Participants

Jeff Christensen; IR; Darrow Associates Inc

R. Daniel Brdar; President, Chief Executive Officer, Director; Ideal Power Inc

Timothy Burns; Chief Financial Officer, Treasurer, Secretary; Ideal Power Inc

Brian Dobson; Analyst; Chardan Capital Markets LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Ideal Power first quarter 2024 results call. (Operator Instructions) As a reminder, this event is being recorded.
I would now like to turn the conference over to Jeff Christensen. Please go ahead.

Jeff Christensen

Thank you, operator, and good morning, everyone. Thank you for joining Ideal Power's first quarter 2024 a conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power's first quarter 2024 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 results and company 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 the associated risks, and we would also refer you to the company's website for supporting company information.
Now I'd like to turn the call over to Ideal Power's President and CEO, Dan Brdar. Dan?

R. Daniel Brdar

Thank you, Jeff, and everyone for joining us on the first quarter 2024 conference call. This morning. I'm eager to share some recent updates on the business since the start of the first year and review our priorities for 2024. Then I'll turn things over to Tim Burns, to review our financials. We'll be pleased to answer your questions after our remarks.
This was an exciting quarter for us as we made significant progress in our customer engagements and commercialization efforts as evidenced by the conversion of customers in our test and evaluation program moving to commercial orders, shipping our first commercial products, the addition of our first distributor and their subsequent customer orders successfully completing the current program phase with Stellantis and the addition of new large companies to our test and evaluation program.
We'll take a look at each of these activities and some additional progress against our objectives for the year. But for those new to Ideal Power, I want to briefly address the markets we serve and the opportunity for our technology. Our technology, Vitran is a low loss bidirectional power semiconductor device that has wide applicability in high-power applications such as solid-state circuit breakers and circuit protection, renewable energy, energy storage, electric vehicles and EV charging, Industrial motor drives UPS systems for datacenters and power converters for a variety of industrial utility and military applications.
Based on a recent study by more door intelligence in their global power electronics market report and company estimates that Vitran's serviceable addressable market or SAM is predicted to more than double over the next five years with a projected 16% compound annual growth rate. The total SAM for Vitran is forecasted to grow from $3.6 billion in 2023 to $7.6 billion in 2028.
Today, this market is currently served largely by conventional power semiconductor devices called IGBTs, which were invented decades ago and are largely believed to have reached the limit of their performance. Primary drivers for all of these applications I just mentioned are the need to reduce costs and improve their efficiency or the useful energy available for the end user customers.
It in essence, is what Vitran was specifically designed to do for electric vehicles. It means lower vehicle first cost and longer range for EV charging. It means lower cost chargers and faster charging for data centers. It means lower operating costs for renewable energy and energy storage. It means more useful kilowatt hours for the end customer.
Last year, we completed the highest technical risks of our technology development, which was making high-performance high quality devices in a commercial wafer fab with good yields our focus for this year and going forward is commercialization of our technology and our products. We're thrilled about our continued momentum and advancement of customer engagements and meaningful steps on our Vitran commercialization roadmap as evidenced by these recent announcements.
First, the fulfillment of initial customer orders for our SimCorp power module, simple power module delivers very low conduction losses for circuit breaker and circuit protection applications in industrial utility, electric vehicle and military markets, and is expected to be the earliest source of our sales ramp.
Second, we added our first distributor, Richardson Electronics for discrete Vitorin devices and simple products. Richardson Electronics has already placed multiple orders with Ideal Power from large global customers interested in our technology for solid-state circuit breaker products for industrial markets.
Third, we successfully completed Phase 2 of our development program with Stellantis, a top 10 global automaker well ahead of schedule. Fourth, we added a global leader in circuit protection, industrial fuses and power conversion technology with over $1 billion in annual sales to the roster of the Vitran test and evaluation program.
Fifth, we're nearing completion of what we expect to be a successful qualification run with our second high-volume wafer fabrication partner. And sixth, we released Vitran and simple videos and application nodes for prospective customers technical audience resulting in the addition of new opportunities to our sales funnel because they help engineering teams at our target customers. Better understand our new technology videos demonstrate the testing of Vitran devices and simple power modules and the compelling advantage Vitran offers.
