Q2 2022 Ideal Power Inc Earnings Call

Okay.

[music].

Welcome to the ideal power second quarter 2022 results conference call.

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I would now like to turn the conference over to Carolyn Caboshed Hill Senior Vice President Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone. Thank you for joining ideal power second quarter 2022 conference call. We are spending on the call are Danaher, Dar President and Chief Executive Officer, and Tim Burns Chief Financial Officer ideal Power's second quarter 2022 financial results press release is available on the company's website.

And ideal power Dot 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 maybe 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 will turn the call over to Idaho, Power's, President and CEO , Dan <unk> Dan.

Thank you Carolyn.

Good afternoon, everyone and welcome to our second quarter 2022 financial results Conference call I'll begin by giving you an update on our progress on our strategy to commercialize our B Tran semiconductor technology and review our plans and key priorities for the remainder of the year towards B Tran commercialization.

And Jim Burns, our CFO will take you through the numbers after which we'll take your questions.

Got it.

During the second quarter, we made strong progress in our B Tran commercialization activities.

The macro environment, including supply chain disruptions, the COVID-19 pandemic high inflation and rising interest rates affecting all businesses. We remain on track to introduce our first commercial product by the end of the year.

In fact, retrans, receiving increased attention and inbound inquiries from at array of commercial research and government entities as a disruptive highly efficient bi directional semiconductor technology that solves immediate needs in our targeted electric vehicle electric vehicle charging renewable energy energy storage and interruptible power.

Supplies for Datacenters and solid state circuit breaker end markets. Our momentum continues and we're excited to bring you this update.

Let's begin this quarter with our work with the United States Navy.

Since our last call. We are very excited to announce that we achieved a major milestone for the company and a key validation of our development work are shipping our first package B Tran devices diversified technologies, our collaboration partner on our project for the Navy Sea systems demand or nap see.

The objective of the project is to demonstrate a b Tran enabled low loss 12, Kilovolt D. C solid state circuit breaker for the U S Navy the.

The results of this project will have direct applicability to other commercial markets, such as electric utility distribution and transmission systems, and micro grids as well as solar wind and energy storage installations.

The devices, we shipped were produced using conventional silicon wafer processing equipment using techniques and process steps, we developed in collaboration with our fabrication partners and embody a substantial addition to our intellectual property portfolio.

These techniques techniques and process flows lend themselves to high volume manufacturing without the need for capital investment and conventional silicon wafer fabs.

Packaged devices were tested in our lab prior to shipment and met the bidirectional operation high voltage rating fast switching and most importantly, the very low loss characteristics predicted by our internal and third party computer simulations.

These devices were packaged using our new packaging design that utilizes state of the art packaging techniques designed to provide high reliability and are well suited for volume production.

Also the facilitate DP is evaluation of the devices. We also provided them a sample of our driver that we intend to use for our customer sampling program.

Additional wafers are now nearing completion of fabrication and will be diced and packaged into B Tran devices, and then tested prior to delivery to DTI.

DTI will incorporate these into a full scale medium voltage direct current circuit breaker or N V. D. C for demonstration we will continue.

To provide program and technical support through the demonstration of the circuit breaker and will provide program updates as we are able to within the limitations of our NAV Z confidentiality restrictions.

The device and packaging design used in this program will be identical to those we will be providing at our customer sampling and will be the basis for the design of the first commercial products, we'll be introducing to the market.

We are very proud of the excellent work done by our technical team and wafer fabrication and packaging partners as we have now produced and delivered devices and validate the potential of our low loss bidirectional technology.

Let's move on to our test and evaluation program.

Since the start of the second quarter, we further expanded our roster of participants in the B Tran test and evaluation program. These new participants include a non domestic designer and manufacturer of grid solutions interested in evaluating B Tran for solid state circuit breaker and other grid applications.

A well established domestic aerospace and defense systems integrator. This integrator is also interested in evaluating B Tran for solid state circuit Breakers and is partnering with ideal power to pursue additional government grants leveraging their department of defense relationships.

These two companies. In addition to other previously announced program participants interested in B Tran for solid state circuit breaker applications and the number of government programs focused on circuit breaker research demonstrate the widespread interest in the develop of innovative technologies that can solve the problems inherent in both traditional mechanical circuit breakers and.

Solid state circuit breakers utilizing conventional semiconductors.

High visibility of the NAV C program and the technical community is drawing increased inbound interest in collaborating with us for a variety of applications and products.

