Q3 2020 Ideal Power Inc Earnings Call

Situation will be trained enabled.

Direct current circuit breaker is part of the US Navy's strategic focus on ship electrification. The contract is funded by the department of defense's Rapid Innovation fund. The intent of wage is to accelerate the commercialization of high-value high-impact Technologies for not seeing the process would ejective is to demonstrate abtran enabled high-efficiency 12 p.m. Medium voltage direct current circuit breaker for the u.s. Navy or the subsequent objective of introducing a family of medium voltage DC circuit breaker products incorporating be transferred to sales for military investor markets.

This is a high priority initiative in the Navy that ship electrification can significantly enhance the Energy Efficiency a ship operations and improve their operational flexibility and operating costs money distributed power on ships. It makes it less vulnerable to attack by lowering the north signature and enhancing their cell capabilities and betraying technology offers substantial size heat and loss reductions off continuously conducting semiconductor devices such as without using complex large and heavy liquid cooling systems activity fees are tested. The next step is to dice and the same speed trans are protesting the characterization four guys from the initial and now completed wafer run or utilize our current lab-based packaging design the results from this testing law created into the device design and Manufacturing process improvements and for subsequent runs over the two-year program new plan a total of five runs over six quarters aiming for optimized device delivery.

And a 2021 with a final demonstration of a 12-volt mvdc breaker in early 2022 the purpose of Performing multiple ways of fabrication runs in the program is to assess took it off between maximum theoretical device performance and it's manufacturer ability as we make changes to the design to enhance performance. It can adversely affect the device shielded from a given away for fabrication wage at the various runs progressed. We anticipate the device performance and device way for you to increase as we converge on an optimized design for performance and manufacture ability.

The second major milestone in a nasty program is completing. The next fabrication run with this is slated to begin shortly and we'll finish in the first quarter of 2021 also underneath the program. We're collaborating with the University of Texas at Austin's microelectronic Research Center for new packaging design. The packaging design will be utilized for dies from future wager runs on the Edge program the new packaging design improves upon the lab base package and that we had used previously and are you using for the first place to complete the run? The device packaging design is intended to provide the electrical connections form factor and thermal management required to incorporate a semiconductor device into an end-user product design. The new packaging design will encapsulate the B Tran guy into a package similar to what is commonly available for commercial igbts to help facilitate be treated option our objective with the new design is to offer a package device that is physically similar to those commonly birth.

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UT Austin initial design the package is complete and prototypes are being made for collaborating with packaging assembly firms as well to get their feedback on the suitability of the design for high-volume manufacturing feedback from the packaging assembly firms and the first bill with the new design will be incorporated into the final packaging designed to be delivered under the nasty programs.

Additionally, we developed a new high-powered test rig that allows package be Trend devices to be tested at high voltage High current conditions as part of the device characterization required under the birth The Regulators of the test and characterized package Parts generate the conduction of switching data. We need for a product data sheet and confirm the performance margins built into the design.

Overall, we're on schedule with a c and Rogers on multiple project reviews received positive feedback. We're very excited about the progress being made under the program and the positive impact it off already having on our validation and commercialization efforts.

During the third quarter the ultimate strong progress towards Readiness to begin engineering prototypes sampling as we discuss with you on our last call. We are also collaborating with the University of Texas at Austin's office electronic Research Center and the development of a new be trained driver the design and Fabrication of an initial version of the driver is complete as a double sided device feature and requires a young driver specialized to control and coordinate the operation of both sides simultaneously. The new driver was designed by a talented post-doc under the close supervision of Dr. Alex Wang leader of the micro Electronics Research Center and a world-renowned expert in power semiconductor devices and Power Electronics.

This additional driver will be used in conjunction with our new high-power test group to generate the data. We need to create a datasheet required by perspective and users and for our own characterization of devices will start testing is completed in the next few weeks. The University of Texas will develop a second version of the driver using our feedback. They'll remove some of the features that we're adding currently for our debugging purposes. It will also make changes to reduce the physical size of the driver and add some additional operating capabilities to the programming of the driver.

