Good day. And welcome to the Ideal Power Fourth Quarter 2020 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Carolyn Capaccio from LHA. Please go ahead..

Thank you, Kevin, and good afternoon, everyone. Thank you for joining Ideal Power’s fourth quarter 2020 conference call. With me on the line are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer.

Ideal Power’s fourth quarter and full-year 2020 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 industry information. Now, I will turn the call over to Ideal Power’s President and CEO, Dan Brdar.

Dan?.

to achieve our objectives under the NAVSEA program with a targeted delivery on optimized device in late 2021 from corporation into the demonstration of the 12 kilovolt MVDC breaker in mid-2022; I think as we discussed in our B-TRAN strategy, staging B-TRAN technology for commercialization in 2022.

With respect to NAVSEA, as we progress towards delivery, we continue to view our collaboration with DTI as a significant potential catalytic opportunity.

B-TRAN’s performance characteristics over conventional power switches, including higher efficiency and lower cooling requirements, and our smaller OEM product designs enable the solid state circuit breaker application.

Its potential is high as a game changer for distributed DC networks across a wide variety of military, industrial and utility applications, including, needing for higher voltage DC transmission and distribution systems, microgrids, and electrical generation related to renewable solar and wind energy and energy storage.

With respect B-TRAN commercialization, the engineering sampling program is now underway as we’ve begun to engage with prospective program participants, targeting putting multiple sample agreements in place in order to gather feedback from customers that can use and prepare an intelligent power module for initial commercial sales in 2022.

Our commercialization efforts will focus on establishing strategic, development and commercial partnerships. And build a commercial momentum in laying the foundation for our future B-TRAN revenue streams. The IGBT market is already a $6 billion market estimated to grow to $9.4 billion by 2025.

The key high growth segments within the IGBT market that we plan to target for initial commercial sales include electric vehicles and electric vehicle charging, solar and wind energy and energy storage, and data center on interruptible power supplies.

Since the transition from sampling to commercial sales will vary by market segments and individual customers, we expect to continue to add potential customers and applications to the engineering sampling program over time, while simultaneously commercializing B-TRAN for markets and applications already in the sampling program.

The timeline for these spaces will also vary as perspective customers, even though as with similar applications, have different technology evaluation cycles and design periods for incorporating new technologies into their products.

Overall, we recently achieved our second milestone with NAVSEA, completed a dedicated B-TRAN driver, created a manufacturing-ready packaging design. We expect to start announcing sampling agreements in the coming months that we expect to lead to initial commercial agreements targeting first commercial revenue in 2022.

Our strong balance sheet will support our efforts and positions us to be an attractive partner to the corporations of size we're targeting for our customer sampling program.

In all, testing results of B-TRAN wafers and die underscore belief in Ideal Power’s B-TRAN technology that’s potentially transformational with its unique bidirectional switching capability, lower switching and conduction losses, lower user costs and improved and multi-factoral management.

With these advantages, B-TRAN has the ability to solve the immediate needs of power electronic applications in both high growth, high demand markets while enabling new market segments.

We continue to progress well on our plans and are now entering a key step in our commercialization strategy, engaging prospective customers in our engineering prototype sampling program. As we enter 2021, we're very excited about our future.

And as we have a differentiated patented technology that can address a large and rapidly growing market, with a strong balance sheet to make our vision a reality. Now, I'd like to hand the call over to our Chief Financial Officer, Tim Burns, for a review our fourth quarter and full year 2020 financial results.

Tim?.

One, modestly build out our commercial team, which started with bringing Jeff Knapp on Board as our Vice President of Business Development. We plan on hiring additional talent to focus on the front end customer facing part of the business, including additional resources to support our customer sampling program, and B-TRAN commercialization.

Two, to build on our technical team, expanding our capabilities and bringing on a few additional internal resources to provide expertise where we previously relied on third parties. Three, now that we’re engaging with large companies in our customer sampling program, qualifying additional domestic semiconductor fabrication partner.

And four, for general corporate and working capital purposes. As a result of these activities designed to enable the commercialization of our B-TRAN technology in 2022, we expect an overall moderately upward trend in our quarterly cash burn in 2021.

For the first quarter of 2021, we expect cash used in operating activity from approximately $850,000 to $875,000 compared to approximately $750,000 per quarter cash burn in 2020.

For the full year 2021, we currently expect cash used in operating activities of approximately $4 million, although our cash burn maybe modestly higher depending on the pace of the commercialization activities that I just mentioned.

