Ideal Power Inc. (NASDAQ:IPWR) Q4 2023 Earnings Call Transcript
Ideal Power Inc. (NASDAQ:IPWR) Q4 2023 Earnings Call Transcript March 2, 2024
Ideal Power Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the Ideal Power Fourth Quarter and Full Year 2023 Results Call. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the conference over to Jeff Christensen. Please go ahead.
Jeff Christensen: Thank you, Matt, and good morning, everyone. Thank you for joining Ideal Power's fourth quarter and full year 2023 conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power's fourth quarter and full year 2023 financial results press release is available on the company's website at idealpower.com. Before we begin, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects are forward-looking and 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 company information.
Now I would like to turn the call over to Ideal Power's President and CEO, Dan Brdar. Dan?
Dan Brdar: Thank you, Jeff. Good morning, everyone, and welcome to our fourth quarter and full year 2023 financial results conference call. I'll first update you on our progress since the start of the fourth quarter and then review our priorities for 2024 to commercialize our B-TRAN semiconductor technology. And then Tim Burns, our CFO, will take you through the numbers, after which we'll take your questions. We made great progress delivering against our B-TRAN commercial roadmap in 2023, and that progress has continued into 2024 as our customer engagements are expanding. While we're certainly excited about our progress and recent news, we're even more excited about how 2024 is shaping up for the company. Since the start of the fourth quarter, we successfully completed several additional milestones and had some very positive customer recognition that collectively confirms our continued progress on our B-TRAN commercialization roadmap.
We're thrilled about our momentum, recent successes customer feedback and recent announcement in these major areas. First, we commenced SymCool power module shipments to fulfill customer orders. The SymCool power module targets industrial markets, particularly the solid-state circuit breaker market, and is expected to be the earliest source of our product revenue and sales ramp. Second, we successfully completed Phase 2 of our development program with Stellantis, a top 10 global automaker. Notably, the name Stellantis was disclosed by Ideal Power for the first time in Q4 of 2023. Third, Stellantis recognized Ideal Power as a finalist in their 2023 Stellantis Venture Awards. Fourth, we released demonstration videos and application notes related to our B-TRAN and SymCool products to assist the technical teams that our target customers to better understand our products and their use.
These videos and application notes have already produced new opportunities in our sales funnel and are producing a high number of views with our target technical audience, demonstrating a growing interest in and awareness of our technology. Fifth, we are nearing completion of a qualification run with our second high-volume wafer fabrication partner. We'll take a deeper look at these activities but first, I want to take a step back and highlight what is driving the interest in and the need for the technology we're bringing to market. The commercialization of our technology comes at a time when there are significant macro trends in the industrial, renewable energy, energy storage and hybrid and electric vehicle markets that will act as drivers of our revenue growth for many years.
It's not only the long-term growth of solar energy, energy storage and the adoption of hybrid and electric vehicles. These growing markets are part of the broader global electrification of society that is occurring. The current electric utility system was designed decades ago and will require enormous investment to accommodate the fundamental changes electrification requires. Our utility transmission and distribution system was not designed to accommodate the large amounts of distributed solar power for homes and businesses, the build-out of a nationwide electric vehicle charging infrastructure and the broad use of localized energy storage by businesses for backup power and electricity cost control. At the core of all these applications, renewable energy, energy storage, hybrid and electric vehicles, EV charging and utility grid modernization is the need for improved power semiconductors as they are essential to reducing the cost and improving the efficiency across all applications.
Better power semiconductors mean more useful energy for a solar or MG storage installation, longer range and faster charging for an electric vehicle and lower cost and more efficient use of electricity. That's why we're so excited about the timing of our commercialization and what B-TRAN brings to the market. Our technology has the potential to improve the performance and cost of a wide variety of applications that are part of this fundamental change in how we make, distribute and use electricity. Looking at the size of the opportunity this creates, based on the recent study by Mordor Intelligence, in their global power electronics market report, the B-TRAN serviceable addressable market or SAM, is predicted to more than double over the next five years with a projected 16% compound annual growth rate, the total SAM for B-TRAN is forecasted to grow from $3.6 billion in 2023 to $7.6 billion in 2028, driven by these macro trends.
