Earnings Call Transcript - IPWR Q4 2023

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Ideal Power Fourth Quarter and Full Year 2023 Results Call. As a reminder, this event is being recorded. I would now like to turn the conference over to Jeff Christensen. Please go ahead.

Jeff Christensen, Moderator

Thank you, Matt, and good morning, everyone. Thank you for joining Ideal Power's fourth quarter and full year 2023 conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power's fourth quarter and full year 2023 financial results press release is available on the company's website at idealpower.com. Before we begin, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we would also refer you to the company's website for more supporting company information. Now I would like to turn the call over to Ideal Power's President and CEO, Dan Brdar. Dan?

Dan Brdar, President and CEO

Thank you, Jeff. Good morning, everyone, and welcome to our fourth quarter and full year 2023 financial results conference call. I'll first update you on our progress since the start of the fourth quarter and then review our priorities for 2024 to commercialize our B-TRAN semiconductor technology. And then Tim Burns, our CFO, will take you through the numbers, after which we'll take your questions. We made great progress delivering against our B-TRAN commercial roadmap in 2023, and that progress has continued into 2024 as our customer engagements are expanding. While we're certainly excited about our progress and recent news, we're even more excited about how 2024 is shaping up for the company. Since the start of the fourth quarter, we successfully completed several additional milestones and had some very positive customer recognition that collectively confirms our continued progress on our B-TRAN commercialization roadmap. We're thrilled about our momentum, recent successes, customer feedback, and recent announcements in these major areas. First, we commenced SymCool power module shipments to fulfill customer orders. The SymCool power module targets industrial markets, particularly the solid-state circuit breaker market, and is expected to be the earliest source of our product revenue and sales ramp. Second, we successfully completed Phase 2 of our development program with Stellantis, a top 10 global automaker. Notably, the name Stellantis was disclosed by Ideal Power for the first time in Q4 of 2023. Third, Stellantis recognized Ideal Power as a finalist in their 2023 Stellantis Venture Awards. Fourth, we released demonstration videos and application notes related to our B-TRAN and SymCool products to assist the technical teams of our target customers to better understand our products and their use. These videos and application notes have already produced new opportunities in our sales funnel and are generating a high number of views with our target technical audience, demonstrating a growing interest in and awareness of our technology. Fifth, we are nearing completion of a qualification run with our second high-volume wafer fabrication partner. We'll take a deeper look at these activities, but first, I want to take a step back and highlight what is driving the interest in and the need for the technology we're bringing to market. The commercialization of our technology comes at a time when there are significant macro trends in the industrial, renewable energy, energy storage, and hybrid and electric vehicle markets that will act as drivers of our revenue growth for many years. It's not only the long-term growth of solar energy, energy storage, and the adoption of hybrid and electric vehicles. These growing markets are part of the broader global electrification of society. The current electric utility system was designed decades ago and will require enormous investment to accommodate the fundamental changes electrification necessitates. Our utility transmission and distribution system was not designed to accommodate the large amounts of distributed solar power for homes and businesses, the build-out of a nationwide electric vehicle charging infrastructure, and the broad use of localized energy storage by businesses for backup power and electricity cost control. At the core of all these applications, renewable energy, energy storage, hybrid and electric vehicles, EV charging, and utility grid modernization is the need for improved power semiconductors, as they are essential to reducing the cost and improving the efficiency across all applications. Better power semiconductors mean more useful energy for a solar or energy storage installation, longer range and faster charging for an electric vehicle, and lower costs and more efficient use of electricity. That's why we're so excited about the timing of our commercialization and what B-TRAN brings to the market. Our technology has the potential to improve the performance and cost of a wide variety of applications that are part of this fundamental change in how we make, distribute, and use electricity. Looking at the size of the opportunity this creates, based on the recent study by Mordor Intelligence, in their global power electronics market report, the B-TRAN serviceable addressable market (SAM) is predicted to more than double over the next five years with a projected 16% compound annual growth rate (CAGR). The total SAM for B-TRAN is forecasted to grow from $3.6 billion in 2023 to $7.6 billion in 2028, driven by these macro trends. Looking forward, we'll continue to execute on our B-TRAN commercialization roadmap. Our priorities for 2024 are to convert large OEMs and our test and evaluation program into design wins and/or custom development agreements; sell simple power modules to additional target industrial customers; add distributors for SymCool products; continue the strong execution on our development program with Stellantis; begin third-party automotive qualification testing; complete the qualification of a second high-volume production fab; and capture initial sales of our SymCool IQ intelligent power module. I'll discuss the highlights of some of these priorities, along with other opportunities and developments. There's a growing list of customers working with our team in each of our key target markets, and I'm pleased and excited about our progress and the feedback