Ideal Power Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Ideal Power develops and sells power-conversion systems for solar-plus-storage, microgrid and related applications, and is developing B-TRAN semiconductor-switch technology. On April 16, 2018, it reorganized into Power Conversion Systems and B-TRAN divisions.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $620,000 | $253,000 | $801,000 | $529,000 |
| Gross profit (loss) | $35,000 | ($511,000) | ($118,000) | ($946,000) |
| Operating expenses | $1.79 million | $2.71 million | $3.70 million | $5.34 million |
| Operating loss | ($1.76 million) | ($3.22 million) | ($3.82 million) | ($6.29 million) |
| Net loss | ($1.72 million) | ($3.21 million) | ($3.78 million) | ($6.28 million) |
| Net loss per share | ($0.12) | ($0.23) | ($0.27) | ($0.50) |
- Q2 gross margin was approximately 5.7%; six-month gross margin was approximately negative 14.8%.
- Six-month operating cash used was $2.94 million, versus $4.35 million a year earlier. Investing cash used was $98,000; financing cash used was $2,000. The prior-year period included $13.66 million of financing proceeds, primarily from a private placement.
- Cash and cash equivalents were $6.98 million at June 30, 2018, down from $10.02 million at year-end 2017. Total assets were $10.56 million, total liabilities $2.13 million, and stockholders’ equity $8.43 million. The balance sheet reports no borrowings or long-term debt.
- Current assets were $7.89 million and current liabilities $1.67 million. The company reported that its revenue was insufficient to sustain operations and that continued operations depend on adequate funding from future revenue, financing, partnerships, IP transactions or other alternatives.
Changes and operating drivers
- Revenue rose 145% in Q2 and 51% for the first half, primarily from higher SunDial Plus sales. The company attributed lower net losses versus 2017 to expense reductions, favorable legal outcomes, and larger prior-year inventory, patent and bad-debt charges.
- Operating expenses fell year over year in both periods, including lower R&D, G&A and sales and marketing spending. Cost of revenue declined, but the first-half gross loss persisted because of higher manufacturing costs, expedited production and a net $100,000 unfavorable warranty adjustment.
- Revenue was concentrated: two customers represented 60% of six-month 2018 revenue. Three customers represented 44% in the comparable 2017 period.
Outlook, risks and notable items
- No quantified revenue, earnings or cash-flow guidance is provided. Management describes plans to continue commercializing PPSA-based power-conversion products and developing B-TRAN; B-TRAN is not yet commercially available.
- Management reported Q1 2018 proof-of-concept testing of double-sided B-TRAN prototypes, with measured electrical losses below 40% of conventional power switches, and said development runs were underway with two fabricators. Engineering samples for evaluation by potential customers and partners remained a next development objective.
- The Libra Industries arbitration resulted in a $328,451 award for the company, received August 2, 2018. The Q2 statements recognized the award through reductions to product costs and G&A and recorded it in current assets at June 30.
- A former-customer garnishment generated $203,121 in April 2018. The company reversed a $162,000 doubtful-account allowance after the former customer did not file for bankruptcy during the quarter, and recognized related late-fee interest and partial legal-cost recovery.
- The company extended its Austin office and laboratory lease through May 21, 2021; disclosed future minimum lease payments total $561,100. Warranty reserves were $492,132 at June 30.
- Risks include continued losses and financing needs, limited sales history, customer and market adoption, product development and certification, manufacturing and warranty performance, and potential added costs or operational complexity from the two-division realignment. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Cash consumption, available funding, and the timing of any need for additional capital.
- Whether revenue growth can continue and translate into sustained positive gross margins, given manufacturing costs and warranty exposure.
- Customer concentration, order pipeline and customer adoption of Stabiliti and SunDial Plus systems.
- B-TRAN fabrication progress, engineering-sample timing, performance validation and potential commercial or licensing arrangements.
- The liquidity disclosure contains an apparent period inconsistency: it gives net working capital and long-term debt figures as of June 30, 2017, although the surrounding discussion concerns June 30, 2018. The filing text does not clearly resolve this reference.