Ideal Power Inc. (NASDAQ:IPWR) Q3 2019 Earnings Conference Call November 13, 2019 4:30 PM ET
Chris Tyson - Managing Director of MZ North America
Lon Bell - CEO
Daniel Brdar - B-TRAN CMO
Tim Burns - CFO
Good day and welcome to the Ideal Power’s Third Quarter 2019 Business Update and Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Chris Tyson, Managing Director of MZ North America. Please go ahead sir.
Thank you and good afternoon. I’d like to thank you all for taking time to join us for Ideal Power’s third quarter 2019 business update and results conference call. Your host today are Dr. Lon Bell, Chief Executive Officer, Daniel Brdar, B-TRAN Chief Commercial Officer as well as Tim Burns, the Company’s Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:01 P.M. Eastern today and is available on the Company's website idealpower.com.
Today’s conference call will also include a formal presentation, that listeners can follow via the webcast link provided in today’s press release or a downloadable version in the Events section of the IR website at ir.idealpower.com. Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and webcast including those regarding future financial results and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the Company's SEC filings for a list of associated risks, and we would also refer you to the Company's website for more supporting industry information.
At this time, I'd like to turn the call over to Ideal Power's, Chief Executive Officer, Dr. Lon Bell. Lon, the floor is yours.
We appreciate that your taking time today to hear our story. If I go into our presentation, I will quickly give you a brief summary of critical actions we have taken since late last year when our board concluded we should focus all our resources on our greatest asset PATHION. We divested all other assets, we reduced burn to 700K per quarter, we’ve restructured to focus similarly on commercializing B-TRAN power switch technology. With independent groups model B-TRAN performance to validate our internal assessment of the technologies prompted. Recently, we have fab houses manufacture wafers B-TRAN dives to measure performance. The performance matches our model.
B-TRAN is the semiconductor architecture and in that sense it’s like a diode or a MOSFET. That means B-TRAN is materially agnostic and our power switches can be made from silicon, silicon carbide or GaN. Today we’re focused on silicon, so we can use existing fabrication facilities and technologies to speed market introduction. Later when we have strong commercial acceptance, we will add silicon carbide or GaN B-TRAN switches to broaden our market footprint. This product plan should maintain our commercial advantage to at least 2030.
B-TRAN power switches have three advantages over present power switch technology. First, the more energy efficient with 80% less loss than today's conventional power switches. Second, B-TRAN operates with current flow in both directions and third, circuits fabricated using B-TRAN switches will have half as many power switches and one-fifth the cooling requirement of conventional AC circuit. We do not see any major disadvantages to adopting our technology.
Our IP portfolios are crown tool, we have 47 issued patents and 36 pending. On major industrial markets China, Japan, Europe, North America and Australia covered, we have similar application, so we expect this in India and Korea, our patents have 16 to 20 years of life before expiring. Last point, I'll emphasize now and continue to emphasize is our focus. Our number one priority is B-TRAN commercialization. We believe we've identified the industry where technology best fits and where we will get the most pool from potential partners. We currently have partners waiting to test our technology and working around the clock get parts into their hands.
At this point, I'd like to turn to our slide on Page 4, which gives the business highlights. We'll be talking through these various points in more detail as we go through the slides, first of all the nature of the technology, and then the efficiency improvement and a couple of metrics associated with that. And then we'll talk about the validation of our technology, substrate agnostic as I mentioned before and broad patent and then our focus.
So turning to Page 5, Slide 5, electric power switches are everywhere. When we think of electric power switching, we think of the home for example where there are pool pumps, HVAC and our air conditioning systems, even our stoves or washers and dryers and certainly any large power source such as solar cells or power converters in some newer homes, all of these require electric power switching.
Same thing if we think of industry, it's obvious that enormous amount of electric power is utilized by industry for virtually all things that go on in factories including heating in many cases, including of course, air conditioning, lighting, robotics, virtually all the functions in industry as they become smarter and as they become more energy efficient, become electrified, and to the extent that they are larger systems and require larger amounts of power, these are then applications for electric power switches. The automobile same story, there are existing uses in conventional cars. For example, in air conditioning systems and our steering systems, power breaks in many cases, certainly seat adjust systems all of these again as they become smarter or the technology evolves for greater energy efficient
In particular for electric vehicles such as electric vehicles themselves or hybrid electric vehicles, we think our traction motors, we think of charging systems. These of course, require electric power switching.
