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spk05: You are currently on hold for the ideal power third quarter 2020 results conference call. At this time, we are assembling today's audience and plan to be underway shortly. We appreciate your patience and please remain on the line. Please stand by. We're about to begin. Good day and welcome to the Ideal Power Third Quarter 2020 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Carolyn Cappuccino of LAJ. Please go ahead.
spk04: Thank you very much, and good afternoon, everyone. Thank you for joining Ideal Power's Third Quarter 2020 Conference Call. With me on the call are Dan Verdara, President and Chief Executive Officer, and Tim Burns, Chief Financial Officer. Ideal Power's third quarter 2020 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 filing for a list of associated risks. We would also refer you to the company's website for more supporting industry information. Now I will turn the call over to Ideal Towers President and CEO, Dan Bodar. Dan?
spk03: Thank you, Carolyn. Good afternoon, everyone, and welcome to our third quarter 2020 conference call. I'll begin by giving you an update on our progress with our U.S. Navy-sponsored program and our accomplishments in our B-train commercialization strategy and summarize our focus for the remainder of 2020. Then Tim Burns, our CFO, will take you through the numbers. Our work with the United States Naval Sea Systems Command, or NAVSEA, under our partnership with Diversified Technologies, is moving along on schedule. We've recently completed the first major milestone in the program. We received wafers from the first fabrication run conducted by Teledyne and are now testing them to determine which dye we will package into BTRAN devices. This first wafer fabrication run under the program incorporates results of the analysis and device simulation work we've been performing to optimize the device design. As a reminder on this program, In the second quarter, we signed a $1.2 million contract to partner with Diversified Technologies on the development and demonstration of a BTRAN-enabled direct current circuit breaker as part of the US Navy's strategic focus on ship electrification. The contract is funded under the Department of Defense's Rapid Innovation Fund, the intent of which is to accelerate the commercialization of high-value, high-impact technologies for NAVSEA. The project's objective is to demonstrate A VTRAN-enabled, high-efficiency, 12-kilovolt medium-voltage direct current circuit breaker for the U.S. Navy with the subsequent objective of introducing a family of medium-voltage DC circuit breaker products, incorporating VTRANs for sale to military and industrial markets. This is a high-priority initiative in the Navy, as ship electrification can significantly enhance the energy efficiency of ship operations and improve their operational flexibility and operating costs. Distributed power on ships makes them less vulnerable to attack by lowering their noise signature and enhancing their stealth capabilities. And B-TRAN technology offers substantial size, heat, and loss reduction over continuously conducting semiconductor devices, such as IGBTs, without using complex, large, and heavy liquid cooling systems. After the reefers are tested, the next step is to dice and then package B-TRAN dye for testing and characterization. for dyes from the initial and now completed wafer run will utilize our current lab-based packaging design. The results from this testing will incorporate it into the device design and manufacturing process improvements for subsequent runs. Over the two-year program, we plan a total of five runs over six quarters, aiming for optimized device delivery in late 2021 with a final demonstration of a 12 kilovolt MVDC breaker in early 2022. The purpose of performing multiple wafer fabrication runs in the program is to assess the tradeoffs between maximum theoretical device performance and its manufacturability. As we make changes to the design to enhance performance, it can adversely affect the device yield from a given wafer fabrication run. As the various runs progress, we anticipate the device performance and device wafer yield to increase as we converge on an optimized design for performance and manufacturability. The second major milestone in the NAVSEA program is completing the next fabrication run with Teledyne. This is slated to begin shortly and will finish in the first quarter of 2021. Also under the NAVSEA program, we're collaborating with the University of Texas at Austin's Microelectronic Research Center for a new packaging design. The packaging design will be utilized for dyes from future laser runs under the program. The new packaging design improves upon the lab-based packaging that we had used previously and are using for the first vapor run. The device packaging design is intended to provide the electrical connections, form factor, and thermal management required to incorporate a semiconductor device into an end-user product design. The new packaging design will encapsulate the B-TRAN dye into a package similar to what is commonly available for commercial IGBTs. To help facilitate B-TRAN adoption, Our objective with the new design is to offer a package device that is physically similar to those commonly found in the IGBT market. UT Austin's initial design of the package is complete and prototypes are being made. We're collaborating with packaging assembly firms as well to get their feedback on the suitability of the design for high volume manufacturing. Feedback from the packaging assembly firms and the first build with the new design will be incorporated into the final packaging design to be delivered under the NFC program. Additionally, we developed a new high-power test rig that allows packaged B-Tran devices to be tested at high-voltage, high-current conditions as part of the device characterization required under the NASC program. The rig enables us to test and characterize package parts, generate the conduction and switching data we need for a product data sheet, and confirm the performance margins built into the design. Overall, we're on schedule with NASC and have undergone multiple project reviews received positive feedback. We're very excited about the progress being made under the program and the positive impact it's