Good day, and welcome to the Ideal Power Fourth Quarter and Full Year 2019 Business Update and Results Conference Call. Today's conference is being recorded. At this time, I would 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 fourth quarter and full year 2019 business update and results conference call. Your host today are Dr. Lon Bell, Chief Executive Officer; Dan Brdar, B-TRAN's Chief Commercial Officer; as well as Tim Burns, the company's Chief Financial Officer.

A press release detailing these results crossed the wire this afternoon at 4:01 p.m. Eastern today and is available on the company's website, 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..

Thank you, Chris. And welcome, everyone, to our fourth quarter and full year 2019 business update and results conference call. 2019 was a transformative year for Ideal Power as we shifted our focus to the development and commercialization of our proprietary B-TRAN power switch technology.

The divestiture of our legacy Power Conversion Systems business has provided us with both singular focus and a reduced cash burn, which, when paired with our recent $3.5 million private placement, fortifies our bank sheet for 2020.

Before Dan Brdar discusses our B-TRAN program activities in some detail, I'd like to provide an overview of Ideal Power and our B-TRAN technology for those of you who are new to our story. B-TRAN is the name of our proprietary patented power switch technology.

B-TRAN has the potential to revolutionize the power switch market, a market that is expected to grow to $7.4 billion by 2022. To provide context, electric power switches are everywhere.

When we think of electric power switching, consider homes, for example, where there are pool pumps, air conditioning systems, stoves, washing machines, dryers and other appliances. For automobiles, same story.

There are existing uses in conventional cars, including air conditioning system, power breaks, seat adjustment systems and any other electrified and equipment function in the modern car, particularly in electric cars, with their electric drive motors, HVAC systems and charging systems.

In industrial applications, it's obvious that enormous amounts of electric power are utilized for virtually every factory operation, including climate control, electric motors, lighting, robots and more. Virtually, all systems in the industry are becoming smarter and more energy-efficient as they become electrified.

To the extent that these require large amounts of electric power, control is by electric power switches. The problem with today's conventional, say, power switches such as insulated gate bipolar transistors, or IGBTs, is that they are inefficient and not bidirectional. Their inefficiency wastes electric power, so they cost more to operate.

Also and significantly, the lower efficiency generates waste heat. At the power levels that IGBTs operate, it is expensive to manage the waste heat thrown off. Expensive, sophisticated and bulky thermal management hardware is required.

And many applications that control and in removal of waste heat generated by IGBTs and other components dictates the size, complexity and a significant fraction of the cost of such control systems. These characteristics hold back adoption of more efficient smart controls in many industrial, vehicle and consumer applications.

Our proprietary and broadly patented B-TRAN technology fulfills the same role as conventionalized IGBT power switches. But most importantly, B-TRAN switches will reduce conduction and switching losses, providing a more efficient and compact solution to present and future control systems.

Perhaps most notably, B-TRAN power switches can be manufactured using existing silicon fabrication facilities and equipment. A little or no special manufacturing equipment is required, and this makes device manufacturing qualification less complex and time-consuming.

With success of our development and commercialization program, B-TRAN is a technology that can be adopted on a scale many may not immediately realize. One case study I'd like to talk about is B-TRAN in data center applications. U.S. data centers currently consume 73 billion kilowatt hours per year with a greater than 13% power loss.

For a large commercial data center, implementing our B-TRAN technology would improve uninterruptible power supply efficiency, a common source of power switch losses, from 90% to 95%.

This alone would save a large commercial data center $2.2 million per year in electricity costs, an incredible benefit indicative of the value that our technology brings. During - turning to the present, our commercialization plan is divided into three phases.

Phase 1, which is now complete, took B-TRAN from a hypothetical concept to a patented power switch architecture, with demonstrated performance that matches closely with performance expectations from theoretical models.

Phase two, which is in process, is to fabricate parts and engage with and deliver samples to potential customers to initiate the process for them to evaluate performance and integrate B-TRAN devices into their products.

Phase three is to establish commercial partnerships in targeted market sectors for initial commercial sales of B-TRAN power switches. In summary, we are in the midst of Phase two of our commercialization plan, which entails the fabrication of parts and the delivery of samples to potential partners for evaluation.

In Phase three later this year, momentum should quickly build as our technology [Technical Difficulty] by our partners and our initial commercial agreements become a reality. Before going further, I'd like to comment on our preparations for mitigating the impact of COVID-19 on our operations and plan.

We are working to institute the following, dual sourcing of wafers and packaging in geographically diverse regions. We have done this with manufacturer in China, but also in the United States.

In the United States, we have not seen the impact of COVID-19 to any great extent yet, but it is projected to occur, while in China, it is much more mature and, hopefully, abating. We have modest stockpiles of custom materials. Fortunately, we do not have much in the way of custom materials that are required.