The packaging design for the device developed for Nancy that I referred to earlier will also be able to be used for our engineering circling program and coupled with a package speed trans with a specially-designed driver acceleration essential end-users ability and willingness to assess the technology as the hurdle of driver development is given notice.

When we have a package device, including a driver and data sheet in hand, we can begin generating both increased awareness of betraying and the technical community and increased interest in the sampling program. We received multiple inquiry from potential customers interested in the sampling program. And for many of them providing a data sheet is the next step in that process providing samples to end users and getting their feedback on the device to drive or sign and drive the feature-set and priorities will allow us to determine requirements across targeted applications that future commercial be enabled devices are likely to need you can then incorporate this off into an intelligent module design.

Looking to be trapped, see we currently have 57 issued be transpac.

One more than last quarter the twenty one of those issues outside the United States up from twenty and twenty-five pending patents are Geographic coverage includes North America China, Japan Europe the potential to expand coverage in to South Korea and India for remainder of the year. We remain focused on our two parallel paths and phase two of our commercialization strategy first working a full scale down stration of an application would be trained as the enabling technology for Nancy and second preparing to launch our engineering sampling program our partnership with Diversified technology package offers. I do power a significant potential is catalytic opportunity as we further modify the performance characteristics would be trans power semiconductor technology versus conventional power switches higher efficiency apartments. Do you read the comments in smaller size and its potential game-changer for distributed DC networks across a wide variety of military industrial and utility applications wage.

According to how old is DC transmission and Distribution Systems microgrids and electric generation related to renewable solar and wind energy.

The nasty program Cadillac is both our military and non-military commercialization efforts by putting us on the map for other military and government customers who are often early new technology doctor's office and they helped find a significant portion of the development costs and steps necessary for commercialization as we moved to pay through commercialization which focuses on establishing strategic development and Commercial project building commercial momentum laying the foundation for future feature and revenue streams the first segment, we will Target for initial commercial sales in the 5.4 billion GB to argue became a market forecasted to grow to 9.4 billion by 2025 are the data center UPS renewable energy and electric vehicle charging markets all markets that feature relatively shorter technology evaluation. And development processes and immediate power switching news.

Our exit from face to commercialization and into phase three commercialization will vary Based On Target customers and applications as will continue to add potential customers and applications to the engine program over time while simultaneously commercializing be trained for the initial Target markets and applications. The timeline for these days is will also very as prospective customers with those with similar applications have different technology evaluation cycles and design. For incorporating new technologies into their products.

Hunan COVID-19, we in our fabrication collaboration and device packaging partners are carefully observing safety protocols and best practices including wearing masks practicing social distancing and following all recommended guidelines to keep our team safe. Thus far we've managed well through the pandemic in our supply chain remains intact will continue to be vigilant working to stay on our development organization time line while keeping our team safe and all we believe that ideal Powers technology is potentially transformational and it's Unique bi-directional switching capability and ability to solve it needs being experienced the Power Electronics through bidirectionality. We're we're switching and conduction losses that we use their costs and improve the more compact thermal management. We're moving ahead very well. I'll stones to maintaining strong momentum toward commercialization goals with results that has today's the gratifying and with a different technology that addresses differentiate of technologies that address has a large and growing Market dead.

I would like to him to call over to.

Our Chief Financial Officer Tim Burns review with the quarter.

Thank you, Dan. Our third quarter 2020 Financial results in the third quarter. We recorded approximately $150,000 of grand Revenue with offsetting costs. And revenue is we continued our work on the navsea program which began in late June.

Third quarter 2020 operating expenses for 1.2 million dollars compared to zero point seven million dollars in the third quarter of 2019 increased operating expenses in the wage order was due to higher research and development expenses related to be trained wafer fabrication and Driver development higher General and administrative expenses on higher bonus expenses certain performance objectives are achieved during the quarter and higher non-cash stock compensation expense.

As we discussed last quarter in August we completed in early morning exercise transaction with certain of the company's series a warrant holders raising 2.5 million dollars in that proceeds month. It's part of that transaction. We issued 700 5688 series C warrants an exercise price of $8.90 for these warrant holders as an inducement off the estimated fair value of these seriously warns of three point seven million dollars was recorded within other expenses as non-cash warrant inducement expense in our income statement wage, excluding morning these men experience our third quarter 2020 net loss was one point two million dollars compared to zero point eight million dollars in the third quarter of 2019 month is a result of higher operating expenses third quarter 2020 cash used in the operating activities with zero point eight million dollars slightly higher than cash off.