already having on our validation and commercialization efforts. During the third quarter, we also made strong progress toward readiness to begin engineering prototype sampling. As we discussed with you on our last call, we're also collaborating with the University of Texas at Austin's Microelectronic Research Center on the development of a new B-Tran driver The design and fabrication of an initial version of the driver is complete. As a double-sided device, BTRAN requires a unique driver specialized to control and coordinate the operation of both sides simultaneously. The new driver was designed by a talented postdoc under the close supervision of Dr. Alex Wong, the leader of the Microelectronics Research Center and a world-renowned expert in power semiconductor devices and power electronics. This initial driver will be used in conjunction with our new high-power test rig to generate the data we need to create a data sheet required by prospective end users and for our own characterization of devices. Once our testing is completed in the next few weeks, the University of Texas will develop a second version of the driver using our feedback. It will remove some of the features that were added purely for our debugging purposes. It will also make changes to reduce the physical size of the driver and add some additional operating capabilities to the programming of the driver. The packaging design for the device developed for NAVSEA that I referred to earlier will also be able to be used for our engineering sampling program, and coupled with a package B-TRAN with a specially designed driver accelerates potential end users' ability and willingness to assess the technology as the hurdle of driver development is removed. When we have a packaged device including a driver and data sheet in hand, we can begin generating both increased awareness of B-TRAN in the technical community and increased interest in the sampling program. We've received multiple inquiries from potential customers interested in the sampling program, and for many of them, providing a data sheet is the next step in that process. Providing samples to end users and getting their feedback on the device, the driver design, and driver feature set and priorities will allow us to determine requirements across targeted applications that future commercial BTRAN-enabled devices are likely to need. We can then incorporate this feature set into an intelligent module design. Looking at the BTRAN patent estate, we currently have 57 issued BTRAN patents, one more than last quarter, with 21 of those issued outside the United States, up from 20, and 25 pending patents, Our geographic coverage includes North America, China, Japan, and Europe, with potential to expand coverage into South Korea and India. For the remainder of the year, we remain focused on our two parallel paths in phase two of our commercialization strategy. First, working toward a full-scale demonstration of an application where B-TRAN is the enabling technology for NAVSEA. And second, preparing to launch our engineering sampling program. Our partnership with Diversified Technologies offers ideal power a significant, potentially catalytic opportunity as we further quantify the performance characteristics of B-TRAN power semiconductor technology versus conventional power switches, higher efficiency, lower cooling requirements, fewer components, and smaller size, and its potential game changer for distributed DC networks across a wide variety of military, industrial, and utility applications, including medium to high-voltage DC transmission and distribution systems, microgrid, and electric generation related to renewable solar and wind energy. Similarly, the NAVSEA program catalyzes both our military and non-military commercialization efforts by putting us on the map for other military and government customers who are often early new technology adopters and may help fund a significant portion of the development costs and steps necessary for commercialization. As we move to phase three commercialization, which focuses on establishing strategic development and commercial partnerships building commercial momentum and laying the foundation for future B-trend revenue streams. The first segments we will target for initial commercial sales in the $5.4 billion IGBT market, a market forecasted to grow to $9.4 billion by 2025, are the data center, UPS, renewable energy, and electric vehicle charging markets, all markets that feature relatively shorter technology evaluation periods and development processes and immediate power switching needs. Our exit from Phase 2 commercialization and into Phase 3 commercialization will vary based on target customers and applications, as we'll continue to add potential customers and applications to the engineering sampling program over time, while simultaneously commercializing BTRAN from initial target markets and applications. The timeline for these phases will also vary as prospective customers. Even those with similar applications have different technology evaluation cycles and design periods for incorporating new technologies into their products. One note on COVID-19. We and our fabrication, collaboration, and device packaging partners are carefully observing safety protocols and best practices, including wearing masks, practicing social distancing, and following all recommended guidelines to keep our team safe. Thus far, we've managed well through the pandemic, and our supply chain remains intact. We'll continue to be vigilant, working to stay on our development and commercialization timeline while keeping our team safe. In all, we believe that Ideal Power's technology is potentially transformational in its unique bidirectional switching capability and its ability to solve immediate needs being experienced in power electronics with bidirectionality, lower switching and conduction losses, lower user costs, and improved and more compact thermal management. We're moving ahead very well, hitting our milestones, and maintaining strong momentum toward our commercialization goals. with results that have been gratifying and with a different technology that addresses, differentiated technology that addresses a large and growing market. Now I'd like to hand the call over to our Chief Financial Officer, Tim Burns, for review of the quarter. Tim?
