Matt Hayden - IR Dan Brdar - CEO Tim Burns - CFO.
Eric Stine - Craig-Hallum Craig Irwin - ROTH Capital Partners.
Good day, and welcome to the Ideal Power Inc. Second Quarter 2015 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Matt Hayden, Chairman of MZ North America. Please go ahead, sir..
Thank you, Amber. Good afternoon, everyone. I’d like to thank you for taking the time to join us today for Ideal Power’s second quarter conference call. Your hosts are Mr. Dan Brdar, Chairman and CEO as well as Mr. Tim Burns, Chief Financial Officer.
Dan will provide a business update, including recent orders, partner announcements and product updates, while Tim will discuss the financial results. A press release detailing the results crossed the wire this afternoon at 4 P.M. Eastern and is also available in the company’s Web site idealpower.com.
Following management’s prepared comments, we will open the floor to questions for those of you who are dialing in and also to those participants joining via webcast, where you can see a question prompt button on your webcast screen.
Before we begin the formal presentation, I’d like to remind everyone that some 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 than those described in the conference call.
Please refer to the company’s SEC filings for a list of all associated risks. In addition, we encourage you to visit the company’s Web site for supporting industry information as we update it frequently. Thank you very much. At this time, I’d like to turn the call over to Dan. Dan the floor is yours..
Thank you, Matt, and thanks, everyone, for joining us today. The past three months have been extremely productive for Ideal Power on a number of front, so we have a lot of information to cover on the call today.
During the prepared remarks I’ll provide an update on the markets we serve, our product evolution, customer base and pipeline in addition to our technology development. Tim Burns, our Chief Financial Officer will then discuss the quarterly and year-to-date financials.
After Tim’s comments I’ll provide additional color on the outlook for the balance of 2015 and how you can measure our progress. In prior calls I summarized our strategy and the disruptive nature of our technology platform for the benefit of our new shareholders.
Given that our commercialization strategy is well underway, I’ll keep this very brief and ask those of you who want to learn more of our technology, products and commercialization strategy to visit our Web site and review prior conference call transcripts. Ideal Power has developed and patented a completely new approach to power conversion.
Our Power Packet Switching Architecture is a technology platform that has broad applicability to many types of power conversion markets. Ideal Power’s PPSA technology offers the ability to perform power conversion with transformer-less isolation.
In practical terms, this means our PPSA technology can provide power conversion with electrical isolation that is typically one-fifth the size and weight of a conventional power converter at higher efficiency, higher reliability and at lower cost than conventional power conversion systems. In addition we're targeting very large markets.
Many which have not seen potentially disrupted technology innovation in a long time. Power Conversion is estimated at more than $50 billion per year projected to grow $70 billion a year by 2020.
Power conversion is used not just in energy storage, solar and other renewable energy markets, but also on automobiles, air-conditioning systems, computers and many applications and devices we rely on every day.
Our initial focus is on battery energy store solutions for commercial and industrial customers both standalone and paired with solar and microgrid applications by creating a best in class brand known for developing differentiated products.
We can then scale into larger more mature market verticals that are typically slower growing and have entrench players with established brands. With high and continually rising demand charges from utilities and rapidly declining battery cost.
Energy storage offer a value proposition that not only rivals solar, but in most cases delivers a better return on investment. More specifically they are not subsidized returns on energy storage in places like New York average five years. While states with incentives like California, it can be as low as three years.
Due to the macro trends of rising demand charges, declining battery cost and the conversions of energy storage in solar we're seeing an increasing number of large well established companies and brands entering the energy storage market.
The ability to offer commercial and industrial customers, turnkey solutions from brand names System Integrators and the availability of customer financing will drive orders and market adoption for energy storage in the years to come.
This was apparent at both the energy storage association conference in May and the InterSolar North America conference in July. Our booth at the InterSolar conference was set up across from Gexpro who features recently launched storage solution that includes Ideal Power Converters, LG Chem batteries and Geli Control Systems.
Their booth generated a high level of traffic and the storage system was clearly a primary driver. Not only has Gexpro launched this product to the market place, but is already scaling into placing volume orders representing a significant portion of the 5 megawatt order we recently announced which have might is our largest order to date.
Their order included our 30 kilowatt two ports and three port grid resilient products as well as 125 kilowatt units. With Gexpro marketing reach, geographic coverage including 2,300 location across 38 countries and commitment to serving integrators and installers across the industry.
We're starting to see them moving into volume orders so quickly after launching their product. Gexpro also in the process of developing some attractive customer financing partners and options and we help to provide more color on the financing efforts in the near future.
As many of you have read, EOS an ideal power battery partner recently announced on aggressive growth targets for 2016 including pre-orders covering 8,000 megawatt hours for their new low cost battery chemistry. As a result of our successful demonstration with EOS and Con Edison.
EOS ordered multiple 125 kilowatt units from Ideal Power for developing later this year which will be utilized to support their near-term projects. Our 125 kilowatt product is a good fit for many of their subscribers-megawatt and megawatt class opportunities and we're pleased to see the success on the commercial front.
Our initial customer engagements were at first movers in the storage market including system integrators such as Sharp, Green Charge Networks, and Coda Energy. Each company has created their own unique storage solution comprised of batteries, system software and controls and our power converters.
The specific size of each installation depends on the user profile of the customer but all the solutions are modular, I mean you can scale projects according to desired level of storage without the need for customization.