Operating activities and both the second quarter of this year and the third quarter of 2019 due to the timing the cash outflows.

We will have a quarter-over-quarter variability in our cash used in operating activities, but strive to keep our quarterly cash burn within our parameters even in quarters with higher expenses on an accrual basis.

And then I ended September 30th 2020. We raised 2.5 million dollars and that proceeds from the early warrant exercise transaction as well as an additional 0.5 million dollars from other exercises these inflows strengthen our cash position and we're utilizing the net proceeds to fund be trained commercialization and development and for working capital and other corporate purposes with cash and cash equivalents 3.8 million dollars as of September 30th 2020.

I get outstanding remain 0.1 million dollars as in the second quarter. We received a paycheck Protection Program loan to temporarily subsidized payroll and Facilities cost wage in the business landscape impacted by the COVID-19 pandemic.

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Current expectation is that this one will be forgiven. Although we cannot provide Assurance will be granted forgiveness of the loan and whole war in parts. We will apply for forgiveness as soon as our bank BBVA that activates their loan forgiveness support.

You mean singular focus on development and commercialization of our betraying technology and are well-positioned with a strength in the balance sheet and an asset-light operating model home or cash burn rate remains approximately 0.75 million dollars in cash per quarter settings to go to the timing of and variability in expenditures and refinements to the beach and development commercialization plan.

At this time. I'd like to open up the call for questions operating. Thank you. If you would like to ask a question. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment again, press * 1 to ask a question. We will pause for just a moment to allow us the opportunity to significant questions.

And our first question is from Jim mecury with Bradley Woods, please go ahead.

Thanks a lot. And and good afternoon Dan in your in your prepared remarks you were talking about going after other government customer. And my question is do you need to complete or get near the end of the navsea program before you have the internal resources necessary to do Thursday at or do you need to demonstrate to the government customers over all the efficacy via the navsea program just trying to understand what has to happen before you go after other government customers and if it's related to again success at the map C program.

Yep, you know the nasty question with a c program gives us certainly visibility and credibility since we got put into the the rapid Innovation fund. It's it's there's a vetting process easy to go through for that. So it helps us in terms of the acceptance of us is something that is going into commercialization, especially when you look at other parts of DOD, but we actually don't have to complete anything of significance of the nasty program to go pursue other opportunities that that we've been having discussions with some other companies about other applications that we might want a partner on. So we view them as being things that we can do in parallel. The team itself doesn't have to grow significantly, you know, depending on the opportunity that we that we we would go after we'd still be relying on the resources of Teledyne. Um, we would be relying on whatever the technical partner is we work with for a specific application. So it doesn't drive a big resource demand for us. So we we're really looking to begin to leverage that to get other opportunities with a dog.

either dealy or DOD

Because it's now dealing with technology is really ready for commercialization. And if we can throw this on some things that are application-specific particularly things related to renewable energy or like a vehicle. I think we can make some pretty compelling proposals and partner with students in partnership with some other companies.

And relative to upcoming proposals and I'm thinking again on the government side.

When's a reasonable time to think that that those proposals would be let out by the government and then you would have to respond because I'm assuming there's some seasonality to them to the bid and proposal activity based on the government you're in.

There is there are there particular cycles that come out in the sort of very first quarter and the middle of the year as it relates to the small business type applications on generally you get into this push to get things awarded before the end of the fiscal year, but we would rather do like we did with the Nazi program where we didn't respond to a school sucks. We actually look at what were some of the needs we focused on the Navy and say what are some of the needs there we created I do power went out and created the partnership that we needed to bring the circuit breaker technology. We put together a white paper and submit it to Navy they liked what they saw asked us to submit a proposal and they found it outside of a regular solicitation. So we'd rather Target things where we can really suck propose something that's high value because it makes a return and go for it the opportunity ourselves rather than wait for the right to visitation to come along.

Got it. Got it. Great. That's helpful. And Tim on the new warrants that were issued. Do they have any price protection features?