spk02: Thank you, Dan. I will review third quarter 2020 financial results. In the third quarter, we recorded approximately $150,000 of grant revenue with offsetting cost of grant revenue as we continued our work on the NASC program, which began in late June. Third quarter 2020 operating expenses were $1.2 million compared to $0.7 million in the third quarter of 2019. The increase in operating expenses in the quarter was due to higher research and development expenses related to B-TRAN wafer fabrication and driver development, higher general and administrative expenses, on higher bonus expense as certain performance objectives were achieved during the quarter, and higher non-cash stock compensation expense. As we discussed last quarter, in August, we completed an early warrant exercise transaction with certain of the company's Series A warrant holders, raising $2.5 million in net proceeds. As part of that transaction, we issued 705,688 Series C warrants, at an exercise price of $8.90 to these warrant holders as an inducement. The estimated fair value of these Series C warrants of $3.7 million was recorded within other expenses as non-cash warrant inducement expense in our income statement. Excluding warrant inducement expense, our third quarter 2020 net loss was $1.2 million compared to $0.8 million in the third quarter of 2019 as a result of higher operating expenses. Third quarter 2020 cash used in operating activities was $0.8 million, slightly higher than cash used in operating activities in both the second quarter of this year and the third quarter of 2019 due to the timing of cash outflows. We will have quarter over quarter variability in our cash used in operating activities, but strive to keep our quarterly cash burn within our parameters even in quarters with higher expenses on an accrual basis. In the nine months ended September 30, 2020, we raised $2.5 million in net proceeds from the early warrant exercise transaction, as well as an additional $0.5 million from other warrant exercises. These inflows strengthen our cash position, and we are utilizing the net proceeds to fund BTRAN commercialization and development, and for working capital and other corporate purposes. Cash and cash equivalents total $3.8 million as of September 30th, 2020. Our debt outstanding remained $0.1 million as in the second quarter, we received a Paycheck Protection Program loan to temporarily subsidize payroll and facilities costs in a business landscape impacted by the COVID-19 pandemic. Our current expectation is that this loan will be forgiven, although we cannot provide assurance there will be granted forgiveness of the loan in whole or in part. We will apply for forgiveness as soon as our bank, BBVA, activates their loan forgiveness portal. We remain singularly focused on the development and commercialization of our B-TRAN technology and are well positioned with a strengthened balance sheet and an asset-wide operating model. Our cash burn rate remains approximately $0.75 million in cash per quarter subject to both the timing of and variability in expenditures and refinement to the B-TRAIN development and commercialization plan. At this time, I'd like to open up the call for questions. Operator?
spk05: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone the opportunity to signal for questions. And our first question is from Jim McGeory with Bradley Woods. Please go ahead.
spk01: Thanks a lot, and good afternoon. Dan, in your prepared remarks, you were talking about going after other government customers And my question is, do you need to complete or get near the end of the NAVSEA program before you have the internal resources necessary to do that? Or do you need to demonstrate to the government customers overall the efficacy via the NAVSEA program? I'm just trying to understand what has to happen before you go after other government customers and if it's related to, again, the success of the NACI program.
spk03: You know, the NACI program gives us certainly visibility and credibility since we got put into the Rapid Innovation Fund. There's a vetting process we have to go through for that. So it helps us in terms of The acceptance of us is something that is going into commercialization, especially when we look at other parts of DOD. But we actually don't have to complete anything of significance of this nasty program to go pursue other opportunities. In fact, we've been having discussions with some other companies about other applications that we might want to partner on. So we view them as being things that we can do in parallel. The team itself doesn't have to grow significantly. Depending on the opportunity that we would go after, we'd still be relying on the resources of Teledyne. We would be relying on whatever the technical partner is that we work with for a specific application. So it doesn't drive a big resource demand for us. So we're really looking to begin to leverage that to get other opportunities within either DOE or DOD because it's now viewing the technologies really ready for commercialization. And if we can focus on some things that are application specific, particularly things related to renewable energy or electric vehicles, I think we can make some pretty compelling proposals in partnership with some other companies.
spk01: And relative to upcoming proposals, and I'm thinking again on the government side, when's a reasonable time to think that those proposals would be led out by the government and then you would have to respond because I'm assuming there's some seasonality to the bid and proposal activity based on the government year end.
spk03: There is. There are particular cycles that come out in sort of the first quarter and the middle of the year as it relates particularly to small business type applications. Generally you get into this push to get things awarded before the end of the fiscal year, but we would rather do like we did with the NASC program where we didn't respond to a solicitation. We actually looked at what were some of the needs. We focused on the Navy and said, what are some of the needs there? We created the partnership that we needed to bring the circuit breaker technology. We put together a white paper and submitted it to Navy. They liked what they saw, asked us to submit a proposal, and they funded it outside of a regular solicitation. We'd rather target things where we can really propose something that's high value because of the nature of BTRAN and go create the opportunity ourselves rather than wait for the right solicitation to come along.