Before I discuss some of these activities, I want to take a step back and highlight what customers are looking for and the advantages of our approach due to the increasing electrification of our society. There is a growing need for better circuit protection for industrial facilities and the electric utility transmission and distribution system as more renewable energy energy storage and vehicle charging installations are added to our grid.
The current electric utility grid was never designed to safely accommodate the widespread adoption of intermittent generation such as solar or wind energy electric vehicles also need enhanced circuit protection to safely control the use of lithium based batteries and extend their range in addition to huge investment in vehicle charging stations needed to support the adoption of electric vehicles will require significant investment in the utility and industrial infrastructure safely allow these systems to be grid connected and government policy is expected to help accelerate this much-needed infrastructure update and improve the overall reliability of the grid.
On Monday, the US Federal Energy Regulatory Commission approved its first major electric transmission policy update in over a decade to address this growing need to update our grid infrastructure. The new rule aims to speed up new interregional transmission lines to move clean energy to meet the growing demand created by the adoption of EVs and EV chargers, data centers and artificial intelligence.
These trends drive the need for solid-state circuit breakers and circuit protection, which connect orders of magnitude faster than conventional mechanical breakers to safely eliminate parking and the potential for fires and reduce the maintenance parking imposes on traditional burgers. It makes solid-state circuit protection viable requires a very low loss high power semiconductor, which is what the trend provides.
The desire of large companies to bring these solutions to market is what is driving our initial customer engagements and orders and is expected to be the first source of commercial revenue for us. And as it's reflected in our initial super simple orders and the growing list of large companies evaluating our products, key advantage of our simple product is that it not only provides ultra-low conduction losses. It also provides inherent directionality and its design.
So the customer can parallel as many units as they need to get to any rating they desire for their circuit protection products. Scalability gives them significant flexibility in how they size products like circuit breakers, which can range in size from hundreds of volts to tens of thousands of volts while simultaneously lowering component count, energy losses and OEM system costs.
Our progress in this market is evidenced by the growing number of large companies in our sales funnel focused on solid-state circuit breaker and circuit protection and by the advancement of companies in our test and evaluation program, now placing commercial orders for our products. We recently received an order for simple power modules and drivers from one of the Forbes Global 500 leaders in diverse power management markets and our Vitran test and evaluation program.
This global power management market leader is evaluating simple against IGBT modules for use in solid-state circuit breaker applications. The order for simple power modules follows the customers' testing of discrete trend devices as part of our test and evaluation program. In response to this customer's request, Ideal Power provided high volume, multiyear quotes for simple power modules as part of their product planning activities with customers also evaluating our technology for its other power conversion applications.
We expect to convert additional program participants into initial and follow-on orders over the course of this year. As customers complete their technology evaluations and begin working on product designs incorporating simple. Also during the first quarter, we received an order for Vitran devices and a circuit breaker evaluation board from a global leader in power semiconductor and power electronics solutions in connection with its launch of a multiyear DC power distribution system program. This global leader presents multiple opportunities for us as it addresses several of our target industrial markets, including solid-state circuit breakers, industrial grid infrastructure and renewable energy.
We also added a global leader in circuit protection, industrial fuses and power conversion technology with over $1 billion in annual sales to the roster or the Vitran test and evaluation program. This program participant is expected to test and evaluate Vitran power semiconductors for circuit protection and industrial markets, including industrial fuses, renewable energy and energy storage, power conversion for rail transportation and ET power management.