They do not know.

Okay, great. That's it for me. Thanks a lot guys and good luck with everything.

And our next question is from or freshman with a i g h please go ahead.

How are you?

In terms of the government contract, you know, how does the money flow in how much if you realize and how much more do you realize than what what Milestones is it subject to change?

So on that program is effectively cost-reimbursement. I mean, there's a minor timing differences in terms of when we Bill we do build based on Milestones, but it's also very close to the ones where I'm scheduled to when we're actually incurring the costs. So there is no net gross profit from the activity and we'll see maybe a small pay our balance or small amount of different jobs at the end of Any Given quarter, but it's effectively cost reimbursement.

Over what period of time but how much approximately based on depending if you can dollar contract we recorded just over $150,000 through Thursday 9:30. It's heavily weighted towards the first probably five quarters of the program. So it would be the Q4 and n two thousand the first three or four quarters of next year and not the entire two-year process because most of our work is done in hand it off to DTI in terms of the circuit breaker design after we get through our rooms.

And just in terms of when you when you're hopeful to actually sample final package chips, so you can get them to companies that want to sample them. And what type of companies will be the first off the same. Yeah. I mean we're we're talking to arrive. We actually have request from automobile companies companies in renewable energy space companies that are doing microgrids switching technology. A lot of it's going to be paid by them because we are coming out with the new driver design and new packaging design. Some of them are going to express a preference for the new page design a particular effect of company that we were meeting with this week. They indicated they want to use the new driver design. So our key Now is really get the package devices back from the first boy to run off in a few weeks do some characterization testing on them and start to engage with individual companies on more definitive timeline in terms of how many devices are they looking for? How many drivers are looking for? What level does suck?

To the news. So our expectation is we're going to start some pretty heavy heavy engagement with specific company to it shortly.

Great. Thank you very much.

And as a reminder that is star one if you would like to ask a question, and we'll probably just a moment to let everyone the opportunity to signal for questions.

Our next question comes from Bruce Palmer administer, please go ahead.

Thanks for taking my call and just an individual investor and you kind of just maybe answered part of my question with the last part of it or you're saying you were a meeting with someone here, you know in the next week or so about design die package earlier this year webinars, you guys have talked about hopefully by the fourth quarter of this year. You might have some agreement signed off. I'm just curious. It seems your your content that you're refining your diaper packages is that at the request of the companies or you're finding it's a little more complicated maybe than what you thought when you were talking earlier in the year to just a little bit more color on on that because it's the earlier than actually the nature of developing on now through device. I you know, when you do simulations, for example on a design of how the device will perform you get an idealized view of the device and then when you manufacture every fabric wage

Fabrication house is a little different in terms of their equipment and their processes and the recipes that they use for any given processed out and you find that the real world very, you know, a little break from simulating. So you tend to iterate on it to look at how small feature size can you make so I want to make them so small but all of a sudden the yield on a wafer just drops off your life, but you want to get a small feature sizes you can cuz it allows you get the highest current density in the device that you can so it is by its nature just an iterative process and for us in particular since it's a double sided dice, we had a little bit of complexity and that you've got to get good one in front to back as well. But the things that we have been gone through with the runs the runs actually take a fair amount of time. It seems like it takes a while to get that optimization, but it's it's really normal course of business and developing a new semiconductor device.

so we

You find that same process with every new vendor you go to that you'll have a lot of this optimization or do you get the point where you have the dye pack? Is it pretty much anybody? Can you show me? How does that going to work too is a die package that is you know, highly usable by any Fab now a new Fab may go through and one or two based on some unique different equipment. They may have from One path to another which you basically get to a recipe that can be replicated.

Okay. All right. Thank you.

It appears there are no further questions at this time. I'd like to turn the conference back to mister president and CEO for any additional or closing remarks.

Just want to thank everyone for joining our call today. We are going to be presenting at the correct Apple select and The Benchmark Discovery conferences next week and invite you to tune into those webcasts. We hope everybody took the rest of the year and stay safe and we look forward to speaking with you again for your port on the fourth quarter. Thank you, everyone.

And this concludes today's call. Thank you for your participation. You may now disconnect.

Yep.

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