As a result of the underwritten public offering and warrant exercises, and as of February 28, 2021, we have 5.9 million shares of common stock outstanding. We also have a $1 million in the money warrants outstanding, as well as 0.4 million stock options outstanding for fully diluted shares outstanding of 7.3 million shares.

At February 28, 2021, our unaudited cash balance was $27.2 million. With our strengthened balance sheet we have ample liquidity, particularly given our March cash burn to fund multiple years of operations and we are now a well-capitalized partner for the larger companies that we expect to participate in our customer sampling program.

At this time, I’d like to open up the call for questions.

Operator?.

Thank you. [Operator Instructions] Our first question today comes from Ruben Roy with The Benchmark Company. .

Thank you. Thanks for taking my questions and Congrats, again, for the continued progress through your end and so far in '21. Dan, I wanted to drill in a bit on the upcoming sampling programs. It's great to hear about the driver progress over at UT.

And you did talk about some additional runs that are going to be happening at Teledyne over the next few quarters, several quarters, as you're working with NAVSEA.

What needs to happen to get sort of the sampling out to your other customers going, do you need to get several more runs going, do you need a data sheet that you have the driver? Maybe you could just help us understand kind of the timing and puts and takes of getting your actual samples to the customers?.

Sure. There’s a whole party of things that are happening. For those that are kind of already in the queue in the road, engaged with, we already shared information with them in terms of device performance and some features about the driver but there'll be more information coming off the driver.

For those that are likely to be candidates, we're going to be putting together a bigger product information sheet that was to put on the website that will give people a lot of information about the device, its operation, visual things, the technical team we're looking at in terms of operating parameters, but also information about the physical package in terms of its size, its dimensions and also information about the driver itself.

As it relates to actually getting the physical samples in people's hands, we are already having multiple copies of the driver that has now been designed and tested, already made sense. That's done by a third-party PCB firm. So those are actually into and we will make more of those as we go along.

And then for the devices themselves, it will either be, we’ll take some from NAVSEA with their cooperation, or we'll do an additional run that they get in just for the customer sampling program.

We'll have some flexibility and it's really going to be up to the discussion we have to have with NAVSEA in terms of how many they will let us use for the sampling program, because it's not going to be a big portion of a run versus what needs to be used to satisfy the NAVSEA program..

So you also mentioned sort of the new packaging design, which has improved on your lab-based packaging designs that you're already using. And it sounds the encapsulation of that B-TRAN commercial package at some point is going to be similar to an IGBT.

Maybe you could just walk me through how to think about that from a footprint perspective, how does it work with the driver in some of these end markets, is the PCB going to be encapsulated in the package itself? And it's going to be a consistent package across some of these end market applications that you're targeting?.

For the package itself, for those that are familiar with wide IGBTs, the package discrete devices, it will look just like an IGBT with a fourth lead instead three leads. So if you're familiar with what a TO-247 looks like for IGBT, it's very much like that, the same dimensions, the only difference is just a fourth connection.

For the sampling program, the driver and the packaged B-TRAN will be physically separate. And the B-TRAN package is basically soldered to the driver. So you can -- if you want to test multiple devices, you can solder/desolder the packaged B-TRAN, and it’ll give you one driver you can use for all of those.

Our expectation is that based on what we're seeing for performance of devices and also the early feedback that we're getting from people that we're engaging with on a sampling program is, the B-TRAN itself is going to likely be identical for all the applications, because we don't have to do the typical trade-offs, the IGV manufacturers do whether trading off conduction loss versus current tails, and so the nature of B-TRAN eliminates a lot of those IGBT specific operating issues.

So at least for the foreseeable future, the B-TRAN value will be the same regardless of the application. The packaging will likely be the same. For most applications, we may ultimately go to some bigger packages that have multiple die in a package just work in compliant with IGBTs.

And changes that are application-specific are more likely going to end up being reflected in the driver versus the actual wafers that we have to fabricate…..

I guess the last question for you. And then I just had a quick one for Kim. Just on sort of the timing of how to think about '22 and as we get the later stages commercialization and revenues. You guys have been talking about potentially working with DTI on additional circuit breaker products as you flow through this.

Now see the objectives et cetera and potentially have circuit breakers for sale to other customers industrial and otherwise. What's your thinking there in terms of timing of revenue, you think we'll be seeing kind of circuit breaker packaged products out in market.

