Ideal Power Inc.

Good day, ladies and gentlemen, and welcome to the Ideal Power Second Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I'll turn the conference over to Carolyn Capaccio of LHA. Please go ahead.

Thanks, Keith, and good afternoon, everyone. Thank you for joining Ideal Power's Second Quarter 2021 Conference Call. With me on the call are Dan Berdar, President and Chief Executive Officer, and Tim Burns, Chief Financial Officer. Ideal Power's second quarter 2021 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. 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 Burdar. Dan?

Thank you, Carolyn. Good afternoon, everyone, and welcome to our second quarter 2021 financial results conference call. I'll begin by giving you an update on our progress and our achievements on our strategy to commercialize our B-TRAN semiconductor architecture technology, including progress on our objectives for 2021, which include the engagement of potential customers to test and evaluate V-TRAN, and the completion of multiple fabrication runs for the NAVSEA program, leading to a full-scale circuit breaker demonstration in mid-2022. Then Tim Burns, our CFO, will take you through the numbers, and then we'll take your questions. We're on track with our roadmap to commercialize V-TRAN as a differentiated technology addressing a large and growing market. And since the start of the second quarter, we achieved key milestones on this roadmap. Let's begin with the specifics of our progress toward commercialization, specifically our engagement with potential customers to test and evaluate B-TRAN in their applications. Early in the quarter, we released a B-TRAN information sheet, which you can find on the technology page of our website. It provides detailed information on B-TRAN operating characteristics, as well as information regarding the packaging and driver design and operation that the technical community needs to begin evaluating our technology. Over the last few months, our team has done a great job of leveraging this information to engage with potential customers in our target end markets, vehicle electrification and EV charging, renewable energy, UPS systems for data centers, and solid-state circuit breakers. And these conversations have progressed and yielded solid results. We're now engaged with several potential customers who are committing significant resources and technical expertise to thoroughly evaluate B-TRAN for use in their applications. A significant commitment is required on the part of our potential customers to fully evaluate a new power switch architecture and its potential use within their target applications. What we're already finding is that the talent engineering teams at these early collaborating companies are identifying new design approaches and rethinking their applications and power management for both DC and AC implementations due to the enabling low loss and bidirectional capabilities of vTRAN. This is very exciting. Let's look at some of the applications for which B-TRAN is being evaluated. In the automotive sector, we're working with a top 10 global automaker whose advanced technology engineering team will test and evaluate B-TRAN and its driver for EV applications, including the EV drivetrain, DC to DC power conversion, circuit protection, and other uses within the EV ecosystem. Specifically, with this potential customer, VTRAN is enabling new architectures and solutions to improve EV efficiency, range, and performance, while lowering total system size, cost, and component count. VTRAN target applications include the EV traction inverter and charging circuits, which are inherently bidirectional, supporting vehicle-to-grid applications, and emerging EV architectures and applications, such as the matrix converter and solid-state circuit breaker. The EV space is already the largest segment in the $6 billion power switch market, which overall is expected to nearly double by 2026. In EV charging, we're working with a provider of electric vehicle chargers who will test and evaluate package B-trans for their innovative portable and modular EV charging system that's currently under development. This solution combines a DC fast charger with a swappable battery system and a modular design to allow for scaling, targeting both on-demand fast charging and roadside assistance to eliminate charging anxiety. The advantages that B-Tran can offer over conventional IGBT switches to EV charging, greater efficiency, high directionality, smaller size, and reduced thermal management are critically important to mobile EV charging systems with battery storage. This is the type of innovation and disruptive business model that can contribute to EV adoption and to build out of the EV charging infrastructure with its need for smaller, lower operating cost solutions. EV charging companies could potentially be an early adopter of V-Trans with the 2.1 million unit global EV charging station market expected to grow to an estimated 30.8 million units by the end of 2027. In power management for the data center market, We're working with a top 10 global provider of power conversion solutions to the solar industry that's expanding its portfolio to include a broad array of power conversion application solutions serving multiple sectors. This provider will test and evaluate B-TRAN for its compelling advantages in bidirectional circuits for various applications, starting with uninterruptible power supplies or UPS systems for data centers and expanding to include renewable energy, electric vehicles, and other applications. There's intense pressure for data centers given the secular trend toward cloud computing and data storage to reduce electricity costs and power losses. Electricity consumption is the largest operating cost for a data center, and all the electricity entering the data center passes through a UPS system. Currently, UPS systems and their protection account for approximately 6% of data center total energy losses. Replacing conventional power semiconductors in these systems with B-TRANs is expected to result in a substantial annual cost savings for data centers through reduced energy consumption and the ability to migrate to lower cost, less complex cooling systems. This will be a significant advancement for power switches and UPS systems, a market which was approximately half a billion dollars in 2020 and is forecasted to grow at an estimated 6% compound annual growth rate through 2026. We're in discussions for possible collaborations with additional companies in our target end market applications We've expressed interest in assessing V-TRAN and will announce future collaborations as we're able. In the cases I just mentioned, as well as other potential engagements, the customers will share their testing results and provide application-specific feedback on the design and operation of the package devices and driver, the feature set and priorities for individual applications, and also enable us to determine common requirements across applications. We'll then incorporate this feature set into an intelligent power module for commercialization and potentially engage with certain of these customers for custom modules, primarily for EV and solid-state circuit breaker applications, where multiple devices may need to be combined into a single package. The next step to be completed in parallel with further discussions with potential participants is to complete the fabrication runs for dicing and packaging and to pair these packaged dyes with the driver for delivery to these initial participants in our customer testing and evaluation program. While each participant in the evaluation program will be working to their own schedule, we anticipate feedback from these initial companies will provide meaningful input into the design of our intelligent power module that we intend to introduce for commercial sales in the second half of 2022. One of our target end markets for B-TRAN is solid-state circuit breakers, an important advancement in a very large global circuit breaker market, which in total is projected to grow at a compound growth rate of about 6% to almost $26 billion by 2027. And as we have discussed with you over the last couple of quarters, we have and will continue to pursue opportunities for government funding. In the second quarter, Diversified Technologies Incorporated was awarded a second project submitted in collaboration with us a phase one small business innovation research grant funded by the U.S. Department of Energy. This grant is to develop a DETRAN-based, low loss, 13.8 kilovolt alternating current solid state circuit breaker intended to be used in medium voltage power distribution and renewable energy and microgrid applications connected to the utility power grid. We see this application as a significant opportunity to capitalize on the benefits of solid state circuit breakers which prevent damage to downstream equipment, upstream power generators, and the grid itself by utilizing microsecond current interruption capability. We expect B-TRANS will make a solid state circuit breaker significantly more efficient, smaller, and less expensive. Under phase one of the SBIR project, we'll design, fabricate, and test a module that can allow for multiple devices to be assembled in a parallel configuration for a high voltage rating capability. The project will utilize our current die design, so we view this initial phase of the project as primarily a packaging and module development activity that enables B-TRAN to be used in applications like AC circuit breakers that require more than 1200 volt capability. The B-TRAN based solid state circuit breaker is expected to limit fault energy by orders of magnitude faster compared to conventional mechanical circuit breakers. Since this project does not have the strict confidentiality restrictions of our US Navy program we'll be able to provide more insight into the project as we complete the various milestones under the program. We'll also be able to leverage the knowledge we gain on combining multiple devices in a parallel program for other applications, such as electric vehicles. We expect that V-TRAN will simplify the cooling systems, enabling smaller, lower-cost air cooling instead of complex liquid cooling systems due to its 50% lower conduction losses compared to conventional power semiconductor switches and reduce the component count due to BTRAN's unique bi-directional capability requiring a smaller footprint. If phase one is successful and we're awarded phase two, the objective will be to build and demonstrate a 50 megawatt, 13.8 kilovolt AC solid-state circuit breaker in collaboration with BTI. 13.8 kilovolts is a voltage level commonly found in utility distribution networks. So the resulting breaker design can be applied directly to the existing utility transmission and distribution systems as well as microgrids. Following the demonstration, DTI would have the ability to sell the breaker to utility, industrial, and military customers and license the design to others for sale to end users. We would also expect to partner with other circuit breaker companies so they can design and bring their own DTRAN-based products to market. For additional context, While direct current or DC-based systems are expected to grow rapidly due to the long-term growth of solar, wind, and energy storage, the market today for circuit breakers is predominantly for alternating current or AC circuit breakers, which make up the majority of the expected $25 billion circuit breaker market. Also, of this large circuit breaker market, about 45% is for medium voltage breakers, which is B-TRAN's sweet spot. Medium voltage circuit breakers are used in the aging utility distribution system that brings power from high voltage transmission lines to the end user. This is also the segment that is in the most need of updating due to the age of the existing utility distribution system and the limitations in its capacity and its vulnerability to disruption. Also, as more distributed resources like solar are added to the grid and to accommodate EV charging and vehicle to grid applications, The distribution system is going to require substantial investment, and smarter bidirectional subsystems like solid-state circuit breakers will be needed. This is why we believe the medium voltage class of AC circuit breakers will be the fastest growing segment of the circuit breaker market, and it's where BCREN can bring the most value due to its low conduction losses and fast switching times. The SBIR collaboration with DTI is a significant strategic opportunity, one that is incremental to our efforts with the U.S. Navy and also critical to electric grid development. So we're very excited about this project and look forward to generating promising results. Let's move now to our work with the U.S. Navy. As most of you are aware, Idaho Power is working with the Naval Sea Systems Command, or NAVSEA, in collaboration with DTI on the development and demonstration of a BTRAN-enabled direct current medium voltage circuit breaker as part of the U.S. Navy's strategic focus on ship electrification. This $1.2 million subcontract with DTI is funded under the Department of Defense's Rapid Innovation Fund, the purpose of which is to accelerate the commercialization of high value, high impact technologies. Our project with DTI for NAVSEA is intended to develop and demonstrate a DTRAN-enabled high-efficiency 12 kilovolt medium voltage direct current circuit breaker for the U.S. Navy with a subsequent objective of introducing a family of medium voltage DC circuit breaker products incorporating DTRANs for sale to military, industrial, and utility markets. The major milestones under the program for us are the wafer fabrication runs conducted by Teledyne, our fabrication partner. This development process is iterative, so we're performing multiple wafer fabrication runs under the program to yield wafers and results dye to test and assess the tradeoffs between maximum theoretical device performance and manufacturability, incorporating our findings and adjustments into subsequent runs. During the second quarter, we had a commercial packaging vendor adapt the packaging design initially developed by the University of Texas at Austin's Semiconductor Power Electronics Center for high-volume production. in which the materials were fabricated and assembled in the trial packages to ensure a good mechanical fit and ease of assembly. Those trial assemblies went well, and the subsequently packaged dye were tested and characterized internally at ideal power using our driver, also designed by UT Austin, and they generated switching and other data consistent with our expectations and simulations. We recently began our next wafer fabrication run on the NAVSEA program, the completion of which is the next major milestone in the NAVSEA program. In total, we planned five runs over the two-year program, aiming to deliver an optimized power switch for use in the full-scale demonstration of a 12 kilovolt MVDC breaker in mid-2022. We're very excited about this progress, which continues to benefit our overall validation and commercialization efforts. To support our next phase of development and optimization, we're utilizing our strong cash position to modestly invest in our team capabilities. As you know, this year we've brought on board Jeff Knapp as Vice President of Business Development and Dr. John Kang-Boo as Vice President of Engineering. Both highly qualified and accomplished leaders in their respective disciplines, and both are already making a significant positive impact on our development and commercialization efforts. In the coming months, we'll make a few other additions to our team to bring more capabilities in-house, particularly in applications, driver design, and testing to support our commercialization efforts. We're also in the process of qualifying a second domestic semiconductor fabrication partner that has strong experience making bipolar devices to ensure sufficient supply capacity for future potential large customers and to mitigate supply chain risk. We currently have a qualifying semiconductor fabrication run in progress with this new partner. The second fabrication partner will also give us more flexibility to provide both package devices and data that are separated from and not subject to the restrictions and confidentiality requirements of our NAVSEA program. Looking at the B-TRAN patent estate, we currently have 65 issued B-TRAN patents with 27 of those issued outside of the United States and another 23 pending patents. Our current geographic coverage includes North America, China, Japan, South Korea, and Europe, with the potential to expand coverage into India. In the last 12 months, nine BTRAN patents have been issued, with seven of the nine issued outside of the United States, including Ideal Power's first patent issuance in South Korea. In all, we continued our record of progress in the past three months from a development perspective. More notably, our recent announcements of test and evaluation collaborations with leaders in the electric vehicle, uninterruptible power supplies for data centers, and renewable energy markets is the beginning of our commercialization of B-TRAN. These customer engagements represent a crucial step forward in establishing B-TRAN as a differentiated semiconductor technology addressing a large and growing market. Back by our strong balance sheet and with the recent additions of highly qualified business development and engineering leaders, we're well positioned to support our B-TRAN commercialization plan. Our focus for 2021 is threefold. to continue to engage with prospective customers and to support existing customers in our test and evaluation program, to achieve our milestones under the NAVSEA program with a target of delivering an optimized package device for incorporation into the demonstration of a 12 kilovolt MVDC breaker in mid 2022, and to achieve our initial objectives under the phase one SBIR grant, which is to deliver a low loss BTRAN module suitable for subsequent incorporation into a 13.8 kilovolt alternating current solid state circuit breaker if we are awarded phase two of the program. As we're able, we will appraise you of the companies we add to our customer test and evaluation program in the coming months. We'll also update you, as permitted, on the feedback that we receive from the program and how this data feeds into our common requirements across applications that can then be incorporated into an intelligent power module that we will introduce to the marketplace in the second half of 2022. IDO Power is on the cusp of realizing the potential of D-TRAN's unique advantages, bi-directional switching capability, lower switching and conduction losses, lower user costs, and improved and more compact thermal management. D-TRAN has the ability to solve the immediate needs of many power electronics applications in both high growth and high demand market segments while enabling new applications and market segments. We're making consistent progress on our strategy, moving along our intended trajectory with a differentiated patent technology that can substantially improve existing and enable new solutions for many of today's power needs. Now I'd like to hand the call over to our Chief Financial Officer, Tim Burns, for a review of our second quarter 21 financial results.