we're receiving from our growing customer engagements. We expect industrial markets, and in particular, the solid-state circuit breaker market served by our SymCool power module, to be the earliest source of our product revenue and drive our initial sales ramp. The interest in our SymCool product is driven by the need for better circuit protection within the utility distribution system, industrial facilities, the need to be able to quickly isolate solar farms and energy storage facilities, and even circuit protection within hybrid and electric vehicles. Later this year, we're expecting initial sales of our SymCool IQ intelligent power module. The SymCool IQ takes our SymCool power module and adds an intelligent driver to allow localized control in operation. The SymCool IQ product applies to the renewables market, particularly renewables coupled with energy storage, standalone storage, microgrids, EV charging, and other industrial markets. Like the solid-state circuit breaker market, these applications have a shorter design cycle compared to the automotive industry. Targeting the industrial, power, and renewables markets first gives us the ability to ramp up our supply chain and revenue, so we are ready to serve the high volume we expect to be driven from auto manufacturers for their hybrid and electric vehicle platforms. With the visibility of our technology and products growing, we're now receiving numerous inbound inquiries from companies in our early target markets looking to learn more about our products. To better serve these customers and provide the ability to purchase products in smaller volumes, we're adding distributors for customers wanting parts for evaluation, some of which will later turn into volume supply agreements with us. We're finalizing our first agreement with a distributor for our products. We've also selected a second distributor with particular strength in Asia and have begun crafting an agreement with them as well. Our current focus is engaging distributors with strong technical sales teams, expertise in securing sales for new technologies, and global reach. We'll add more sales reps and distributors over time that have comprehensive channel coverage. As we said previously, given the evaluation and OEM product design cycles of most industrial companies, volume and revenue will be modest in 2024, and we expect to see the start of a ramp-up in sales in the second half of 2024 as customers work to release products that incorporate B-TRAN. Turning to Stellantis. We're thrilled with our progress in their program to use B-TRAN in their future EV drivetrain. Due to the strong performance of our team and our technology, we're continuing to earn our place in the program and recently announced that we successfully completed Phase 2 of the program several months ahead of schedule. Phase 2 deliverables included a multi-wafer run, the delivery of tested B-TRAN devices and drivers to both the program's packaging company and the organization building the initial drivetrain inverter, and the delivery of a comprehensive test plan for auto qualification that was subsequently approved by Stellantis. We collaborated closely with Stellantis and the program partners to supply B-TRAN devices for integration into the custom power module and inverter designs. The device testing results by the Stellantis program team validated the expected efficiency improvements anticipated from the use of B-TRAN in the drivetrain. As part of Phase 2, Stellantis also conducted a data-driven comprehensive assessment of the technology readiness for implementation into their electric vehicle platform. We're pleased to say the outcome of the assessment was very positive. Successful completion of Phase 2 was also customer validation of B-TRAN and its potential impact on improving EV range and cost. Additional validation was provided by Stellantis in December when they named us a finalist in the 2023 Stellantis Venture Awards. Our selection was based on our successful collaboration and performance in the program, the potential impact on customer experience, novelty of the technology, and its potential scale within Stellantis. We're leveraging our success with Stellantis to attract and engage additional companies interested in our technology for their applications, including other industrial and automotive OEMs and Tier 1 automotive suppliers. We're currently finalizing the scope of work for Phase 3 of the program with Stellantis, which now includes the production side of their team. This phase is expected to include extensive testing of the custom B-TRAN module to meet automotive certification standards, enabling B-TRAN to be the core of the powertrain inverter for the automaker's next-generation EV platform. Their stated goal for the program is to have a custom module production ready by 2025. Stellantis is funding the program. We had modest revenue from them in 2023 and expect modest revenue from Stellantis again in 2024. Due to its compelling advantages, B-TRAN is also being evaluated for Stellantis' vehicle power management, circuit protection, and EV charging ecosystem. As a reminder, this program represents our second engagement with one of the world's leading automotive manufacturers, as another top 10 global automaker is already in our test and evaluation program. Substantial progress continues with our test and evaluation program participants, particularly for solid-state circuit breaker and hybrid and electric vehicle applications. This year, we expect to convert large OEMs in our test and evaluation program into design wins and/or additional custom development agreements. Our test and evaluation program includes several large global companies that present multiple opportunities for Ideal Power. Taken as a whole, they address all of our target markets. While initially interested in a specific application, these program participants have, in many cases, expanded their interest to several applications in their product portfolios to take advantage of the benefits of B-TRAN. Customer shipments to the test and evaluation program participants included multiple package B-TRAN devices, the device driver, and a power test board housed in a safety enclosure to facilitate and accelerate the evaluation process. To date, B-TRAN