Good day and welcome to the Ideal Power First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Chris Tyson, Managing Director of MZ North America. Please go ahead.

Thank you and good afternoon. I would like to thank you all for taking the time to join us for Ideal Power’s First Quarter 2016 Conference call. Your hosts today are Mr. Dan Brdar, Chairman and CEO, as well as Mr. Tim Burns, the Company’s Chief Financial Officer. Dan will provide a business update, which will cover partner announcements, product updates, while Tim will discuss the financial results. A press release detailing these results crossed the wire this afternoon at 4 P.M. Eastern today and it’s available on the Company’s website, idealpower.com. Following management’s prepared comments, we will open the floor to questions for those of you who are dialing in for today’s call. Before we begin the formal presentation, I would 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 maybe 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 also would refer you to the Company’s website for more supporting industry information. At this time, I’d like to turn the call over to Dan Brdar. Dan, the floor is yours.

Thank you, Chris. Our primary focus in the first quarter of 2016 was to begin to diversify our product portfolio beyond our initial market of standalone energy storage by bringing our power packet switching architecture technology to other markets such as PV Solar Plus storage and variable frequency drives as well as continuing the development of our B-TRAN technology and we made strong progress during the quarter. We maintained our stated core objectives of capturing system integration, channel and alliance partners, bringing out innovative, highly differentiated products to give our partners a superior rate of return on their projects and innovating to both advance the state of our technology and to build our portfolio of intellectual property as necessary to protect our core assets and strengthen our competitive advantages. Diversification combined with executing on our core objectives is essential for us to show the breadth of our PPSA technology platform and its capabilities, and to achieve the level of growth we are targeting in the coming years. Although we made significant advances in all these areas in the first quarter of 2016, our financial performance did not reflect all the positive developments due to some headwinds experienced in our initial target markets of commercial and industrial standalone energy storage. Although we saw positive developments for standalone storage unfolding in new international markets and the entrance of new system integrators, the leading market for storage, California, experienced challenges surrounding the state’s Self-Generation Incentive Program or SGIP which provides economic incentives for storage projects. The state allocated $44 million of energy storage incentive funding for 2016 to be awarded on a first come first serve basis. System integrators overwhelmed the process with 2200 submission attempts or 650 applications in just the first ten minutes after the California Public Utility Commission’s portal opened.…

Thank you, Dan. I will run through the first quarter 2016 financial results. Total product revenue for the first quarter was $497,000 or a decrease of 59% compared to $1.2 million in product revenues in the first quarter of 2015. The decrease in revenue was driven by the timing of and variability in the early market for standalone storage including the headwinds surrounding the SGIP that Dan mentioned earlier. Our world revenue this quarter was associated with lower sales of our first generation 30 kilowatt batter converter product, partially offset by sales of new grid resilient 125 kilowatt power conversion system product introduced in September of 2015. Q1 revenue was also negatively impacted by the bankruptcy of Coda Energy in December. The loss of revenue from the Coda bankruptcy is expected to be short-term as larger better finance players enter the system integration business. Gross margins were 0.4% in the first quarter compared to 1.3% gross margins in the fourth quarter of 2015 and 14.9% gross margin in the first quarter of last year. Our gross margins over the last two quarters were negatively impacted by the late 2015 introduction and initial small volume build of our new 125 kilowatt product. As previously communicated, as we rollout new products we would expect a temporary short-term reduction in gross margins. We are now shipping 125 kilowatt units from our first volume build of this product and we expect more normalized margins for this product in the second quarter. In addition, if we had shipped scheduled deliveries in the quarter under Coda’s pre-bankruptcy purchase order with us, our gross margins for the quarter would have been approximately 10%. As communicated previously, as we ship at low to moderate volumes our quarter-to-quarter gross margins will have variability depending upon the product mix and…

Thanks, Tim. While the first quarter of 2016 wrapped up on a softer note in terms of product revenues due to delays with the California Self Generation Incentive Program, the need for energy storage and the problems it solves are increasingly more apparent. Large, well-established companies are entering this market bringing significant scale to the storage market and validating both the maturing nature of energy storage and the scale of the opportunity it presents. We remain excited about the opportunity the energy storage market represents, projected by Greentech Media to be $2.5 billion by 2020. In the coming weeks, we expect to see the resolution of California’s SGIP funding that will enable new partnerships and orders in the pipeline for system integrators to proceed. As these projects move forward, we also anticipate the cost of batteries declining further this year, which enhances the payback and broadens the addressable market for these systems. We will continue to target and develop relationships with customers that are likely to succeed, once the market fully mobilizes including the new large players entering the market over the coming months. Our entry into the solar market with a truly differentiated product is creating new partnering opportunities such as the license agreement we executed today, and past to revenue growth leveraging our PPSA capabilities. We expect to announce new partnerships and orders for our SunDial product later this year as we bring the product to market. Finally, we anticipate new products to be announced as we complete our market entry strategy and product planning for additional PV plus storage products, our first PPSA-based variable frequency drive products, and the continued steps in commercializing our B-TRAN technology with the testing of fully packaged device. The combination of these events sets the stage for our long-term growth. At this time, I’d like to open up the call to questions from our listeners. Operator?