Turning to Page 6, Slide 6 B-TRAN is a bi-directional switch and what we mean by that is that in a conventional switch which is IGBT which is what we have today. There are unidirectional switching functions in the switch. So, to have bi-directionality, it takes out the circuit that you see on the left side, that circuit has losses that are inherent in it. And the losses typically total about 3.2 volts. So that voltage times the amperage going through it is the losses of that switch. Now, if we look on the right, we see a single component or bi-directional operation replacing the four components on the left and that assembly because of the inherent properties and superior properties of B-TRAN has about 0.65 volts drop in it resulting in that number of times again the current for the losses. If we move on then to the next slide, and look now at the IGBT market, the market itself is quite broad and the IGBT market has many components to it, that are that use the capability of IGBT power switches.
It's currently about a $5 billion a year market. It's growing fairly rapidly at over 10% a year. EV sector is growing extremely rapidly. The renewable sector is growing quite rapidly as well. So without talking to each of these, the one thing that I mentioned is in going in a little more depth to give you an example of how our B-TRAN technology can improve on IGBTs that are currently in use, think of electric vehicle and in electric vehicle, the powers and batteries.
If you think of the vehicle out of stock, once the light turns green and we start to accelerate the vehicle, power flows from the batteries through the controller with its IGTs today and B-TRAN’s tomorrow and then powers the vehicle, so the vehicle accelerates then it comes to a red light, so it decelerates, some of that energy through regeneration flows back again through the controller and the IGBTs and eventually the B-TRAN’s and to the battery. Then light turns green and that process is repeated and that energy flow back and forth means that there are many cycles or the power
going through the controller and going through either an IGBT or a B-TRAN device.
Now using results from some of Toyota’s modeling that we've extrapolated from their condition to utilization of a B-TRAN device, it would result in about a 7% reduction in energy consumption. That's because of the multiple trips and it is because of the efficiency gain that I showed on the previous slide. So if you think of an electric vehicle, 7% change just by converting from the properties of IGBT to conventional power switch to B-TRAN, the next generation of power switches, there is a very substantial energy savings.
The energy savings are also very attractive in renewables because again, the energy flows say from solar cells into batteries through a converter, then from the batteries through a converter into a home or to the grid or to an industrial installation. And we go on around, those are two examples where there are multiple trips, many of the others do not have multiple trips, but still there is substantial energy savings.
So, in turning to the next slide, like to talk a little bit about the economic drivers for B-TRAN and its use in data centers. In data centers, power comes in at a very high voltage, enormous amounts of power in the largest data centers. The power flows through the data center, one component that essentially all of the power flows through are UPSs, that means that all of the power that eventually goes into the primary functions of the data center, which are memory change with memory storage computational activities, the various things that need to be done at very low voltage within the data center as that power from the grid is transformed.
It all go, almost all of it goes through UPSs or multiple UPSs both for redundancy and because of capacity and different functionality throughout the data center. These UPSs then not only have to condition the power, but the power flows through IGBTs and it could be through B-TRANs in the future and that is something that we think is very attractive to us, that reduction in losses according to various sources that we have listed on the bottom of the slide indicates that the losses are substantial and the economics that the data center could benefit from are quite substantial.
So this is not only an application, where B-TRAN can function well, it's an application that has great importance, because so much power is used by data centers and that power is growing as data centers and the need for management of data in the Cloud becomes greater and greater.
Turning to the next slide, we do have a highly focused strategy. Our strategy is divided into three phases and turning to the first phase which has been completed at this point, we have four plus years of research, modeling and development with our B-TRAN and we have worked with external tab sources to prove that B-TRAN dies can be manufactured and we'll talk more about this later. Dan Brdar will talk about this in considerably in more detail.
We have proven that they can be manufactured. We have proven that when they are manufactured, they perform as we expect. And we have based on that information, based on our modeling and based on our understanding of the market, we have developed a very broad patent estate which I've mentioned previously.
That patent estate as I call that as a family tool, it truly is. Phase 2 which we're underway now and will continue into Q1 of next year is working with now more than one fabrication partner, both domestic and foreign to develop the next generation of B-TRAN dies and engage with those manufacturers plus packaging manufacturers, so that not only we have the dies but the packaging, so that we are then prepared to have early laboratory samples that we can use to sample our commercial partners. Those samples which our partners can then use in two very, very important ways are the key to what we're doing and is our near-term focus. That leads to the commercialization of the technology.
