Welcome to the Ideal Power Second Quarter 2022 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there is an opportunity to ask questions. [Operator Instruction] Please note, this event is being recorded.

I would now like to turn the conference over to Carolyn Capaccio, Senior Vice President, LHA Investor Relations. Please go ahead..

Thank you, operator, and good afternoon, everyone. Thank you for joining Ideal Power's Second Quarter 2022 Conference Call. We've been on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer.

Ideal Power's second quarter 2022 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 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. Now I'll turn the call over to Ideal Power's President and CEO, Dan Brdar.

Dan?.

first, we'll continue to collaborate with DTI on our B-TRAN-enabled solid-state circuit breaker project for NAVSEA. We expect to complete deliveries of optimized package devices later this year for incorporation into the demonstration of a 12-kilovolt medium voltage DC breaker at a site selected by the U.S. Navy.

Subsequent to the demonstration and objective of this program is for DTI to introduce a family of medium voltage DC circuit breaker products incorporating B-TRAN for sale to military, industrial and utility markets. Second, we're working closely with the growing number of participants in our B-TRAN test and evaluation program.

We'll be providing packaged B-TRAN devices care with the data sheet and our latest generation driver to facilitate and accelerate their evaluation process.

The testing results these customers will share with us will provide feedback on the design and operation of packaged devices and driver, the feature set these customers require for each application and their priorities for individual applications.

This feedback will allow us to determine common requirements across applications and act as the foundation for the development of future B-TRAN modules. Our test and evaluation program will remain an ongoing aspect of our sales and marketing process, and we'll continue to work to add additional potential customers to it.

Third, with a proven and scalable wafer fabrication process and packaging design, we kicked off our design work for our first multi-die module that will be the basis of our first commercial product offering. We've also engaged a third-party firm with module design and packaging expertise to support our design efforts.

Our conceptual design and specifications will be used in close collaboration with our design partners to leverage all the work from our discrete device fabrication and packaging incorporate the feedback we have from potential customers interested in a high current rated product for their target applications.

Based on the significant interest we've received to date for the use of B-TRAN as an enabling technology for solid-state circuit breakers, our initial product will be a multi-die module targeting this application.

This initial product will be followed by our second product, an intelligent power module that will utilize the multi-die module design and add a multi-die driver into a single integrated package. We've recently begun discussions with the design houses for this intelligent power module.

This intelligent power module will accelerate B-TRAN commercialization and adoption in a variety of target applications by solving the hurdles we know customers will face with respect to a bidirectional driver and packaging optimization. Saving customers from having to design these themselves.

Fourth, we're progressing on the completion of the qualification process of a high-volume production wafer fabricator to assess their potential to support our plans for commercial sales with favorable results to date. Our intent is to have a high-volume wafer fab ready to support our volume requirements for 2023 and beyond.

Lastly, we continue to work on submitting additional proposals for government funding with, as I mentioned, the potential to be the prime or subcontractor should we win.

We expect to collaborate with additional OEMs and universities on submitting proposals as funding opportunities become available, including potential opportunities as a result of the CHIPS Act. Looking at the B-TRAN patent state. We currently have 69 issued patents with 30 of those issued outside of the United States and 23 pending B-TRAN patents.

As I mentioned on our last call in April, we added the geographic breadth of our patent portfolio with the issuance of our first patent in India. Our current geographic coverage includes North America, China, Japan, South Korea, India and Europe.

And these, along with the United States represent all of our high-priority geographies for patent coverage. In summary, we continue to make strong progress on our road map toward commercialization of B-TRAN.

We are very happy with our expanding collaborations and demonstration opportunities as a result of our NAVSEA program and the excitement that B-TRAN is receiving as a prospective disruptive technology with wide-ranging applications across a large number and growing end markets.

We're particularly excited about our first deliveries of bidirectional low-loss devices under the NAVSEA program. We remain on track to introduce our first commercial product by the end of the year.