Thank you. [Operator Instructions] And we will take our first question from Eric Stine with Craig-Hallum.

Yes, hi it’s Aaron Spychalla on for Eric. Thanks for taking the questions.

Hi, Aaron.

Maybe first on Gexpro, can you kind of discuss how the reception has been with the financing from NextEra and your outlook there for 2016? And then, maybe just broadly, how has third-party financing in the market helps?

The relationship with NextEra really gives them the ability to do something on a truly turnkey basis and it gives them a balance sheet that can ultimately own the assets which we think is pretty important for the long-term growth on the commercial and industrial space, typically that customer base doesn’t want to put their own capital into assets like storage they would rather have a performance-based contract. It certainly generates a lot of interest for them and as a result, we saw them submitting projects as part of the California SGIP program and they also have enabled some of the opportunities that they are pursuing on the east coast. So, part of what we are eager to see the California SGIP program get resolved, but in the mean time, they are pursuing things on the east coast and also just distributing products through solar distributors that want to add storage.

Okay, good. And then, maybe, on the B-TRAN, so, good developments there. I mean, what are your thoughts on timing for testing? I know, you said later this year, but how long would testing of fully packaged device take and when could we maybe see some contribution there? I know, in the past, you mentioned possibly licensing that to a semiconductor fabricator, maybe this year?

Yes, we think that, licensing, the B-TRAN really has two roles, one is, it will be part of our next generation of products that are PPSA-based, because it will literally enable us to almost double the power density of the device. So, obviously, if you are going to get almost twice as much power out of the product you are going to get significantly lower cost point. But the other market – there is really the bigger addressable market is, just generally used as a power semiconductor switch and we think that would be a licensing model, because people are not necessarily going to want to buy power switches from Ideal Power, they are going to want to buy them from an Infineon or a Fairchild or some of these actually in that space. We think really to get those kinds of agreements in place and to really get the kind of remise that we want to have – we really need to have the results of testing a packaged device. We’ve already had in-bound enquiries now from multiple players, wanting to license the technology from us. We think there is a better deal coming after we have the test results. The test really comes in two forms. The first is, testing a package device that validates the simulations that proves that the switch itself performs at the level that we needed to do and that’s what we are going to be doing later this year. There is other testing that will happen that’s longer term which is, a long-term test cycle is just cycling the switches thousands and thousands of times under arduous conditions just to prove its durability. That will be something that will happen over an extended period of time. But the testing that we are looking forward to really enable what we think will be the right kind of licensing deals, we expect to see sometime later this summer or fall depending on the timing of when our semiconductor fabricators complete the next round of devices that they are making.

All right, thanks for the color and then maybe last one from me, I thought MG buying in an interest in Green Charge. Can you just maybe talk about what you think that means for the industry? And how you think that will impact your business going forward with Green Charge?

Yes, I think, for Green Charge, based on really well in the market, based on Green Charge capturing customers, we’ve got a lot of units out there with them. We work pretty closely with their team. I think, for them, it’s a logical step, because, to be a system integrator is a capital-intensive business particularly in the commercial and industrial space where often times the system integrator is expected to own the storage assets. So I think this really gives them the balance sheet that they need to be able to compete with some of the bigger players that are coming in the space. Part of the challenge with Coda was, Coda did not really have the balance sheet to compete with the Gexpros and the others that we see coming into the space like Lockheed and NEC. So I think it’s a really positive development for Green Charge as they get through sorting through their new ownership relationship we will be eager to get back in there and talk about what do we do going forward, because it may create changes in their strategy what their approach to market maybe and I think they need a little time to sort that out. But the view is generally positive for the space.

Okay, good. Thanks for taking the questions and congratulations on the development.

Thanks, Aaron.

We will take our next question from Colin Rusch with Oppenheimer.

Thanks so much guys. Can we talk a little bit about the channels for both the storage products as well as the solar products? So on the storage side, do you guys have a sense of how much products is out in the channel right now that maybe a bit of an overhang as you wait for the California projects to start moving forward?

Off the top of my head, I don’t. It varies a lot by customer. Some have little to none, others probably have more just based on what their success rate has been closing, Sorry, Colin, I just don’t know it off the top of my head.

Okay, we can follow-up on that afterwards. But then for the solar products, we are assuming that there is actually not much products out there at this point and that there is a bit of a channel full opportunities, so you’ve got – the one customer but you’ve also got some distributor customers there, what’s our expectation for revenue ramp on that product as we look into the back half of this year?