Looking forward, we'll continue to execute on our B-TRAN commercialization roadmap. Our priorities for 2024 are to convert large OEMs and our test and evaluation program to design wins and/or custom development agreements, sell simple power modules to additional target industrial customers, add distributors for SymCool products, continue the strong execution on our development program with Stellantis, begin third-party automotive qualification testing, complete the qualification of a second high-volume production fab and capture initial sales of our SymCool IQ intelligent power module. And I'll discuss the highlights of some of these priorities, along with other opportunities and developments. There's a growing list of customers working with our team in each of our key target markets and I'm pleased and excited about our progress and the feedback we're receiving from our growing customer engagements.
We expect industrial markets and in particular, the solid-state circuit breaker market served by our SymCool power module to be the earliest source of our product revenue and drive our initial sales ramp. The interest in our SymCool product is driven by the need for better circuit protection within the utility distribution system, industrial facilities, the need to be able to quickly isolate solar farms and energy storage facilities and even circuit protection within hybrid and electric vehicles. Later this year, we're expecting initial sales of our SymCool IQ intelligent power module. The SymCool IQ takes our SymCool power module and adds an intelligent driver to allow localized control in operation. The SymCool IQ product applies to the renewables market, particularly renewables coupled with energy storage, standalone storage and microgrids, EV charging and other industrial markets.
Like the solid-state circuit breaker market, these applications have a shorter design cycle compared to the automotive industry. Targeting the industrial, power and renewables markets first gives us the ability to ramp up our supply chain and revenue, so we are ready to serve the high volume we expect to be driven from auto manufacturers for their hybrid and electric vehicle platforms. With the visibility of our technology and products growing, we're now receiving numerous inbound inquiries from companies in our early target markets looking to learn more about our products. To better serve these customers and provide the ability to purchase products in smaller volumes, we're adding distributors for customers wanting parts for evaluation, some of which will later turn into volume supply agreements with us.
We're finalizing our first agreement with a distributor for our products. We've also selected a second distributor with particular strength in Asia and have begun crafting an agreement with them as well. Our current focus is engaging distributors with strong technical sales teams, expertise in securing sales for new technologies and global reach. We'll add more sales reps and distributors over time that have comprehensive channel coverage. As we said previously, given the evaluation and OEM product design cycles of most industrial companies, volume and revenue will be modest in 2024, and we expect to see the start of a ramp-up in sales in the second half of 2024 as customers work to release products that incorporate B-TRAN. Turning to Stellantis.
We're thrilled with our progress in their program to use B-TRAN in their future EV drivetrain. Due to the strong performance of our team and our technology, we're continuing to earn our place in the program and recently announced that we successfully completed Phase 2 of the program several months ahead of schedule. Phase 2 deliverables included a multi-wafer run, delivery of tested B-TRAN devices and drivers to both the program's packaging company and the organization, building the initial drivetrain inverter, and delivery of a comprehensive test plan for auto qualification that was subsequently approved by Stellantis. We collaborated closely with Stellantis and the program partners to supply B-TRAN devices for integration into the custom power module and inverter designs.
The device testing results by the Stellantis program team validated the expected efficiency improvements anticipated from the use of B-TRAN in the drivetrain. As part of phase 2, Stellantis also conducted a data-driven comprehensive assessment of the technology readiness for implementation into their electric vehicle platform. And we're pleased to say the outcome of the assessment was very positive. Successful completion of Phase 2 was also customer validation of B-TRAN and its potential impact on improving EV range and cost. Additional validation was provided by Stellantis in December, when they named us a finalist in the 2023 Stellantis Venture Awards. Our selection was based on our successful collaboration and performance in the program, the potential impact on customer experience, novelty of the technology and its potential scale within Stellantis.
We're leveraging our success with Stellantis to attract and engage additional companies interested in our technology for their applications, including other industrial and automotive OEMs and Tier 1 automotive suppliers. We're currently finalizing the scope of work for Phase 3 of the program with Stellantis, which now includes the production side of their team. This phase is expected to include the extensive testing of the custom B-TRAN module to meet automotive certification standards, enabling B-TRAN to be the core of the powertrain inverter for the automakers' next-generation EV platform. Their stated goal for the program is to have a custom module production ready by 2025. Stellantis is funding the program. We had modest revenue from them in 2023 and expect modest revenue from Stellantis again in 2024.