Our focus remains on executing our commercialization strategy backed by multiple years of cash on the balance sheet, an energized and talented team, a growing IP portfolio and world-class fabrication and packaging partners.

We look forward to delivering on our 2022 milestones and realizing the potential of our technology, we'll keep you updated on our progress as we hit each milestone on our B-TRAN commercialization road map. Now I'd like to hand the call over to Chief Financial Officer, Tim Burns, for a review of our second quarter 2022 financial results.

Tim?.

Thank you, Dan. I will review second quarter 2022 financial results. In the second quarter, we recorded $51,000 in grant revenue with offsetting cost of grant revenue as we continued our work on the Navy-funded NAVSEA program. We expect all of the remaining grant revenue under the NAVSEA program to be recognized in the next two quarters.

We continue to pursue additional government funding opportunities that, if awarded, could result in initial revenue as early as late 2022 and are also pursuing opportunities with commercial partners for co-development arrangements. .

Operating expenses were $1.7 million in the second quarter of 2022, consistent with our expectations compared to $1.3 million in the second quarter of 2021.

Research and development and sales and marketing expenses trended higher on one additional wafer fabrication runs; two, development and fabrication of our next-generation driver and three, higher personnel costs for employees added during the last year to support both development activities and the test and evaluation program.

This growth represents our planned investment in development and commercialization activities in advance of introducing our initial commercial product by the end of the year. General and administrative expenses increased this quarter on higher professional fees in board fees and expenses as we added two independent directors to our Board in April.

Operating expenses were also impacted by higher noncash stock-based compensation expense.

Our development and commercialization plans for the balance of 2022 include additional larger wafer fabrication runs, including the qualifying run with a high-volume production wafer fabricator, continued development and fabrication of B-TRAN drivers, third-party testing of the B-TRAN, adding more engineering and product management talent, supporting our test and evaluation program, designing, fabricating and introducing our initial commercial product, starting the design of our second commercial product and intelligent power module, and other B-TRAN commercialization activities with potential new customers and partners.

We continue to expect some quarter-to-quarter variability in operating expenses, particularly our research and development spending due to the timing of semiconductor fabrication runs and other development activities as well as the potential impact of additional government funding.

We continue to expect general and administrative expense to be relatively flat sequentially over the remainder of the year despite the impact of inflation on the cost of services. Net loss in the second quarter of 2022 was $1.7 million compared to $1.2 million in the second quarter of 2021.

Second quarter 2022 cash used in operating investing activities, which is net of the cost reimbursement under the NAVSEA program was $1.7 million, up from $1.1 million in the second quarter of 2021 and up from $1.4 million in the first quarter of 2022. This is consistent with the guidance we provided on our first quarter call.

As I mentioned, we continue to invest in both sales and marketing and research and development and continue to expect the cash burn for full year 2022 of approximately $7 million with a third quarter 2022 cash burn of approximately $1.7 million to $1.8 million. Cash and cash equivalents totaled $20 million at June 30, 2022.

Given our planned cash burn, which remains modest, our balance sheet gives us ample liquidity to fund multiple years of operations to be a well-capitalized partner for the broad spectrum of companies that are either already participating or that we expect to participate in, the testing and evaluation of our B-TRAN technology.

As of June 30, we had 5,93,797 shares outstanding and 1,040,248 warrants outstanding, unchanged from the end of March. Including 613,948 stock options and restricted stock units outstanding, diluted shares outstanding at June 30 totaled 7,557,993 shares. At this time, I'd like to open up the call for questions.

Operator?.

[Operator Instructions] The first question comes from David Williams with Benchmark. Please go ahead..

Congrats on the progress. I've got a couple of calls going on simultaneously. So forgive me if I've missed something. But one, I just wanted to kind of think about your programs at hand now and you've talked a lot about the revenues and just kind of have in process.