shipments to test and evaluation program participants include a top 10 global automaker, a global Tier 1 automotive supplier, a leading provider in the solar industry, two Forbes Global 500 power management companies, a global provider of backup power and energy management solutions, and several others with additional kits to follow for new participants. While these large companies move slowly, several have advanced beyond the evaluation stage and are requesting multi-year product volume quotes or custom product development proposals and, in many cases, are providing us specific feedback for our long-term product planning roadmap to closely align with their requirements. The conversion of a single opportunity could potentially significantly impact the trajectory of our pending revenue. As you know, our test and evaluation program will remain an embedded process in our sales and marketing effort and a source of input to our next generation of products. We'll continue to add additional potential customers to the program for those customers that represent an opportunity for us to collaborate with a market leader for a specific market segment. The program allows us to get a good handle on customers' technology evaluation processes, their product design cycles, and their commercial plans. Beyond the high-profile companies in our test and evaluation program, we're already seeing customers, particularly in the circuit breaker and circuit protection markets, ready to be served by our distributors as we bring them on board. Let's turn to the supply chain that ensures we'll be prepared to support our sales and production ramps. Our second high-volume wafer fabrication partner is nearing completion of a qualification run. This wafer fab in Europe will support future revenue growth and add dual sourcing for wafer fabrication. We're very pleased with its progress with no major issues to date and look forward to receiving the wafers from this lot and assessing their performance with the completed wafers and resulting B-TRAN dies. We expect to complete the qualification of this fab as early as the second quarter of 2024. Last year, we qualified an Asian wafer fabrication supplier with high-volume capability. With these two wafer foundry partners on board, we'll have dual sourcing for wafer fabrication in different parts of the world with no exposure to China. Our dual sourcing strategy will allow us to proactively secure not only the necessary production capacity but also the ability to source components and services from partners in disparate geographies as part of our strategy to mitigate supply chain risk. This dual sourcing will provide us with sufficient supply capacity for the large customers we're engaging. We're confident each of these wafer fabs has ample capacity to meet our expected demand over at least the next two to three years. Automotive qualification testing will begin later this year. Being automotive qualified helps us across the board in both automotive and industrial applications. It conveys a lot about the robustness of your design and its ability to handle extremes of the environment for shock, vibration, and power cycling. It helps industrial customers gain comfort in the readiness of a new technology. With our certification test plan now approved as part of Phase 2, the certification testing firm we intend to use has been selected. Once Phase 3 with Stellantis is underway, we'll begin the wafer runs that we plan to use for auto certification. While it may change at some point in the future, one advantage we have for the foreseeable future is that for any application, like hybrid electric vehicles or solid-state circuit breakers or solar and energy storage, the wafers and resulting dies are all exactly the same. We can ramp up production robustly because we don't have to forecast wafer demand and the die design mix based on the application. Another advantage to our approach is our ability to leverage the substantial investment that's already been made in silicon wafer fabrication and packaging for power devices. Our asset-light business model gives us the ability to continue focusing on technology improvement while being able to quickly incorporate customer feedback for our product roadmap. Although the interest in bidirectional power semiconductors continues to grow, we're not aware of any competing inherently bidirectional technologies. Looking at our expanded B-TRAN patent estate, we currently have 82 issued B-TRAN patents, 36 of those issued outside of the United States. Our current geographic coverage for our patents includes North America, China, Japan, South Korea, India, and Europe, with pending coverage in Taiwan, all representing our high-priority patent coverage geographies. As part of our product development and introductions, we're expanding our patent efforts in what we believe to be high-value patents on our driver design and controls and packaging designs, as both are unique to the bidirectional nature of our technology. As a result of our continued innovation, our list of pending B-TRAN patents is now at 39. In addition, we treat our double-sided wafer fabrication process as a trade secret. So even studying our patents, someone wouldn't possess the know-how to fabricate the device. There's an enormous amount of learning that has gone into the fabrication process flow to make high-quality, high-performing double-sided devices for commercial sale. In summary, we're off to a great start already this year, and we're on track to achieve our 2024 milestones. We look forward to several announcements in the coming months as we complete the key objectives we plan to accomplish for the year. When we look out over the next 12 months, we're confident we can continue to drive considerable commercial progress in our target markets. We'll maintain our relentless focus to commercialize our technology and facilitate its adoption in our target markets. We expect B-TRAN to displace conventional power semiconductor solutions in many applications with solid-state circuit breakers, renewable energy, energy storage, hybrid and electric vehicles, and other industrial markets. Now I'd like to hand the call over to our Chief Financial Officer, Tim Burns, to review our fourth-quarter financial results. Tim?

