Good day everyone, and welcome to the Ideal Power First Quarter 2017 Conference Call and Webcast. 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, sir.

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 2017 conference call. Your hosts today are Mr. Dan Brdar, 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 wires this afternoon at 4:00 pm, Eastern today and is available on the company's Web site, 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'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 also would refer you to the Company's Web site 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. During the first quarter, we transitioned to our new generation of 30 kilowatt products, the SunDial and Stabiliti. Those products are now in production and shipping. We see a significant increase in demand from new and existing customers for our new 30 kilowatt Stabiliti product as a result of its newly enhanced microgrid capabilities. And the new SunDial product is the core of our relationship with NEXTracker, which is progressing well, and we'll be discussing in more detail. Based on the feedback from our customers, we continue to see the second half of 2017 as a return to growth for us and the commercial and industrial energy storage market in general. Although the 2016 Self Generation Incentive Program for California was disrupted, those issues have been resolved by the California Public Utility Commission and legislature with several positive changes to the program. In last year's incentive rewards there were 96 projects with $21 million of incentive funds approved, which will ultimately result in roughly 15 megawatts of behind-the-meter storage capacity added to the state. Many of those projects are now finally showing signs of advancing as project developers execute their projects. While the overall storage market has been slow to transact, we expect to see increased equipment orders and energy storage systems installed in the second half of this year. We'll discuss the standalone energy storage market in the 2017 SGIP program in more detail. But first I want to address one of the key market segments we're entering this year, with our SunDial product, Solar Plus storage, and the exciting relationship we're crafting with NEXTracker. Our new 30 kilowatt SunDial product was designed in collaboration with some leading market players to specifically address the emerging applications of Solar Plus storage. As states implement changes to net…

Thank you, Dan. I will run through the first quarter 2017 financial results. Total product revenue for the first quarter was $275,670 or a decrease of 44% compared to $496,644 and product revenue for the first quarter of 2016. The decrease in revenue is driven by the timing of and variability in the early market energy storage including the lingering effects of the disruption to our initial target market of standalone storage caused by the 2016 challenges with the California self generation incentive program. As we've noted on prior calls, the timing and the growth of storage market is uncertain and our revenue and the revenue for the storage market in general be unpredictable and potentially won't be in the near term as it is still an early market. As the addressable market continues to mature and expand, battery prices continue to decline and we diversify into other more established target markets, we would expect much of this quarter-over-quarter variability in the market to lessen providing a more stable and growing revenue base. Looking forward, we expect the 2016 resolution with SGIP program, the solicitation under the SGIP earlier this month, the expansion addressable markets in the U.S. outside of California, our entry in the Australian market planned for later this year and the recent certification and availability of our stability in the SunDial series 30 kilowatt power conversion systems with advanced features in a more attractive price point to drive meaningful revenue growth beginning mid-year. To the expected timing and growth in our initial target markets, we reiterate our expectation as revenue will be heavily back-half loaded in 2017. Gross margins were negative 158% in the first quarter compared to 0.4% gross margins in the first quarter of last year, our gross margins in the first quarter were negatively…

Thanks, Tim. The long term market opportunity for energy storage is clearly being driven by the rapidly declining cost of batteries in particular lithium ion based solutions the hundreds of millions of dollars currently being invested in battery manufacturing capacity by Samsung, Mercedes, L.G. Chem, Panasonic, [indiscernible] and others will continue that price trend as the battery suppliers quickly become commoditize and cut price to utilize their newly built production capacity. We're already seeing battery and pricing of levels that were previously predicted for two to three years from now. The growing use of standalone storage and battery based micro-grids will need to features the capabilities of products like our stability series that bring the lightweight, small footprint, electrical isolation, high efficiency and CMOs grid transfer capability inherent in our PPSA technology. The units we've already shipped and will be shipping this year are going to a variety of high profile projects that will highlight the capabilities of our technology at the energy storage association conference last month we heard repeatedly about the lower development cost and time associated with implementing our products due to a build and grid forming capability. This will be key for Mike Ritz in particular to evolve from a customized design what off solutions to a more standardized and scalable solution. The sold out storage market is a segment we expect in transacting this year and it's a driver for our newly certified and California Energy Commission listed SunDial product we intend to lead this initiative to our licensing arrangement reflects the next tracker and expect to expand that relationship in the near term. As well as leverage this initiative with others based on the forecast we have from our existing customers new customer engagements and our new products and market geographies we've been excited…

Thank you. [Operator Instructions] And we'll go first to Colin Rusch with Oppenheimer.

Thanks so much, guys. As you look at the microgrid opportunity what we're starting to see are batteries guaranteed for 20 years. Can you talk a little bit about the development of your warrantee and what you're seeing in terms of the warrantee interaction with [indiscernible] providing wrappers and any need for insurance support on that at all?

Yes, we're doing a couple of things. One is the bankability study that we're doing with a third party is really a very rigorous detailed assessment by some technology experts to assess basically the predicted lifetime of our products. Financers typically want to see that because it gives them a really unbiased assessment of the rigor of the design. It really helps make the financing easier to do and also less costly. But also from a warrantee standpoint in general, we've been staying pretty much with what we think the international and domestic markets are requiring, typically doing 10 years in the U.S., five years internationally. What it does do for us though is as we start to see some of the battery suppliers wanting to extend their warrantees; it gives us the opportunity to actually sell an extended warrantee which is not unusual in the power converter space. And several of the projects that we've been working on we've actually done that. We have quoted it, and it looks like the economics for selling an extended warrantee are something that works for the project. So I think longer warrantees give us an opportunity to basically do some up selling in terms of providing extended service.