Due to its compelling advantages, B-TRAN is also being evaluated for Stellantis' vehicle power management, circuit protection and EV charging ecosystem. As a reminder, this program represents our second engagement with the world's leading automotive manufacturers as another top 10 global automaker is already in our test and evaluation program. Substantial progress continues with our test and evaluation program participants, particularly for solid-state circuit breaker and hybrid and electric vehicle applications. This year, we expect to convert large OEMs in our test and evaluation program into design wins and/or additional custom development agreements. Our test and evaluation program includes several large global companies that present multiple opportunities for Ideal Power.
Taken as a whole, they address all of our target markets. While initially interested in a specific application, these program participants have, in many cases, expanded their interest to several applications in their product portfolios to take advantage of the benefits of B-TRAN. Customer shipments to the test and evaluation program participants included multiple package B-TRAN devices, the device driver and a power test board housed in a safety enclosure to facilitate and accelerate the evaluation process. To date, B-TRAN shipments to test and evaluation program participants include a top 10 global automaker, a global Tier 1 automotive supplier, a leading provider in the solar industry, two Forbes Global 500 power management companies, a global provider of backup power and energy management solutions and several others with additional kits to follow for new participants.
While these large companies move slowly, several of these customers have advanced beyond the evaluation stage and are requesting multiyear product volume quotes or custom product development proposals and in many cases, are providing us specific feedback for our long-term product planning roadmap to closely align with their requirements. The conversion of a single opportunity could potentially significantly impact the trajectory of our pending revenue rail. As you know, our test and evaluation program will remain an embedded process in our sales and marketing effort and a source of input to our next generation of products. We'll continue to add additional potential customers to the program for those customers that represent an opportunity for us to collaborate with a market leader for a specific market segment.
The program allows us to get a good handle on customers' technology evaluation processes, their product design cycles and their commercial plans. Beyond the high-profile companies in our test and evaluation program, we're already seeing customers, particularly in the circuit breaker and circuit protection markets ready to be served by our distributors as we bring them on board. Let's turn to the supply chain that ensures we'll be prepared to support our sales and production ramps. Our second high-volume wafer fabrication partner is nearing completion of a qualification run. This wafer fab in Europe will support future revenue growth and add dual sourcing for wafer fabrication. We're very pleased with its progress with no major issues to date and look forward to receiving the wafers from this lot and assessing their performance with the completed wafers and result in B-TRAN dies.
We expect to complete the qualification of this fab as early as the second quarter of 2024. Last year, we qualified an Asian wafer fabrication supplier with high-volume capability. With these two wafer foundry partners on board, we'll have dual sourcing for wafer fabrication in different parts of the world with no exposure to China. Our dual sourcing strategy will allow us to proactively secure not only the necessary production capacity, but also the ability to source components and services from partners in disparate geographies as part of our strategy to mitigate supply chain risk. This dual sourcing will provide us with sufficient supply capacity for the large customers we're engaging. We're confident each of these wafer fabs has ample capacity to meet our expected demand over at least the next two to three years.
Automotive qualification testing will begin later this year. Being automotive qualified helps us across the board in both automotive and industrial applications. It says a lot about the robustness of your design and its ability to handle extremes of the environment for shock, vibration and power cycling. It helps industrial customers get a comfort level for the readiness of a new technology. With our certification test plant now approved as part of Phase 2, the certification testing firm we intend to use has been selected. And once Phase 3 with Stellantis is underway, we'll begin the wafer runs that we plan to use for auto certification. While it may change at some point in the future, one advantage we have for the foreseeable future is that for any application, like hydroelectric vehicles or solid-state circuit breakers or solar and energy storage, the wafers and resulting dies are all exactly the same.
We can ramp up production robustly because we don't have to forecast wafer demand and the die design mix based on the application. Another advantage to our approach is our ability to leverage the huge investment that's already been made in silicon wafer fabrication and packaging for power devices. Our asset-light business model gives us the ability to continue focusing on technology improvement while being able to quickly incorporate customer feedback for our product roadmap. Although the interest in bidirectional power semiconductors continues to grow, we're not aware of any competing inherently bidirectional technologies. Looking at our expanded B-TRAN patent estate, we currently have 82 issued B-TRAN patents with 36 of those issued outside of the United States.