Tim Burns, CFO

Thank you, Dan. I will review the fourth-quarter and full-year 2023 financial results. We recorded $61,000 in commercial revenue for the fourth quarter and $161,000 for the full year. Our grant revenue was $37,000 for the full year 2023. Looking to 2024, we expect commercial revenue from both product sales and development agreements. Although we're continuing to pursue government funding opportunities, we do not have any such programs at this time. Operating expenses were $2.5 million in the fourth quarter of 2023 compared to $2 million in the fourth quarter of 2022, driven primarily by higher research and development expenses. We completed several wafer runs with our qualified high-volume production foundry. We are also in the midst of a qualification run with a second high-volume production foundry. Operating expenses reflected higher stock-based compensation expense on performance stock units and new hiring. We continue to expect some quarter-to-quarter variability in operating expenses, particularly our research and development spending due to the timing of semiconductor fabrication runs, product development, other research and development activities, and hiring. We expect general and administrative expenses to remain relatively flat in the first quarter of 2024, excluding the impact of stock-based compensation expense. Sales and marketing spending is expected to continue to increase modestly in the coming quarters due to hiring and costs associated with our commercialization efforts. Net loss in the fourth quarter of 2023 was $2.4 million compared to $1.9 million in the fourth quarter of 2022. Full year 2023 net loss was $10 million compared to $7.2 million in the full year 2022. Fourth quarter 2023 cash burn was $2.3 million at the midpoint of our guidance of $2.2 million to $2.4 million, as we continue to manage expenses prudently and aggressively. Cash burn in the full year 2023 was $7.9 million at the midpoint of our guidance of $7.8 million to $8 million and compared to $6.8 million in the full year 2022. We expect first quarter 2024 cash burn of approximately $2.3 million to $2.4 million and full year 2024 cash burn of $8 million to $8.5 million, net of an expected $1 million benefit from proceeds from expiring heavily in-the-money warrants. Cash and cash equivalents totaled $8.5 million at December 31, 2023. We have no debt and a clean capital structure. Given our planned cash burn, which remains modest, we have ample liquidity on our balance sheet to fund operations through 2024. We'll potentially explore several potential sources of funds, including product sales, development agreements, other commercial agreements with upfront payments, and government-funded programs where we see opportunities to collaborate with some of our partners. We're also exploring potential strategic relationships with our well-capitalized partners. For example, Stellantis has a venture fund, and we were named a finalist in the 2023 Stellantis Venture Awards. While we do not know if there's a potential opportunity for us with Stellantis' venture fund, it is something we could choose to explore if we are convinced it wouldn't adversely impact other EV customer opportunities. As a public company, we also have access to the capital markets if necessary. At December 31, we had 5,996,697 shares outstanding, up slightly from the end of September, and 1,040,248 warrants outstanding, unchanged from the end of September. 444,180 of the warrants outstanding are heavily in the money and set to expire in November 2024 if not exercised beforehand. Including 811,478 stock options, restricted stock units, and performance stock units outstanding, we had 7,848,423 diluted shares outstanding at December 31. At this time, I'd like to open up the call for questions.

Operator, Operator

Your first question is coming from David Williams from Benchmark. Your line is live.

David Williams, Analyst

Hi, good morning, gentlemen, and thanks for taking my questions.

Tim Burns, CFO

Good morning, David.

David Williams, Analyst

So congrats on all the progress. You're clearly making a lot of headway here, and I've always been impressed with your go-to-market strategy and how quickly that's developed. I guess in that vein, can you talk a little bit about the shipments you had this quarter? And maybe just any color around who that was or what their intent or what the feedback has been since they've received those things?

Tim Burns, CFO

Yes. So they're obviously SymCool product sales. So there are initial shipments of that product. That product is targeting the solid-state circuit breaker market. We have a couple of companies in our test and evaluation program that were Forbes Global 500 power management leaders. There's also, I would say, a couple more that are similar in size to those companies that we're interacting with on a regular basis. So we're not going to name the specific companies, but there are some very large well-known names in the space.