We have some materials that were sampled from China and arrived before the New Year shutdown. So we have supplies of some parts. We will be ordering more parts, but they will not materially impact what we're doing over the next month or two. Enhanced video conferencing is another capability that we are instituting to avoid travel as much as possible.

Active monitoring of vendor mitigation plans is also something we're very actively doing. We are understanding the process both in China and in California and with our other vendors in other parts of the United States - in Texas, for example, other parts of the United States.

We're monitoring their plans and taking what corrective action or making what suggestions we can or acting proactively for those things that concern us. Fortunately, we're not in production right now. And as a result of that, we do not have logistics and supply problems that are extensive.

We're more self-contained at this phase of our company's development. And of course, we have travel restrictions self-imposed at the moment, but our policies are to do as little travel as possible and only in the case of necessity.

Many of the travel plans we have had been canceled by a combination of ourselves and the other companies and other entities involved. Some of those involve trade shows and other events that have been canceled, and we're evaluating other measures as the disease unfold.

I would like now to hand over the call to Dan Brdar, B-TRAN Chief Commercial Officer, for an overview of our pre-commercialization activities.

Dan?.

Thank you, Lon. In 2019, we made significant progress in the development of our B-TRAN technology and our commercialization road map. Specifically, we completed testing of B-TRAN double-sided dies.

The design basis and test results of initial B-TRAN devices are consistent with the needs of our engineering prototype sampling program, the final step in Phase two of our commercialization plan. In early 2020, we received all expected wafers from the current B-TRAN run with our Chinese semiconductor fabricator.

This fabricator is located in part of China that has not been disrupted by coronavirus, allowing us to continue to receive B-TRAN wafers for domestic packaging and testing, consistent with our development plan.

Prior to the rise of coronavirus impacts in the global supply chain, we took steps to establish both domestic and international suppliers for wafers and semiconductor fabrication as part of our overall risk mitigation strategy. This provides an important layer of redundancy, allowing us to continue to drive forward progress unabated.

Taking the previously mentioned into account as well as the fact that most of our testing and engineering activities are performed domestically, we currently do not anticipate coronavirus to have a material effect on our business in the near term.

Packaged double-sided B-TRAN dies are currently undergoing testing and characterization in our lab to generate switching data and evaluate our preliminary package design and build quality. The testing results to date are consistent with our simulations, testing of unpackaged dies and the requirements of our engineering prototype sampling program.

The results of our testing and characterization will be provided to target potential commercial partners and will guide the development of our next-generation parts. We anticipate releasing fabrication of these next-generation parts to our semiconductor fabrication partners later this month.

Also, we recently completed our first B-TRAN run with our new domestic semiconductor fabricator, and we're pleased with the quality of their work. The domestic source of production is essential for government-funded programs and for eventual supply to the U.S. military.

We anticipate our initial samples will be discrete packaged devices for testing and have identified and engaged with high potential first users. We're targeting an application where B-TRAN can be an enabling technology and have partnered with a third-party to pursue a technology demonstration project beginning in the second or third quarter.

In addition, we currently have other partners waiting to test our technology, and we're eager to get them prototypes for evaluation and feedback.

The partner we're working with for a technology demonstration project can become a more strategic relationship that enables us to leverage their success in government-funded programs and their track record, providing advanced technology and products to the military.

It also provides a shorter path for an advanced B-TRAN-based commercial product to the market due to the enabling characteristics of our technology. We'll provide more information on this opportunity as it progresses.

With respect to our B-TRAN patent portfolio, we now have 51 issued B-TRAN patents, with 15 of those patents issued outside of North America. Our geographic coverage now includes China, Japan and Europe.

Our B-TRAN patent portfolio also includes 34 pending patent filings that will enhance our coverage in the U.S., China, Japan and Europe and the potential to expand our coverage to include Korea and India.

With that, I'd like to hand the call over to Chief Financial Officer, Tim Burns, for a review of our fourth quarter and full year 2019 financial results.

Tim?.

Thank you, Dan. I will run through the fourth quarter and full year 2019 financial results. The company had no revenues from continuing operations in the fourth quarter and full year 2019. Fourth quarter 2019 operating expenses were $0.8 million compared to $1 million in the fourth quarter of 2018.

Full year 2019 operating expenses were $3.1 million compared to $4.3 million in the full year 2018. The decrease in operating expenses was due to lower general and administrative expenses, partly attributable to our cost reduction activities. Fourth quarter 2019 net loss was $0.8 million compared to $1.9 million in the fourth quarter of 2018.

Full year 2019 net loss was $3.9 million compared to $7.9 million in the full year 2018. The decrease in net loss is primarily due to a significantly lower loss from discontinued operations as we shut down and then divested our PPSA business in 2019, allowing us to focus our efforts on B-TRAN development and commercialization.

Fourth quarter 2019 cash used in operating activities was $0.8 million compared to $2.2 million in the fourth quarter of 2018. Full year 2019 cash used in operating activities was $3.2 million compared to $6.5 million in the full year 2018.

