Good day and welcome to the Ideal Power Third Quarter 2022 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Carolyn Capaccio of LHA. Please go ahead..

Thank you, operator and good afternoon everyone. Thank you for joining Ideal Power's third quarter 2022 conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer.

Ideal Power's third 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 start a wafer fabrication run to support the newly announced development program, for the top 10 global automaker. Second, we'll complete our first multi-die power module design, targeting the introduction of this commercial product by year-end.

This design will leverage learnings from our discrete device fabrication and packaging efforts.

Third, we'll continue to collaborate with DTI on our B-TRAN enabled solid-state circuit breaker project for Navy and chip additional B-TRAN devices to DTI for incorporation into the demonstration, of a 12-kilovolt MVDC breaker at a site selected by the Navy. We expect to complete deliveries to DTI in early 2023.

The objective of this program post-demonstration, is for DTI to introduce a family of MVDC circuit breakers incorporating B-TRAN for sales to military industrial and utility markets.

Fourth, with respect to our B-TRAN test and evaluation program, we'll fabricate additional customer kits to provide a B-TRAN device driver, power board and safety and closure to facilitate and accelerate the evaluation process.

After delivery of the kits, we'll gather testing results from these customers that provides feedback on the design and operation of the packaged devices and driver, the feature set these customers require free to application and their priorities for individual applications.

We'll then use this feedback to determine common requirements across applications and act as a foundation for the development of future B-TRAN products. And as you know, our test and evaluation program will remain an embedded process in our sales and marketing effort and we'll continue to work to add additional potential customers to it.

Looking at our expanding B-TRAN patent estate, we currently have 71 issued B-TRAN patents, with 31 of those issued outside of the United States and 22 pending B-TRAN patents. During the quarter, two patents were issued in the US one related to our driver and another related to our paralleling and controlling multiple B-TRAN die in a common module.

Our current geographic coverage includes North America, China, Japan, South Korea, India and Europe, all of which along with the United States represent all of our high-priority geographies for patent coverage. In summary, we are thrilled to enter our first B-TRAN product development agreement for a custom module with a top 10 global automaker.

We're also proud of the progress we've made along our road map for this year and excited to be shipping additional devices to DTI for the NAVSEA program and introducing our first commercial product by year-end.

B-TRAN's unique architecture offers the advantages of inherent bidirectional switching capability, reduce switching and conduction losses, improved and more compact thermal management requirements, potentially leading to lower user costs for OEM products, incorporating B-TRAN and high-growth applications.

We're hitting our milestones with the qualification of world-class design, packaging and testing partners, a growing IP portfolio, a dedicated and talented team and ample cash on our balance sheet.

We cannot wait to start the development program with a top 10 global automaker and launch our first B-TRAN commercial product bringing the potential of our technology into reality. Now I'd like to hand the call over to Chief Financial Officer, Tim Burns, for a review of our third quarter financial results.

Tim?.

Thank you, Dan. I will review third quarter 2022 financial results. In the third quarter, we recorded $11,000 in grant revenue with offsetting cost of grant revenue, as we continued our work on the Navy fund and NAVSEA program. At September 30, grant revenue of $54,000 remains to be recognized under this program.

Operating expenses were $1.8 million for the third quarter of 2022, slightly lower than our expectations, compared to $1.7 million in the second quarter of 2022 and $1.2 million in the third quarter of 2021.

Research and development and sales and marketing expenses were higher in the third quarter of 2022, compared to the third quarter of 2021 on; one wafer costs associated with future fabrication runs as we received wafers this quarter that we've ordered earlier in the year to mitigate potential supply chain delays; two, higher research – higher search and placement fees and personnel costs due to head count additions to support both B-TRAN development and our test and evaluation program.

And three, other development activities including the fabrication of B-TRAN drivers. 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.

Operating expenses also reflect higher stock-based compensation expense.

For the fourth quarter, our development and commercialization plans include additional wafer fabrication runs including starting a run under our new development program, designing beginning fabrication of and introducing our initial commercial product, further deliveries to DTI under the NAVSEA program, fabrication of additional B-TRAN drivers and customer kits to support the test and evaluation program, adding more engineering and product management talent, starting the design of our second commercial product an 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 and hiring as well as the potential impact of additional government funding.

We continue to expect general and administrative expense in the fourth quarter to be relatively flat sequentially excluding the impact of stock compensation expense, despite the impact of inflation on the cost of services. Net loss in the third quarter of 2022 was $1.7 million compared to $1.2 million in the third quarter of 2021.

Third quarter 2022 cash used in operating and investing activities was $1.6 million, up from $1.2 million in the third quarter of 2021 and down slightly from $1.7 million in the second quarter of 2022. This is slightly lower than the expectations we provided on our second quarter call due to the timing of hiring and other development expenses.

As I mentioned, we continue to invest in both sales and marketing and research and development and now expect the cash burn for full year 2022 of approximately $6.7 million to $6.9 million with a fourth quarter 2022 cash burn of approximately $2 million to $2.2 million. Cash and cash equivalents totaled $18.5 million at September 30, 2022.