David Williams, Analyst

Okay. Great. And you talked about having the capacity in place for the next several years. I guess what is the opportunity for maybe revenue to inflect a little more quickly than you anticipate? If you started receiving orders or design wins for production later this year, how quickly could you ramp? And do you feel that you have an opportunity if you needed more capacity that you could maybe augment what you have currently with other opportunities?

Dan Brdar, President and CEO

Yes, as far as our ability to produce product at the wafer fabs and the packaging firms, we can ramp down relatively quickly. Even from a material standpoint, the wafers that we use are not special. They are out there available in the silicon commodity wafer market. There's plenty of capacity to actually just do more runs than we have been doing with them. So that ability is pretty quick. So it's really a function of how quickly do we see customer adoption. Technology adoption with customers, especially the big customers that we're working with always seems to take longer than anybody would like. But if they decide they want to start doing something meaningful, we could respond literally within the quarter, I think by ramping up additional product.

David Williams, Analyst

Very nice. Great. And maybe just one last one here. But maybe if you could talk a little bit about the ASP or even the bill of material potential on the solid-state circuit breakers. What does that look like and maybe even on a per-unit basis, but what kind of revenue could we expect as that begins to ramp as you think about volumes?

Tim Burns, CFO

Yes. So for the SymCool, it's a multi-die module. If you look at the IGBT module market out there, those modules typically range anywhere from $100 to $300. We're going to make sure we're price competitive in that market.

Dan Brdar, President and CEO

One of the things that we've done in the design of the SymCool power module is that when you think about high-power circuit breakers for industrial utility applications, they have a huge range in size. They could go from a couple of kilovolts up to dozens of kilovolts. The product is designed, so you can parallel as many units as you want to get to whatever rating you want. So we don't have to make any special modules depending on the size of the breaker. And that's one of the things that we're getting for feedback is the customers that are focusing on circuit breaker applications really like the fact that it gives them unlimited flexibility in how they size the breaker.

David Williams, Analyst

Thanks so much for the time, gentlemen. Appreciate it, and I'll jump back in the queue.

Dan Brdar, President and CEO

Thanks David.

Operator, Operator

Thank you. Your next question is coming from Donovan Schafer from Northland Capital Markets. Your line is live.

Donovan Schafer, Analyst

Hi, good morning, guys. Thanks for taking the questions. So the first one I want to ask about is following and covering the clean energy kind of like utility scale solar space. There's an acute pain that the project developers are feeling right now and it's flowing through and impacting a lot of the utility scale equipment providers that I cover. And one of them is high-voltage circuit breakers. I know this stuff can be pretty nuanced and technical, like there may be differences. For instance, the B-TRAN may not be applicable for a high-voltage type grid application or there could be a long validation process where you need utility sign-off and say, yes, we're going to allow such and such a piece of equipment to connect into our wires or protect our system and so forth. But the pain point right now is kind of more high voltage, but you go through the whole spectrum or the whole gamut going down to the panel level and building up to where you tie into the grid. So I'm curious if you're seeing any incremental interest or folks taking a greater interest in this kind of approach? If it is portable or transferable to those applications? And if with the current problems the industry is having there, if that's something you'd be able to benefit from? Or if it takes too long and so maybe not necessarily this cycle but the next time a bottleneck like this emerges in the space, you could execute on it? Just curious if you have any color on that.

Dan Brdar, President and CEO

Yes. I mean the nice thing about the way we have done SymCool is that you can let it handle something that is at 1,200 volts or you can do something at 12,000 volts. That's a big part of why these Forbes Global 500 companies are really interested in understanding our technology because they'll figure out what's the right size, whether it's really high voltage or whether it's going to be something that is a much more localized level at the panel level and figure out what's the right solution there. Our technology gives them the ability to have the same semiconductor in this huge range, so they can craft the solutions to give them a really unique offering compared to the rest of the marketplace. So we expect to participate in both ends of that spectrum.

Donovan Schafer, Analyst

Okay. So there isn't a requirement for a specific number of B-TRAN devices to be connected in series or parallel, since there is a modular aspect that allows for flexibility in achieving different classifications based on voltage and current. However, there may be some incremental losses involved, though one of the advantages is indeed fewer losses compared to other types of circuit breakers. My question is whether these losses can become significant at any point.

Dan Brdar, President and CEO

No. In fact, what actually happens is you parallel losses and losses go down. I mean, you actually can be really impactful as you get to bigger and bigger breakers, where you get to a level of losses that if you're doing IGBTs, you can't even begin to touch it.