The first step is for us to model it, which we have done. The second step is to measure performance and present it in a form that our partners can utilize to do their internal modeling of the A to B comparison, A is the present system and what they're doing and B, what B-TRAN will do for them. Third, is to have samples in their hands that they can trust and validate. So the samples have to be in a clear line to production, especially the die, the B-TRAN die has been a clear line to production. That has to then give them confidence and enter those parts to match what they model. So, they see that the technology performs as advertised and those samples are what we are focused on doing now.
That process plus their modeling plus our internal validation, taken to their management and through their internal planning process gives them a clear viewpoint on what the future can be, the next generation of part can be and how that generation can make them the world leader in that particular product category because of the efficiency, which means that their system gets simpler.
Secondly, efficiency again, so that the thermal management losses in their system can be reduced and their needs for fans and other componentry to manage the heat that's generated within their equipment has reduced so much that they can either increase the capacity or they can make simple, simpler and lower costs the thermal management within their equipment.
Thirdly, they can then look at this and tell their customers the cost savings that the customers can expect from this technology. So that is a flow pattern to take our technology into their planning and into their process to define their next generation product. And since the generations of products are evolving very quickly, that can be quite a short-step. Thirdly, that leads to licensing opportunity to license a partner. So we will work exclusively with a certain partner in one of the -- one portion of one of the verticals that we showed in one of the previous slides here and those partners and have an advantage and a reason for having great energies that they expand on getting this product into market
early because we offer them an exclusivity for a time period against certain sales. Now the product will come to us,
but through their efforts, they will have a period of exclusivity as long as they meet certain minimums and as long as
we see that they are using their best efforts to bring our product into the marketplace in a significant way, that will build momentum, that will build also opportunities for other companies and related verticals.
The B-TRAN devices that we will be supplying will have a generic nature to them. They can not only be used for that particular application, but they can be used for other applications of a similar nature and a similar capacity. So that should result in a robust pull from potential customers for our technology, which validates the technology to not only the marketplace, it validates it to our shareholders, and it validates it to our suppliers.
Turning to the next slide on Slide number 10, that covers our market entry in our approach, what we think makes the most sense for us is to initially target the application of UPSs in particular in data centers. These applications look very promising to us and one because of the energy savings and how can be monetized, two the rapid evolution of that marketplace, three, the need for new technologies in that marketplace to reduce energy consumption and four, the ability of this to offer their customers a distinct advantage, so that there is an opportunity for our partners to see
who would supply the UPSs to see a distinct advantage in the marketplace.
So we're very excited about that opportunity and we’re working very hard with potential suppliers and customers in that field to supply them with early prototypes. We have talked to many different engineers, and application engineers, so design engineers and application engineers and have discussed the properties that they need, state as a product they need, how they're going to evaluate the technology, how they're going to communicate internally within, what their metrics are, what they lose sleep at night over when they think about designing a new generation or they lose sleep at night over when they think about how important this is and its role in a new product for them.
It can resolve some of those sleepless nights through being more efficient, simplifying thermal management and giving their company a distinct advantage. All of those are key factors in their eyes utilizing a technology.
The next slide is number 11. And on this slide, I'm talking a little bit about sustainability of our competitive advantage. We are looking at having companies that are partners, so the companies that we supply for them to feel that this is a true partnership, and something that is important for them to devote their energy to, their resources to and has sustainable advantage to them. It is advantageous to us to show what the technology does today in terms of B-TRAN, Dan Brdar will soon be telling you a little bit more about the testing we've done and the results.
And this just looks at it in a little different way and kind of covers a little bit of that information, but we have certain characteristics in the switches today that are very attractive and if we then go to silicon carbide as an example, using the same modeling capability that we use for silicon, then the switching speed increases, maximum operational voltage increases and we have also conduction losses not quite as good but still highly advantageous compared with IGBT.
So the switching speed being five times faster allows for example certain components to be considerably smaller. For example, capacitors can probably be about one-fifth as big or physically as large. Transformers, other magnetic can be one-fifth as big, one-fifth as heavy and the device can operate over a much broader voltage range. This allows the device to operate and really expand the market into higher voltage application. So not only do we have features that are highly attractive to companies in the near future, but we sustain their advantage over a very long time, over the mid and long-term through the next generation, so they not only can build the next generation product, but they have good visibility in the following generation of products and those following generation can add new market sectors. So that combination is something that we think makes a very compelling story for our licensing model to license our customers in specific verticals that we think have the kind of properties that we've been talking about, where a licensing model makes sense.