Low loss semiconductor technology is essential for the broader adoption of solid state circuit Breakers, and our government funded demonstration project is raising the availability is a b Tran is a low loss fast acting enabling technology.

This application represents a new and potentially very large market for which b Tran is particularly well suited.

Last two universities have joined our pest and evaluation program. These two universities are interested in testing and evaluating b Tran for electric vehicle charging applications and are working closely with large commercial entities to develop new solutions using our technology.

Working with these universities is leading to additional government funding opportunities and commercial relationships with companies partnering with universities.

The test and evaluation program enables <unk> to be tested by prospective customers and partners in their labs and for use in their applications.

It also allows us to collect data and feedback from these program participants on performance and features for incorporation into our future commercial products and custom modules for use in specific applications.

Cobra participants are all looking to advance their own technology and product Roadmaps and incorporating innovative advanced technologies and new approaches to improve their products performance increased efficiency and lower cost.

They are all committing substantial in house technical resources to evaluating our cutting edge technology and the improvements in capabilities drank can create for them and their product designs.

<unk> continues to be recognized as a potential game changer outside the U S.

The Japan external trade organization, where that pro is a Japanese government funded organization that works to promote mutual trade and investment between Japan and the rest of the world.

<unk> selected ideal power.

To present B Tran solutions at their carbon neutrality themed event, taking place later this month, which is focused on identifying and highlighting new innovative technologies that can significantly advanced energy efficiency and thereby reduce carbon emissions. The targeted audience consists of Japanese corporations interested in collaborating with American companies and.

The carbon neutral field.

We have test and evaluation agreements in place in each of our target markets and our pipeline of potential additional collaborations remains robust.

These collaborations are creating opportunities to partner on additional government funding opportunities and will also drive the features and performance requirements of our commercial product offerings with ongoing engagements likely resulting in a variety of B Tran based modules customized for specific applications over time as is common in the traditional power semiconductor market.

With respect to our submissions for other government funding opportunities since the start of the second quarter. We submitted several proposals and concept papers for government funding opportunities with the department of Defense. The Department of Energy and Department of Commerce, while Theres always intense competition for these funds and the probability of winning any given solicitation is low.

These programs provide the potential for additional grant funding and also the opportunity to collaborate with new partners and customers.

All of our new proposal efforts have involved Newburgh, new partners many of which are inter sampling program. Each focused on a specific application that offers a potential new level of performance or capability as a result of using <unk> in the application.

We now have a number of proposals submitted in collaboration with a variety of partners for opportunities to participate in government funded programs that support technology development for future commercial applications in.

In addition to DTI. These collaborations include the aerospace and defense system Integrator I mentioned earlier.

Our system integrator.

Armed with packaging and driver expertise and universities acting as technology evaluated for large commercial businesses.

These proposals cover several applications, including modules for electric vehicles.

Current source and burgers and of course solid state circuit breakers.

Depending on the proposal, we could either be the prime or subcontractor, if awarded funding under one or more of these submissions.

Additionally, as Youre, probably aware the chips and Science Act of 2022, a bipartisan bill was signed into law.

The chips Act is expected to spur investment and domestic semiconductor manufacturing I, providing $200 billion over five years and subsidies, including $52 7 billion for chip manufacturing and research the semiconductor manufacturers in the U S and enabling sizeable investments in science and technology innovation.

This is a key piece of legislation as it seeks to help the domestic semiconductor industry bring production back to the U S. Correcting a decades long lag in competitiveness and self reliance.

Given the strong demand and current high pricing for electric vehicles, the expected explosion in demand for power semiconductors with the increasing electrification of everything from automobiles to distributed generation and then intend to need for increased national security in today's geopolitical climate legislation represent the seismic positive change.

The opportunity for significant investment for our domestic developmental fabrication and packaging partners. It.

It can also directly benefit ideal power in the form of additional funding opportunities as a part of the of the act is focused on providing R&D funding for new leading edge semiconductor technologies, such as B Tran.

Staying on the topic of legislation.

The house and Senate passed the inflation reduction act another leap forward in combating climate change and supporting clean energy development in the U S.

It contains significant spending and tax breaks intended to boost the clean energy industry in the United States the complement existing provisions and the infrastructure investment and jobs Act signed into law in November the <unk>.

Inflation reduction act provides $369 billion in subsidies and tax credits, including funding for clean vehicle manufacturing and retooling of existing auto manufacturing and the transition to zero emission vehicles and technologies and creates tax credits for renewable energy component production and clean sources of electricity generation and energy Star.