To expedite sales, the system integrators frequently bring customer financing and our performance based contracts enabling them to offer end users with a no money down guaranteed savings storage solution.
As you would expect with any expanding market opportunity we're seeing several new, large and well established solar companies entering the storage space. The increase in conversion of solar and storage provides a natural extension of their business models and installed customer base.
This confirms our belief that over the next several years solar and storage being increasingly used together and place to our advantage of providing a multiport grid resilient converter which further extents the benefits of our PPSA technology. Further expanded our market presence we recently signed alliances with several new market channel partners.
The first is a large established solar equipment distributor that is stepping into the role of storage system integrator. This new partners has built a very successful business by supplying the solar industry and local solar installers.
Once they complete their battery partner selection, we'll be announcing the relationship and provide further details about this new partner and where they hit in our market channels strategy. The second lead channel partner is the relationship we announced last week with KACO new energy.
KACO is one of the world leading inverter manufactures with more than 8 gigawatts of installed inverts. With offices in 16 countries they are another global partner with an established customer base.
Under our agreement KACO will be introducing a KACO branded offering based on our existing product designs modified specific of look and feel of their existing inverter product line. Their market entry focus will be on North America and Central America.
The product will initially be built through our existing contract manufacture this gives them the shortest path to market for storage products. They are deploying us to sell the products as a standalone power-converter but also to become a storage system integrator leveraging their capabilities and manufacturing facility in the U.S.
As their volume grow they will have the ability to make the product in there in house production facilities. The next step and our relationship with them will be for them to develop a differentiated KACO products based on our PPSA technology.
As the storage market develops and KACO becomes more knowledgeable about storage applications and customers’ requirements don't have the ability to develop new products that could be off different sizes or features compared to what Ideal Power offers today.
This second step and the relationships would be our first true licensing deal well KACO will leverage our PPSA technology to offer their customers a differentiated product set to meet their needs. We’ll announce this separately once completed.
We are very excited about this new relationship as it represents significant long-term potential for our respective companies as the further confirmation of the increasing conversions of solar and storage.
In addition to have our PPSA technology selected by an established global inverter supplier is a strong market validation of the benefits of our technology relative to what's in the market today. The last new channel alliance we formed was just signed this morning.
Our power conversion system was selected by Sun and Battery for their commercial energy storage system. For those of you who are not familiar Sun and Battery they are Europe's leading smart energy storage provider.
Sun and Battery is entering the North American commercial market and bringing in their expertise and the innovative energy storage solutions. They have already place the initial order for our 30 kilowatt product for incorporation into their first system.
We're excited to having been selected by one the global leaders in energy storage and look forward to building our businesses together. We’ll be providing more information and updates on this new relationships in the coming weeks.
Last quarter you might remember the announcement of our relationship with Canada based One Energy and I discussed their strategy in detail. This was the relationship facilitated by LG Chem and their network of project and system developers and integrators.
During this quarter we move to a formal alliance agreement with One Energy and they are actively developing their first projects. Will provide further updates on their progress as they began closing projects opportunities. We anticipate our relationship with LG Chem will continues to drive new relationships like this going forward.
As all of you may know we previously received the multi-unit order from Boeing as part of the distributed generation product they intend to bring to the market.
While we are not able to say much yet about what Boeing is doing in their strategy, we can say that we ship the unit to them this quarter and they’re undergoing testing in their lab and preparation for installation at their customer demonstration side.
Once they complete their lab testing and began the customer demonstration we hope to be able to provide further updates on their activities but at this point things are progressing well and our teams are working well together.
As I've discussed on the last call we've established relationships with companies that have global reach because as the storage markets develop and we see the opportunity to capture market opportunities and have applications suitable from main geographic markets.
And preparations for these global markets we've introduced products that the commodity of diverse mix with the applications and market requirements encountered around the world. In addition to the grid resilient and micro bit capability we've also made our product softer and configurable for voltage and frequency.
In conventional power converters the hardware for a 50 hertz unit from markets like Asia it is different from the hardware for a 60 hertz unit from markets like the U.S. Due to the flexibility of our PPSA technology the markets specific changes such as voltage and frequency can be accommodated through the software that resides on the internet.
This allows us to make the same products for all markets and aggregate volume across many markets and applications. This high degree of product flexibility gives our global partners the ability to accommodate various applications and geographies using the same part something that can't be done with conventional power converters.
This will help us rapidly drive down the cost curve and reduced the time and cost intensive process for developing, testing, certifying, producing and supporting many different product configurations for each application in market.
This flexibility in addition to our products small size and weight, low noise and high efficiency continues to differentiate our offerings from other power conversion technologies. During the quarter we completed certification of our grid resilient 30 kilowatt products both the two port and three port products.
This new version of the 30 kilowatt product has added capabilities which allow us to be compatible with both 50 hertz and 60 hertz applications and the ability to operate in both grid connected and off grid micro grid applications. In addition, we began producing and shipping our 125 kilowatt product.
The first of these products were uncertified and our being used for testing or an application where product certification is not required. The first of these units went to Coda Energy and [Indiscernible].
We also shipped our first unit to China where power and energy a long time customer was not a subsidiary of Samsung who take the international is very focused on becoming an early leader The second lead channel partner is the relationship we announced last week with KACO new energy.