And then beyond that we'll start to see some sales of actual B-TRAN devices into other markets, or do you think it's going to just depend and maybe we'll see a little bit of both as we kind of go through '22?.

I think we'll actually see B-TRAN device sales probably before we see circuit breaker sales. And it really comes from two reasons. One is, while B-TRAN wants to bring out a variety of products. In fact, you're obligated to come out with a variety of products for the Navy and for the military more broadly.

That is a longest sales cycle in terms of just having military does things. There's an interest and ability to sell them to industrial and utility markets. But that's not DTI's strong seat. So, we fortunately are not constrained in our relationship with DTI for the program.

So, I think once the demonstration itself is successful, we'll actually engage with other companies that are more targeted at the utility and industrial segment. And actually, this will give them an opportunity to have something that would be a unique and differentiated product compared to what they already have.

So, I expect to ultimately end up with multiple players who are bringing a B-TRAN they sell to be greater to market.

But from what we're seeing, I think there's going to be earlier opportunities for things particularly related to electric vehicles, electric vehicle charging, and renewable for actually selling B-TRANs, particularly those have yet to be integrated power module. .

Okay, excellent. Great. And just a quick follow-up for Tim.

Tim, you mentioned a couple of the areas that you're targeting for use of funds, all understandable, given you're kind of where we are with progress on the technology? One thing you did note, which I found interesting was the qualification potentially for an additional domestic wafer fabrication partner? What's kind of driving that at this point? Is it just kind of making sure you have multiple sources as you get closer to commercialization? Or is there something going on at Teledyne or otherwise, that's driving, kind of how you're thinking about an additional partner there?.

Yes, Ruben, let me take first half and then Dan can add his thoughts. There's a couple of things that’s driving it. We're engaged with some customers who will potentially be adopting our technology, whose volume demand is going to be very big, if we're successful with them.

We know from the things that Jeff has done them in the past and things that I've done, some of them in the past, they will require a second source, it's not an option, it wouldn't matter if we were making things that excel, they'll require a second source for risk mitigation, because the impact to them from a loss of supplies is trivial.

We view it also is an opportunity just as our own risk mitigation that we will let Teledyne like the team, the facilities, they have great expertise. But we want to make sure that for example, the fab that we work with Teledyne in California if there was an earthquake, right, we don't lose the ability to run wafers.

So, we think it's part of our risk mitigation. It makes sense to do it too. So, we're basically just getting ahead of what we know the customer push is going to be to make sure there's a second source..

Our next question comes from Don Slowinski of Winslow Asset Group..

Dan, as you collaborate with these new high profile targets as you put it, and I might be a little crossover with what you discussed with Ruben, but what end markets seem closes at hand although than Navy and could you provide maybe real world examples where B-TRAN is displacing existing IGBTs.

And also just additionally, are there greenfield opportunities we haven't discussed?.

Yes. When you think about sort of the things that are greenfield, the DC circuit breaker is one those where there isn't a market without a better semiconductor selection which we can provide.

When we think about some of the more mature markets, let’s call it mature, things like electric vehicles, a significant push is going on across the board in electric vehicles to improve efficiency, because semiconductor losses are actually a major contributor to the inefficiencies that currently exist for electric vehicles and electric vehicle charging.

So a significant improvement in power switches for electric vehicles means either more range of batteries, or they cut the batteries with the highest cost component, if they wanted to reduce that cost component get the same model range, a better set of conductor switch will allow them to do that.

Secondly, if you think about what's going on with solar energy and energy storage, unfortunately, solar is kind of peaking from a power converter standpoint, in terms of efficiency, there's not much way to get better. So you need a new technology to do that.

And the alternatives have been, they're trying to move to silicon carbide, which has been a long challenging process, and expensive.

Here with B-TRAN particularly coupled with storage, where you can take advantage of bidirectionality, you can significantly impact the amount of useful energy that's available from that system to sell versus just staying with traditional solar connectivity. .

So are there existing electric vehicle manufacturing? Would you be displacing IGBT technology within that electric vehicle segment that’s manufactured now? Or is there -- or would you be displacing IGBT technology within that electric vehicle segment that's manufactured now or is there another competitive technology?.

Yes. It's predominantly IGBT that we're competing against in that segment. Now electric vehicles also MOSFETs for some of the things where it’s really high switching frequency, but IGBTs generally don't play in this end market space.

