Ideal Power Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet figures are as of March 31, 2018, compared with December 31, 2017. Ideal Power develops power-conversion products for solar-plus-storage, microgrid and energy-storage markets, and is developing its B-TRAN power-switch technology. The company reported limited product revenue and stated it does not generate enough revenue to sustain operations.
Key financial results
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Product revenue | $181,500 | $275,670; down 34% |
| Cost of product revenue | $334,963 | $710,930 |
| Gross loss | $153,463 | $435,260 |
| Operating expenses | $1,904,014 | $2,637,665 |
| Loss from operations | $2,057,477 | $3,072,925 |
| Net loss | $2,056,162 | $3,068,384 |
| Basic and diluted loss per share | $0.15 | $0.28 |
| Net cash used in operating activities | $1,827,373 | $2,445,721 |
Gross loss narrowed year over year, primarily because Q1 2017 included a substantial noncash inventory write-down. The company recorded a $150,000 warranty-accrual adjustment in Q1 2018, primarily related to IBC-30 converters. Revenue declined because of lower sales into stand-alone energy storage. Research and development expense fell 36%, and sales and marketing expense fell 53%, principally reflecting cost reductions and lower related expenses.
Liquidity and balance sheet
- Cash and cash equivalents were $8.15 million, down from $10.02 million at December 31, 2017.
- Working capital was $7.48 million. Current assets were $8.78 million and current liabilities were $1.31 million.
- Management reported no long-term debt. Total liabilities were $1.77 million, including $459,216 in long-term license-related liabilities.
- Operating and investing activities used $1.83 million and $41,606, respectively; there were no financing cash flows in Q1 2018. In Q1 2017, financing provided $13.67 million, mainly from a private placement.
Outlook, developments and risks
The company provided no quantified financial guidance. Management said its Q2 backlog indicated that the solar-plus-storage market was beginning to transact and that meaningful future revenue growth might be achievable. This is an expectation, not a guarantee.
In Q1 2018, Ideal Power completed proof-of-concept testing of double-sided B-TRAN prototypes. The company reported measured electrical losses below 40% of those of conventional power switches in its testing; it has no commercial B-TRAN products and must continue development and testing.
On April 16, 2018, the company reorganized into Power Conversion Systems and B-TRAN divisions. It identified potential added costs, operational complexity and management distraction from the realignment. It also depends on future funding sources, including revenue, equity or debt financing, co-development arrangements, or IP licensing or sales. Other disclosed risks include customer adoption, product development and certification, contract-manufacturer performance, warranty costs, and the company’s history of losses.
The company is in arbitration with former contract manufacturer Libra Industries; it had accrued $100,000, but could not estimate any additional possible loss. On April 11, 2018, it received $203,121 from a garnishment judgment for a former customer’s overdue receivable. The $162,000 receivable remained fully reserved at March 31 because the funds could be subject to clawback if the former customer filed for bankruptcy. A lease amendment signed after quarter-end extended the facility lease through May 31, 2021, with disclosed future minimum payments totaling $576,497.
Important facts for investors to verify
- Whether the Q2 backlog converts to shipments, revenue and improved product economics, given the company’s low revenue and recurring operating losses.
- Cash consumption and access to additional financing; Q1 operating cash use was $1.83 million, and management said revenue does not sustain operations.
- Progress, customer interest and commercialization timing for B-TRAN, including whether prototype results are repeatable in engineering samples and products.
- Resolution and potential financial impact of the Libra arbitration, and whether the garnishment proceeds remain collectible without clawback.
- Customer and revenue concentration: three customers represented 65% of Q1 revenue; four customers represented 73% of net trade receivables.
- Costs and execution effects of the two-division realignment, and warranty exposure associated with existing products.