KACO is one of the world leading inverter manufactures with more than 8 gigawatts of installed inverts. With offices in 16 countries they are another global partner with an established customer base.
Under our agreement KACO will be introducing a KACO branded offering based on our existing product designs modified specific of look and feel of their existing inverter product line. Their market entry focus will be on North America and Central America.
The product will initially be built through our existing contract manufacture this gives them the shortest path to market for storage products. They are deploying us to sell the products as a standalone power-converter but also to become a storage system integrator leveraging their capabilities and manufacturing facility in the U.S.
As their volume grow they will have the ability to make the product in there in house production facilities. The next step and our relationship with them will be for them to develop a differentiated KACO products based on our PPSA technology.
As the storage market develops and KACO becomes more knowledgeable about storage applications and customers’ requirements don't have the ability to develop new products that could be off different sizes or features compared to what Ideal Power offers today.
This second step and the relationships would be our first true licensing deal well KACO will leverage our PPSA technology to offer their customers a differentiated product set to meet their needs. We’ll announce this separately once completed.
We are very excited about this new relationship as it represents significant long-term potential for our respective companies as the further confirmation of the increasing conversions of solar and storage.
In addition to have our PPSA technology selected by an established global inverter supplier is a strong market validation of the benefits of our technology relative to what's in the market today. The last new channel alliance we formed was just signed this morning.
Our power conversion system was selected by Sun and Battery for their commercial energy storage system. For those of you who are not familiar Sun and Battery they are Europe's leading smart energy storage provider.
Sun and Battery is entering the North American commercial market and bringing in their expertise and the innovative energy storage solutions. They have already place the initial order for our 30 kilowatt product for incorporation into their first system.
We're excited to having been selected by one the global leaders in energy storage and look forward to building our businesses together. We’ll be providing more information and updates on this new relationships in the coming weeks.
Last quarter you might remember the announcement of our relationship with Canada based One Energy and I discussed their strategy in detail. This was the relationship facilitated by LG Chem and their network of project and system developers and integrators.
During this quarter we move to a formal alliance agreement with One Energy and they are actively developing their first projects. Will provide further updates on their progress as they began closing projects opportunities. We anticipate our relationship with LG Chem will continues to drive new relationships like this going forward.
As all of you may know we previously received the multi-unit order from Boeing as part of the distributed generation product they intend to bring to the market.
While we are not able to say much yet about what Boeing is doing in their strategy, we can say that we ship the unit to them this quarter and they’re undergoing testing in their lab and preparation for installation at their customer demonstration side.
Once they complete their lab testing and began the customer demonstration we hope to be able to provide further updates on their activities but at this point things are progressing well and our teams are working well together.
As I've discussed on the last call we've established relationships with companies that have global reach because as the storage markets develop and we see the opportunity to capture market opportunities and have applications suitable from main geographic markets.
And preparations for these global markets we've introduced products that the commodity of diverse mix with the applications and market requirements encountered around the world. In addition to the grid resilient and micro bit capability we've also made our product softer and configurable for voltage and frequency.
In conventional power converters the hardware for a 50 hertz unit from markets like Asia it is different from the hardware for a 60 hertz unit from markets like the U.S. Due to the flexibility of our PPSA technology the markets specific changes such as voltage and frequency can be accommodated through the software that resides on the internet.
This allows us to make the same products for all markets and aggregate volume across many markets and applications. This high degree of product flexibility gives our global partners the ability to accommodate various applications and geographies using the same part something that can't be done with conventional power converters.
This will help us rapidly drive down the cost curve and reduced the time and cost intensive process for developing, testing, certifying, producing and supporting many different product configurations for each application in market.
This flexibility in addition to our products small size and weight, low noise and high efficiency continues to differentiate our offerings from other power conversion technologies. During the quarter we completed certification of our grid resilient 30 kilowatt products both the two port and three port products.
This new version of the 30 kilowatt product has added capabilities which allow us to be compatible with both 50 hertz and 60 hertz applications and the ability to operate in both grid connected and off grid micro grid applications. In addition, we began producing and shipping our 125 kilowatt product.
The first of these products were uncertified and our being used for testing or an application where product certification is not required. The first of these units went to Coda Energy and [Indiscernible].
We also shipped our first unit to China where power and energy a long time customer was not a subsidiary of Samsung who take the international is very focused on becoming an early leader in the storage market.
Our 125 kilowatt two-port product is currently undergoing testing in our facilities and preparation for certification testing later this quarter. We already have orders in backlog from multiple 125 kilowatt units for shipment in the fourth quarter.
As many of you know, a key element of our technology roadmap is the development of our bi-directional IGBT for our PPSA technology which is a critical component of our next generation power convertors. Each single bi-directional switch will take to place what is done today with four conventional devices such as IGBTs and diodes.
These bi-directional IGBTs are expected to reduce the number of points of potential failure and result in lower switching losses and higher efficiency and reliability. The result of this improvement will allow us to almost double our power density.
In effect we’ll be able to produce close to 60 kilowatts on the same small size box that today can produce 30 kilowatts thus creating a major value proposition.
The significant reduction in size and cost and corresponding increase in efficiency and reliability opens up several new multibillion-dollar mature markets for our PPSA technology that currently rely on conventional power conversion technologies.