We think of revenue that’s going to come from two scenarios. First is the license agreement that we signed today, that will come as the partner kind of rolls out their own system offering as it gets combined with some other equipment that they are doing. We will see the beginning of that end of fourth quarter, probably most meaningfully on the licensing side beginning in Q1. We think the first revenue ramp really comes from our getting the SunDial product out as we complete product sale and it’s going to really go through a couple of channels. It will go through the existing distribution channels that they have, folks like Gexpro and WESCO will likely share with that product, but it opens up a whole new suite of potential partners, folks that are really focused on solar and one hand the ability to get into the storage space, but haven’t really jumped in with a complete initial offering of their own. So we think it’s going to drive several new customer relationships that we are going to be announcing over the next couple of quarters that will provide product revenue for us in Q4.

Great, and then, the products – where do you see it to open, what’s the next target? And are you going to go small? Are you going to go bigger? Are you going to go much bigger? How should we think about that?

We are going through that customer right now with both the licensee that we are working with and some of the potential partners who have already indicated that they want to actually move into this space. The challenge that we’ve seen – every time we look at the smaller segment and the residential space is the economics really don’t really work very well. We’ve seen some offerings like what Enphase is doing coupling solar and storage, but the economics are challenging. We think it’s probably more interest than doing something that maybe a product between the 30 and the 125 and we had multiple requests now to look at something that is bigger than the 125 or something as opposed to a 250.

Okay. And then, just finally on the B-TRAN, are you working with anyone specifically now on product designs? Obviously, there is going to be a licensee? Or are you going to be waiting for those licensees to start selling the products or are you actively engaged now and looking at how that goes to market – end products and start generating revenue for you guys near-term?

We are working with a third-party firm on what the packaging of the unit will look like. In terms of actual products, we haven’t actually engaged with anybody yet. We really want to do two things first. We want to make sure a couple of key patents for applications that we’ve got or actually going to get blessed. We think it’s important to protect from an application space standpoint. And then we do want to have those initial test results of the packaged device, so we think that will drive the willingness of people to commit real resources to start thinking about how do you package it into a complete product.

All right. Thanks a lot guys.

Thanks, Colin.

And we will take our next question from Amit Dayal with Rodman & Renshaw.

Thank you. Hi, Dan.

Hi, Amit.

Your comments around SGIP, if everything stays as is in terms of all these applications et cetera, what are the implications of IBW are? Will we still be in the mix in terms of revenue opportunities? Can you give us some color on how we are positioned relative to what kind of decision comes out from these people?

Yes, we actually went through the list of submittals and we saw a lot of projects that were a unique fit for us and they are customers that we’ve either already announced or customers that we have been working with to put relationships in place that have been basically waiting for their awards. So, if the mix stays as is, I think we will do very well. If they reallocate, I think it will probably still be pretty well, because there was a pretty broad distribution of where our product was in that list of applications that we are in.

Okay, so that’s helpful. In relation to the backlog, I know you’ve mentioned a lot of new partnerships including the SunDial product et cetera, backlog did not grow again this quarter. Will this potentially change over the next few quarters, you think as this SGIP issue clears up and you have more, I guess, you take the next steps in moving the initiatives forward?

Yes, definitely. At the Energy Storage Association Conference a couple of weeks ago, it was pretty clear as we talk to all the system integrators there is a lot of frustration there, because this SGIP issue seems to be pacing lot of people’s business and their ability to go close the orders with there and customers that drive there need to go place orders. Fortunately, the California Public Utility Commission actually took this pretty seriously, they actually called an emergency meeting on March 21, I think, because they realized how critical it is to get a timely resolution for this, because it is the pacing element for people committing, because if people move forward with their projects without getting an answer on their submittal for an incentive award. They basically forfeit the opportunity. They get the incentive dollars. So obviously, nobody wants to do that. As it relates to the SunDial itself, we are just now in the beginning discussions of some players that actually want to get in the queue for the SunDial product. So we haven’t taken any orders for yet, because we are finalizing what our own offering and price levels and product specifications and those sort of things need to be. So you will see that also start to materialize here over the next quarter too as we start to actually accept offers for the SunDial. This has generated a lot of interest. So the combination of those two, I think is, we are going to see our backlog start to increase here.

Got it. I know, our products are one piece of larger deployments, and probably the softness in revenues has partly attributed to our reliance on partnerships towards all these sales to materialize. Is there anyway around this – I am just trying to think of – should we continue to anticipate progress with partners – progress that partners make in terms of executing on their side from a sales point of view impacting our performance?

