Q2 2020 Ideal Power Inc Earnings Call

Hi, gentlemen, thank you for standing by.

For the ideal powers second quarter. Fortunately results call at this time, we're assembling today's audio sometime to get away shortly.

Patients continue to standby.

[music].

Please standby we're about to begin.

Good day, everyone welcome to the ideal power second quarter 2020 results call today's conference is being recorded.

At this time I turn the converts over time as Carol.

Please go ahead.

Thank you and good afternoon, everyone. Thank you for joining ideal power second quarter 2020 conference call.

On the call a younger daughter, President and Chief Executive Officer, and Jim Zorn, She said national.

Oh Palace second quarter, 2020, plus you, which is available on the Companys website like power don't call before we begin I'd like to remind everyone.

I don't recall and on the web cast, including those regarding future financial results if they get your prospect.

Looking at maybe subject to a number of uncertainties that could cause actual results.

Really.

Cool weaker foreign companies I think you finally.

Associated with.

We would also are getting cut that exactly the more supporting into transformation.

No from coal to ideal powers president.

Yeah.

Thank you Caroline.

Good afternoon, everyone and welcome to our second quarter 2020 conference call.

I guess I've given you an update on phase two of our commercialization program and our recently announced U.S., maybe sponsored called trust and outline our final each for the rest of year, then Tim Burns our CFO will take you through the numbers.

Before we get started a quick note on coping like Chile.

In early May our staff, we're trying to the office upon expiration of the Texas stakeholder work, serving safety protocols, the best practices, including word masks.

Social dismissing the following old people guidelines to keep our teams.

Additionally, our fabrication like packaging partners that keeps suppliers continued all three are producing parts for our testing with the valuation.

Support our partner and demonstration efforts.

Performing and enhancing our internal device testing capability it could seem to leverage our partners external equipment and facilities, that's necessary to supplement our capabilities.

Overall, the type of the Catholic isn't manageable without significant disruption.

Supply chain remains intact.

Oh, that's the commercialization timeline remains on track.

During the second quarter 20, Twond, we significantly advanced phase two of our B Tran commercialization plan, which it kills the fabrication of parts delivery of samples with potential partners for evaluation.

With respect to development.

As we prudent as we previously you on prior calls and out earlier this week in Chile, we secured our first U.S. government funded demonstration project.

We signed a 1.2 billion dollar contract to partner with diversified technologies or de <unk>. Other developed a demonstration or they'll be trended able to direct current circuit breaker as part of the U.S. Navy strategic focus a chip electrification.

Ship electrification is a 500 already initiative in the U.S. they need to be honest operational benefits it could provide.

Ship electrification kept significantly enhance the energy efficiency ship operations.

For operational flexibility, thereby greatly reducing the high cost both dollars lives associated with the acquisition.

Transportation of fuel production afford operating areas.

It also allows for distributed power chips or even less vulnerable to attack every due to the reliable and efficient noisy rotating equipment, such as combustion engines, thereby lowering that always shouldn't traverse yet enhancing itself capabilities.

A key element of the program the development of a highly efficient family of solid state DC breakers.

The primary charge, so I'll stick tiebreakers, it's been a large amount of heat generated by their continuously conducting.

The devices such as IGBT.

Definitely be generated from conventional RGB cheese Firestone take break are designed to every part of public schools cooling system that add to their size. It costs you have several moving parts such as opposed to reduce the reliability.

The greater the 50% reduction in conductor losses to be trust based breaker to be air cool and as a result, the trend becomes enabling technologies for the application.

This two year $3 million project spotted on <unk> department of the fastest rapid integration thought.

That's kind of which is to accelerate the commercialization of high value.

Technologies.

In the United States Naval Sea systems coming as it was awarded the Beach <unk> biopsy.

The projects objective is to develop demonstrate we try to enable high efficiency 12, kilovolt medium voltage direct cost circuit breaker. So do you estimate.

Well then started to be working with BTI, who possesses expertise designing a dozen install let's take a BDC circuit breakers.

