industrial companies looking to participate in our technology evaluation program, we are focused on bringing low-loss circuit breakers to the utility and industrial markets. This strong market pull for our technology, where we can be an enabling technology for solid-state circuit breakers drove our decision to make this our first commercial product. Speaking of solid-state circuit breakers, let’s turn to our work with the U.S. Navy and our partner diversified technologies. In the fourth quarter, we shipped additional B-TRAN devices to DTI in preparation for a full-scale medium voltage direct current or MVDC circuit breaker demonstration.

Additional wafers are now being fabricated at both of our development wafer fabrication partners. The first of these runs is nearing completion and these wafers will be diced and packaged into devices and then tested prior to further deliveries to DTI. We expect to deliver packaged B-TRAN to DTI for inclusion in the MVDC circuit breaker in the first half of 2023 and will continue to support the program throughout the demonstration of the B-TRAN-enabled circuit breaker. The objective of this program post demonstration is for DTI to introduce a family of circuit breakers, incorporating B-TRAN for sales to military, industrial and utility markets. As we mentioned on our last call, during the fourth quarter, we entered into a development agreement with a global top 10 automotive OEM.

This is the second global top 10 automaker working with us as we previously announced a different top-down automaker participating in our customer technology evaluation program. We’re partnering with this automaker’s advanced technology development team to develop a custom B-TRAN power module for use in electric vehicle drivetrain inverters in the automakers next-generation electric vehicle platform. We expect to complete Phase 1 of that development program in the second quarter. Progress to date has been very good. And as a result, we’re already in discussions with the automaker on the scope for Phase 2 of the program. Phase 2 will focus on the integration of B-TRAN dies into the power module as we collaborate with an innovative packaging company also selected by this automaker.

We went through a considerable technology competition to be selected for the program and we’ll need to continue to meet program milestones and performance expectations as the program progresses. What we’ve learned during the technology competition and our ongoing discussions with the automaker to date reinforce the competitive advantages we knew we could bring to electric vehicles. The 2 primary issues automakers are facing are high electric vehicle costs and continued range anxiety from customers due to the early stage of our charging infrastructure build-out. The EV cost challenge has been compounded a rising battery costs due to fivefold increase in lithium since mid-2020. Semiconductor technology that can improve vehicle drivetrain efficiency can play a significant role in improving EV range.

Unfortunately, improving traditional semiconductor performance has focused on moving to wide bandgap materials such as silicon carbide which only exacerbates the cost problem. The silicon carbide devices are much more expensive than silicon devices. With B-TRAN moving into commercialization, automakers are finding there’s a lower-cost path to improved vehicle range. In addition, since Brad is an architecture, it too can move to silicon carbide as wafer cost, processing and quality improve over time. As we look forward for 2023, there are several key objectives we’re focused on that will enable you to track our product development and commercialization progress. This year, we expect to: one, complete the full process flow run at a high-volume wafer fabricator to prepare for ramping our commercial product sales; two, ship packaged devices under the NAPS program for incorporation into a medium voltage DC circuit breaker for the demonstration.

Three, complete Phase I and win Phase 2 of the custom module development program with a global top 10 automaker; four, complete fabrication and begin sales of our first commercial product, the The SymCool Power module. Five, complete the design and introduce our second commercial product, an intelligent power module. Six, add additional potential high-volume customers to our B-TRAN test and evaluation program and seven, deliver the customer kits inclusive of a packaged B-TRAM device, driver, test board and safety enclosure to participants in our B-TRAM test and evaluation program. While we’ve already discussed the Navy program and the global automaker custom module, let’s look at the additional 2023 objectives in more detail. Moving from development wafer fabs to production fabs is a critical next step.

As part of our commercialization strategy, we need to have fabrication capacity in place to support our customers’ needs. We also need to make sure that our customers are protected to the extent we can from supply chain shocks and disruptions as well as exposure to regions of the world that do not operate under the same guidelines we do with respect to intellectual property. The prepared for commercial product shipments earlier this year, we started a full process flow engineering run at a wafer fabrication partner with high-volume production capability. This run is proceeding very well and we expect to complete the engineering run in the second quarter. Upon successful qualification, this fabrication partner will be able to support our sales as we ramp to higher volumes in 2024.