So it's really going after the IGBT market, particularly as people look at, frankly, traction drives as they try to do more efficient onboard storage devices. So it's really going to be all about leveraging where IGBT is playing in that marketplace today..

[Operator Instructions] Our next question comes from [Richard King] of individual investor..

Dan, I want to get a better understanding of how you function your comprehensions technologically.

Do you, in fact, have your own technical team or you’re undertaking people, or is most of the technological advancement coming from the partners that you're working with University and Teledyne and DTI and so on?.

The core B-TRAN technology in in-house. We have a great PhD that really is the lead for our semiconductor physics work who really drives the actual device design, who understands wafer fabrication processes, and he provides the technical direction to Teledyne.

The driver we had outsourced that through the University of Texas at Austin part of that capability now that we actually have a driver and we know that it will go through its own generations of evolution and improvement is part of what we're looking to bring in-house as we add a few more people to the technical team.

So we've done I think a pretty balanced blend of keeping our core technology in-house, and well protected and well patented and trade-off between patents and trade secrets, and then relying on third parties for things that are more commercially available like packaging designs and wafer fabrication..

And how are those -- people at the University of Texas, for example, how are they compensated? Do they have some form of ownership or do they have some kind of participation on things finally here through the sales revenues and so on?.

Yes, well certainly you hit the part what was probably the biggest challenge of getting our agreement in place with the University of Texas. We were not willing to share any technology rights for any work that they were going to do. And we basically wanted to use them for their technical expertise, their facilities and to do a piece of design work.

It took quite a few rounds of negotiations to finally get that. So ultimately, they are basically a high technology engineering service for us, although they don't like to have it looked at that way. That is essentially the function that they're performing. And we retain all the rights that came out of the work that they do..

Our next question comes from [Bruce Palmer]..

A little more on timing is kind of my question. And I know some of that might be hypothetical, or to just understand maybe just on the sampling program. And I know you said people will look at things over various times.

But for example, if you're working with one or your five targets now and let's say you sign an agreement for them to sample, let's say by the end of second quarter.

How long do you envision people are going through with a sermon, whether they want to use it give you feedback, I guess and the time you'll take to incorporate their suggestions for the driver, I guess, to get to agreements? I just want to -- kind of the timing, as you think about it.

It is a full agreement capable by the end of the first quarter of 2022 when you envision maybe a first agreement, what might be some expectations that we could look at?.

It's going to vary based on the individual company, as we get a little further into this, we’ll have a better color on. The way we expect this to go based on discussions we're having so far is that, that’s engaged, we'll be getting feedback from them, and testing. So it's not a case of they go away for sigma and come back and tell us something.

So it's part of their own evaluation work, the big idea is part of their own testing that they're going to do. There'll be a lot of collaboration with our technical team to make sure that they understand the device correctly. They understand the driver, how well it operates and then they understand the design margins that are built into the product.

Some of them will want to drive things to validate design margin, some of them will just want to actually be able to replicate some of the information we're going to provide for them. So we'll be getting technical feedback from their team very quickly after they started working with the device.

Now, getting the feedback in terms of what they ultimately want, and what the package looks like, I think that is probably going to take more time. And I think once we get a little bit further along with a couple of these players we will have a better sense of what that time period looks like.

But it would be really just kind of guesswork on my part at this point. .

Okay.

And question, if you add a second fabricator, and you're into 2022, is there out volume, I mean, could you guys break out 2 million devices, 3 million devices? What kind of volume would you be able to do?.

Well, with Teledyne, we can actually make all the other devices that we anticipate meeting over the next couple of years. And Teledyne, as I discussed with them, already has another facility identified where they could take this process to actually supplement what they could do fab rework within California.

So for me, it's really a matter of let’s seek ourselves in case something were to happen to that fab. But also to make sure that if you're working, for example, the automobile makers, they think in millions of units, and they want to know that there's a path for you to get there.

So, I think having multiple players that collectively can get you there I think has helped them feel comfortable that they don't have to worry about whether we can keep up with them if they start to adapt and ramp things up..

As there are no further questions, I'd like to turn the call back to Mr. Brdar for any additional or closing remarks. .

Well, thanks everyone for joining our call today. We'll be presenting at the Investor Summit Virtual Conference next week. And we invite you to tuning into the webcast. In the meantime, everyone keep safe and we will look forward to speaking with you again when we report our first quarter results. Thank you..

Ladies and gentlemen, that concludes today's conference call. Thank you for your presentation. You may now disconnect..