The previous government funded efforts they design build sulfate breakers with conventional RGB cheese and as a result have developed significant expertise insulted breaker design control.

There are also acutely aware of the limitations imposed by the high production losses of conventional RGB teams.

The U.S. maybe selected this project because would be trends unique local actually lost capability as enabled technology, Brent air cooled record design.

Our part of the program kicked off in late June.

Today, our first fabrication rock has begun.

We expect to receive dies early in the fourth quarter.

We expect packaging and test into subsequent please take place in Q4, after which we plan to start the second fabrication.

As part of the progressing well be working with the University of Texas at Austin Microelectronics Research Center to develop a new packaging design for the diet that will also be able to be used for a generic sampling program.

You cheese micro electronics got or is the center of excellence for advanced power semiconductor design and high density power electronics breaks a world class team with facilities to complement our internal development efforts.

The packaging, we didn't use it today designs elastase package and the new packaging design will provide the electrical connections form factor and thermal management required for commercial semiconductor package that will physically resemble conventional packaging decides to facilitate their adoption player users.

Our collaboration with each yard help establish the viability of shipboard medium voltage DC power distribution has delivered extremely fast fault interruption.

Bulk arts local production losses.

Flexible programmable coordination.

Direct your operation and lets people isolation, which are key factors took a reliable and safe operation VC power systems.

As part of the progress objectives.

<unk> goal is to introduce a family of medium voltage DC circuit breaker product corporate and B Tran as a result demonstration for sale to military utility industrial markets.

Our goal is to further substantiates, our Beatrice Howard semiconductor technology performance characteristics versus conventional power switches, specifically higher efficiency local complexity as fewer components demonstrate b tran as a potential game changer for distributed D.C. networks, both within and outside the military.

Supporting a wide variety of emerging applications.

Do you try to enable medium voltage DC circuit breakers could potentially be used at 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 or do you see based.

The partnership because it's such a material catalyst fragile power.

What would it to your program we plan to total of five runs over six quarters aiming for optimize device delivery late next year. The final demonstration of a 12 kilovolt that'd be D.C. break through the second half of 2022.

The program plays an important important role in our commercialization efforts at brings a wide range of benefits as a result of our involvement.

First the middle journeys is often the first adopter, but in many cases the driver <unk> dollar, but validation of new technologies.

Its success needs for steel validation for be trans capabilities necessary visibility and credibility with other prospective partners it for other applications.

The program underwrite the significant develop cost for us as it covers multiple semiconductor fabrication rugs and provides a new device packaging design that will also be out well for commercial end users as well.

Yes. Some also provides a direct path to unique and highly differentiated end user products. The military utility industrial applications to support the increasing use of PC based power distribution and transmission and like the good systems.

It also raises how's visibility.

Funded research development demonstrations community as a strategic partner and technology provider.

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

During the quarter. We also made strong progress our engineering staff that program.

We completed the fabrication qualification process will teledyne, our new semiconductor fabrication partner and release next generation parts.

Two x. I talked to partners for fabrication.

Subsequently, we completed between fabrication Rockwood Teledyne in Africa starts to be package for internal testing and characterization.

Got it allows us to its debt and update our documentation attached devices that can generate initial b Tran datasheet for the technical community laying the groundwork for additional program necessary for next steps.

What I turn the Rod also helped we find an optimized to manufacturing process and devices like.

Additionally, in an effort parallel to the packaging design I mentioned, a moment ago, we're collaborating with UTI often microelectronic research center to design, a new current sorts driver to be used in our engineering prototype sampling program.

Indicate that both an assay program and the you'd see Austin driver development effort I guess are retained the royalty free intellectual property rights, we need to widely adopted results of these programs for commercialization program.

The first design of the driver hardware is complete and the initial guests are out for fabrication.

The current bus will work closely with UGI to develop and validate the driver desired programming, which will be followed by an updated design focused not shrinking the physical size of the driver and remove features use only for debugging surfaces.