And this will be a compelling story for them to have early engagement with us and take this and pull it through into production. The last comment that I want to make is on Slide 12. And then I'll turn it over to Dan. But as I mentioned before, I have a very strong IP portfolio. That IP portfolio is very robust, it’s very new and it covers very broadly our product. So we apply generally in North America for our patents.
Once we've applied for the patents in North America, we have some amount of time 18 to 36 months to apply in other regions. That's why the issuance is higher at first in North America where we apply first America of course. And then the pending patents are more in regions that we’re targeting for broader patentability. But what are our patents, first of all they’re intrinsic, basic architecture of our B-TRAN devices.
These architectures are the heart and soul. And it's what prevents competitors from encroaching on us. They are very strong patents, they are issued in China, they're issued in Japan, they're issued in America and they’re issued in Europe. The second is methodologies and techniques to fabricate the parts, to build the parts, to utilize the parts and so we have patents around the basic patent that cover the areas that others might try to compete with us by providing better ways to make them, better ways to utilize them. We have worked very hard and very diligently to patent those areas that are most attractive and most competitive.
We have patents related to the double sidedness and to the bi-directionality of the technology as well. And lastly, without going into too many details here, we have application specific patents where B-TRAN technology because of its characteristics because of low loss and because of bi-directionality enhance simplification of the circuitry enables new applications in some cases and makes practical other application for complex switching that can now be electronic as opposed to electro mechanical. This involves for example, certain types of circuit breakers and it involves
other types of circuits such as Matrix converters. With that, we will turn to the next slide and I’m going to turn the discussion over to Dan Brdar. Dan?
Thanks Lon. In the quarter, we actually had some pretty significant testing that went on, we received the most recent version of wafers from one of our semiconductor fabricators. And we've taken them through the complete wafer tests that we do to characterize their performance and what we found when we did that testing was the critical performance parameters that really distinguish B-TRAN in terms of its low losses during conduction, it’s bi-directional operations, those were confirmed.
If you look at some of the key parameters, we had done simulations both ourselves and with some third-parties that would indicate that when it was bottled theoretically, the device should have a breakdown voltage of at least 1,200 volts, we were able to confirm that we did even better than that 1,240 volts. So it gives us the strength of device that we need for some of the applications that we want to go after to use it for things like data center and UPSs, renewable energy and so forth.
Our simulations also showed that one of the key features of B-TRAN would be this very low conduction loss, the on-state voltage, simulation for predicting 0.25 volts substantially lower than any other technology that's out there, we actually measured correlated really closely with those predictions, we measured 0.22 volts for the conduction loss of the devices.
The other key characteristic that we measured was the gain of device. The gain is a function of the configuration, we're testing what are called PNP type devices today, the simulations are predicting 2.1 for the gain and we actually measured 2.2. So again, close correlation with what the theoretical simulations indicated our performance would be.
And lastly, we were able to validate through actual testing that although it’s predicted to be a bi-directional device, we actually did see a good conduction in both directions and the ability to actually function as a bi-directional switch. We've also done some simulations of our next generation of the silicon devices, which is a change in the configuration going from a PNP to an NPN.
This is really of interest to do a couple things for us. One, it gives us a little bit higher breakdown voltage, so we get margin in the breakdown capability of the device. Still very low on-state conduction losses, simulations are predicting 0.2 volts, very similar to what we do today with the current configuration, but importantly it gives us significantly higher gain. So there are some applications where we do need to have a higher gain device and the predictions are showing that we're expecting a gain of about six. Again, it'll be a bi-directional device based on our simulations and we have no reason to believe that we'll see anything that would be significantly different from the simulations because unfortunately for silicon devices, they can be simulated very accurately nowadays and the testing already is confirming that our modeling has done a pretty good job of predicting performance.
So if you want to turn to Slide 14, one of the things that we also did in the quarter as we think about putting devices into the hands of potential partners and customers, for them to evaluate it with their technical team, we had early package design that served its purpose for some things that we were doing internally. But we really wanted a packaging design that would make a much smaller package. One that would be significantly easier to assemble for our packaging company that we work with also significantly easier to use for the customers that we're going to provide prototypes to, easier for them to make connections to the device and at the same time gives us even better thermal management. So we have come up with a new packaging design, that design is now complete.