But I guess, what are the risks from here as you kind of look at it and think about the progress and the product and just kind of where your customers are? And maybe in terms of both from your side and maybe even a macro in terms of slowing down any of the projects are in place..

Yes. The biggest risk for us is now behind us, which is figuring out how do you make a double-sided device that actually have low losses that we've been predicting. So clearly, with the devices that we've made and we shipped to BTI, that big risk is behind us.

The real challenges are just all of these unknowns that are going on in the marketplace with all the supply chain disruptions and pandemics and so forth. I mean, for us, we do see businesses that we interact with, having to react to that. People going through reorganizations, challenges finding talent.

So I think one risk that we just need to be aware of will be the speed of the adoption cycle for people that are going to incorporate B-TRAN into their products. That can be both good and bad.

We see folks like the automobile manufacturers looking to speed up that design cycle from what they've traditionally done, but we see other businesses where they are struggling to find talent or they're having issues in other parts of their business that are causing them to reprioritize where they're making product investments..

And then maybe just from a customer standpoint, the reception, anything that's changed there? Or has that improved? Just on the adoption side.

And just as you're talking to your customers, what is your feedback been? And I guess, are you getting -- are you more excited today than you were maybe three months ago? Or any color around that would be helpful..

We are a lot more excited than we were a few months ago. So because we've got real devices in hand that we are starting to share with people. What we are seeing on the customer front is the inbound interest is going up. And I think it's due to a couple of things.

One is we were awarded at the Fed Power Electronics Conference, an award for best presentation, which is really in front of the power electronics community. So I think 1 that really raised the visibility of our technology and what it's capable of.

And then with projects like the NAVSEA project and other things that we're doing, the word of those projects is getting out, but it's not lab scale stuff, it's being done at really large-scale demonstrations and that is really getting people interested in the technology understanding how it can impact things like Solid State circuit breakers and companies that want to go leverage that work to do things that fit their own product offerings..

I'll go to the next question from Orin Hirschman with AIGH Investment Partners..

Congratulations on the progress.

Can you go through really quickly again in terms of -- besides the Navy-related circuit breaker product, what are the next hand products or product family can go through that again that you want to bring to market? And to sample and then go through a design win phase there that takes six months or a year? What do you envision?.

We've already gotten a fair amount of feedback from companies that we are working with in the sampling program. So we've got a pretty good idea of what our intelligent power module needs to look like.

So we're going to take the power module we're doing for circuit breakers and add to that a multi-die driver that really leverages that power module design. And that product is actually well suited for things like solar coupled with energy storage, a lot of the industrial applications that use what is referred to as a common emitter module for IGBT.

So it actually has some pretty broad applicability for EV charging, solar, energy storage, wind, uninterruptible power supplies. And then from there, we will probably do variations of that product for different current ratings and different modules that are going to be customed for some specific applications.

But the next product should have pretty broad applicability in the industrial sector. And then the final product that would come out, classification would be specialized module targeting the electric vehicle folks. ..

And just the design cycle on the initial power module, which you had to have from beginning to end for customers after they actually sample it?.

Well they'll be sampling with the engineering prototypes that we're bringing out now. And so for them, they will actually have the opportunity to understand how B-TRAN works. Will understand the driver because the driver that's going to be an intelligent power module will have the same logic. It will have the same layout configuration and operation.

The only difference will be for the intelligent power module, it will be just multi-die capable. They don't actually have most of what they need from the sampling program to understand how to apply the intelligent power module ..

The next question comes from Don Slowinski with Winslow Asset Group. Please go ahead..

Congratulations on delivery of the SSCBs for the Navy build [Indiscernible], excuse me working devices, right? And they're going to do the build?.

Correct. They're going to do the build..

Okay. and good timing, by the way, $421 billion is the calculation I have in government support. If you add the CHIPS Act for domestic semiconductor and the $369 billion you mentioned for Greentech OEM partners that you might -- the customers you might bring in.