Donovan Schafer, Analyst

That's great. Along similar lines regarding the EVs in Phase 2 with Stellantis, I understand from the release and the prepared remarks that one of the goals was for the customer to validate potential improvements in range and cost for the EV. These aspects seem interchangeable because enhancing the range allows for fewer batteries, which lowers costs, so you can prioritize one over the other. Were they successful in quantifying this, and can you share any specific numbers? If not, could you provide a general sense of how significant this attribute might be for them?

Dan Brdar, President and CEO

Yes. The large automobile companies have just incredibly sophisticated modeling capability to assess the impact of a whole variety of things on the performance of the vehicle. Just on your one comment, we haven't had any discussions with any automaker where they're talking about reducing the size of the batteries. What they're looking for are solutions that help them lower cost and extend range at the same time because they're fighting both of those issues. So to take batteries out, it doesn't give them a gain in range. With improved semiconductors, so far it's just kind of a nonstarter for them. They want something that tackles both of those issues. And that's what B-TRAN really does. Now because we're working under a nondisclosure agreement with them, they won't let us say what the model improvement was from using B-TRAN, but what we do know is they were really happy that it met their expectations. We did some work ourselves leveraging some analysis that Toyota did looking at improvements in power semiconductors. Our conclusion back then was our technology would improve the range of electric vehicles by 7% to 10% by using B-TRAN instead of IGBTs. So I think the answer they got must have been somewhere in that neighborhood, but I doubt they would let us disclose it.

Donovan Schafer, Analyst

Wow, that's quite impressive. Regarding the development of a custom module for these applications, the needs can vary significantly. With the SymCool module, which contains four B-TRAN dies, I would like to focus on a specific application, let's say for Stellantis. The idea is to create a power module that links to the inverter in the drivetrain. How many dies would be needed for something like that? If SymCool utilizes four, are you suggesting we would be looking at tens, hundreds, or would it be more in line with four, similar to the SymCool module?

Dan Brdar, President and CEO

It will be bigger than SymCool. It depends a lot on the car, the size, the size of the motor that's in there, the metric motor they want to drive, but it could be from maybe as low as eight to 10 to maybe 20. It also depends how many modules they want to use to get redundancy for the modules themselves. So they may break it into a couple of groups just from a reliability standpoint.

Operator, Operator

Thank you. Your next question is coming from Brian Dobson from Chardan Capital Markets. Your line is live.

Brian Dobson, Analyst

Hi, good morning. So you guys did some cover on Stellantis. And you mentioned also conversations with leading global companies. Do you believe their growing network has contributed to starting those conversations? And have you noticed that relationship has opened up new opportunities for you?

Tim Burns, CFO

Yes, both the Navy program for solid-state circuit breakers and our recognition as finalists in the Stellantis Venture Awards have significantly expanded our sales funnel and increased inbound inquiries, especially regarding solid-state circuit breaker applications in hybrid and electric vehicles. We believe this will broaden our opportunities, even with companies outside our test and evaluation program that are now interested in purchasing SymCools, rather than just obtaining customer kits with individually packaged B-TRAN die. We expect this will generate some revenue early on, albeit modestly, as companies seek to acquire several to tens of devices for evaluation, which we haven't yet discussed in the context of the test and evaluation program.

Dan Brdar, President and CEO

The other thing that we saw was, as soon as we announced Stellantis, the other top-tier automaker that is already in our test and evaluation program clearly reacted to that in terms of the level of activity, engagement, and things that they're looking to do with us. So I think they all realize they've got to figure out what their EV platform is going forward. How are they going to tackle the range and cost issues? And how are they going to do something that is innovative? It doesn't look like they're just copying what somebody else has already done.

Brian Dobson, Analyst

Yes, very good. Thanks very much.

Operator, Operator

Thank you. Your next question is coming from Jeff Grampp from Alliance Global Partners. Your line is live.

Jeff Grampp, Analyst

Good morning, guys. I'm curious, with respect to the Stellantis process. Is there a way to kind of compare, contrast the difficulty or risk profile, if you will, between the various spaces? In other words, just trying to assess as an outsider, is it harder or more challenging to pass through a given phase? Or is it just different and maybe a little bit apples and oranges to really characterize in such a way?

Dan Brdar, President and CEO

I don't think there are significant differences from one phase to the next. Each phase has different levels of focus, but the criteria are made clear from the start in each phase. There's a shared understanding of what the deliverables and criteria are. For instance, during the technology readiness assessment, they provide us with all the data necessary for us to meet the production criteria. They have been great to work with, and their team is highly skilled technically. We have been truly impressed by the quality of their in-house team focused on electric vehicles. While the focus varies slightly in each phase, there are no surprises; it's about doing the work, producing the data, conducting the testing, and meeting their requirements to move something into production.