These bi-directional IGBTs are expected to yield substantial competitive advantages that will enable long-term cost and performance leadership for our products. We continue to be pleased with the potential for the bi-directional IGBT development work we are doing as part of our next generation as our PPSA technology.
We’ve been working closely with our semiconductor fabricator to develop the manufacturing processes needed to produce the bi-directional IGBTs in volume and build the prototype devices for testing. The application to our PPSA technology is unique, but the concept of bi-directional IGBTs has been known in the power conversion industry for many years.
Our bi-directional IGBTs offer significant efficiency and power density improvements for our PPSA technology, the potential for patent coverage is likely limited to only the manufacturing processes.
During the course of our bi-directional IGBT R&D efforts we’ve come up with the significant development that provides an alternative to accomplishing bi-directional switching.
The new bi-directional switch concept which we’re telling the bi-directional, bi-polar junction transistor or BTRAN for short, has the potential to meet or exceed the projected performance of the bi-directional IGBT. The projected performance of the BTRAN has now been validated to third-party stimulations. During the second quarter, the U.S.
patent offers ideal power five new patents on our BTRAN bi-directional switching concept with several additional U.S. and international patents pending. The recently issued patents cover the operation, control and manufacturing of BTRAN device.
It is our hope that if the BTRAN performs as expected it could become a potential replacement for the conventional IGBTs we use in our PPSA technology and the bi-directional IGBTs we’re developing and as a result would add a significant power semi-conductor invention to our intellectual property portfolio.
At this point in time our primary technology path for bi-directional switching remains bi-directional IGBT, but the BTRAN device if successful would give us an option with potentially higher performance and where Ideal Power could own the critical intellectual property regarding its operation, control and manufacturer.
In order to further development and potential commercialization of the BTRAN device, with our key patents now in place we’ll be engaging in additional semiconductor fabricator to focus on developing the manufacturing processes and proof-of-concept of the BTRAN device.
We’ll providing more detail on our BTRAN development and proof-of-concept efforts in the coming quarters. In the interim we’ll continue to develop the bi-directional IGBT as our primary approach to increase our efficiency and power density of our next generation PPSA technology.
The addition of the BTRAN patents now brings our total issued patents to 30 with over 100 patents still pending the cover of broad range of technologies, advances, production techniques, control algorithms and applications of our technology.
We’ll keep you apprised of our progress on both the bi-directional IGBT and the BTRAN switch development activities in future calls. Before I provide to look at what’s pending for 2015, I want to turn the floor over to our CFO, Tim Burns to discuss the financial results.
Tim?.
Thank you, Dan. I will run through the second quarter and year-to-date financial results. Total revenue for the second quarter, which consisted entirely of product revenues, was $1.2 million. Total revenue for the first six months of 2015 which also consist entirely of product revenue was $2.4 million.
This compares to product revenue of $444,000 and $553,000 for the second quarter in first six months of 2014, an increase of 170% and 334% respectively.
Our second quarter revenue consisted of sales of our 30 kilowatt battery converter as well as our grid resilient 30 kilowatt two-port and multi-port power conversion systems and initial sales of our 125 kilowatt products.
Although flat on consecutive quarter basis, we are very pleased with our revenue results for first two quarters this year as order flow and its associated revenue from new market such as energy storages typically lumpy rather than linier quarter-over-quarter growth.
Our revenues in the first six months of 2015 grew substantially in comparison to prior year period and were more than twice total product revenue for all of 2014. Total cost of revenue in second quarter was $1.1 million yielding gross margin of positive 12% compared to negative gross margin in the second quarter last year.
Gross margins in second quarter were impacted by new product introductions at initially low volumes including cost related to our new certified grid resilient 30 kilowatt Power Conversion Systems as well as cost related to our 125 kilowatt product.
While we go to the small down take in Q1 to introduction of new products, the positive gross margins generated in the first half of this year show that even at relatively low volumes we have a business model with significant leverage.
Gross margins excluding the impact of new product introductions would have been in line with first quarter gross margins. As communicated on our last call our quarter-to-quarter gross margins will be impacted by our product mix as we built volume across all product lines.
We'll also see some variability in gross margins weighted predominantly to the timing of cost to commercialize and scale new products. We continue to expect to achieve target margins of 30% to 40% as we ramp up volume.
As our view in income statement and comparable 2014 period you'll see varying [ph] items for grand revenues and expenses since the $2.5 million department of energy ARPA-E grant was fully funded at the end of 2014. There are no such revenues or expenses during 2015.
Operating expenses for the second quarter were $2.4 million, yielding a net loss of $2.3 million. Operating expenses included $512,000 of non-cash items in the second quarter. Research and development expenses increased in the second quarter to 1.1.
million from $645,000 in the second quarter of last year -- largely as results for investments in bi-directional power switch development which have now completely self-funded as well as new product development activities relate to our 125 kilowatt products.
Research and development expenses increased in the first six months of 2015 to $2.1 million from $1 million in the first six month of 2014, as we self-funded our investments in bi-directional power switch development and incurred incremental cost with the development of our new grid resilient 30 kilowatt and 125 kilowatt products.
As we look forward to the balance of the year we expect R&D spending to increase as we invest in our new bi-directional switching concept the BTRAN, while maintaining in our investment in our bi-directional IGBT development efforts.
We expect our R&D spending related to the development of bi-directional switches to result in approximately $500,000 per quarter with the incremental into the back half of 2015. SG&A decreased slight in comparison of the first quarter of 2015 and increased by approximately $360,000 compared to the second quarter of last year.