Given our planned cash burn, which remains modest, we have ample liquidity on our balance sheet to fund operations as we commercialize our technology and 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 test and evaluation of our B-TRAN technology as well as the top 10 global automaker that has engaged us for development program.

As of September 30, we had 5,903,797 shares outstanding and 1,040,248 warrants outstanding unchanged from the end of June. Including 625,948 stock options and restricted stock units outstanding, diluted shares outstanding at September 30, totaled 7,569,993 shares. At this time, I'd like to open up the call for questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from David Schneider, private investor. Please go ahead..

Yes, hi. I have to apologize initially, because I actually have seven questions.

As far as the development agreement with the automotive OEM, what do you think might be the soonest that I could go by a vehicle with your technology in it, as far as the year...?.

Yes, they're targeting production-ready devices from us in 2025. So, I would think, it's 2025 or 2026, depending on the timing of when they roll those out..

Okay. Okay. That's really not that far away, especially from an investment point of view..

The automakers are really focused on, how do they shorten that cycle for getting their electric vehicle products out. It's just -- they can't follow the traditional five-year path. They just -- they don't have that luxury..

Yes. What about -- I've seen other breakthrough technologies and electrification first take hold in, let's say, not in the auto industry, but actually in motorcycles. So, it's a little surprising to me that well, we don't have a very large sample size. But, I'm wondering if you're talking to any of the motorcycle companies..

We're not really engaged with the motorcycle folks but what we are engaged with are -- and there are actually companies that are already in our sampling program that are focused on commercial vehicles, delivery trucks, buses and so forth, where the standards are a little bit different but there's a desire and electrification there as well..

Okay. Okay. That's very good.

Also, as far as modules per vehicle, I'm wondering if the number of B-TRAN modules per vehicle would vary versus -- if you're talking about a sedan versus an SUV, because that could help establish, although it'd be extremely back of the envelope we would have to assume what a B-TRAN module would sell for and what your margins would be.

But how many modules per vehicle? And would it vary?.

It will vary, because the number of modules will be a function of what's the rating size of the battery, which will drive what's the total voltage and current you have to support.

But also it depends on the topology that they use, because one of the things that B-TRAN enables is some different topologies than what you can do with conventional semiconductor devices.

So there's a couple of things that come in the mix that really reflect some of the novelty that we see some of the automakers pursuing to come up with a differentiated high-performance approach to the vehicles that they bring out. .

Okay. And Toyota is hedging its bets on electrification. They've got -- they're spending a lot of money on researching hydrogen as a fuel.

So is there any role for B-TRAN in hydrogen fuel vehicles?.

Yes, absolutely. The fuel cells when they produce the energy, I mean, it's in a basically a lower voltage DC form depending on how big the fuel cell stack is that ultimately has to go through power switches to convert to different voltages and convert DC to AC, or again AC back to DC depending on how they've configured their systems.

So there would definitely be a role for us. It wouldn't be as big as if we were a key component of the drivetrain in a conventional battery, but there's definitely a role for B-TRAN in hydrogen vehicles. .

Okay. That's very good.

And is it as a result of you getting, let's say, more visibility in the engineering community, because you're getting more partners are you finding that engineers are starting are you getting more inbound calls from engineers saying, I am interested in working there?.

Yes. It's -- we're seeing -- it's slowly starting to improve.

As people are becoming aware of the technology and things like the award that we won with our APAC Paper and so forth, it's raising the visibility where people want to learn more and it's just getting some inbound people responding to some of our job postings rather than having to find them through the recruiter.

The downside of that is the capability of our technical team is very high. So, the standards of who they're willing to hire to work with is also equally high. So it's getting better but it's nice to actually see some people that are reaching out to us rather than having to rely on recruiters to try and find people. .

Yes. I don't think there's downside to having super highly qualified engineers at your firm. .

Well, the fact is that not doing a good job is high. So we're particular, so..

Yes. Yes. Intuitively, I would think that there's more, let's call it, bigger bang for the buck the larger the vehicle incorporating B-TRAN like just because if you had General Motors Humvee or Hummer I don't know how many -- how much that thing weighs. But in the battery pack must -- is probably the weight of a baby elephant.

But -- so I would think that there's a greater role for B-TRAN based on maybe based on the size of the vehicle would that be correct?.

Yes. You're correct. That's part of why -- rather than looking at the motorcycles we've been focusing more on the commercial vehicles and buses as people get in the sampling program in addition to just the passenger vehicles..

Okay. Well, yes, I know the electrification of buses is -- there's a huge effort in that. So I'll get off right now and let other people ask questions. Thank you. .

Okay. .

Thanks, Dan and Tim..

The next question comes from Kelly Serman [ph], private investor. Please go ahead..

Hey, guys, congrats on today to announcement. That's great stuff..

Thank you..

The drivetrain at the company you talked about today, are they only going to be making drivetrains for themselves, or is this going to be an opportunity where they are going to be actually be selling them on the open market?.

We don't see anybody yet that are the big established automakers wanting to do that, but it doesn't mean it won't change as part of their own strategies to build volume. This is an automaker that has multiple brands that you would recognize.

