Ideal Power Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. The company develops power converters, principally for commercial battery energy storage, integrated solar-plus-storage, and microgrid applications. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $438,029 | $608,167 | $1,289,650 | $1,638,586 |
| Product revenue | $289,000 | $212,495 | $841,600 | $396,465 |
| Gross loss | $121,224 | $11,685 | $287,026 | $101,044 |
| Operating loss | $1,858,461 | $843,825 | $4,922,298 | $2,488,927 |
| Net loss | $1,851,844 | $2,164,768 | $4,900,150 | $5,976,729 |
| Net loss per share | $0.26 | $1.46 | $0.70 | $4.04 |
At September 30, 2014, cash and cash equivalents were $9.73 million, current assets $10.58 million, and working capital $9.41 million. Current liabilities were $1.17 million. The balance sheet reports no debt; liabilities consisted of accounts payable and accrued expenses. Accumulated deficit was $21.65 million.
For the first nine months, operating cash use was $3.82 million, investing cash use was $592,084, and financing provided $4,987. Cash declined $4.41 million from year-end 2013. Product costs exceeded product revenue, and the company recorded gross losses in both comparison periods.
Changes versus comparable periods
- Q3 revenue fell 28%; nine-month revenue fell 21%. Lower grant revenue and the absence of Lockheed Martin royalty revenue more than offset higher product sales.
- Product revenue rose 36% in Q3 and more than doubled for the nine-month period, reflecting battery-converter orders.
- Grant revenue declined to $149,029 in Q3 and $448,050 for nine months, versus $370,672 and $1.17 million, respectively. Management attributed the decrease to ARPA-E spending timing and, for the nine-month comparison, completion of an SBIR grant.
- Operating expenses increased substantially: nine-month R&D rose 90%, sales and marketing 173%, and general and administrative 77%, primarily due to personnel, contract labor, professional fees, and stock compensation.
- Net loss improved year over year, mainly because 2013 included substantial convertible-note discount amortization; operating loss worsened. The notes converted to common stock when the IPO closed in November 2013.
Outlook, commentary, and risks
- No numerical revenue, earnings, or cash-flow guidance was provided. Management expected product revenue to increase in coming quarters as higher-volume orders shipped, while anticipating continued investment and increases in R&D and sales and marketing expenses.
- After quarter-end, the company introduced 125kW battery and hybrid converters and reported an initial 125kW hybrid-converter order from Coda Energy. It also announced 3.5MW of 30kW battery-converter orders from two customers for delivery from October 2014 into early 2015. These are subsequent developments, not Q3 revenue.
- Management said the company does not generate enough revenue to sustain operations and has no committed source of financing. It may need additional financing or other alternatives if IPO proceeds and operating resources prove insufficient; it warned that inability to raise funds could require severe curtailment or cessation of operations.
- Customer and funding concentration remain material: ARPA-E represented 35% of nine-month revenue and 40% of receivables at quarter-end. The company also identified risks involving commercialization, customer demand, competition, manufacturing, intellectual-property protection, and continued access to financing.
- The $2.5 million ARPA-E award had about $129,000 of value remaining to be recognized at September 30. Management expected total project costs to exceed the original estimate by approximately $0.5–$1.0 million, with the incremental cost funded by the company.
- The company entered a 48-month Austin office and laboratory lease; remaining base-rent commitments were $587,141, excluding building operating costs. It also provided a generally ten-year product warranty; the recorded warranty reserve was $130,449.
Most important facts to verify
- Whether announced customer orders convert into shipments, recognized revenue, and cash collections on expected timelines.
- Whether product sales can achieve positive gross margins as testing costs, production volumes, and product mix change.
- Cash burn and financing needs relative to the $9.73 million cash balance; the filing does not give a specific cash-runway estimate.
- Dependence on ARPA-E and other concentrated customers, including the timing and conditions of grant reimbursement.
- Potential dilution: 1,323,259 options and 1,617,376 warrants were outstanding at quarter-end; some option awards were contingent on shareholder approval.