The year-over-year increase was largely the result of non-cash items including higher stock compensations expenses and higher patent expense. We ended June 30 with order backlog of $2.2 million compared to order backlog of $1.9 million on March 31.
Backlog includes our recently announced 5 megawatts in orders and is a blend between our 30 kilowatt battery converter, grid resilient 30 kilowatt power conversion systems and a 125 kilowatt two-port product showing a good mix across all over our products.
Depending on products, products mix in volume discounts, one megawatt of orders typically translate to $250,000 to $300,000 of backlog. We expect our 125 kilowatt product to represent a larger portion of backlog going forward translating into an increasing revenue contribution in the fourth quarter and into 2016.
As a general rule, backlog will generate the converted into revenue within six months. And as another rule of thumb, when we release an order to our manufacturer, units will be produced and available for shipment within 90 days for larger orders and potentially shorter timeframes for smaller orders, as we maintain a minimum level of stock on hand.
Further our payment terms to customers and as our collection of receivables is closely aligned with our payment terms to our contract manufacturer. This means that most orders will be self-financing. This allows us to minimize working capital requirements as we grow the business.
We currently have ample capacity at our contract manufacture to meet backlog and forecasted product shipments for the balance of 2015 as well as to accommodate additional future growth in the business.
On June 30, our balance sheet had nearly $20 million in cash and cash equivalents and no debt, $15.9 million in net proceed were generated by the following offering we completed in May.
The proceeds from the following offerings significantly strengthened our balance sheet, an important positive step as we engage with large perspective channel partners. In addition, we have a federal NOL of approximately $15 million, which will help initially shield us from income taxes as we become profitable.
At June 30, we had 9.3 million shares of common stock outstanding and just over 12.2 million shares outstanding on a fully diluted basis, which includes approximately 1.5 million warrants and 1.4 million options outstanding. I will now turn it back over to Dan.
Dan?.
Thanks Tim. We're looking forward to put the balances of ’15 has in stored, our existing and new customers and partners are successfully introducing their energy store solutions building their pipeline of business and we’re focused on supporting their success by delivering innovative flexible power conversion products.
We meaningfully expanded our channel partners including several with a global reach by Gexpro, LG Chem, KACO, and now Son and Battery. While each partner will move at their own pace, we're laying the foundation and channels to market for long-term growth.
As our business ramps further we're looking for further improvement in gross margins with a target in the mid-30s. Accompanying this will of course be a growth in our top line with an increasing amount of our revenue coming from a new 125 kilowatt product family as Tim mentioned.
In order to protect our technology and build on the strength of our intellectual property we continue to aggressively pursue patterns around our core technology and its application.
As I mentioned previously was 30 times granted and more than 100 pattern applications pending at the pattern office, we’ll see our domestic and international pattern portfolio of growth significantly to broaden our global pattern coverage for the PPSA technology and its use.
The next generation of our PPSA technology continues to make good progress and were pleased with the developments on the bi-directional switch development and now have two horses so to speak in the race.
We're excited about the potential of the bi-directional IGPT and the BTRAN has to offer for both long-term cost and performance of our PPSA technology and the markets that we can pursue and the broader power conversions space because of them.
In future calls we’ll update you on our development efforts on the BTRAN and the by directional IGPT as our semiconductors fabricators complete their manufacturing and process development and fabrication of pro-type devices for testing.
The updated will cover that performance of our -- and our commercialization plans as part of maintaining our long-term competitive advantages and efficiency performance cost and reliability and to keep our products at the leading edge in the market. We believe we have a great lead on the patterns state to cover these important developments.
We also look forward to completing the certification testing of our 125 kilowatt product later this year. Our sales pipeline and feedback from our channel partners indicate this should be a product that contributes significantly to our growth in 2016.
So we view the commercial availability of the certified 125 kilowatt products, a key milestone throughout this year. An area we've mentioned previously, if the demonstrations of our PPSA technology and a power conversion application outside of renewable energy. But the first non-renewable energy demonstration project is progressing well.
The third party site for the demonstration has been secured and the host is currently making the site modifications to be ready to accept our equivalent. The prototype products has already been build and its undergoing testing in our engineering lab prior to being shifted and installed at the demonstration site later this quarter.
In our next call we expect to be able to provide more information about the application and the results of the initial testing at the demonstrations site. Also later this year we expect to see the first KACO branded product about to market.
While KACO works to identify their battery partner and develop their first system offering we’re working in parallel to develop the first PPSA based product that will carry the KACO brand. There will be further announcements coming as they develop and announce their product plans and system offerings.
You’ll be able to readily measure our progress here by the following, these key metrics.
Growing order backlog, new product launches, new customers and channel partners including those with international market reach, diversifying our product applications for new verticals, the significant expansion of our IP portfolio and introducing the next generation of technology that will enable us to maintain the leadership.
Before I end my prepared remarks. I'd like to expand upon the recent follow on offerings. First I'd like to thank several existing investors who increased their position, in addition to all the new shareholders who initiated positions.
We now have a balance sheet which will position us through the strong technology partner with the increasing number of large companies entering the storage market.
Being able to partner was large well-inspected industry players with the established brands and large customer basis provides us with credibility by association and market access beyond what we could accomplish on our own. We had a lot of investors based at our Austin headquarters and we welcome you during your next trip to Texas.