So I think they're looking for what are the platforms that they actually want to start with and how can they build those platforms out within the rest of the brands that they manufacture..

Okay. And on July 20, 2021, you guys announced a top 10 automaker to go into the sampling program.

Is this a different automaker than what you announced on July 20, 2021?.

Yes, it is. It's -- we now have two of the top 10 global automakers engage with us in one form or another. This is obviously a deeper level of engagement, since we're actually going to go do a custom module with them. But the one that we announced previously is a different automaker..

Okay.

Where do we stand with them right now as far as moving the ball forward?.

They are signing up for the sampling program our teams have met with them. And then basically as soon as we get through our deliveries for NAVSEA, we'll be shipping them parts and drivers for their evaluation. And hopefully, we can build that into a custom module program like the one we just announced today..

Okay.

And then where do we stand with the power management company? Is that progressing along nicely?.

Yeah, it is. Part of this is our teams kind of have to work together one for us to get them up to speed on B-TRAN and how it operates, but also for us to learn their application a little bit, so we can guide them to how to incorporate it and get the most out of it.

So the folks that we've got engaged in the program, a lot of them are still in that learning curve process where we're making them smarter about the device work. They can do their own circuit design and simulation work to get ready to get devices in hand. So as they tested in the context of their application, they hit the ground running..

Okay. And the last one I got you guys is for the EV charging companies. I know you guys have somebody in the sampling program. At the last trade show bi-directionality was one of the number one topic at the show.

Are you seeing a significant number of inbound activity from the EV charging company because I'm surprised that you only have one in the sample program right now.

Do you anticipate that number to grow quickly?.

Yeah, we do. I think the early EV charging stations that were being put out there were really all about how do you get something out here to satisfy the demand.

But what's happening now is I think part of what's driving all this discussion of bi-directionality with them is they're finding that for a lot of these locations, particularly in urban areas, they have a couple of storage batteries to deal with mitigating the demand charges where people want to charge their vehicle during peak hours of the utility rates.

So the offerings from the EV charging companies are getting a little bit more sophisticated. They're having more capability and it drives the need for a little better solutions than just taking the conventional semiconductor devices and designing a one-way charging system..

How far along with you are the company that's sampling currently? How far along with you -- are you with them?.

Most of them are probably to the point where they're ready for us to give them devices. We got a couple of more we're doing some circuit analysis with them. But as soon as we complete the NAVSEA deliveries, we've got several that are ready to go..

Okay. Congratulations again you guys. Very proud of the job you guys are doing. Keep it up..

Thank you very much, Kelly..

[Operator Instructions] And our next question comes from Bruce Palmer [ph], Private Investor. Please go ahead..

Hi. Thanks for taking my call. Congratulations on the agreement today..

Thank you very much..

Follow-up on that. The article says a custom inverter. So when you're done development do you own that inverter design or does the car company? And is it interchangeable to another company? And is it exclusive to this automobile so you'd never make an inverter for someone else.

How does that work?.

Yeah, we're actually not going to make the inverter. We're just going to make the semiconductor devices that go into the inverter. We will work with a packaging firm that has some unique approaches to semiconductor packaging that have been selected by this automaker also.

And then what the automaker will do they will take the design work that we do collaboratively with the packaging firm and they are designing an inverter for their EV platforms as a part of that. Now, it will be – the inverter design will be there. All the work that we do as part of our technology remains ours.

And we're not constrained being able to work with any other automakers or anybody else as a result of what we're doing. .

Okay. So if I understand correctly, you – no one outside of it would appear this automobile company they either, I guess, maybe have gotten a B-TRAN from you or just working through the design of it on paper.

No one in the test and evaluation has a B-TRAN yet that's not until after you've delivered NAVSEA is that correct?.

Correct. The deliveries for NAVSEA, they need large numbers of devices for the breaker. So, those deliveries since we have a contractual obligation is coming first.

And then we are ready to support the folks in the sampling program, with the work that we've been doing with getting their drivers ready getting the sampling kit ready for them and then being able to provide devices for them once the NAVSEA deliveries are done..

So if NAVSEA has sounded like, you were going to get DTI in that by the end of the first quarter.

If I'm sitting here by mid-next year, if you've delivered to NAVSEA, how many people do you think would have a device from your test and evaluation by midyear or at the end of the third quarter where will these people finally get the 5, 10 agreements you have? How many agreements are out there? And how many – is it by midyear you see them having them or end of third quarter what could we expect from that perspective?.

I expect, we'll see the people that are in the program. We've kind of prioritize them in terms of those that we think we want to serve first, so we do take some technical support but we would expect most of the major players that we really want to capture would have devices in the whole sampling kit with driver in the first half of the year. .

Okay. Perfect. All right. Well, thanks for taking my questions..

Thanks..

It appears there are no further questions at this time. Mr. Brdar, I'd like to turn the conference back to you for any additional or closing remarks..

I just want to thank everybody for joining our call. We will be participating in the Benchmark Discovery Conference in December, and hope to be able to speak with those that are in attendance. In the meantime, have a happy and safe holiday season, and we look forward to giving you another update on our fourth quarter call..

This concludes today's call. Thank you for your participation and you may now disconnect..