As we said previously, given the evaluation and OEM product design cycles of most industrial companies, volume and revenue will be modest in 2024 as our customers go through their their product planning and product design cycles. Because these customers work towards releasing their products that incorporate our Vitran technology as part of our effort to reach additional customers and leverage the semiconductor infrastructure.
We added our first distributor Richardson Electronics for discrete metering devices and simple power modules have strong technical sales capability, expertise in creating demand and securing sales for new technologies, robust customer support and global reach. Our relationship with them allows us to leverage their extensive customer base and brings Richardson Electronics compelling products to add to their portfolio for their customers needing high and medium voltage power semiconductors.
Which is electronics has already placed multiple orders with Ideal Power from large global customers interested in our technology for solid-state circuit breaker products for industrial markets, including an order from a large global company not previously in Ideal Power sales funnel. We already see customers, particularly in the circuit breaker and circuit protection markets starting to be served by Richardson Electronics.
We expect this trend to continue as we convert program participants initially into distribution customers and ultimately to direct customers for large out of larger OEMs. We're also finalizing an agreement with a second distributor with particular strength in Asia. Our focus is engaging distributors like Richardson Electronics with a strong technical sales team with expertise in securing sales for new technologies and global reach will add more reps and distributors over time to have comprehensive channel coverage.
Turning to the automotive market, automakers are looking for solutions to help them both lower cost and extend the range of electric vehicles to drive mass adoption, which is what Vitran provides for hybrid and electric vehicles with current solutions such as IGBTs and silicon carbide mass specs, there's a trade-off between cost and range. Our technology allows automakers to improve range at the cost of silicon rather than incurring the high cost of silicon carbide devices.
Building upon work done by Toyota on the impact of improving semiconductor performance feature and has the potential to improve the range of electric vehicles of 7% to 10% compared to conventional IGBTs, while offering significant cost savings compared to silicon carbide devices. These are the advantages that continue to be the focus for Stellantis and our funded program for their next-generation EV platform.
Our focus is to use a custom Vitro and power module for use in EV drivetrain inverters and also for battery circuit protection. Our stated goal for the program is to have a custom module production ready by 2025 we expect modest revenue from Stellantis this year as we continued to execute against program milestones and deliverables.
During the quarter, we successfully completed all the Phase two deliverables of the program several months ahead of schedule. Phase two deliverables completed this year included multi wafer run delivery of tested and packaged devices and drivers to both the programs, packaging company and the organization building the initial drug and traction inverter.
We collaborated closely with Lantis and the program partners to supply B trend devices for integration into the custom power module and inverter designs. The device testing results by the Stellantis program validated the expected efficiency improvements anticipated from the use of the trend in the drivetrain. Successful completion of Phase two is customer Valley validation of Vitran and its potential impact on improving EV range in costs.
Next phase of the program now incorporates the production side of their organization and internally is still Lantis is already underway. Recently, the latest issued a solicitation through a large number of Tier 1 suppliers to submit their proposals for a preproduction EV inverter. That includes Vitran since we're already working with some of the Tier 1 suppliers.
They're well-positioned to provide a competitive proposal, but it also introduces Ideal Power to several additional Tier 1 suppliers that are not in our current list of engagements. These companies are the dominant suppliers to many of the global automotive OEMs.
So it provides a great opportunity for us to engage other automakers as we're not constrained in any way under the terms of our agreement with Stellantis, the proposals from Tier 1 suppliers are doing a few weeks at which point the Lantis will down-select to a shortlist of Tier 1 suppliers that will be part of the engagement and scope of our Phase three activity.
As a parallel activity, we're preparing to begin our automotive qualification testing based on the test plan approved by Stellantis as part of Phase two. The supplier has been selected and the runs we intend to use for the initial testing are already in progress while the automotive qualification process is rather lengthy. Taking many months to complete.
We've been working closely with a third party firm selected for the testing to gather information on the most common failure mechanisms from previous automotive qualified products to ensure the packaging design and wafer fabrication activities leverage the lessons learned from other semiconductor qualifications. Successful completion of the automotive qualification process will enable Vitran to be the core of the powertrain inverter for the automaker's next-generation EV platform.