We've fabricated it with a couple of different sources. So we have source, we have multiple sources of supply for this design. Those initial packages have already been made. And we've taken the die from our most recent wafer testing and we're assembling those now into the integrated package that is being used for characterization, and that package die characterization is going on as we speak. So that is in process. And we will be using that data to really share with potential customers to help them understand what is this package device actually look like from a performance standpoint.
Turning to Slide 15. Our next steps are really to make our next batch of devices. We have both a domestic and an offshore source that we now work with that has the capability of producing devices for us, so it gives us flexibility, it also gives us the ability to have a domestic source for some of the government funded programs that we are pursuing because they do require domestic manufacturing content.
It also gives us two organizations with very different levels of expertise that can be brought to bear as we think about how B-TRAN evolves from a manufacturing standpoint. Our focus is really getting ready for the engineering prototype evaluation Program. We have identified the sampling organizations that we want to specifically target, that represents some of those high priority verticals for us.
And we're taking the testing that's going on now with the package devices and turning that into what essentially looks like a product data sheet. The technical teams that we're going to be working with have a lot of data that we're looking for that describes the device and its characteristics. We want to see that process with some robust data in the form of a data sheet that is based on not just theoretical performance, but actual device performance that will give them a lot of confidence that it really is worth spending some time and energy and resources to take prototype devices from us and start to do some characterization work themselves.
We’ve also completed our next generation device simulations that are going to guide what we're going to be doing in the next run with one of our semiconductor fabricators. So with that, I want to turn it over to Tim Burns so he can go through the financials for the quarter.
Thank you, Dan. Turning now to Slide 16. I will run through the third quarter 2019 financial results. The company had no revenues from continuing operations in the third quarter of 2019. Third quarter 2019 operating expenses were $0.7 million, compared to $1.2 million in the third quarter of 2018, the decrease in operating expense was primarily due to a decrease in our general and administrative expenses due to low professional fees and impacted by our cost reduction plan, inclusive of reduced headcount and the disposition of our PCS business.
Third quarter 2019 loss from discontinued operations was $0.1 million compared to $1 million in the third quarter 2018 due to our exit from the PCS business in January and the sale of this business in September. Third quarter 2019 net loss was $0.8 million compared to a $2.2 million net loss in Q3 2018. Third quarter 2019 cash used in operating activities was $0.7 million compared to $1.4 million in Q3 2018. Year-to-date Q3 2019 cash used in operating activities was $2.4 million compared to $4.3 million in the same period of 2018.
Looking at continuing operations only, year-to-date 2019 cash used in operating activities was $1.9 million compared to $2.3 million in the same period of 2018. Cash and cash equivalents totaled $0.8 million as of September 30, 2019 with no long-term debt outstanding.
Subsequent to the close of the third quarter, the company entered into definitive agreements with certain institutional and accredited investors, including Dr. Lon Bell, our Chief Executive Officer and Chairman of the Board for private placement of our common stock in pre-funded warrants, and warrants to purchase common stock for aggregate gross proceeds of $3.5 million.
We estimate net proceeds of $3.1 million from this private placement. As a result of the private placement, we now satisfy the minimum $2.5 million stockholders equity requirement for continued listing on the NASDAQ capital market. With the completed sale of our Power Conversion Systems business in September to CE+T Energy Solutions for cash, equity in CE+T Energy Solutions, the assumption of liabilities and the closing of the private placement earlier today, we now expect on average to utilize approximately $0.7 million in cash per quarter during 2020. This cash burn rate is approximately 60% less than our average quarterly cash burn in 2018. I'll now turn the call back over to Lon for closing remarks on Slide 17. Lon?
Thank you, Tim and thank you, Dan. We've described the disruptive semiconductor technology, we’ve noted how it is significant in terms of its operating cost. We've talked about its cost and utilization in product and the efficient improvements it can generate, which transform other technologies at this point.
We've recently validated our claims and we have a technology that has very, very long legs. We now have in place patents that are issued 47 of them. We have applications, including in countries we currently do not have issued patents, India and Korea. We have a very robust backlog of patent applications that is currently being addressed in various parts of the world and we expect those to issue over time, and so that our patent portfolio will be extremely strong.
We now have financing in place, it’s a very recent event and a very critical event for us and we've reduced our burn to a level that gives us sustainability to do the things that we have talked about in this presentation. So we hope to realize many of the things we have talked about and we hope also through our work that is underway now and our diligence as we work through, get the new materials and take those to customers that we will begin to see external validation of our technology during next year. Thank you very much.