In addition, I'll be on the roads visiting investors on both coasts during the next few months. If you would like to arrange a meeting please contact the MC Group. During September we will also be participating in the Craig-Hallum Select Conference in New York City and exhibiting at Solar Power International Conference in Anaheim, Californian.
This time I'd like to open up the call to questions. So operator if you can please look at the queue and begin to receive questions from our investor audience..
Thank you. [Operator Instructions] And we will go first to Eric Stine of Craig-Hallum..
So just first on KACO it seems pretty telling that they are choosing to go with you rather than do this on their own.
Just wondering -- so sounds like they've not ordered yet, but any maybe details on what their pipeline looks like or any visibility in the wind, this potentially is a revenue driver?.
They have to go through a product certifications, so they are going be buying initial products from us, putting it in their own enclosure.
So we’ll receive the first orders probably I’d say it's probably going to be fourth quarter event, just because the time it takes to get through that process and they've got quite a bit of activity in terms of projects that they’re already getting inbounds from and things that they already had in the queue that they were trying to figure out how to participate in, or some of the PJM storage kind of projects that are going in the east coast so it looks like there is a potential would be a pretty significant activity for us in 2016 with the order flow staring little bit later this year..
Okay.
I guess all I'll stay tuned on that maybe turning to what you disclosed I guess for the first time on the call Solar Battery maybe limited what you can say since you've just signed it, but any details on what they are commercial plans are, I guess that would be first but then also are they a potential -- is residential a potential opportunity, I know it's smaller than your 30 kilowatt product but I believe they just -- they just drop their supplier, their power conversion supplier for that market.
So any details there would be helpful?.
Solar Battery’s initial focus is going to be starting with the 30 kilowatt, they’ve spend quality bit of time studying what the market is, particularly the commercial and industrial space. Their initial look at North America was trying to do residential which is where they have been very successful in Europe particularly in Germany.
But if they really look at the economics here they decided that commercial industrials are much better opportunity. We think that the residential market will come, it's really a question of the battery cost getting significantly lower than where they are today. As we get further down that path and see the battery cost continue to decline.
There is nothing that would prevent us from bringing out a residential product if we thought that the market conditions warranted it and we’d be happy to do it with some batteries, since we know they are looking for battery solution.
But right now all the focus for them and what they’re going to do North America is really starting that commercial industrial market and we think we can build on that relationship from there..
And is this something where given their presence they’ve got a pretty substantial pipeline as well or is it more they got that in Europe and they need to build it here?.
Now from what we understand with their plans they have already been building a pipeline of projects, we have been working with them on integrating the system and getting the agreement in place.
In fact they actually -- some people who went through the Inter Solar North America conference actually saw the Sonar Battery boost and when they asked people to open up the system they had on display they saw our power converter sitting in there.
So I think some people kind of knew it was coming, but they’ve been actually working on this offering and the project pipeline for quite a while..
Maybe just on the bi-directional switch lot of progress on the development side, can you just talk about, I know that you're going to target you said applications outside the energy storage and micro grid, kind of what successor are you having or does the market fully appreciate what product will be or is that more of a process given those are mature markets?.
Because it is a more mature market that we’ll be taking some of these developments to, it’s a process and one of the first things that we need to do is first demonstrate the PPSA technology outside of just renewable energy.
Anything that we do on the bi-directional switching whether it is the BTRAN or the bi-directional IGBT is going to enhance our core power conversion technology in any market we go after because they will just drive efficiency, it’ll drive power density and it’ll drive cost.
So the first logical step here is to show that our core PPSA technology really is a power conversion technology in platform that has brought applicability, it's not just limited to solar and storage and that’s what we have going on now.
And then as we develop the bi-directional switches, we’ll flow that to all of our products and all the applications just because it enhances the performance..
And then I guess one last one just clarification for Tim, so on the positive gross margin, I mean is it safe to say that where you're at right now and how it looks going forward that you expect to be positive from on out?.
Yes that is correct. So there will be quarter-to-quarter variability and in gross margin as we launch products but we’re at volume levels now where we would expect to have positive gross margins going forward..
And we will go next to Craig Irwin with ROTH Capital Partners..
Dan your prepared remarks were very thorough, but when we step back and we look at the progress is very clear that you're executing, you're delivering multiple customers, multiple partnerships, when we [indiscernible], they had good things to say, as did everybody else you're already doing business with.
So when we look beyond the battery storage market, when we look at things like motor drives and some of the other continues control applications of the bi-directional IGBT technology some of the previous in market are already multibillion dollar market today rather than markets that need to grow to materialize as an opportunity for you.
Can you share with us how you're prioritizing development for some of these more mature three different markets, what we should look for in the next six months as you selectively chose your partners there and maybe work on prototypes or preliminary products for them to evaluate? And how should we think about this as a priority relative to what you’ve been doing to-date in the energy storage markets?.
One of the things that’s really unique and an advance of our technology is whatever development we do on the core applications really has broad leverage.
So for example the demonstration that we’re doing outside of renewable energy that we’re about to get started here, where really as not sort of clean sheet of paper product, it's taking our existing product and making some modifications really leveraging a lot of the development that’s been done.