So Dan, can you give us maybe some specific examples of how these historic legislative acts will benefit Ideal Power?.

Sure. Typically, what happens, the policy sets out where they want the investment to be targeted. These things have high visibility. So there's usually a lot of pressure within BoD and DoD to quickly translate that into programs.

It creates a lot of opportunities for us to collaborate with people that really want to leverage the objectives of the programs, just like we knew with the Navy, it wasn't even actually a solicitation.

We actually created the opportunity where you can bring something that shows an improvement and the performance of whether it's solar, energy storage, electric vehicles, EV charging, by bringing a higher level of performance, it fits those kind of objectives.

So we think there's going to be some pretty broad opportunities across the board, whether it's clean energy or whether it's technology development under the CHIPS Act or things that are coming to support the infrastructure for electric vehicles that will all create opportunities for us to either do things be get government funding either independently or more likely in collaboration with industry partners that will result in product pool into those market segments..

Well, it seems like really good timing for your commercialization of B-TRAN. And again, congrats on the milestone of delivering those working devices so they can get those SSCBs built for the Navy..

The next question comes from Peter Sidoti with Sidoti & Company. Please go ahead. Mr. Sidoti, your line is open. Is it possibly meeted on your end? It will go to the next questioner, Taylor Fredericks with Arrowhead. Please go ahead..

Dan, congratulations on all these new milestones. It is pretty much so the next level you guys have always said they're going to. Two-part question. I see Ideal Power is hiring new senior engineers on their teams. Possibly, can you elaborate a the new hiring is for past projects like NAVSEA and Department of Energy or for future projects.

If so, what is your anticipated pace of future hiring all in engineers going forward. I know a lot of people in your industry, especially the tech and engineering industry, you've been laying off people lately. So it's great to see you guys hiring.

Second level of question is for -- since you're headquartered in Austin, a lot of people are very, very honed in on Texas these days. And you're in the semiconductor business, you're in everything energy oriented like Don Slowinski said earlier. A lot of people are really gearing towards Tesla.

Would it be safe to assume you're talking to them as opposed as well as other automotive engineering companies like Ford, GM, about the benefits of transfer next generations like Tesla’s, Fords, et cetera..

So for the hiring, we are looking to add some engineers to assist us with projects we've already identified that we're going to be doing either ourselves or with others. So we're looking to expand the expertise that we have here. Our focus has been really on the device design and wafer manufacturing.

We're now looking to bring in some people that have module packaging expertise. The driver design that we did in collaboration with a postdoc at UT Austin, we're looking to bring that expertise in-house.

So we can build that core team and capability based on the products that we're going to be bringing out so that we can incorporate improvements as we interact with customers. We're hoping to have two or three by the end of the year.

We'll probably have a couple more that we'll be adding the first half of next year to support business development, some additional engineering to support the customer engagement as well. As we look at the automobile companies, we'd like to read them all. Some are easier to get through than others.

Surprisingly, there are some pretty big players that are out there that we are actually in discussions with. Others that were not.

They're just -- some of them, it's hard to find the right person to reach, but our objective is sooner or later that -- to get to all of them and have them all be aware of us and see if there's a way that we can fit into what their goal plans are we are speaking to any one in particular in terms of revealing who we're talking to simply because most of the time these things are done under nondisclosure agreements because -- they're very consistent that their competition not know what they're doing in terms of evaluating technology.

But our objective is to get them all..

Okay.

Are there any other military applications for B-TRAN?.

Yes, there are. The military has a lot of need for advanced semiconductor devices, whether it's for microgrids, whether it's for the things they're doing for affordable renewable energy.

There are even some things that we'd like to look at on the defense side, if there are some things that we can participate in for some of the power electronics activities that are going on in both the Air Force and the Army as well.

So I think having a success under this program just helps build our credibility to do other projects under DoD funding..

