Ideal Power Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless noted. Ideal Power develops power-conversion systems using its Power Packet Switching Architecture, with an initial focus on commercial and industrial battery storage, solar-plus-storage, and microgrid applications. It designs products and uses contract manufacturers; sales are made directly and through a distributor.
Financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $1.198 million | $291,095 |
| Product revenue | $1.198 million | $108,500 |
| Grant revenue | $0 | $182,595 |
| Gross profit (loss) | $178,490 | $(106,129) |
| Gross margin | 14.9% | (36.5%) |
| Operating expenses | $2.376 million | $1.323 million |
| Operating loss | $(2.197) million | $(1.429) million |
| Net loss | $(2.193) million | $(1.421) million |
| Basic and diluted loss per share | $(0.31) | $(0.20) |
| Operating cash flow | $(1.592) million | $(1.517) million |
Balance sheet and liquidity
- At March 31, 2015, cash and cash equivalents were $6.169 million, down from $7.912 million at December 31, 2014. Total current assets were $7.501 million and current liabilities were $1.705 million; reported working capital was $5.796 million.
- Total assets were $9.039 million and stockholders’ equity was $7.334 million. The company reported no long-term debt.
- Investing activities used $235,186, primarily for property and equipment and patents. Financing activities provided $84,813 from option exercises.
- Accounts payable and accrued expenses totaled $1.705 million. The company had $509,979 in remaining base-rent commitments under its Austin lease, assuming it does not exercise the early-termination option.
Changes, outlook, and notable items
- Revenue increased 312%, primarily because of higher sales of the 30kW Battery Converter. Product sales generated all Q1 2015 revenue; the ARPA-E grant had been fully recognized by December 31, 2014.
- Gross profit turned positive with higher product sales, but operating loss widened 54% as operating expenses rose. Research and development costs increased as the company added engineering resources and self-funded advanced power-switch development after grant funding was exhausted.
- Management said the 30kW Battery Converter was selling in volume and described firm customer orders for four newer products. The filing anticipated first articles of its 125kW products in spring 2015 and expected UL certification for three newer products during 2015; these are forward-looking expectations, not reported results.
- The company planned to continue product development, commercialization, intellectual-property protection, and hiring; it anticipated adding approximately 5–10 employees by year-end 2015, depending on development needs. No specific revenue, earnings, or profitability guidance was provided.
- Unusual items included a $69,482 write-off of capitalized patent costs after discontinuing pursuit of associated patents; a $140,000 severance-related accrual following the former Chief Marketing Officer’s resignation; and inventory write-offs and reserve adjustments, with no obsolescence reserve remaining at quarter-end.
- Management cautioned that revenue was not sufficient to sustain operations, profitability was uncertain, and there was no committed future financing source. The company had a shelf registration permitting offers of up to $75 million in securities. Customer concentration was notable: three customers accounted for 51%, 13%, and 13% of Q1 revenue, and two customers represented 72% of trade receivables at March 31.
Important facts for investors to verify
- Whether product shipments, customer orders, and anticipated certifications for newer products progressed as planned.
- Cash use and financing needs relative to the $6.169 million quarter-end cash balance, particularly given continuing operating losses and no committed financing.
- Whether product margins improve as volumes grow, and whether operating-expense growth moderates.
- Customer concentration, collection of receivables, and potential exposure to warranty costs; the company generally provides ten-year product warranties.
- Potential dilution from outstanding options and warrants, and any securities issuance under the shelf registration.