Well, one thing that we’ve talked about in a couple of times is, storage as a standalone offering is a new market and it’s going to have inherent lumpiness and I think that’s not a near-term thing, I think over the next couple of years, it’s going to be lumpy. You look at kind of what got installed in 2015, the biggest installation of storage were a utility project. While those utility projects in many cases had actually been in the works for a couple of years. So, I think, because it’s a new market, it’s going to have inherent lumpiness to it. But it’s also why starting a couple of quarters ago, we really started focusing on broadening what we are doing with PPSA, so that we can move into more mature markets like solar that can couple storage at a no risk scenario, variable frequency drives and other things that do not have the kind of lumpiness new markets have. So for us, it’s really more about diversification and letting the storage market unfold in whatever pace it’s going to.

Got it. And I guess, last question around, the B-TRAN offering, would you be too aggressive to assume any revenue contribution from B-TRAN in 2016?

Yes, I think that’d be premature. I think, there is a lot of work that has to go into getting licenses in place and getting through whatever qualification that’s going to be required by your licensee before they are willing to actually sell products. I think the key thing really is, getting those package devices, getting them tested and then using that to drive what we think are going to be some pretty interesting licensing agreement.

Understood, that’s all I have Dan. Thank you so much.

Thanks, Amit.

We will take our next question from Jeff Grampp with Northland Capital Markets.

Afternoon guys.

Hi, Jeff.

Question on the VFD front, can you guys just kind of talk about the timing of future field trials there and just kind of expectations on contributions there, either this year or next and just kind of generally how we should be thinking about that opportunity for you guys?

Yes, not only we actually the results of the testing that we did, we actually are in the product planning cycle right now. What we are looking at, we are at the place that we’d like to enter the market and we are also in some initial discussions with potential partners that we like to work with to enter that space. We will complete that product planning cycle here over the next couple of months. We will begin putting whatever relationships in place we need to in terms of bringing any other technology we might need in from software standpoint or anything else. Our field trials will be something that we plan are happening next year and those will probably pretty quickly flow into either a licensing arrangement with an existing player in the space or maybe some continued deployments that Ideal Power branded products but really more just to gain awareness of this different type of VFDs that’s out there.

Okay, perfect. That’s helpful. And then, can you kind of talk about this getting qualified with Hawaii Electric Company? I mean, how big of a hurdle was that for you guys? Is that’s something fairly meaningful that you think that can get you a lot of business with the 30 kilowatt system or just kind of expectations around there now that you’ve kind of cleared that hurdle?

Yes, the Hawaii Electric qualification is an interesting process. It’s not terribly well defined. That was one of these things were – unlike if you – we are going to go your certification that’s pretty clear what are the tests we need to do, what are all the steps you need to go through. The HECO qualification is a little bit more of a voyage of discovery. So it’s just a fair amount of work on our part to just get all the information that they wanted in the form that they wanted it. It really is a permissive, if you are going to sell in Hawaii. They have so many challenges over there with the utility system. The challenges that are being created by higher levels of penetration of solar. So they are very particular about what is actually being tied to their system anymore. So, for us, to be able to sell meaningful products in meaningful quantity in Hawaii, it’s critical for us to go through. And we think it’s going to be – the thing that’s really going to enable folks like WESCO and others to really sell the 30 kilowatt product and when we complete the 125 kilowatt products, likely here in the next several weeks, I have that start to move in Hawaii as well. So, it’s a cumbersome kind of non-descript process that we are happy to get through, but really it’s the enabler for sales out there.

Great. That’s super helpful. And then, last one for me, just kind of on the international side, can you guys comment on what you are seeing there? I think previously you’d said maybe 30% or a third of the business can maybe potentially come from the international side. Just kind of wondering how things are trending there?

Yes, we think there are couple of markets that are particularly interesting for us. One of the first ones is really Australia, that’s why we are going to add the Australian certification to our products this year. It’s a market that started its residential level, it’s now starting to move commercially and we have a couple of new partners that we are interested in getting over the finish line that are particularly focused on Australia. We also think that doing some things in Asia are important. One of the partners that we are targeting announcing later this year is a Japanese-based company that has our products and they are evaluating it and we think it’s a good channel for us to enter, particularly in places like Japan where you really need a partner with a recognized brand to enter the market and then of course the things that we are doing with Powin, since they are deploying units both in the US and China. They are an avenue for us to get into the Chinese market as well. So, the international markets are – they started later than what we saw here in California, but because of what’s been happening was the decline in cost of batteries and because of the success that solar is having in a lot of these markets like Japan and Australia, it’s starting to create some real opportunities for storage as well.

Great. Appreciate the time guys.

Thank you.

And we have exhausted time for today’s Q&A. With that, I’d like to turn the cal back over to Dan for any additional or closing remarks.

I just want to thank everybody for joining us today and we look forward to briefing you more on our new license that we signed today and also some of the other customer announcements that we’ve got in the queue and the timely resolution here of the California Self Generation Incentive Program and its ability to start driving some business for us. Well, thank you for joining us.

And that does conclude today’s conference. Thank you for your participation and you may now disconnect.