Our current geographic coverage for our patents includes North America, China, Japan, South Korea, India and Europe, with pending coverage in Taiwan, all representing our high-priority patent coverage geographies. As part of our product development and introductions, we're expanding our patent efforts in what we believe to be high-value patents on our driver design and controls and packaging designs as both are unique to the bidirectional nature of our technology. As a result of our continued innovation, our list of pending B-TRAN patents is now at 39. In addition, we treat our double-sided wafer fabrication process as a trade secret. So even studying our patents, somebody wouldn't have the know-how to be able to fabricate the device. There's an enormous amount of learning that's gone into the fabrication process flow to make high-quality, high-performing double-sided devices for commercial sale.
In summary, we're off to a great start already this year, and we're on track to achieve our 2024 milestones. We look forward to several announcements in the coming months as we complete the key objectives we plan to accomplish for the year. When we look out over the next 12 months, we're confident we can continue to drive considerable commercial progress in our target markets. We'll maintain our relentless focus to commercialize our technology and facilitate its adoption in our target markets. We expect B-TRAN to displace conventional power semiconductor solutions in many applications with a solid-state circuit breaker, renewable energy, energy storage, hybrid and electric vehicles and other industrial markets. Now I'd like to hand the call over to our Chief Financial Officer, Tim Burns, to review our fourth quarter financial results.
Tim?
Tim Burns: Thank you, Dan. I will review the fourth quarter and full year 2023 financial results. We recorded $61,000 in commercial revenue for the fourth quarter and $161,000 for the full year. Our grant revenue was $37,000 for the full year 2023. Looking to 2024, we expect commercial revenue from both product sales and development agreements. Although we're continuing to pursue government funding opportunities, we do not have any such programs at this time. Operating expenses were $2.5 million in the fourth quarter of 2023 compared to $2 million in the fourth quarter of 2022, driven primarily by higher research and development expenses. We completed several wafer runs with our qualified high-volume production foundry. We also earned the midst of a qualification run with a second high-volume production foundry.
Operating expenses reflected higher stock-based compensation expense on performance stock units and new higher grants. 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, product development, other research and development activities and hiring. We expect the key general and administrative expenses relatively flat in the first quarter of 2024, excluding the impact of stock-based compensation expense. Sales and marketing spending is expected to continue to increase modestly in the coming quarters due to hiring and costs associated with our commercialization efforts. Net loss in the fourth quarter of 2023 was $2.4 million compared to $1.9 million in the fourth quarter of 2022.
Full year 2023 net loss was $10 million compared to $7.2 million in full year 2022. Fourth quarter 2023 cash burn was $2.3 million at the midpoint of our guidance of $2.2 million to $2.4 million as we continue to manage expenses prudently and aggressively. Cash burn in the full year 2023 was $7.9 million at the midpoint of our guidance of $7.8 million to $8 million and compared to $6.8 million in the full year 2022. We expect first quarter 2024 cash burn of approximately $2.3 million to $2.4 million and full year 2024 cash burn of $8 million to $8.5 million, net of an expected $1 million benefit from proceeds from expiring heavily in the money warrants. Cash and cash equivalents totaled $8.5 million at December 31, 2023. We have no debt and a clean capital structure.
Given our planned cash burn, which remains modest, we have ample liquidity on our balance sheet to fund operations through 2024. We'll potentially several potential sources of funds, including product sales, development agreements, other commercial agreements with upfront payments and government-funded programs where we see opportunities to collaborate with some of our partners. We're also exploring potential strategic relationships with our well-capitalized partners. For example, Stellantis has a venture fund, and we were named a finalist in the 2023 Stellantis Venture Awards. You do not know if there's a potential opportunity for us with Stellantis venture fund, it is something we could choose to explore if we are convinced it wouldn't adversely impact other EV customer opportunities.
As a public company, we also have access to the capital markets if necessary. At December 31, we had 5,996,697 shares outstanding, up slightly from the end of September of, and a 1,040,248 warrants outstanding, unchanged from the end of September. 444,180 of the warrants outstanding are heavily in the money and set to expire in November 2024 if not exercised beforehand. Including 811,478 stock options, restricted stock units and performance stock units outstanding, we had 7,848,423 diluted shares outstanding at December 31. At this time, I'd like to open up the call for questions. Operator?
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