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Also, we’re about to engage a second high-volume wafer fabrication partner to complete a similar full process flow run. The second wafer fab is very experienced in manufacturing bipolar devices such as IGBTs. These 2 sources are in very different parts of the world with world-class experience and capabilities and are eager to be engaged in a new technology such as B-TRAM. Dual sourcing for wafer fabrication with no exposure to China will provide us with sufficient supply capacity from the large customers we’re engaging. Our dual sourcing strategy will allow us to proactively secure necessary production capacity, components and services from partners in disparate geographies, mitigating supply chain risk. Looking to commercial products. We plan to introduce our second commercial product this year which will build on the multi-die packaging design of SymCool and the bidirectional driver we designed for our customer technology evaluation program.

This product will be an intelligent power module that will add a multi-die driver to the The SymCool power module design. This product will target renewables, particularly renewables such as solar and wind, coupled with energy storage, stand-alone energy storage and other industrial end markets. The driver and packaging for this product are already in design and we’re on track to launch our second commercial product in the third quarter. Moving on to our evaluation program. We are now collaborating with a global Tier 1 automotive supplier as part of our technology evaluation program. This Tier 1 supplier will evaluate B-TRAN for use in its electric vehicle inverter, bidirectional charging and circuit protection applications. Their interest was sparked by the announcement of our custom module development agreement with a global top 10 automaker.

Our technical and business development teams are meeting on a regular basis as we plan to deliver B-TRAN samples for evaluation to the Tier 1 automotive supplier in the second half of 2023. We’re fabricating additional customer kits inclusive of a packaged B-TRAN, device driver, test board and safety enclosure to facilitate and accelerate the evaluation process. After delivery of the kits and completion of testing and evaluation by prospective customers, we’ll gather valuable feedback on their product requirements and potentially secure product development or other commercial agreements. We’ll then use this feedback to determine the requirements for the various customers’ applications and to drive our development road map for future B-TRAN products.

As you know, our test and evaluation program will remain an embedded process in our sales and marketing effort and a source of input to our next generation of products. We’ll continue to add additional potential customers to the program. Since the start of the fourth quarter, we submitted proposals and concept papers for government funding opportunities with the Army, the Department of Defense, DoD’s Defense Innovation Unit and established collaborations with universities and commercial activities to pursue additional government funding solicitations as they’re released. We’re also preparing submissions through the Department of Energy, Department of Defense, Air Force and NASA and collaborating with wafer fabrication partners and commercial entities to explore funding opportunities under the CHIPS Act as the programs are defined and open for the solicitation.

With the completion — the 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 72 issued B-TRAN patents, with 31 of those issued outside of the United States and 24 pending B-TRAN patents. Our current geographic coverage on our patents includes North America, China, Japan, South Korea, India and Europe, all of which represent our high-priority geographies for patent coverage. As part of our product development and introductions, we’re expanding our patterning efforts to include what we believe to be high-value patents on our driver and packaging designs as both are unique due to the bidirectional nature of our technology.

Moving on, we recently issued a new B-TRAN white paper. This white paper includes recent testing results using our newly designed driver and devices using our double-sided packaging. It shows switching characteristics and wave forms using bidirectional double pulse testing which is important for pet and customer technical teams. A link to the new white paper is available in the press release we issued early this week. We will attend this year’s Applied Power Electronics Conference, or APAC, in Orlando, Florida from March 19 through 23rd. Our technical paper, B-TRAN optimization and performance characterization was selected for presentation at the conference. As you may recall, last year, our paper was selected by the Pentacle community for an award as one of the best technical presentations.

So we expect considerable interest in this year’s paper and our progress. In summary, we’re thrilled that we introduced our first commercial product. We’re selected for a custom module development program with a top 10 global automaker and are now collaborating with a Tier 1 automotive supplier. We’re also very much on track to meet the key milestones and objectives for this year that I outlined earlier. B-TRAN’S unique architecture offers the advantages of inherent bidirectional switching capability, reduced switching and conduction losses and improved the more compact thermal management requirements, potentially leading to lower user costs for OEM products, incorporating B-TRAN and high-growth and B-TRAN-enabled applications. B-TRAN has the potential to displace conventional power semiconductor solutions in many applications, including electric vehicles, renewable energy, energy storage, solid-state circuit breakers and motor drives.

Now, I’d like to hand the call over to Chief Financial Officer, Tim Burns, to review our fourth quarter financial results. Tim?

