Ideal Power Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Ideal Power develops and sells power-conversion systems for energy storage, solar-plus-storage, and microgrid applications, using its proprietary Power Packet Switching Architecture. The company reported limited historical product revenue and continued to fund operations primarily through equity sales.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Product revenue | $496,644 | $1,197,991; down 59% |
| Gross profit | $1,890; gross margin approximately 0.4% | $178,490; gross margin approximately 14.9% |
| Operating expenses | $2,812,846 | $2,375,961 |
| Operating loss | $2,810,956 | $2,197,471 |
| Net loss | $2,802,347 | $2,192,998 |
| Loss per share, basic and diluted | $0.29 | $0.31 |
| Cash used in operations | $2,575,871 | $1,592,263 |
- At March 31, cash and cash equivalents were $12.28 million, current assets $13.74 million, current liabilities $1.95 million, and reported working capital $11.79 million. The current ratio was approximately 7.0.
- Total liabilities were $2.21 million, including $259,476 of long-term liabilities associated with future payments under a patent license agreement. Management separately reported long-term debt of zero.
- Investing activities used $203,493; financing activities provided $35,536 from option and warrant exercises. Cash declined $2.74 million during the quarter to $12.28 million.
Material changes and management commentary
- Revenue fell primarily because California’s Self Generation Incentive Program awards were delayed, disrupting customer orders in the early standalone-storage market. Three customers represented 35%, 32%, and 14% of Q1 revenue; three customers also represented 76% of trade receivables.
- Gross profit approached break-even as lower unit volumes and initial low-volume sales of the 125kW PCS weighed on results. Research and development expense rose 49% to $1.48 million, mainly due to B-TRAN development and added engineering staff. Management expected R&D spending to decrease after fully packaged B-TRAN devices are developed and tested.
- Cash used in operations increased year over year, reflecting the larger net loss and working-capital outflows. The lower loss per share despite a larger net loss reflected a higher weighted-average share count.
- Management said existing revenue was insufficient to sustain operations and cautioned that available working capital might not suffice to reach commercialization. It noted there was no committed financing source and identified possible additional equity or debt financing, co-development, cost reductions, suspension of operations, or sale or licensing of intellectual property as alternatives.
Outlook, risks, and notable items
- The company announced its SunDial 30kW solar inverter in May 2016, after the quarter, and expected first shipments later in 2016, subject to certification. It planned to seek UL1741 certification for the 125kW multi-port PCS in late 2016 or early 2017.
- Management described ongoing VFD commercialization planning and B-TRAN development. The filing reported successful testing of B-TRAN silicon dies in April 2016; testing a fully packaged device was identified as the next major commercialization milestone. These statements are forward-looking and not assurances of product launch, certification, or sales.
- Principal risks include sustained losses, uncertain customer adoption and market timing, competition and technology changes, manufacturing capability, intellectual-property protection, and the ability to obtain financing. Management reported no material changes to the risk factors in its 2015 Form 10-K and no legal proceedings.
- The company had a one-time option to terminate its Austin office and laboratory lease on May 31, 2017 for approximately $99,000. Remaining base rent commitments at March 31, 2016 totaled $352,698, assuming no early termination.
Investor facts to verify
- Whether California incentive-program delays cleared and customer orders and revenue recovered.
- Gross margins, unit economics, and costs associated with early 125kW product sales as volumes change.
- Cash burn, working-capital needs, and financing availability relative to product-development and commercialization milestones.
- Certification, shipment, and customer-adoption progress for SunDial and the 125kW multi-port PCS, and packaged-device testing and commercialization progress for B-TRAN.
- Customer concentration, receivables collection, and the timing and amount of future license-agreement payments.