With respect to our B Tran I see we currently have 56, it should be traffic patterns with 20, those issued outside the United States at 27 tend to be trap that.

Our current geographic coverage now includes North America, China, Japan, and Europe with the potential to expand coverage into South Korea, India.

Ideal powers technology is transformational in both the bi directional switches and its ability to solve the immediate problems problem in power electronics applications, such as all of the circuit breakers through simplicity lower switching conduction losses.

I will use across and improved more complex thermal management.

Our aim in phase two of our commercialization plan is to position ourselves with proven cottage solid state engineered device prototypes, coupled with the bus driver to put into perspective partners hands for additional testing whether engineering teams and their products.

This will be a crucial step gathering real world performance data that enables us to develop commercially ready devices for production.

And the second half of the year well pursue two parallel paths as part of phase two commercialization.

Our demonstration project with that seem to provide a full field demonstration of an application would be track, enabling technology and our engineering sampling program.

Oh, it was an assay programs that out well look to leverage that program to Kuwait and develop additional collaborations with other companies to secure a further opportunities for demonstration and market development.

Overall, we're on schedule with baseball commercialization plans I.

To date objectives for the remainder of 2020 odd to complete the first fabrication rod and packaging design.

Bassi project I keep <unk> current source driver support making package engineering prototype samples and drivers available for potential customers and partners.

Three we'll then have to establish strong partnerships and other strategic relationships in our initial target segments in the 4.9 billion dollar IGBT market. They like the U.S. Department of defense and the data centers of the D.S. markets opening up these segments for initial commercial sales could be trying to power switches.

Before I turn the call over to too.

Well I think our warrant holders for their continued support.

Last week, we completed an early warrant exercise transaction the proceeds of which provides additional resources do you go toward commercialization plans, while avoiding the need to access the capital markets in the current volatile environment.

I guess hours advancing our development and commercialization goals and we expect about lessons to continue given our technology strong performance the visibility the technology, it's Jamie.

The positive strong reception by our partners.

We're on our way towards beginning our operational execution and realizing our be transfer technology tremendous commenced commercial potential at a large addressable market.

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

Thank you Dan I Wonder if you second quarter 2020 financial results.

The second quarter, we recorded a small amount of grant revenue was offset in Casa Grande revenue is we signed in began work on the DTA contract in wage.

Second quarter 2020, operating expenses were zero point $8 million compared to zero point $9 million in the second quarter 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 subways, we entered into during the third quarter last year.

Second quarter 2020, net loss was zero point $8 million compared to $1.3 million in the second quarter 2019.

The decrease in net losses, primarily due to a 0.3 million dollar loss from discontinued operations in the second quarter 2019.

Associated with the PPSA business did we divested since September of 2019.

We also had a lower loss from continuing operations due to reductions in our operating expenses.

Second quarter 2020 cash used in operating activities was zero point $7 million.

So why do you want where the cash used in operating activities in the second quarter 2019.

Cash and cash equivalents totaled $1.8 million as of June Thirtyth 2020.

During the second quarter received eight 0.1 million dollar paycheck protection program loan to temporarily subsidized payroll in facilities costs.

Business landscape impacted by the Kogas 19 Canyon.

We expect alone will be forgive me, but cannot provide assurance that will be granted forgiveness of alone in whole or in parts.

And if there's no long term debt outstanding at June Thirtyth, 2020, with zero point $1 million.

As a reminder, since we were singularly focused on development and commercialization of our B Tran technology, we are well positioned with a strengthened balance sheet in an asset life operating model.

Our burn rate remains approximately 0.70 point $7 million in cash per quarter.

Subject to both the timing of in variability expenditures in refinements to the B Tran development and commercialization plan.

As Dan mentioned on August 15, we completed early warrant exercise transaction with certain of the company series a warrant holders.

The transaction raised approximately $2.5 million a 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 in development.

And for working capital in other corporate purposes.