And your programs been highly successful. Do you reach out to DARPA by any measures? Or I guess it's a twp-part question. So I'm sorry for this. But DARPA has applications for this potentially. But the bigger question is, are you withheld by doing the Navy program anything with DARPA from doing -- say, expanding the B-TRAN projects overseas.

Similar applications..

We're not constrained.

And part of the list of customers that we are targeting as part of the sampling program are those that bring some specifically strong relationships within DoD to reach other parts of the military, where we don't necessarily have the ability to open the doors, but they can pull us in for application-specific uses of the technology..

Yes. That's amazing. Any future milestones in your projection that you can share? Because I mean, like what you just shared is amazing by me, but any future milestones..

Not yet as we get a little bit further in some of the discussions, we'll hopefully be able to announce some of them.

And then hopefully, as we do some projects that are not under the same classification as the Navy program will actually be able to be more open about some of the data that's coming out of them as well because I think there'll be some things that people would be really interested in seeing.

But unfortunately, confidentiality restrictions in the Navy program have been a bit of a challenge for us..

[Operator Instructions] The next question comes from Peter Sidoti with Sidoti & Company..

Just two quick questions.

Any changes on the competitive front or on new technologies that may have come out?.

Nothing new. Our compatible team participates in a lot of conferences, and we were involved in technical conference here just about two weeks ago. So we got a good screening of kind of what's going on.

There's a lot of interest in bidirectional applications because of the fact that energy storage is playing a role in a lot of things, not just electric vehicles, but it's enabling a lot of other applications.

So we're seeing more focus on bidirectionality, but nothing from a technology standpoint that looks like it would be a real threat to us, but we do keep a pretty our eye on it..

And given that the markets are changing so quickly, when do you really -- do you see customers moving faster than you expected at this point in time in terms of actually placing the orders?.

It's a little bit of a mixed blessing. We see the automobile manufacturers deliberately creating in-house teams where they used to rely on the Tier 1 suppliers. And the intent of that is for them to take about two years out of the design cycle instead of going from a five-year design cycle, they're trying to go through a three-year.

But what we have found is getting through their process to get things kicked off, does not seem like it's a lot quicker than what you would expect. So our hopes are high that once some of these programs are really going, they will move faster to actually get our technology into their products.

We are seeing a lot of pressure on industrial companies who are really looking for ways to innovate and differentiate themselves, particularly with there being such a strong showing from a lot of Chinese companies in things like solar and energy storage that are really competing on price.

So the opportunity to offer a higher level of performance seems to be a significant driver for companies that are making products out of U.S.A. and Europe..

Do you see R&D costs accelerating is closer to commercialization?.

They will gradually go up. We don't see a step change in that, but we will see increased additions to our technical team. We'll see some increased development work that we'll be doing as part of our design activities, but it's not going to be something that will be dramatic from where we are today..

Yes, we're expecting in 2022 here about a $2 million to $2.5 million increase from last year. in R&D and sales and marketing combined..

I'm just thinking about next year, what your thoughts would be if you have any?.

Yes. So it's a little bit early, but we'd expect roughly the same type of increase, but we'll wait until later this year to give more specific guidance..

Next question comes from [Kellie Thurman], Private Investor.

Great job this quarter. Do you have any estimate down on the size of the NAVSEA contract.

The overall size?.

Well, the contract itself is a $3 million contract for the demonstration. Our part of that is $1.2 million. But it's ultimately leading to a whole suite of products that the Navy wants because while we're demonstrating a 12-kilovolt breaker, they need a whole variety of sizes anywhere from a couple of kilovolts up to 20 or 30 kilovolts.

So I think the interest there really is the long-term opportunity that it creates as part of a military application, but also the fact that what we're doing there applies directly to the electric utility industry for the distribution and transmission networks and for industrial applications because we're -- both us and DTI are not limited in any way to take that product and introduce it to the industrial segments of the marketplace because the Navy wants to see volume to help drive cost down..