George among other provisions.

This legislation stands to benefit several of B Trans target end markets when signed into law. It will likely create a significant increase in the already robust demand we are experiencing the benefits that <unk> provides.

We do that for our next topic, our development activities remain on track.

First we've completed the testing of our latest generation driver begun fabrication of this driver the supports of test and evaluation program.

On the fabrication side, we continue to work with Teledyne who's been a valuable fabrication partner as part of our government funded development projects.

We have also qualified second domestic semiconductor fabrication partner, who brings bipolar as well as silicon carbide fabrication experience to support our ongoing development activities at our long term technology roadmap to develop a silicon carbide B Tran.

During the second quarter, we progressed in our qualification of a non domestic production level of fabrication partner.

Fabrication partner capable of higher volume production will help ensure sufficient supply capacity for large customers and mitigate supply chain risk, while driving improved quality after runs and higher wafer output per run compared to develop metal fabricators.

Initial work has been focused on thin wafer handling for key equipment and process steps. Most importantly, using larger diameter wafers than we've used to date.

The larger diameter wafers will allow us to produce more devices per wafer, providing more devices per run and reducing die cost.

The thin wafer handling evaluation has gone very well with no wafer breakage and we're pleased with the results to date.

Next we'll begin running engineering short loops using the process steps and techniques. We are sharing with this high volume fab to evaluate key process steps.

Once these critical process steps are evaluated if satisfactory it will lead to a full process slow engineering run later this year.

On the packaging side, we completed the qualification of our World class packaging partners, the transition and new packaging concept for volume production.

These partners completed the design, including a joint design review as well as trial mechanical builds and the packaging a first devices.

We now have qualified both the domestic and non domestic packaging firm. These firms have proven they can package individuals <unk> die using state of the art packaging techniques that avoid conventional <unk> Pak packaging practices that ultimately reduce reliability and high power cycling applications.

Our packaging partners also have the capability to design and fabricate multi die B Tran modules, which are strong interest from customers leading high current rated modules for applications, such as electric vehicles and solid state circuit breakers.

To support the commercialization of B Tran, we've engaged a third party firm that will conduct long term reliability testing of package B Tran devices involving tens of thousands of power and temperature cycles to assess the mechanical integrity of the design.

We've also identified and qualified to firms who conduct additional third party device testing to support device characterization and to provide third party validation of the information included our <unk> data sheet, which will be provided to prospective customers.

Third party testing will be conducted following the completion of deliveries under the <unk> program.

Our roster of production partners is building nicely to ensure we have sufficient capability to support our ongoing development activities and prepare for the ramp in volume expected as we introduce our first and subsequent commercial products, we're making strong progress along our roadmap for this year and our 2022 objective remains to introduce our first commercial product.

Emerging from our collaborative development and evaluation processes, our year end <unk>.

<unk> unique advantages of bidirectional switching capability lower switching our convection losses improved and more compact thermal management requirements and potentially lower user costs for OEM products, incorporating b Tran make it a potentially disruptive technology in our target markets.

To recap.

The remaining key steps along our roadmap for this year are first we will continue to collaborate with DTI on our B Tran enabled solid state circuit breaker project for NAV C.

We expect to complete deliveries of optimized package devices. Later this year for incorporation into the demonstration of a 12 kilovolt medium voltage DC breaker at a site selected by the U S. Navy subsequent.

Subsequent to the demonstration and objective of this program is for DTI to introduce a family of medium voltage DC circuit breaker products, incorporating <unk> E Tran for sales to military industrial and utility markets.

Second we're working closely with the growing number of participants at our B Tran test and evaluation program, we'll be providing package b Tran devices, and where the data sheet and our latest generation drivers to facilitate and accelerate their evaluation process.

The testing results. These customers will share with US we'll provide feedback on the design and operation of package devices and driver. The feature set of these customers require for each application and their priorities for individual applications. This.

This feedback will allow us to determine common requirements across applications and act as the foundation for the development of future <unk> modules.

Our test and evaluation program will remain an ongoing aspect of our sales and marketing process and will continue to work to add additional potential customers to it.

Third with a proven and scalable wafer fabrication process and packaging design, we've kicked off our design work for our first multi die module that will be the basis of our first commercial product offering. We've also engaged a third party farm affirmed with module design and packaging expertise to support our design efforts Arkansas.