It also strengthens the commercial readiness of our products and technology for industrial customers as the standards for automotive, the automotive industry are the most demanding of any power semiconductor application. An advantage to our approach for the foreseeable future is that the wafers and resulting dyes are all exactly the same for any application, whether it's going into a circuit breaker, electric vehicle energy storage system or solar installations, we can ramp up production cost effectively because we don't have to forecast wafer demand and die design mix based on that on the application, they're all the same for us.
Another advantage to our approach is our ability to leverage the huge investment already made in silicon wafer fabrication and packaging for power semiconductor devices. Our asset-light business model gives us the ability to continue focusing on technology improvement while quickly incorporating customer feedback into our product roadmap so quickly and what we were doing to ensure the supply chain is able to support our longer-term sales and production ramp and manage costs.
Our second high-volume wafer fabrication partner is nearing completion of the qualification runs. This wafer fab in Europe will support future revenue growth and add dual sourcing for wafer fabrication. We're very pleased with the capability of the team and their expertise as a wafer fab that already makes high-power semiconductors.
They bring a high level of fabrication expertise and are eager to play a role in bringing a novel high-performance product to market that's focused on the market segments driving long-term growth in the power semiconductor industry. We're leveraging the proven process flow being used at our existing wafer fab in Asia and their progress has been excellent. The run at this European fab is nearing completion, and we're confident it'll result in working devices. On the first run, we expect to complete the qualification of this gap in the coming weeks.
At our existing fab, we've been pleasantly surprised by their rapid progress. Our initial qualification run produced excellent devices with a yield much higher than expected on initial qualification rates. Our expectation was that through most of next year, we'd be working closely with them to drive wafer yield up to the commercial levels needed for a mature technology. Our most recent few runs are already achieving the yields that we were targeting for next year. So we're excited to see this level of performance because it enhances our capacity and lowers our device costs.
Looking briefly at our intellectual property, we're not aware of any competing inherently bidirectional technologies that are using anything similar to our technology. In addition, we treat the proven process flow. We used to make our devices as a trade secret and work under strict confidentiality with our wafer fabrication partners.
Looking at our expanding Vitran patent estate. We currently have 86 issued Vitran's patents with 39 of those issued outside of the United States. Our current geographic coverage for our patents includes North America, China, Japan, South Korea, India, India and Europe with pending coverage in Taiwan, all representing our high priority hadn't covered geographies.
As part of our product development and introductions, we've expanded our patent efforts to include what we believe to be high-value patents for our driver design controls and packaging designs as both are unique to the bidirectional nature of our technology as a result of our continued innovation. Our list of pending the Vitran patents is now at 41.
We've seen significant commercial progress this quarter and remain very much on track to complete our stated 2024 milestones for our commercialization roadmap. We started fulfilling customer orders for simple. We completed phase two of our program with Stellantis ahead of schedule. We added a global distributor that's already securing orders for us.
We advanced companies from our test and evaluation program to placing commercial orders, and we expanded the roster of test and evaluation program participants are growing our sales funnel. Strong momentum continues, and we remain on track to achieve our 2024 milestones, which include converting large OEMs in our test and evaluation program.
To design wins and our custom development agreements, selling simple power modules to existing and additional target industrial customers, adding one or more additional distributors for our simple products, securing Phase three of and continuing the strong execution on our development program with Stellantis completing the qualification of a second high-volume production fab, beginning a third party automotive qualification testing and capturing initial orders for our simple IQ intelligent power module.
We look forward to several announcements in the coming months as we complete the key objectives we've outlined for the year. We'll maintain our relentless focus on executing our Vitran commercialization roadmap and growing customer engagements.
I'd like to hand the call over to our Chief Financial Officer, Tim Burns, to review our financials. Tim?