The way we’re approaching this is we’re looking for those power conversion markets where we can to a large really leverage the products we’ve already developed, add features, capability maybe change what the port configurations look like, improve the firmware that’s on them, the software control codes to leverage the capability of the hardware and look for those markets that really haven't had lot of innovation.
So the approach would be to do a demonstrations so we can generate real data on how the product operates and the technology operates in some of these traditional power conversion applications and as with the -- having that data in hand, we really start to seek after partners, that we can go work with.
And in the case of these more mature markets those relationships are much more likely to be a licensing relationship rather than us trying to bring a new product into a market that’s going to have lot of entrenched players.
So if, for example if we were thinking about motor drives, rather than try and enter a market that’s dominated by folks like Rockwell Automation and Siemens and others with data demonstrating how our technology can work as a motor drive, it’s the ability to go get their interest to potentially license this technology for their own products because these are all markets that haven't seen the lot of innovation for a long time, where there would be a real interest if we can share all the capabilities of technology.
That’s answer to your question?.
Yes it does, yes it does.
Can you maybe share with us how many partners you’re already working with on potential broader market applications?.
We are not doing much with them yet because we believe they really have that conversation in a way that’s credible, we got to have actual operating data to show them and the demonstration that we're actually going to do is going to be our product compared against a mature offering from another company.
So that’s why we should be able to have comparative data to show the capability of the GPS based technology..
Great, thank you for that. So my second question was related to ability to bring on line, capacity to ramp deliveries. Now I know that your focus first and foremost on getting things right with the customers and delivering the quality that's necessary to be a long-term participant in this market.
How do you see your current ability to bring on line additional capacity maybe sooner than you've been thinking previously? Is it something maybe that you're considering what sort of capital might it take and any other consideration you could share with us will be very helpful?.
Sure. Our current contract manufacture has the ability to actually ramp their capacity pretty easily. We can go to about 500 units of our 30 kilowatt product a months with existing contract manufacture. We actually have been engaged and -- actually being pursued by a couple of very large contract manufactures that see the opportunity coming in storage.
They'll be getting a lot of feedback themselves about us and our product and uniqueness of it and want to work with us.
So we’re going to continue to develop those relationship and have additional contract manufactures ready to actually step in as we see the need, but for now the ability to actually ramp production with existing contract manufacture, it’s all there. To go to a new contract manufacture doesn’t take much in wave capital for us.
We don’t have a lot of investment that needs be made because while the technology itself is very novel, the way that the product is built and the parts that are used to build it, used just very conventional kind of parts and processes that the major contract manufactures are already familiar with.
So it don’t thing we to have invest in are just in test cages for just final check out of the product before ships which will be pretty minimal..
Great and then last question if I may. My conversations with people at their InterSolar -- really a lot of people were interested in what you could do to accelerate the growth of the company.
Many people were asking whether you’d make a difference if you doubled your headcount, if this would possibly accelerate the penetrations of your product into the different markets that you are looking at -- [indiscernible] to be maybe serve some of the other market that you weighted on or there is other potential expenditure that might accelerate the attraction of your products in new markets.
So just something you're considering and if you can frame this out for us that would be helpful..
Yeah right. Probably the biggest thing we see pace in growth of the market right now is just a fact that storage itself is new. So the people they’re anxious. They are actually closing end customers. They've got an education process they’re going to read in pieces.
The rate of order 12, we can accelerate the rate that brings new product to market if we were to go increase the size of our engineering team but as we have looked through where is that makes to incremental spend where we’ve landed is, we think about what adds the most value that company.
We really land on this meet to actually develop our alternative approach for the bi-directional switching the BTRAN.
We think that is the best return on investment in terms of what will ultimately move the value of the company, make us an extremely attractive partner for others that are going coming into this space both near-term and long term, so when TIM was talking about bring on an additional semiconductor fabricator, or some additional based on some strategic discussions that we had in the management team what the board have decided that’s what really makes the most sense for us in terms of where we would be spending from that money..
Great. Congratulations on the progress and thanks for taking my question..
And we'll go next to Richard Kain, Private Investor..
Couple of less sophisticated questions, how many employees do you guys have right now?.
25..
And I these are naïve questions, but I just don’t understand now that your that are getting into the licensing aspect of this business, which is really the ultimate way you want to succeed.
How there is exclusivity work, is there any exclusivity as you saw in licensing agreements and well just comment on that if you can?.
Yes.
I personally will do whatever takes to avoid exclusivity because what we've what's seen happen particularly with small companies when you do a license deal with a large player exclusivity can basically become a way of block your technology coming to market, so if anyway we were to get exclusivity, it would mean that there were some pretty high hurdles that they would have to meet to maintain that.
So my purpose would be just to do whatever we can do to avoid it, it's just not good thing for smaller companies..
Agreed.
Another question with regard to when you do licensing how do you protect your patents, how do you protect your secret devices or whatever, is there any anyone you can really control that kind of thing?.
Well part of it is picking your partners very carefully in terms of who you work with, what do those agreement say what's the venue in which there agreements actually aren’t held if you have to go the core we also take things to protect some of the technology itself for example before we shipped our first unit to China we took a steps to actually encrypt our control algorithms.
So that nobody can go through and look at the codes and see how the device operate.
So I think it’s a matter of keeping something that are about your technology that are really trade secrets that your team knows but not everybody else that you are working with those and encrypting some things where you can encrypt them and being very careful about your partners and how good of a license agreement you actually put in place..