Our conceptual design and specifications will be used in close collaboration with our design partners to leverage all the work from our discrete device fabrication and packaging incorporate that feedback we have from potential customers interested in our high current rated product for their target applications.

Just on the significant interest we've received to date for the use of B Tran as an enabling technology for solid state circuit Breakers, our initial product will be a multi die module targeting this application.

This initial product will be followed by our second product and intelligent power module that will utilize the multi die module design and add a multi die driver into a single integrated package. We've recently begun discussions with the design houses for this intelligent power module.

This intelligent power module will accelerate b Tran commercialization and adoption in a variety of targeted applications by solving the hurdles. We know customers will face with respect to our bidirectional driver and packaging optimization saving customers from having to design these themselves.

Fourth we're progressing on the completion of the qualification process of our high volume production wafer fabricator to assess their potential to support our plans for commercial sales with favorable results to date.

Our intent is to have a high volume wafer fab ready to support our volume requirements for 2023 and beyond.

Lastly, we continue to work on submitting additional proposals for government funding with as I mentioned the potential to be the prime or subcontractor should we when we expect to collaborate with additional Oems in universities on submitting proposals as funding opportunities become available including potential opportunities as a result of the chips Act.

Looking at the B Tran patent state. We currently have 69 issued patents with 30 of those issued outside of the United States and 23 pending B Tran patents as.

As I mentioned on our last call in April we added the geographic breadth of our patent portfolio with the issuance of our first patent in India.

Our current geographic coverage includes North America, China, Japan, South Korea, and India, and Europe , and these along with United States represent all of our high priority geographies for patent coverage.

Summary, we continue to make strong progress on our roadmap towards commercialization of <unk>, we are very happy with our expanding collaborations and demonstration opportunities as a result of our nasty program and the excitement that <unk> is receiving as a prospective disruptive technology with wide ranging applications across a large number and growing end markets were pretty.

Really excited about our first deliveries of bidirectional low loss devices under Nazi program, we remain on track to introduce our first commercial product by the end of the year.

Our focus remains on executing our commercialization strategy backed by multiple use of cash on the balance sheet, an energized and talented team talented team our growing IP portfolio of world class fabrication and packaging partners, we look forward to delivering on our 2022 milestones and realizing the potential of our technology.

We will keep you updated on our progress as we hit each milestone on our <unk> commercialization roadmap.

Now I'd like to hand, the call over to Chief Financial Officer, Tim Burns for a review of our second quarter 2022 financial results.

Thank you Dan I will review second quarter 2022 financial results.

In the second quarter, we recorded $51000 in grant revenue was offsetting cost of grant revenue as we continued our work on the Navy funded <unk> program.

We expect all of the remaining grant revenue under the <unk> program to be recognized in the next two quarters.

We continue to pursue additional government funding opportunities that if awarded could result in initial revenue as early as late 2022 and are also pursuing opportunities with commercial partners for co development arrangements.

Operating expenses were $1 $7 million in the second quarter of 2022, consistent with our expectations compared to $1 $3 million in the second quarter of 2021.

Research and development and sales and marketing expenses trended higher on one additional wafer fabrication runs.

<unk> development and fabrication of our next generation driver and.

And three higher personnel costs for employees added during the last year to support both development activities and the test and evaluation program.

This growth represents our planned investment in development and commercialization activities in advance of introducing our initial commercial product by the end of the year.

General and administrative expenses increased this quarter on higher professional fees and board fees and expenses as we added two independent directors to our board in April .

Operating expenses were also impacted by higher noncash stock based compensation expense.

Our development and commercialization plans for the balance of 2020 to include.

Additional larger wafer fabrication runs, including a qualifying run with a high volume production wafer fabricator.

Continued development and fabrication of D train drivers.

Third party testing of the <unk>.

Adding more engineering and product management talent.

Supporting our test and evaluation program.

Designing fabricating and introducing our initial commercial product.

Starting the design of our second commercial product and intelligent power module.

In other B Tran commercialization activities with potential new customers and partners.

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 as well as the potential impact of additional government funding.

We continue to expect general and administrative expense to be relatively flat sequentially over the remainder of the year.

Despite the impact of inflation on the cost of services.

Net loss in the second quarter of 2022 was $1 $7 million compared to $1 2 million in the second quarter of 2021.

Second quarter 2022 cash used in operating investing activities, which is net of the cost reimbursement under the <unk> program.

It was $1 7 million up from $1 $1 million in the second quarter of 2021 and up from $1 $4 million in the first quarter of 2022.