In the transaction Siri may warrant holders were issued new series D warrants to purchase up to aggregate 705688 shares.

Companies common stock and drink exercise price of $8.90 per share.

Private placement is 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.

Thank you, Sir if you'd like to ask your question. Please signal at this time by pressing star one on your telephone she pets.

Are you using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our company.

Once again that is star one she likes asked a question, we'll pause for just a volatile everybody the opportunity to signal.

Alright, and once again the star one if you'd like to ask question well take our first question from Tom Salinsky with a Winslow asset group.

Okay.

Good afternoon, Thanks for taking my question.

Dan in your June presentation.

You had a.

Five ex proven conduction loss improvement.

And I assume that since this map C.

Contract is a 12 kilovolt, so some but you can't get that type of.

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Improvement.

Can you talk about the different types of improvement the B Tran offers in the different markets that you're addressing and the trust look at your pipeline and.

Talk about what you think the low hanging fruit is and how you can plug that in.

Sure, Yes, the Fivex is looking at a true bi directional switch what you're doing it when you think about the military and what their needs are in terms of applications and robustness, we had been conservative and partnership with each yard in terms of how we want to write these devices or we want to make sure that we.

Have a good demonstration so we're actually going to be raising a pretty conservatively.

We had a review with the Navy as recently as yesterday.

And it's pretty good to them that the potential for the technology is much more than 50% that we're saying here, but we don't want to set expectations that we can't meet.

The driver for them and you know for anything it's going to use DC systems. All of these conduction wash <unk> issues. So for the Navy, it's a little bit unique it but they actually want to bi directional system.

Because they want to be able to have zones on the ship, where they can redirect power and there may not necessarily work no where the load is coming from there to ship is damage for some reason or is that to take part of the the infrastructure outdoor repair. So bidirectionality actually is you know what their unique requirements.

But even for a one directional device for DC breakers, there's a lot of opportunity because studies that show that BC distribution and transmission systems are actually cheaper and there's got to be such infrastructure that is do you see base that there is a real market that is the looking for solution. We look at companies like HBV and others, who made some very big.

Complicated IGBT based salted breakers, they just happen to commercially successful largely because of all the heat that they generate and the efficiency impact the comes from that.

So we think that the BP market in general is a is good early target market.

I think you'd be as 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 U.P.S. system. So the semiconductor switches. The there are again continuously conducting generating heat at a low loss, which led to be trend can actually significant impact that performance for chip.

Really.

Good things like a data center, where the electricity costs is the biggest operating coupled it for most of these facilities.

Right and then just one follow up it.

Where it's it's nice to see or diversified is testing other solutions and one when do you feel timeframe wise.

Validation the B Tran will occur.

Through your current effort with them.

Well I think we'll see validation next year. This is gonna be something where we're going to be several long still gonna deliberately breaks devices to make sure. They understand what the margin is in the design.

To me because actually looked at and funded a IGBT versions of this was kind of break or previously that <unk>.

<unk> is one of the ones. It did some of that work, but unfortunately as I mentioned earlier it resolve it in two MACI, which Matt let the cooling system, what's the Navy just what parts of.

Fair enough thanks for taking my questions.

Sure.

All right once again that star one if you booked asked a question. We'll next go to Orin Hirschman with an investment partners.

Hi.

Thanks very much on.

Just go to the timeframe and then when you actually are hoping to have sampling does affect Q1.

Well 2021, and the other customers or do you expect things.

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<unk> costs and rooms under those customers primarily.

In one area.

Oh.

Power.

Power backup systems for example.

Oh, we expect to start sampling later this year the simple plug will probably be ongoing thing simply because we like have the opportunity to start discussions with a variety of segments. Our focus is gonna be RV you'd be a sector because of the impact that the technology can have we've identified the customers that we want to charge.

We've already had some discussions with some of that but will also be putting some other samples out with some of the market segments, but just typically take a long time. As example, I'll give you lose electric vehicles.