spk01: Got it. Got it. Great. That's helpful. And, Tim, on the new warrants that were issued, do they have any price protection features? They do not, no. Okay. Great. That's it for me. Thanks a lot, guys, and good luck with everything.
spk05: And our next question is from Oren Hirschman with AIGH. Please go ahead.
spk00: How are you? In terms of the government contract, how does the money flow in? How much do you realize and how much more do you realize and what milestones is it subject to?
spk02: So on that program, it's effectively different. Cost reimbursement, I mean, there's minor timing differences in terms of when we bill. We do bill based on milestones, but it's also very closely aligned to the ones we're on schedule to when we're actually incurring the cost. So there is no net gross profit from the activity, and we'll see maybe a small AR balance or a small amount of deferred revenue at the end of any given quarter, but it's effectively cost reimbursement.
spk00: So over what period of time and how much approximately they fund, depending if you consider the milestone?
spk02: It's a $1.2 million contract. We recorded just over $150,000 through 930. It's heavily weighted towards the first probably five quarters of the program. So it would be the Q4 and into the first three to four quarters of next year. and not the entire two-year process because most of our work is done and handed off to DTI in terms of the circuit breaker design after we get through our runs.
spk00: Got it. And just in terms of when you're hopeful to actually sample final package chips so that you can get them to companies that want to sample them, and what type of companies will be the first ones to receive the samples?
spk03: Yeah, I mean, we're talking to a variety. We actually have requests from automobile companies, companies in renewable energy space, companies that are doing microgrids and power switching technology. A lot of this can be paced by them because we're coming out with the new driver design and new packaging design. Some of them are going to express a preference. for the new driver design in particular. In fact, a company that we were meeting with this week, they indicated they want to use the new driver design. So our key now is really get the packaged devices back from the first wafer run. We'll have those in a few weeks, do some characterization testing on them, and start to engage with individual companies on a more definitive timeline in terms of how many devices they're looking for, how many drivers they're looking for, what level of support do they need. So our expectation is that we're going to start some pretty heavy engagement specific companies here at Shoreline.
spk00: Okay, great. Thanks very much.
spk05: And as a reminder, that is Star 1 if you would like to ask a question. And we'll pause for just a moment to allow everyone the opportunity to signal for questions. The next question comes from Bruce Palmer with Envio and Minister. Please go ahead.
spk01: Thanks for taking my call. I'm just an individual investor, and you kind of just maybe answered part of my question with the last part of it where you're saying you were meeting with someone here, you know, in the next week or so about design. Die package. Earlier this year in webinars you guys talked about hopefully by the fourth quarter of this year you might have some agreements signed. I'm just curious. It seems you're constantly refining your die packages. Is that at the request of the companies or you're finding it's a little more complicated maybe than what you thought when you were talking earlier in the year? Just a little bit more color on that.
spk03: because it seemed earlier in the year to actually be part of developing an effective device. You know, when you do simulations, for example, on a design of how a device will perform, you get an idealized view of the device. And then when you manufacture it, every semiconductor fabrication house is a little different in terms of their equipment and their processes and the recipes that they use for any given process step. And you find that the real world varies a little bit from what you can simulate So you tend to iterate on it to look at how small feature size can you make. You don't want to make them so small that all of a sudden the yield on a wafer just drops off dramatically. But you want to get as small a feature size as you can because it allows you to get the highest current density in the device that you can. So it is by its nature just an iterative process. And for us in particular, since it's a double-sided device, we add a little bit of complexity in that you've got to get good alignment front to back as well. But the things that we have been going through with the runs, since the runs actually take a fair amount of time, it seems like it takes a while to get through that optimization. But it's really normal course of business in developing a new semiconductor device.
spk01: So you find that same process with every new vendor you go to that you'll have a lot of this optimization, or do you get to a point where you have the dive package that pretty much anybody can use? How is that going to work?
spk03: What you'll get to is a dye package that is highly usable by any fab. Now, a new fab may go through a run or two based on some unique different equipment they may have from one fab to another. But you basically get to a recipe that can be replicated.
spk01: OK. All right. Thank you. You're welcome.
spk05: It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Bredar, President and CEO, for any additional or closing remarks.
spk03: I just want to thank everyone for joining our call today. We are going to be presenting at the Craig Hallam Alpha Select and the Benchmark Discovery Conferences next week. We invite you to tune in to those webcasts. We hope everybody enjoys the rest of the year and stays safe, and we look forward to speaking with you again when we report on the fourth quarter. Thank you, everyone.
spk05: and this concludes today's call thank you for your participation you may now disconnect Thank you. Thank you. Thank you. Thank you. Thank you. um um
spk06: Thank you.
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