This is consistent with the guidance, we provided on our first quarter call.

As I mentioned, we continue to invest in both sales and marketing and research and development.

Can you to expect a cash burn for full year 2022, or approximately $7 million.

With a third quarter 2022 cash burn of approximately $1 7 million to $1 $8 million.

Cash and cash equivalents totaled $20 million at June 32022.

Given our planned cash burn, which remains modest our balance sheet gives us ample liquidity to fund multiple years of operations to be a well capitalized partner for the broad spectrum of companies that are either already participating when do we expect to participate in the testing and evaluation of our B Tran technology.

As of June 30, we had $5 million 903797 shares outstanding.

140248 warrants outstanding unchanged from the end of March.

Including 613948 stock options and restricted stock units outstanding.

Diluted shares outstanding at June 30 totaled $7 million and 557993 shares.

At this time I would like to open up the call for questions operator.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from David Williams with benchmark. Please.

Please go ahead.

Hey, good afternoon. Thanks for let me ask the question and congrats on the progress. Thank.

Thank you.

I've got a couple of calls going on simultaneously. So forgive me if I've missed something but one just wanted to kind of think about your programs I hand, now and you've talked a lot about the revenues and just kind of the things you have in process, but I guess what are the risks from here as you kind of look at it and think about the progress in the product and just kind of where your customers are.

And maybe in terms of both from from your side and maybe even a macro in terms of slowing down any of the projects that are in place.

Yes.

The biggest risk for us is now behind US, which is figure out how do you make the double sided device that actually has low losses that we've been predicting so.

Clearly with the devices that we have made and we shipped to DTI that big risk is behind us.

The real challenges are just all of these unknowns that are going on in the marketplace with all the supply chain disruptions and pandemics and so forth I mean.

For us we do see businesses that we interact with having to react to that.

People are going through reorganizations challenges finding talent. So I think one risk that we just need to be aware of will be the speed of the adoption cycle for people that are going to incorporate <unk> into their products.

That can be both good and bad we see it looks like the automobile manufacturers looking to speed up that design cycle from what they've traditionally done, but we see other businesses, where they are struggling to find talent or they're having issues in other parts of their business that are causing them to re prioritize where theyre, making product investments.

Okay very good thanks, so much for that.

And then maybe just from a customer standpoint the reception.

Anything that's changed there or has that improved.

On the adoption side and just as Youre talking to your customers. What are your feedback then and I guess are you getting are you more excited today than you were maybe three months ago or any color around that would be helpful. Thank you.

We are a lot more excited than we were a few months ago simply because we've got real devices in hand that we are starting to share with people.

What we are seeing on the customer front is the inbound interest is going up and I think it's due to a couple of things.

One as we were.

Awarded.

At the <unk> Power Electronics Conference at award for Best presentation, which is really in front of the power electronics community. So I think one that really raise the visibility of our technology and what it's capable of.

And then with projects like the Nasty project and other things that we're doing but word of those projects is getting out that salt lab scale stuff is being done at really large scale demonstrations and that is really getting people interested in the technology understanding how it can impact things like solid state circuit breakers and companies that want to go leverage that.

Work to do things that fit their own product offerings.

Was there a follow up Mr. Williams.

Okay, well go to the next question from Orin Hirschman with AIG investment partners. Please go ahead.

Congratulations on the progress.

Can you just go over again real quick.

Can you go through really quickly again in terms of besides the.

The Navy related circuit breaker product what are the next handful of products or product families go through that again that you want to bring to market.

And.

To sample and then go through a design win phase there that take six months or a year, but what do you envision.

We've already gotten a fair amount of feedback from companies that we are working with in the sampling program. So we've got a pretty good idea of what our intelligent power module needs to look like so we're going to take the power module, we're going for circuit breakers and add to that a multi die driver.

That really leverages, the power module design and that product is actually well suited for things like solar coupled with energy storage a lot of the industrial applications that use.

Is referred to as a common in mid or module for <unk>. So it actually has some pretty broad applicability for EV charging solar energy storage wins.

Uninterruptible power supplies and then from there we will probably do vary variations of that product for different current ratings and.

Different modules that are going to be custom for some specific applications, but the next product should have pretty broad applicability and the industrial sector and then the final product that would come out classification would be specialized module targeting the electric vehicle folks.

And just the design cycle and the initial.

Module.

From beginning to end customers that they actually sample.

Well they'll be sampling with the.