We've got approach bio a what do you 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 the technology that 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 gonna be focused on things that are.

Really benefit from adult deduction lost what you'd be at systems and will also be sampling some of the segments that really could benefit from a low loss, which things like like motor drives where you could use a matrix type converter or some of the renewable energy applications, where the what directionality for things like energy storage coupled with sold.

Oh, it's too soon to follow up questions one is.

On the only NFC energy storage side, let's say, we're <unk> utilities are beginning to move to the mass battery storage and that's something that could be helpful and you know handling.

Especially the bi directional aspect, but also the loss aspect loss aspect also important loss here or is it just the wilsons a small enough today that the existing IGBT use another solution.

Degraded type of solutions, where that the losses isn't such a machine and in this important for those large lithium ion battery farms or flow battery farms.

The losses are important for pretty much for any of these applications.

The challenges you know the other day electricity is a commodity and the two things that drive it or the first cost of your source of generation.

The reliability of it and the efficiency of and efficiency could have a pretty big impact so theres, an opportunity significantly impact the efficiency, particularly something like energy storage worry about charging and discharging so you're getting hit with intact.

Both directions, they actually make a meaningful difference in terms of what the economics look like for those projects plus.

Yeah, the ability to actually have power control with things like batteries and micro grids, you need bi directional switching and control to those those kinds of applications as well. So we think there's going to be plenty of opportunities to incorporate the be trying to technology and somebody's energy storage applications both.

Mobile and stationary.

Okay, just going back for a minute.

To the and you think we will see amongst the first customer potential customers to sample or were there any even one customer in that area and so when you're thinking about that.

We actually already signed an agreement with one that we've already signed that will be one of our early.

Several customers that as investors.

That's great and just going back to the electric car.

Stability fears I would say if I may humbly say that the key here, it's really just proving out what the efficiencies can make a difference in an actual electric car actual wheel car on the road.

And.

No I know I've heard of ones.

Not a competing technology, a complimentary technology was actually been able to prove out you know a small percentage savings, which is concerned it can be a whole long.

In July for chip.

Bonds relationship I guess my question is do you know.

Now that you've been approached which is obviously against everybody will close by one car manufacturer left a car manufacturer. Here's the question is there a lot of small guys can lead to a lot of big guys can you say, if it's a big guy or small guy because it's a big guy can afford to do a lot more than four by clicking on the small that could be more nimble, but you think you could progress fit.

To an actual were tested at some point over the coming yield so and if so can you do it with the original reduces the product in terms of the voltage or do you need to have a lot higher voltage.

Oh it over the coming yourself I don't think so I'll just simply because the.

Got it won't manufactures just don't lose that quickly I think it's for that it's really understanding what the potential for the technology is start to do some evaluation themselves. They typically a actually play an interesting role and that they actually can be a strategic partner, where they funded development activities, particularly things that may be you need.

Finally suited for their needs.

You can actually have strategic partners with these folks that maybe that was already privacy seals till they get much further along in their technology evaluation that adoption process, but they can still play an important role in helping advance the state of the technology.

[noise], okay, well they've been leased taking ships to play with the lab from Union think.

So yes.

And again, a big Guy with small guy.

We have advanced live events.

Well, we've got a first I wanted to bigger guys. This was that this was a while ago, but you know I think it's gonna be some of the smaller guys that are actually going to be probably more innovative simply because they can be more nimble and little bit more aggressive.

Challenge in the automotive sector for the Big guys is you know when they make products. They are in the millions.

And any kind of a technology issue that results as potentially a recall for that can cost enrollments 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 it's been a putting the power semiconductor industry through and some of the monies that have gone into the development of technologies.

Great. Thank so much.

Sure.

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

Okay, well. Thank you everyone for joining our call today, we will be presenting at L.D. Micros B L. B 500 online conference on September 2nd So we invite you to students the webcast in the meantime have a great summer stay safe and we'll speak to again when we report on the third quarter Becky.

And that does conclude todays conference we thank everyone again for their participation.

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