Looking at continuing operations only, fourth quarter 2019 cash used in operating activities was $0.7 million compared to $1.6 million in the fourth quarter of 2018, and full year 2019 cash used in operating activities was $2.6 million compared to $3.8 million in the full year 2018.

In November, 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 a private placement of our common stock and pre-funded warrants and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and net proceeds of $3.1 million.

Cash and cash equivalents totaled $3.1 million as of December 31, 2019, with no long-term debt outstanding.

With the divestiture of our Power Conversion Systems division and PPSA technology in September to CE+T Energy Solutions, we are now singularly focused on the further development and commercialization of our B-TRAN technology and well positioned with an asset-light operating model.

Our current burn rate of approximately $0.7 million in cash per quarter is subject to both the timing of and variability in the expenditures, and refinements to the B-TRAN development and commercialization plan. 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.

Lon?.

Thank you, Tim. We have built a solid foundation upon which to execute in 2020 and are positioning ourselves to develop targeted strategic partnerships with targeted partners.

Our technology is transformative in both its bidirectionality and its ability to reduce switching and conduction losses, problems holding back many current and potential applications that would benefit from solid-state electric power control.

As we make further progress on Phase two of our commercialization plan, which entails the fabrication parts and delivery of samples to our targeted potential customers for evaluation, we can be more optimistic about the future of Ideal Power than any time - prior time in our history.

As Tim mentioned earlier, we have the lowest cash burn rate in our history as a public company. Based on the level of engagement with potential customers and partners, I believe 2020 will be the inflection point for B-TRAN, and I look forward to conveying this message as we increase our communications efforts with investors and analysts.

At this time, I would like to turn the meeting over and open it up to call for questions.

Operator?.

Thank you. [Operator Instructions] We will now take our first question from Bruce Palmer [ph]. Please go ahead. Your line is open..

Thank you, gentlemen. A question for you, Dr. Bell, and maybe a follow-up. In December, you did a presentation, and you talked about the potential first strategic partner or the market you're going after was the UPS market. I'm getting the impression from the call today and the press release that maybe that has changed.

Could you talk about that if I'm misinterpreting what I've read and what you said?.

Yes. First of all, circumstances evolve, where certain potential opportunities come to the floor and may, in some cases, preempt some of our original plans. Our plans are with the UPS market, but we are also evaluating other opportunities that have come up between then in December and now.

And so we are working to balance those and to do what we feel makes the most sense given the state of our technology..

Okay. Good.

Then as a follow-up, as I understand, so if you sign a strategic partnership with someone, will Ideal make all of the B-TRANs? Or do you turn over the patents or give access to the patents and UPS or whoever you go with go and manufacture them? And then, I guess, as a follow-up to that, let's say, you sign a strategic partnership and then you move to the automotive, where you have to do all this die packaging and testing again? Or does someone just take the patents and then they run with them and they pay you a licensing fee? How is that going to work?.

There is a train and an evolution as we see this unfolding. So first of all, we will have - we are a fabless shop, first of all, let's state that and keep that as clear as I discuss what our plans are. So others will - fab house that we have contractual relationships will fab the dies.

The dies will be packaged, that both of those steps will be done by outside sources. We have in place today sources that - for certainly our planning purposes and our expectations will be suitable for doing those operations. We will then sell the parts to users. Initially, we will sell parts to strategic partners.

So we will not have them in catalogs in throughout the nation. What we will have is very focused strategic partnerships. As to those partners then, we will look to the optimal way to supply them with parts. It may involve a second source, for example, for redundancy and for protection of their parts supply.

That second source would then be, as you indicated, a licensee that might be in the form of a strict license, in some cases. It might be in the form of a joint venture, in other cases. Our intention is to have continued supply and the ability to sell to customers B-TRAN devices. Now you talked also about the automotive market.

The automotive market is a very specialized place. I've been involved in it for many, many years with related electronic parts and also some electromechanical parts. And in that marketplace, those strategic supply arrangements will be very sophisticated and will be for fairly long term.

Just to make another comment, we don't see those occurring for several years because, initially, we will want revenue and partnerships that are more executable in a much shorter time frame. Nevertheless, that - the automotive is a very large cart for us, and it is something we will pursue.

And we think that the parts will be extremely effective for automotive electric vehicles, in particular, as I've mentioned in the past. So that is something we will pursue, but that will be through, most likely, licensing arrangements because of the size of the vendor base that the automotive companies use.

But we will be addressing that in the future..

All right. Thank you very much. I appreciate you taking my call. Await further news. Have a good day..

Thank you..

And there are no further questions over the phone at this time..

We recognize that today is a day of a lot of turmoil in markets. We heard from Germany about their projections for the number of COVID-19 cases. It is a difficult time, and it is one that we hope to manage through and we hope that all listening can manage through as well. Thank you very much..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect..