Ideal Power Inc. (IPWR) Earnings Call Transcript & Summary

Good day, and welcome to the iAccess Alpha - Buyside Best Ideas Winter Conference 2024. The next presenting company is Ideal Power Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Daniel Brdar, CEO of Ideal Power, Inc. Sir, the floor is yours.

Thank you very much, and thanks, everybody, for joining us today. We're excited to be bringing you an update on our activities in commercializing our semiconductor technology, B-TRAN. For those of you that are not familiar with our technology, B-TRAN is a disruptive semiconductor power switch that has some really compelling advantages over conventional technologies that are out there, things like IGBTs that are traditionally used for power control. It's a really unique technology in that it can bring growth and more efficiency and better performance to a wide variety of applications, including electric vehicles, renewables, energy storage. It's an enabling technology for things like solid-state circuit breakers and can actually bring some innovation to things like motor drives for large industrial and utility scale motors. Our approach to the market is an asset-light business model. We are fabless in our approach to actually making our devices, really focusing on leveraging the large investment that's already been made in the semiconductor space for processing wafers, packaging and distribution. The initial sales of our B-TRAN discrete device, SymCool power module and SymCool IQ are really targeting these large global customers that we believe are really going to set the stage for our growth because they are leaders in their respective markets, and we'll talk some more about that. We are actually engaged with multiple customers in each of those key market segments, really working through getting them up to speed on the technology, understanding how it operates and moving them into design wins and joint development agreements where they can adopt our technology to improve their OEM products. We have a current program with Stellantis, which is one of the first customers that we've been able to name. They are a top 10 global automaker, where we're working with them on a custom B-TRAN module for their electric vehicle drivetrain, and we'll talk some more about that in a little bit. We're in a great place to execute our plan. We have multiple years of cash on the balance sheet, no debt. And a technology that's very well protected from an IP standpoint. We have 92 patents that have already issued, another 49 that are pending. As we look at what is a B-TRAN, the picture on the slide here is actually a B-TRAN dies. It's very small. It's less than half of an inch in size. If you flip it over, it looks exactly the same on the other side. And it's really disruptive in the fact that it really brings a new improvement in silicon device performance that hasn't been possible before. What is unique about it is the fact that it is inherently a bidirectional device, which means that we are fabricating the wafer on both sides, which is not something that is commonly done in the semiconductor space. And because of the nature of the device, we actually can use the same die across multiple applications. So whether it's going into an EV drivetrain, renewable energy installation, a solid-state circuit breaker, we can make the same device in our wafer fabs that we're contracted with for any application. So we don't have to try and predict the mix and growth of any respective market segment. What's unique about it is inherently bidirectional. So it can control the flow of energy in either direction through the device instead of using the multi-device approach that's traditionally used in power semiconductors. Because it's much more efficient, has lower losses, it means there's more useful energy for the end-use application. So for things like electric vehicles, it means more range out of the batteries. For things like solar or energy storage, it means more useful kilowatt hours for the end customer. It also -- because it's more efficient, there's less waste heat that is produced. And waste heat is typically what drives the size of a lot of OEM products. So it means that those OEM products that incorporate B-TRAN have less thermal management, so they can be smaller and lower cost. When we look at bidirectional switching, which is becoming increasingly common because of the adoption of batteries for a whole variety of applications like electric vehicles and solar coupled with storage and so forth, it's traditionally done by using 4 semiconductor devices, 2 pairs of IGBTs and diodes to control or block the flow of energy in either direction. We do that all in one device, and we do it much more efficiently our conduction losses are typically more than 5x better than the traditional IGBT plus blocking diode approach that the industry uses today. That means a lot more useful energy, fewer parts to fail and the opportunity to really improve the performance of the applications that adopt our technology. The markets that we're going after, we kind of break into 2 segments. The first are the near-term markets, those that are going to drive our early revenue. They are things like solid-state switchgear for things like circuit protectors, solid-state circuit breakers for industrial and utility applications, protective relays. It's about a $1 billion market. And then also things like energy and power, things like renewable energy, particularly things like solar coupled with energy storage, stand-alone energy storage, electric vehicle charging. Those are the early markets that we are going after. And then in the longer term, we expect to penetrate markets like the industrial market for things like motor drives and UPS systems for data centers. And of course, the biggest market that's out there is the automotive market, where our technology can be used for the traction inverter, the DC to DC converter and circuit protection. And we're really going after all of these, knowing that things like the automotive market take longer, but our early revenue that is really going to start ramping here next year is driven by our SymCool and SymCool IQ that target things like solid-state switchgear and the renewable energy markets. If we look at electric vehicles, most people don't realize that semiconductors are actually the second highest cost component of an electric vehicle after the batteries, and they're used in a whole wide range of things. Our technology really applies in the high-power areas. And those are things like the traction inverter, circuit protection for the batteries, the DC-DC converter, where there's a real need to find ways to make the switching in these electric vehicles not only more efficient but lower cost. And that's really where our technology can impact them because the 2 primary challenges electric vehicles face today are range anxiety and the high cost that they represent compared to conventional combustion-based vehicles. Our technology actually helps with both of those. Based on some work at Toyota had done, we looked at what's the impact our technology could have if it was used in the electric vehicle drivetrain. And we estimate about a 7% to 10% improvement in range using those same batteries. It also means that we can improve the range of the vehicles without customers incurring the expense of going to silicon carbide devices. I think as many people know, the industry and led by some announcements by Elon Musk is wanting to reduce the amount of silicon carbide in the electric vehicles because of their high cost. We've got to bring the cost structure down to actually get to mass adoption. And for us, we see there's about $1,100 per vehicle on power semiconductors in the EV drivetrain that we're going to be going after in these markets. One of the first places that we've been able to actually name a customer is Stellantis, one of the largest automakers in the world. They actually named us as we were selected as one of their venture awards finalists last year because of the ability of our technology to have both a broad and deep impact on their business. As I mentioned previously, we're working on a B-TRAN power module for their drivetrain in the next-generation EV platform. They really want to have a common platform across multiple models so that they've got a core building block for the broad market that they want to go after where they can have commonality in parts and drivetrains and components to help them leverage the scale of production of the electric vehicles they're going to be bringing out over the next several years. We've already completed the first 2 phases of this program, and we're really targeting getting into the next phase with Stellantis, which takes the B-TRAN module through automotive qualification. So we're looking forward to getting that over the finish line with them here in the near term. Because the target for this is to have that module production ready in 2025. We have several customers that we're actually engaged with where they are evaluating our technology and several of them we're in discussions with now to actually either have a joint development agreement or a design win. They include 3 global automakers, 2 of the top 10 global automakers and another large automobile makers that people realize is kind of a leader in terms of what they do in their market segment. We're working with one of the top 10 global power -- solar power conversion providers. We are working closely with a couple of Forbes Global 500 power management market leaders. These are companies that provide things like solid-state circuit breakers, circuit protection, protective relays. They tend to be companies like Siemens, ABB, Schneider, those sorts of companies. We're also working with 2 Tier 1 global automotive suppliers who supply many of the auto OEMs in terms of the subsystems and components that they provide for their vehicles. We're also working with a global provider of backup power and energy management solution, particularly the kinds of companies that provide things like UPS systems and energy storage backup systems. And then also just a global power conversion supplier that is focused on many industrial applications where our technology could actually help improve their products. The commercial products that we are bringing to market today, the first, we started with our discrete device. It is what we have in many customers' hands where they can actually take a B-TRAN device into their lab with their engineers, evaluate it, test it. And what they're finding is that it's a very robust bidirectional low-loss device. The discrete device, it's rated at 1,200 volts and 50 amps. We've actually tested it up to 150 amps. So it's a great way to introduce the customer to the technology itself. But we look at the true commercial products that we're focusing on, the first one we introduced is our SymCool module. It is a 4-die module that's rated at 200 amps, really targeting things like solid-state circuit breakers and circuit protection and electric vehicles. We really are excited about that because it really emphasizes the low loss capability of our technology, which is really an enabler for things where you're doing large-scale circuit protection. It's also a very robust device. We've tested it up to 430 amps. So it really has a lot of capability for a whole variety of applications. And then the most recent product that we brought out, we've announced the first orders for it, our SymCool IQ. And that's where we take the SymCool power module and incorporate a driver into it. So there's intelligent control at the device level. And that really starts to enable some other markets like energy and power, things like renewable energy, energy storage and EV charging. For these products, as we get into scale, we are targeting gross margins of about 50%. And if we end up going into licensing arrangements to satisfy second sourcing for folks like the automobile manufacturers, that will just be additional margin enhancement for us. We put out our milestones at the beginning of the year, the things that we were focusing on accomplishing, and we're really kind of knocking through all those. We have successfully completed Phase 2 of the program with Stellantis. We are working with Stellantis in meeting with them weekly on securing the next phase of this program as they get through some of their own just internal industry issues that they've been dealing with for 2024. We're seeing them getting back focused on their future platforms, and we continue to actually feel pretty optimistic about where we're going to ultimately end up in their product line. We completed the qualification of a second high-volume production fab. We want to make sure that we're not single sourced for anything. We also saw as a result of COVID, a lot of disruptions in the supply chain. So we have qualified one fab that is in Asia, not China, but in Asia. And the second one that we recently qualified is in Europe. So we've got great diversity and capacity to serve these customers as they start to ramp up their business. We're in the process of converting these large OEMs that have been in our test and evaluation program into design wins and custom development agreements. We think we're going to have some of these that we're going to be announcing here in the near term as we've made great progress with some of these customers. Getting those first in each market segment over the finish line is always a bit of a challenge. But fortunately, once you get the first one to go, others tend to follow. So we're pretty excited about being able to start to announce some of these customer engagements. Because they are going to drive our revenue, particularly on SymCool in 2025 and SymCool IQ coming in right behind that. We've added 3 distributors for our project -- for our products. We want to make sure that we've got multiple avenues to market. And the distributors that we're selecting are companies that are really experts at demand creation. They've got great technical sales teams. They're great at educating the end customer, and they can reach customers much more efficiently than we can as a small U.S. company. So we have SCORM in China. We've got [Rio show] that's out of Japan, and we've got Richardson here in the U.S., all tackling different market segments of the geography that's out there and all bringing well-established customer relationships that we can leverage to get our technology into their hands. We are also focused on getting our initial SymCool IQ in the marketplace. We recently announced the initial sales of that product. We're excited about getting that out there because it enables new market segments, and we were happy to be sending this to a customer who've been previously engaged with us on other products. So I think people are starting to see that our technology can be the basis for a lot of OEM products and a lot of different market segments. And that really gets the customers that we're working with excited about the ability to go after multiple market segments with this new technology. And we have begun our third-party automotive qualification testing. It's not necessary that we complete that now, but what we're finding is getting through that process really actually makes the industrial customers more comfortable if you have a party that has been through all the rigorous demands that it takes to meet the automotive codes and standards. So that process is already underway, and we expect to be finishing that next year. I mentioned earlier that we've got very good patent coverage on our technology, 92 patents issued, 49 pending -- from a geographic standpoint, they cover the U.S., Europe, Japan, South Korea, China, Taiwan, India, and they cover a whole variety of things. They cover the core architecture itself, some of the application-specific uses, some of the unique things that we've come up with for things like control methodologies. But also in order to protect our intellectual property, we want to make sure that somebody, for example, in China studying our patents doesn't go off and try and copy the device. And to make sure that we have done what we can to protect that, we treat the trade secret. As a trade secret, the process flow, how do you make a double-sided device. And that was probably the biggest technical risk that we had to go through was figuring out how do you process a wafer on both sides. We did a lot of great work at a fab here in the U.S. with Teledyne and some other fabs that we've worked with. And we've developed the process flow that we can take to any conventional silicon fab that has conventional silicon processing equipment and teach them actually how to make this device. And we keep that as a secret internal to the company just as additional protection of our intellectual property. Take a look at some of our recent news announcements, they've really been around customer engagement and distributors, announcing our initial SymCool IQ orders, orders for Tier 1 global automotive companies, beginning our reliability and automotive certification testing and getting some of those distributors in place that can reach those end markets for us. Looking at the balance sheet, very clean balance sheet. We've got about $18.7 million in cash, no debt and about 8 million shares outstanding. So we're really in a good position to go execute against our commercialization plan, and we're seeing as really -- really innovative company that can bring a really novel technology to a lot of these large customers to enable them to make better products for the marketplace. So with that, I'd like to open it up to any questions that anybody in the audience might have for us.

All right. So the first question, can you discuss rationale to go after passenger vehicle market first versus commercial vehicles? My understanding is the commercial vehicle market may have been less erroneous to break into. Yes. For us, I mean, the largest opportunity, obviously, is with the passenger vehicles. Commercial vehicles is something we're actually interested in. One of the members of our test and evaluation program, one of the potential customers is actually involved with commercial vehicles. Right now, probably because of the cost issue more than anything else, it seems like there's been a lot of interest from the passenger vehicle market, but we would expect to attack both of those markets. As I go through these, Stellantis is currently undergoing some very public issues. How does this affect their work with Ideal Power?

Yes. That's a good question. I think everybody has been seeing in the news all the struggles that the automobile companies have gone through as they came through an environment where they were short supply and were commanding premium prices. I think Stellantis, I think, was late reacting to that market change. So they ended up with a lot of inventory that they've had to work through for 2024 for their combustion-based vehicles. What we've seen, and we've asked them specifically, what does this mean for what you're doing going forward? And the message that we've been consistently getting from them is the focus certainly at the senior levels has been resolving some of their U.S. market issues in particular. But the plans for going through and introducing products that are electric vehicles, they view as their future. There is no change in terms of the passion around it, the commitment to it internally. I think it's just been market conditions that they responded to that just caused some delay. But we meet with them every week, teams from France, Italy and the U.S., and we see a team that's very committed to bringing out new lower-cost electric vehicles for the broad market.

All right. The next question, when do you expect results from the automotive qualification and testing of B-TRAN?

Yes, that's a good question. It's a really long process because of the thousands and thousands of power cycles and thermal cycles you have to go through. We're already seeing our first reliability results because there's some of the early tests that we've gone through. And so far, we're doing very well there. I expect getting through that complete automotive certification is probably going to take us to about the middle of the year, which gets us really well positioned for the automobile segment since they're not going to need something that's truly automotive certified until the following year. But we'll have lots of great reliability -- third-party reliability data to share with the prospective industrial customers that we're working with.

Okay. It looks like we have some questions that are very similar. So the next question, can you provide some detail on your yield at both fabs? And second, what is the status of reducing the B-TRAN size? And what is the reduction percentage?

Yes. For the yield, semiconductor customers typically don't actually disclose their actual yield numbers, but we have already achieved what we consider to be a commercial level of yield for our devices at both fabs. The things we're working on now are continuing to just gradually drive those numbers higher and higher. And it gives us the ability to actually produce plenty of devices from a wafer run to satisfy what we see as the demand that's going to be coming over the next couple of years. We -- the question does mention our smaller die. We actually have just completed our first run of our second-generation device. And it's really all around helping us continue to drive cost down because we know that particularly the automotive customers are very cost sensitive. Going to a smaller die that gives the same level of performance basically allows us to get twice as many die out of the same wafer. That first run that we've completed, we're pretty excited about. It looks like it's going to have the performance that we're looking for. And then we'll just focus on the things we need to do to get to the same commercial level of yield of the current product.

And related to that, how does the reduction in die size affect testing and adoption time lines?

It doesn't affected much at all, to be honest with you, because it's really more something that we're targeting as part of our longer-term cost reduction plans. To the customer, it's going to be seamless. They're going -- for example, SymCool, whether it had the current generation die in it or a second-generation die, it's going to have pretty much the same level of performance, the same low conduction losses, the package size is really going to be very similar. Because it's kind of driven by some industry standards in terms of the way packaging is expected to be put together. So to the customer, who want to make this as transparent as possible. And we've told some of them that we're working on it, and they're excited that we're doing it, but they're charging ahead with what we're doing on the first-generation product.

All right. And some more related questions on our sales ramp. So why is 2025 the year of your revenue ramp? And what industrial markets do you expect to see in that initial sales ramp?

Yes. For any new semiconductor device, you have to get through not just the learning curve on the customer base on the technology and getting them to understand it. But they've got to go through their own design cycle to actually first do mockups to evaluate the expected performance. Typically, most of these large companies have multiyear product plans where you've got to go through and get approval for what you're going to be doing for your next-generation products. So it's really getting through that whole design win process that takes time with a new semiconductor. But we feel pretty good about where we are with several of these customers. And we know that one of the first ones that we expect to be targeting here for solid-state circuit breakers is pretty eager to get their first product into the design win stage and get working on prototypes. So I think the performance that people are seeing on the devices has really got several of them kind of reevaluating what was in their prior product plan and looking at now how can they bring out something that's more competitive using B-TRAN.

All right. The next question. You said that some of your IP is protected by trade secrets versus patents. I believe those trade secrets were associated with the manufacturing process. If someone were to get their hands on one of your devices, could they analyze it to figure out how it was manufactured?

It would be extremely difficult because examining a device doesn't tell you what were the process conditions that were actually run at any step in the process. You wouldn't know, for example, at what temperature or what concentration of a certain chemical or anything like that was used to actually produce a certain layer in the device. So we actually spent several years figuring this out, like I say, with some experts from Teledyne and some really brilliant device physicists. And it was a pretty substantial challenge. So examining a device might tell you what the layers are, but it won't tell you how they were done. It won't tell you how one side was protected while the other side was being processed, and it won't tell you how to do it with [good yield].

All right. The next question, this references a slide in the deck that split up our [SAM] by short term and long term. But what is your definition of long term with respect to the industrial and automotive markets?

So for here, in terms of short term, the solid-state switchgear market is immediate. So we've had that product. We've already shipped orders for that. We're expecting really the sales of that to ramp up in the second half of next year. Followed right behind that, also the short-term category was the energy and power markets, so things like renewable energy and energy storage and EV charging. When we look out to the longer-term markets, I would say, not very far behind the SyCool IQ and the energy and power markets. is those industrial markets, so things like UPS systems for data center and motor drives. And the automotive market is the one that really has an extended term where it's -- we're looking at the earliest we would expect to be in automotive models is probably model year '27, which are obviously produced in '26 since they -- those manufacturers typically start sales the year prior to the actual model year, but that would be the earliest. So that's more of a couple of years out.

All right. The next question, how many models at Stellantis will you be designed into? When will you be able to recognize revenue?

We don't know exactly how many. What we do know from our discussions with them is they want commonality across their platform for a broad range of models and brands. We will not be used in things like the really high-end vehicles like Maserati's, and we probably won't be used in some of the other parts of the product line. But what they really want to do is have a common platform. So if it's going into a Dodge or a Renault or a Fiat, it's the same drivetrain. The battery size may be different, but they really want to get commonality as much as possible. I think as we get further along and get through the power module certification with their packaging company, we'll get some better visibility on how many they're going to roll this out to and what time line that looks like. But they told us repeatedly, they really want as much commonality across the platform as they can get.

I'll try to get one more question in. There's a question here specifically about data centers. Is there applicability for your technology in the rapidly growing and high energy AI data centers that are huge users of energy?

Yes. Data centers really are very focused on power quality and protecting the data center if there's disruptions in the quality of power from the grid. So we see applications as it relates to circuit protection upfront in the data center and also in UPS systems, where UPS is a continuously conducting device and is intended to react very quick if he sees any drops in voltage or any power quality issues. So the ability to have low conduction losses ends up being very important in terms of being able to reduce the cost of electricity for the data center because electricity use is the highest operating cost of most of these data facilities.

All right. And I think we're just about out of time.

All right. Well, listen, we thank everybody for joining us. I really appreciate you spending time with us. And if people want to have follow-up discussions or have one-on-one with us, I think we have a couple of openings left on our schedule tomorrow, and we're always happy to make ourselves available for people. Thanks, everyone.

Thank you very much. That does conclude Ideal Power's presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.