Engineering prototypes that we're bringing out now and so for them. They will actually have the opportunity to understand how <unk> works, you'll understand the driver because the driver that's going to be an intelligent power module will have the same logic that will have the same.

Lay out configuration and operation the only difference will be for the intelligent power module it'll be multi die capable.

We have most of what they need from the sampling program to understand how to apply the intelligent power module.

Okay, great. Thanks, so much.

Okay. The next question comes from Don Slowinski with wound slow asset group. Please go ahead.

Thanks for taking my call congratulations on delivery of the SF CBS for the Navy build.

Thanks, Tom.

Thanks for that excuse me.

Working devices, right and they're going to do the build.

Correct Theyre going through the bill Okay.

And good timing by the way.

421 billion is the calculation I have in government support if you add the chip sac for domestic semiconductors.

The 369 billion you mentioned four.

Green Tech.

Partners that you might have customers, who might bring and Dan can you give.

Give us maybe some specific examples of how these are.

Historic Legislative acts will benefit ideal power.

Sure.

Typically what happens the policies sets out where they want the investments to be targeted these things have high visibility. So it's usually a lot of pressure within Dod and Vod that quickly translate that into programs.

It creates a lot of opportunities for us to collaborate with people that really want to leverage the objectives of the of the programs just like we did with the Navy.

Isn't even an actually a solicitation, we actually created the opportunity where you can bring something that shows an improvement and the performance of whether it's solar energy storage electric vehicles, EV charging I bring a higher level of performance. It fits those kind of objectives. So we think theres going to be some pretty broad opportunities across the board, whether its clean energy or weather.

<unk> technology development under the chips act or things that are coming to support the infrastructure for electric vehicles that will all create opportunities for us to either do things to get government funding either independently or more likely in collaboration with industry partners that will result in product pool into those market segments.

While it seems like really good timing for your commercialization of B Tran and again congrats on the milestone of delivering those working devices. So they can get those S. FCB is built for the Navy.

Rob Thanks, Bob Thank you talk to you soon.

The next question comes from Peter Sidoti with Sidoti and company. Please go ahead.

Mr. Sidoti Your line is open.

Is it possibly muted on your end.

Sure.

Okay, we'll go to the next questioner.

Taylor Fredericks with Arrowhead. Please go ahead.

Oh, Hey, Dan Congratulations all these new milestones.

It is very much so the nice level you guys have always done.

Two.

Two part question.

Let's see ideal power is hiring new senior engineers on their teams.

Parcel or can you elaborate.

The new hiring is for past projects like <unk> and department of energy.

For future projects.

So what is your anticipated pace of future hiring.

Engineers.

Going forward.

So a lot of people in your industry, especially the tech in the engineering and industry have been laying off people lately. So it's great to see you guys hiring.

The second level question is.

Oh.

Four.

Since you're headquartered in Austin.

Lot of people are very very honed in on Texas. These days.

Youre in the semiconductor business here everything in an energy oriented like Tom said.

<unk> said earlier.

A lot of people are really geared towards Tesla.

Would it be safe to assume you're talking to them as oppose.

As other automotive engineered company League.

Ford GM.

But the benefits will be trends or next generations.

Cash flows forward et cetera.

So for the hiring we are looking to add some engineers to.

Assist us with projects, we have already identified that we're going to be doing either ourselves or with others. So we're looking to expand the expertise that we have here. Our focus has been really on the device design and wafer manufacturing. We're now looking to bring in some people that have module packaging expertise.

Driver design that we did in collaboration with a post stock.

Austin, we're looking to bring that expertise expertise in house. So we can build that core team and capability based on the products that we're going to be bringing out so that we can incorporate improvements as we interact with customers.

We're hoping that two or three by the end of the year, we'll probably have a couple more that will be adding the first half of next year to support business development. Some additional engineering to support the customer engagement as well.

As we look at the automobile companies, we'd like to read them all summer.

Some are easier to get to than others.

Surprisingly there are some pretty big players that are out there that we are actually in discussions with.

Others that were not there just some of them it's hard to find the right person to reach but our objective is sooner or later that we get to all of them and have them all be aware of us and see if there's a way that we can fit into what their development plans.

Plans are we aren't speaking to any one in particular in terms of revealing who we're talking to simply because most of the time. These things are done under non disclosure agreements because.

Now the very insistent that their competition not know what they are what they are going in terms of evaluating technology, but our objective is to get through them all.

Okay well. Thank you so much for that are there any other military applications or for the trend.