Tim Burns: Thank you, Dan. I will review the fourth quarter and full year 2022 financial results. We recorded $17,000 in grant revenue for the fourth quarter and $203,000 in grant revenue for the full year with offsetting cost of brand revenue as we continued our work on the Navy funded NAVC program. On December 31, grant revenue of $37,000 remain to be recognized under this program. Operating expenses were $2 million in the fourth quarter of 2022 compared to $1.4 million in the fourth quarter of 2021, driven primarily by higher research and development expenses due to additional semiconductor fab runs and costs related to the development of our driver, packaging and recently launched The SymCool power module. Operating expenses also reflect higher stock-based compensation expense.

Although we expect higher research and development spending in 2023, 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 expenses 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 due to hiring and costs associated with commercialization efforts, including new product launches. Net loss in the fourth quarter of 2022 was $1.9 million compared to $1.4 million in the fourth quarter of 2021.

Full year 2022 net loss was $7.2 million compared to $4.8 million in full year 2021. Fourth quarter 2022 cash burn was $2.1 million, consistent with our guidance of approximately $2 million to $2.1 million. Full year 2022 cash burn was $6.8 million, again consistent with our guidance of approximately $6.7 million to $6.8 million. We expect first quarter 2023 cash burn of approximately $1.8 million to $2 million and full year 2023 cash burn of $8 million to $8.5 million. Cash and cash equivalents totaled $16.3 million at December 31, 2022. 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 B-TRAN technology as well as the global top 10 automaker that has engaged us for a development program.

At December 31, we had 5,924,680 shares outstanding, up slightly from the end of September and 1,04,248 warrants outstanding, unchanged from the end of September. Including 811,614 stock options, restricted stock units and performance stock units outstanding, we had 7,776,542 diluted shares outstanding at December 31. At this time, I’d like to open up the call for questions. Operator?

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Q&A Session

Operator: Thank you. At this time, we are conducting a question-and-answer session. Investors conclude with their questions within the meeting webcast by taking them into the Q&A button on the right side of your viewing screen. Our first question comes from David Williams with Benchmark.

David Williams: Congrats on the progress you guys are definitely making a lot of headway and it’s fantastic to see so congrats there. I guess then, maybe one of my first question is just kind of around some of the comments that were made this week from Tesla and just discussing the silicon carbide cost and the reduction that we’re able to make there. Do you think as you kind of look out across your product and your capabilities and kind of what you’re seeing, do you think that you’re silicon alternative in the silicon carbide is part of that discussion? Or just kind of thinking about your content there, your capabilities? Any color would be very helpful.

Dan Brdar: Yes. Sure. Great question, David. For those of us that don’t know, Tesla had come out earlier and said they wanted to reduce the silicon carbide in their next generation of vehicles by 75%. And it’s all about cost. It goes to the comments I made earlier, EVs have a significant cost problem. The semiconductors and electric vehicles are the second highest cost component after the battery. So when you’re dealing with things like silicon carbide which are in order of magnitude more expensive, you get improved performance at a very high cost. So you get some improvement in range but you pay for it in cost. We think that presents a great opportunity for us because we can bring a really high level of performance beyond what you can get with a traditional silicon device without incurring the cost of silicon carbide.

When we went through the technology evaluation with the Patton automaker that we’re doing a custom module for there were silicon carbide devices that we were competing against. And because they — this automaker is not focused on bringing out 100,000 vehicles, we want. I think the automakers is they really want to get broad adoption are becoming more and more focused on cost and it creates an opportunity for high-performance technologies like ours that can be done in silicon. And then as silicon carbide matures as the quality and cost of wafers come down and processing costs come down, the transit architecture. So we can move to silicon carbide as well. But for now, I think we present an alternative that the automakers are looking for just because silicon carbide is a big cost burden on products that are still made in relatively small volumes when you look at electric vehicles.

David Williams: That’s very, very helpful. And then maybe just on the €“ since you released the first product, just can you discuss a little bit of the traction that you’ve seen? And anything that maybe surprised you or new customers or any applications that you’ve seen that have come in?

Dan Brdar: Well, it’s really targeting the solid-state circuit breaker market and it was really driven by the discussions that we were having with the large industrial players that wanted to also focus on for consolidated circuit breakers. The project we’re doing with the Navy are all discrete devices that are packaged individually and they’re putting a series parallel configuration to make the 12-kilowatt rating for the breaker. And the feedback we got was that the industrial companies were looking for something that had a higher rating, a multi-die approach where we parallel multiple die and gave them a building block, so they can make whatever size they want without needing to make so many connections if they were individual devices. So it was really driven by the feedback that we were already getting from the players that want to make solid-state circuit breakers.