And one of the kind of relating question how did you monitor how much they utilized if you are going to get royalty, how do you monitor what they are using at your products and how do how much they owe you?.
Yes.
Typically on license agreement you yet have auto rights, you have to take some steps that are proactive and you are identifying them upfront so that you have the ability to either verify yourself or verifying through an independent firm that you are actually getting paid everything you showed, but it's pretty common in licensing dash, they put those mechanisms in..
I assumed they would, but I’m just kind of naïve about that kind of stuff. Thank you very much and once again congratulations. Just amazing how far you guys have come in such a short period of time..
Thank you, Richard. Appreciated..
[Operator Instructions] We will go next to Michael Sheen with [Indiscernible]..
Yes. Thank you. Good afternoon.
A couple of questions could you take me through the number you use the traditionally is 8,000 megawatt hours and that's a first question translates that to megawatt I think I can deal with megawatt, megawatt hours and energy storage is something I'm not quite sure I can fully understand and the second question is my memory is that the 125 you expect 125 kw units to be certified by August and in the call I wasn’t clear if that was it were that is in the and the certification pipeline.
Could you give me some background on that? And again thanks for all those hard work and what you guys are doing that's wonderful I think its great stuff. Thank you..
Well. Thank you very much. The 8,000 megawatt hours that was first to the announcement that [indiscernible] one of our battery partners made, the way they have design their system the typical system has four hours of storage so 8,000 megawatt hours will be equivalent to 2,000 megawatts, pre-orders as they call them.
There is pre-significant potential if you think about our 125 kilowatt unit take 2,000 divided by a 125, -- I'm sorry 2 million.
As it related to the search application for the 125, actually our target is September we’re on target were doing our own testing in our lab here to get ready for sending it to the certifying agency because we have order that are tide to actually hitting that milestone it’s the top priority of our engineering team, so we’ll keep you apprised, but right now we’re on track and team’s making sure that everything performs the way it needs to so that the first recipient of the certified 125 kilowatt product are incentivized to come back and order more.
.
And I would like to turn it back to Tim and Dan for any webcast questions that we might have..
Yes. We do have three questions and investors have sent them prior to call. The first as an EOS [ph] Partner what percentage in EOS is 8,000 megawatt hours of qualified preorders the Aurora 1,000/4,000 containerized DC battery system available in 2016 will translate into orders for Ideal Powers PCS.
And how many third year 125 kilowatt PCS units would this equate to..
Yes.
This goes a little bit back to the earlier question, but first I want to make sure that everybody is just aware of it and that is that EOS critically called this pre-orders they’ve expressed an interest, what gets converted to actual customer orders and when will probably be some very different numbers, some of the battery folks and there is others out there that we can think off, really want to make sure that everybody stands the magnitude of the opportunity.
That being said if we were to look at the 125 kilowatt product which really seems to be the primary point of interest from EOS and the project that they are pursuing.
As we discussed if you take the 8,000 megawatt hours, assume it’s a four hour storage solution, which is what it typically provides, that means its 2,000 megawatts of opportunity which would be 16,000, 125 kilowatt units if we were to get them all and if they will happen on time.
So it's a very large opportunity even if only a small percentage of it materializes. So that’s part of why you see us working very closely with EOS because we think they got a great low cost battery solution that has the potential to capture some pretty significant market-share..
The second question also relate to EOS, since EOS seems to be targeting utility market, I was wondering if there is limits to use of Ideal Power’s PCS to only those EOS projects that are deemed commercial or industrial?.
At this point it's too soon to tell about the specific project configurations for what EOS is pursuing. For opportunities where there may be several megawatts at a time that are being installed we probably don’t have a large enough product for it.
But what we do see not just with the EOS but with several folks that are pursuing large industrial and small utility scale insulations is there is a desire to use four of our 125 kilowatt units as sort of half megawatt building block.
There is a real interest in having redundancy on the power conversion side, typically because the window of opportunity to earn your revenue and storage related projects is very small. So you can’t have one power conversion system and have an outage of some kind because you literally miss the revenue for the entire month.
So the opportunity for redundancy is driving a little different configuration than if this were for example a one solar project.
And then as the market segment develops and if we see the need for a larger product using our technology we always bring one out, ones it's clear what the project size of it tend to look like over the longer-term, but for now we think we’ve got a good fit for lot of the projects that you're doing and we’re working closely with them to make sure that we’re participating in the business that they capture..
And the third question is there are working prototype up and running employing the new bi-directional IGBT?.
Not yet, since what we ultimately want to test is a device that’s made from a manufacturing process at the semiconductor fabricator that’s representative of how we’ll make these devices at scale because the manufacturing process itself has a huge impact on the performance of the device.
So we’re working closely with the semiconductor fabricators to help identify the process steps, work out what impacts the potential performance of the device.
Making good progress there, so as we continue to work closely with them, we’ll also may have some prototypes that we’ll be able to report on the data and let everybody know how well that performance correlates with the simulations that have been done by third-parties.
Operator do we have any other questions that have come in from any of our listeners?.
There are no further questions in the phone queue at this time. I like to turn the conference back over to you management for any additional or closing remarks..
Well I just want to thank everybody for joining us on the call. We really appreciate everybody support and we looking forward to speaking with you again soon to keep you updated on our progress. Thank you..
That concludes today’s call. Thank you everyone for your participation..