Yes, there are.

The military has a lot of need for advanced semiconductor devices, whether it's for micro grids, whether it's for the things theyre doing for portable renewable energy.

There are even some things that we'd like to look at on the defense side. If there are some things that we can participate in for some of the power electronics activities.

Are going on in both the Air Force and the army as well so I think having a success under this program just help build our credibility to do other projects under Dod funding.

And on your program has been highly successful are the result of DARPA by any measures or I.

I guess two part question sorry, but.

<unk> Digital's for this.

Potentially.

So your question is are you withheld by doing the Navy's Sea program with.

With dark loads from doing it.

Expanding the B Tran projects receipts.

Now we're applications.

We're not constrained and part of the list of customers that we are targeting as part of the sampling program are those that bring some specifically strong relationships within Dod.

To reach other parts of the military where we don't necessarily.

Have the ability to open the doors, but they can pull us in for application specific uses of the technology.

Yes, it's amazing future milestones in your projection that you can share.

Can you just share it was amazing borrowing any future milestones.

Not yet as we get a little bit further in some of the discussions we will hopefully be able to announce some of them hopefully as we do some projects that are not under the same classification is the Navy program will actually be able to be more open about some of the data that's coming out of them as well because I think that there'll be some things that people who are really interested in seeing but.

Unfortunately, confidentiality restrictions and the Navy program had been a bit of a challenge for us.

Completely understandable look forward to watching <unk> struggling some flawed.

Thanks, Dave I appreciate it.

Well.

Again, if you have a question. Please press Star then one.

The next question comes from Peter Sidoti with Sidoti <unk> Company.

I've learned how to use the mute button.

Just two quick questions any changes on the competitive competitive front or on new technologies that may have come out.

Nothing new our technical team.

Participates in a lot of a lot of conferences and we were involved in the technical conference here just just about two weeks ago. So we've got a good screening of kind of what's going on.

There's a lot of interest in bi directional applications because of the fact that energy storage is playing a role in a lot of things not just electric vehicles, but its enabling a lot of other <unk>.

Applications. So we're seeing more focus on bi directionality, but nothing from a technology standpoint that looks like it would be a real threat to us, but we do keep a pretty regular eye on it.

And given that the markets are changing so quickly.

When do you really.

You see customers moving faster than you expected at this point in time in terms of actually placing the orders.

It is.

A little bit of a mixed blessing, we see the automobile manufacturers deliberately creating in house teams, where they used to rely on the tier one suppliers and the intent of that is for them to take about two years out of the design cycle instead of going from a five year design cycle, they're trying to go through a three year, but what we have found is getting through.

Their process to get things kicked off.

It does not seem like it's a lot quicker than what you would expect so.

Our hopes are high that once some of these programs are really going they will move faster to actually get our technology into their products.

We are seeing a lot of pressure on industrial companies, who are really looking for ways to innovate and differentiate themselves, particularly with there being such a strong showing from a lot of Chinese companies and things like solar and energy storage that are really competing on price so the opportunity to offer a higher level.

Performance seems to be a significant driver for.

Companies that are making products out of the USA and Europe .

You see R&D cost accelerating its closer to commercialization.

They will gradually go up we don't see a step change in that but but we will see.

Increased.

Additions to our technical team, we will see some increased development work that we will be doing as.

As part of our design activities, but it's not going to be something that will be dramatic from from where we are today, we're expecting in 2020 to hear about a two to two $5 million increase from last year.

In R&D and sales and marketing combined.

Yes, I'm just thinking about next year, what your thoughts would be if you have any.

Yeah, So it's a little bit early but we would expect.

Roughly the same type of increase.

Yeah, well wait till later this year to give more specific guidance.

Okay. Thank you very much.

The next question comes from Kelly Chairman private Investor. Please go ahead.

Hey, guys. Thanks for taking my question and great job this quarter.

Thank you.

Do you have any estimate Dan on the size of the naphtha contract the overall size.

Well the contract itself is a $3 million contract.

For the demonstration or part of it is $1 2 million.

But it is ultimately leading to a whole suite of products that the navy wants because while we are demonstrating a 12 kilovolt breaker they need a whole variety of sizes anywhere from a couple of kilovolt is up to 20 or 30 kilovolt. So I think the interest there really is the long term opportunity that it creates.

As part of a military application, but also the fact that what we're doing there applies directly to the electric utility industry for the distribution and transmission networks and for industrial applications, because we're both us and DTI or not limited in any way to take that product and introduce it to the industrial segments of the marketplace because the <unk>.