Jeff Grampp, Analyst

Okay. Great. Understood. And then for my follow-up, I'm curious on the distribution front. You mentioned being pretty close, I think, with at least one distributor. Can you just talk high level, how important you view that sales channel as far as the overall opportunity set for you guys? If we kind of, I guess, exclude the Stellantis of the world, which sound like those can be kind of game changers. But with respect to SymCool and some of these other commercial developments, how important of a sales channel is that for you guys?

Dan Brdar, President and CEO

It's actually very important because we're a small team. And for a new technology, you spend as almost as much time working with small customers as you do a big one, especially early on in that process. So having a distributor that can serve the smaller customers, those that are not likely to go into a strategic supply agreement, actually is a great way for us to start getting revenue into the pipeline without having to build a huge front end of the team to be out there just chasing individual sales.

Jeff Grampp, Analyst

Okay. That makes a lot of sense. Thank you for the time, guys.

Dan Brdar, President and CEO

Thank you, Jeff.

Operator, Operator

Thank you. Your next question is coming from David Williams from Benchmark. Your line is live.

David Williams, Analyst

Hi, everyone. Thanks for letting me ask a follow-up. I wanted to ask just kind of following up on Jeff's question there about the distribution. You talked in the past about one of the biggest hurdles is educating your customers or potential customers. How big of a hurdle do you think that is? Is that something that you can do with the distributors? And I'm assuming you're going to use them for demand creation as well as logistics and order fulfillment. But are there any challenges you see in terms of educating that potential sales force?

Dan Brdar, President and CEO

Not so much as challenges. What's happened is we have worked with customers like Stellantis and some of the other big companies that are in our test and evaluation program; it's forced us to put together material that actually helps the technical audience come up to speed. So we're not having to start from scratch every time. We're getting a lot of reuse out of both the data, presentation material, and discussion material that we've put together for other customers. So we've already taken the first distributor through that. Because they're a technical sales team, they got it. They understood it right away. So what we've told them is, look, if you get stuck at any point in time, we've got field application engineering here. You can call in if the questions get beyond your level, but they came up with their learning curve pretty quickly.

Tim Burns, CFO

Yes. And we actually issued some videos and application notes here just recently for the technical audience, and we'll continue to expand the amount of information we have on the website to support, for instance, sales through distribution.

David Williams, Analyst

Okay. And one just last one, if I may. On the test and evaluation program, is there a way to think about the magnitude of customers that are coming to you outside of that T&E program? And just kind of trying to get a sense of what that interest is outside of that captive T&E audience.

Tim Burns, CFO

Yes. So I would say the interest outside of the program is probably roughly equivalent to the interest in the program. So there are various reasons why someone might not want to sign a test and evaluation agreement or prefer to receive SymCool power modules rather than our B-TRAN test kit, particularly if you look at solid-state circuit breaker applications as an example. So we haven't specified who those customers are or even provided necessarily kind of similar detail that we do with the test and evaluation program, but that's just our approach. If we don't have a signed agreement, we generally try to avoid talking about those opportunities with any form of specifics.

David Williams, Analyst

Fantastic. Well, keep up the good work, gentlemen, and looking forward to continued success.

Dan Brdar, President and CEO

Thanks, David.

Operator, Operator

Thank you. I will now turn this call back to Jeff Christensen to read questions submitted through the webcast. Thank you.

Jeff Christensen, Moderator

Thank you, Matt. Our first question is, can you please explain how B-TRAN fits into applications? Is it different for each application? And how do you think about that for the production of B-TRAN?

Dan Brdar, President and CEO

Actually, for us, it's one of the advantages of our technology is that it's the same node regardless of the application. Whether it's packaged a little bit differently, what we're actually going to make in the wafer fab is the same, whether it's going into an electric vehicle, a circuit breaker, or an energy storage or solar installation. As I mentioned in my prepared remarks, that might change over time. We'll see as we continue to make improvements in the B-TRAN technology. But for now, it gives us a lot simpler approach to ramping production because we don't have to be too focused on whether the wafers being made are going to go to electric vehicle applications or solid-state circuit breakers. They're all the same for us.

Jeff Christensen, Moderator

We have several questions here. The next question is regarding the significant interest in silicon carbide and GaN. How does B-TRAN performance compare with these materials? Additionally, do you anticipate B-TRAN topology being applied to these materials in the future?