How many circuit breakers are on a boat, say, from a small ship to a large ship? What's a low to high to the number of circuit breakers on a ship?.

The approach that the Navy is taking for the ship electrification program needs literally dozens on every boat. They want to go to a highly distributed network because they want to make the ships less vulnerable to a pack so that it's not like you lose the endo room and the ship is stock. It's a distributed type of approach to power control.

And now if you think about it, they need distribution for lighting systems, heating, cooling, weapon systems, control systems. So it's dozens and dozens for every ship..

Right. And to the people that are sampling right now, how close are you to getting additional development money to take their product to the next level.

And at that point, is that when we'll hear some names?.

Our hope is that we'll be able to actually name some people if they are funding some development work. We think we're pretty far along with one customer in terms of some specific development work they want us to do that they want us to pay for. So our hope is in our next call we're having a discussion about that if it'll let us name on..

Okay.

Can you name which sample it is without naming their name?.

I don't know if we could do without violating our NDA..

Okay. And don't do it. And as far as the people that are going to be in the sampling program, say, over the next three to fourth months, you guys have announced one of the top 10 world automakers that you guys are working with right now.

Do you have any other top 10 automakers that are in the pipeline that you feel good about that will be part of the sampling program that you'll announce over the next three months?.

Yes. We do.

More than 1?.

There's one that I feel particularly good about. There would be a new one, new addition..

And they would be classified would a top 10?.

Yes, it would..

The next question comes from Robert Ainbinder with GoldStreet. Please go ahead..

Dan, congratulations to you and the team on all the progress. This is an exciting time for Ideal Power for sure. I just have one quick question with commercialization expected you're shooting for the end of the year. Can we expect then to see commercial volumes start in earnest in calendar year 2023..

I think it's going to vary a lot by customer in terms of how long it takes them to get through a design cycle. But yes, our expectation is that as you get towards later in 2023, you'll start to see volume ramping up as people start to build products.

And even for some of them in terms of getting through some of their own evaluation and certification that they need to do for products that they're going to bring out that would incorporate B-TRAN..

The next question comes from [Ece Nasimi] with Universe Securities..

First and foremost, Dan, congratulations on shipping chips with this diversified technologies contract in the Navy. That's a huge accomplishment, and I'm glad to see the market responding very positively to this news. My question is regarding the actual production of the B-TRAN chip. I understand your talk with major autos as you said on this call.

I'm sure you'll need to ramp up production of the B-TRAN chip a couple of orders of magnitude.

Can you give us any color with regard to that? Or are you not yet at a point where you're able to publicly discuss where the company stands in terms of high-speed production of the chip? And finally, do you think that, that may end leaning towards more of a licensing agreement with, let's say, a major manufacturer that has a relationship with a TSM or another company of that caliber for instance?.

We are actually in the process of qualifying a true production-level fab. And our objective is to get through the qualification process this year. So that as we engage these customers, particularly ones that are like out of the manufacturers that can drive high volume, we have a true production-level fab we can point to is where devices will get made.

Now what I would expect would happen is, particularly for high-volume customers, they may ultimately want another source, not just from us, but in terms of even our fab, and that may involve us putting a license in place for another party that could supply the industry and is -- has been through the automotive qualification process.

that topic hasn't come up yet, but we're prepared for that. And licensing is actually part of our strategy.

We think that's probably a more efficient way to get to some of these high-volume markets rather than us spending capital to try and create huge distribution networks and service and support networks when we can just license the technology to others that can leverage their own investment that they've already made..

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Brdar for any closing remarks..

I just want to thank everybody for joining our call today. It's certainly been an exciting quarter for us as we've achieved a really significant milestone for the company. We think it really opens the door for some really meaningful opportunities that we're looking to pursue pretty aggressively here going forward.

We'll be participating in the Investor Summit and the Sidoti conferences later this week. And we look forward to giving everybody another update on our third quarter conference call. Thank you, everyone, and have a great day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..