<unk> wants to see volume to help drive costs down.

How many circuit breakers or on a boat say from a small ship to a large ship whats the low to high to the number of circuit breakers on a ship.

The approach that the Navy is taking for the ship electrification program needs literally dozens on every boat they want to go to a highly distributed network because they want to make the shifts less vulnerable to attack. So that it sounds like you did lose the engine room and the ship is stock. It's a distributed type of approach to power.

For control and if you think about it they need distribution for lighting systems heating cooling weapon systems control systems.

Dozens and dozens for every ship.

And to the people that are sampling right now how close are you to getting additional development money.

To take there.

To the next level and if that point is that when we'll hear some names.

Our hope is that we'll be able to actually named some people if they're funding. Some development work, we think we're pretty far along with with one customer in terms of some specific development work they want us to do that they want us to pay for so our hope is in our next call. We're having a discussion about that if a lettuce name them.

Okay can you name, which sampler it is without naming their name.

I don't know if we could do without violating our NDA.

Okay, then don't do it.

And as far as the people that are going to be in the sampling program say over the next three to four months you guys have announced one of the top 10 World automakers that you guys are working with right now do.

Do you have any other top 10.

Automakers that are in the pipeline that you feel good about that will be part of the sampling program that you'll announce over the next three months.

Yes, we do.

More than one.

There is one that I feel particularly good about there would be a new one new addition.

Yes.

Several items.

And you would need to be classified as like a top 10.

Yes, they would.

Okay. Good deal all right. That's all my questions Great job you guys look forward to the next call.

Thanks Kelly.

The next question comes from Robert <unk> with Cold Street. Please go ahead.

Thank you for taking my question.

Dan Congratulations to you and the team on all the progress. This is an exciting time for ideal power for sure.

Thank you I just have.

I just have one quick question with commercialization expected youre shooting for the end of the year.

Can we expect then.

To see commercial volumes start.

In earnest in calendar year 2023.

I think it's going to vary a lot by customer in terms of how long it takes them to get through a design cycle, but yeah. Our expectation is that as you get towards later in 2023, you'll start to see.

Volume ramping up.

People start to build product and even for some of them in terms of getting through some of their own evaluation and certification that they need to do for products that theyre going to bring out that would incorporate featuring.

Fantastic.

Very excited looking forward to the next call in.

Now further developments congratulations guys.

Thank you very much.

The next question comes from H C me with Universal Securities. Please go ahead.

Hi, how are you doing guys. Good afternoon, first and foremost Dan congratulations on shipping chips with this diversified technologies contracted but maybe that's a huge accomplishment and I'm glad to see the market responding very positively to this news. My question is regarding the actual production of the B Tran chip I understand you're in.

Talk with major autos as you've said on this call Im sure Youll need to ramp up production of the B Tran chip a couple of orders of magnitude can you give us any color with regard to that or are you not yet at a point, where youre able to publicly discuss where the company stands in terms of high speed production of the chip.

And finally do you think that that may and leaning towards more of a licensing agreement with let's say a major manufacturer that has a relationship with <unk>.

TSM or another company of that.

That caliber for instance.

Really good question.

We are actually in the process of qualifying a true production level fab and our objective is to get through the qualification process of this year.

So that as we engage these customers, particularly ones that are like automobile manufacturers that can drive high volume, we have a true production level fab. We can point to is where devices will get made.

What I would expect would happen is particularly for high volume customers. They may ultimately want another source.

Not.

Not just from us, but in terms of even our fab and that may involve us putting a license in place for another party that could supply the industry and.

And as has been through the automotive qualification process.

That topic as it come up yet, but we're prepared for that and licensing is actually part of our strategy. We think that's probably a more efficient way to get to some of these high volume markets, rather than us spending capital to try and create huge distribution networks and service and support networks. When we could just licensed the technology to others that can leverage their own investment that they've already.

We made.

Got it. Thank you I appreciate that that was an excellent answer. Thank you Dan. Thank you for your time.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Dan <unk> for any closing remarks.

I just want to thank everybody for joining our call today, it's certainly been an exciting quarter for us as we've achieved a really significant milestone for the company.

It really opens the door for some really meaningful opportunities that we're looking to pursue pretty aggressively here going forward, we will be participating in the investor summit and the Sidoti conferences. Later this week and we look forward to keeping everybody. Another update on our third quarter conference call. Thank you, everyone and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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