Dan Brdar, President and CEO

Yes. They are really targeting different things. GaN really started where you need very, very fast switching. Some things like radio frequency have been moving into power applications. If you think about your computers, your laptop chargers, those are probably GaN-based devices. They've been trying to get to higher and higher voltage. There are some limitations in terms of what you can do with GaN that comes from the nature of the material and the technology. Both GaN and silicon carbide are expensive. We actually have the ability to take our technology to silicon carbide, for example. But we haven't really been too focused on that yet, simply because of the fact that silicon carbide needs to come down significantly in cost, it needs to improve in quality and it's not trivial. For example, if I go buy a silicon wafer, it costs me $60. If I go buy a silicon carbide wafer, it's $800. Part of what's driving some of the things you've seen, like Tesla announcing they want to reduce the amount of silicon carbide by 75%, is all about how do you get the cost down but still improve performance. That's what really creates the opportunity for B-TRAN. Now as silicon carbide and wide-bandgap materials improve, you'll see us make a silicon carbide device in B-TRAN, but we think that's still a few years away just because there's such a large gap in terms of what silicon carbide and wide-bandgap materials bring for the performance level. So there's a lot of excitement around it, but it really needs to be used in places where you need the ability to go to much faster switching speeds, or much higher temperature, or much higher voltages than what you can do with a silicon device like B-TRAN.

Jeff Christensen, Moderator

Thank you. Another question regarding silicon carbide is, for the future EVs that will utilize silicon carbide platforms, are the enhancements to range with B-TRAN similar to those in the silicon carbide platform versus non-silicon?

Dan Brdar, President and CEO

Yes, it's a very similar kind of improvement because it's really the nature of the architecture itself. One of the other things that can be done that we see as an opportunity. If you look, for example, at what Tesla is doing, rather than going to all silicon carbide MOSFETs, they're going to a hybrid module that includes a silicon IGBT with low-voltage silicon carbide MOSFETs to handle the switching. You can do the same thing with B-TRAN. You can make a silicon B-TRAN with low-voltage silicon carbide MOSFETs to give you the really fast switching. So there are a lot of steps along the way that I think you're going to see in terms of how new semiconductor devices get adopted while everybody's working on bringing down the cost of silicon carbide and improving its quality.

Jeff Christensen, Moderator

Thank you. Our next question submitted into the ask-a-question button is, can you talk about the interest level or make additional comments about the interest level among Tier 1 auto suppliers?

Dan Brdar, President and CEO

Yes, we are engaged with one of the largest auto suppliers in the world. Our conversation began with B-TRAN for the drivetrain, but they have indicated that there are many other products they manufacture that could benefit from B-TRAN. This has expanded our discussion significantly. We are noticing that Tier 1 suppliers are starting to work with us because they want to be involved in the designs of electric vehicles that automotive makers are developing in-house. They have strong capabilities for innovation, and B-TRAN enables them to create innovative designs for circuit protection, quick disconnects on batteries, and the drivetrain itself. They aim to propose these solutions to automakers to offer them a unique advantage.

Jeff Christensen, Moderator

Our next question is about other companies that are developing this bidirectional power switch and who your competitors are.

Dan Brdar, President and CEO

Yes. We really don't see anybody else that's developing an inherently bidirectional device. All the bidirectional switches that we see people putting together are combinations of conventional technologies. They're putting IGBTs back-to-back, which doubles the losses, or they're putting MOSFETs back-to-back. We keep a pretty close eye on what's going on both in the technical literature and things that have happened in the patent office. For example, our team is at the Applied Power Electronics Conference this week, where they're specifically looking at what's going on with others in bidirectional switching. We really are competing against the IGBT makers of the world. So it is the Infineons, the Onsemis, the Fujis. The advantage with us is that as we ramp up in volume and as we have customers, like the automakers who are going to want a second source of supply, we actually would license our technology to them so they can leverage their own investment in their fabrication facilities, their sales, and support organizations. While they are competitors, we think at some point in time, there are going to be a couple of them that are really interested in collaborating with us. In fact, we had one of them reach out to us here just last week, wanting to explore collaboration. We know we're definitely on the radar screen, and we're trying to create a pathway for partnerships rather than pure competition.

Jeff Christensen, Moderator

Thank you. It looks like there are no other questions at this time. Dan, do you have any closing remarks?

Dan Brdar, President and CEO

I just want to thank everybody for joining our call. We made great progress here on our path to commercialize our technology. Our talented team is on track for a very successful 2024. So we look forward to commercial announcements in advance of our next call. Thank you everybody for joining us.

Operator, Operator

Thank you. This concludes today's conference. All parties may disconnect, and have a great day.