Excellent. And then [indiscernible] NEXTracker, obviously you've got these products that you're selling, but they've got a very large install base. Can you talk about any other developments that you're working on with them in terms of a retrofit device, because it certainly seems like there is massive opportunities there with those folks?

Yes, there really is. And we started this with initially them taking the SunDial product as part of this bundled offering, but the agreement that we're ultimately going to sign is probably going to cover a couple of different products, because they do want to have that capability to take a product, like our Stabiliti, that is multi-port and can actually be used to retrofit and provide microgrid capability, grid transfer capability. So I think you're going to see that relationship actually starts to expand once we get the relationship announced. Because there's just going to be an increasing opportunity to go to those existing sites and make sure that they're not negatively impacted by things like [indiscernible] rules changing and so forth that could hurt the economics of the original solar installation.

Okay. And then the final one is around win rate. So you guys had a pretty impressive win rate for a period of time. As you start to see the market reaccelerate, and obviously there's been some more aggressive competition out in the market, can you talk a little bit about where you're seeing the sales process go? And are you continuing to be able to sell in a value sale rather than in a price sale. And a little bit of just those dynamics as we go forward into the back half of the year and see revenue ramp?

Yes, there's certainly been a lot of talk about some of the potential Chinese solar and border [ph] suppliers coming into this space. We've seen products from some of them but we actually haven't seen them capturing much in the way of market share. It will put some price pressure on the space as a whole. But a big part of what we focused on really was for both the SunDial and the Stabiliti products was a very significant cost reduction that allows us to actually stay ahead of that cost curve that is ultimately going to show up in this space. So for now -- and when we look at what we're really competing with, the feedback we're getting from customers and partners is that the value of our technology is pretty well recognized. We're very competitive in terms of pricing and performance. So I think the real competition that might show up over time is kind of yet to show up yet. I think it's more an issue of the storage market itself is not transacting as quickly as I think everybody would like.

Perfect. Thanks a lot guys.

Thank you.

And we'll take our next question from Jeff Grampp with Northland Capital Markets.

Good afternoon, guys.

Hi, Jeff.

Want to talk a bit about the next-gen systems that you guys are sending out now. Can you maybe give us a sense of the customers or potential customers that you guys are involved with just from a high level? And maybe how long they've had these or do you guys have a general sense. I know 2017 generally, but maybe drilling down on that on when that could potentially turn into some sales here?

For the initial products, before we had actually gone through certification, a lot of the existing customers that we've had out there, folks like Sharp and NEC and others, most of them took an early uncertified unit because they wanted to get familiar with it right away. For the customers that are going to be using this, they are the existing customer base that we've sold to traditionally. Plus, a lot of units have go to some of these new names that I mentioned earlier, like Bosch and Johnson Controls, and Eaton, and CivicSolar, and others. So I think the features, the price point, the robustness of the design are starting to really attract a whole new set of players that are really looking to do more with the power converter that really fits well with what our technology can do.

Okay, very helpful. And then on the B-TRAN side, you kind of mentioned going through some different kind of runs there. Can you maybe give us a sense for on timing, both with when those can be on your own systems going forward? And how that maybe impacts timing for a potential licensing deal?

Yes. To get to a licensing deal what we really need to have is we don't actually have to have the B-TRAN implemented into a power converter. What we really need to do is just have the data from the testing that says the third-party simulations are largely corroborated with actual data from a circuit board that has B-TRANs on it. That's the testing that we're going to be doing here, hopefully in a few weeks here as we get our next rounds of the devices. What I think that we're encouraged about is the level of discovery and development with the semiconductor fabricator really seems to be largely behind us. So now it's really just a matter of production scheduling with them to get on the production runs to actually get devices in hand. So we're feeling pretty confident about where we are with the device, and about how we think it's going to perform as well, and ultimately have something that we think is going to be transferable to other fabs because it's being done on eight-inch wafers and production equipment in a production environment.

Okay, great. And last one for me, I apologize if I missed this in the prepared remarks, but did you guys quote where backlog was either ended the quarter at or kind of where things stand today?

Yes, in March 31, backlog was at $5.6 million, which is relatively consistent. It's $5.5 million at year-end.

Okay, perfect. Thanks for the time, guys.

Thanks, Jeff.

And we'll take our next question from Carter Driscoll with FBR.

Good afternoon, gentlemen. So just -- I know you made a lot of comments about the early stages of storage deployment with [indiscernible] certainly solar plus. If you kind of look back just maybe over the last three months or this last time you reported, we've had some shift in business model. Obviously the acceleration in battery price decline probably has an impact and the financing model still not straightened out. If you had to rank what those issues are in terms of their impact on the adoption rate of the market in general SGIP, just prioritize whether that's changed, were the nuances are just three months ago, that'd be helpful. And then I have a couple of follow-ups. Thank you.

Yes, Tim can certainly give this perspective, but I was talking to him earlier, I saw an article on the street here at lunchtime was talking about Tesla's storage business being slowed down last quarter. I think a lot of it is expectations of a lot of companies were simply ahead of the market's readiness to transact. What we have seen from not just projects that we've been involved in, but as we talk to system integration partners who are doing bigger projects, doing projects in other parts of the world, there's still an education process going on in deploying systems. And a lot of it is involved getting permitting agencies comfortable with batteries, places like New York getting the fire marshals comfortable with batteries. So a lot of that I think is really the newness of the technology is actually pacing the ability of some of the system integrators to really deploy as quickly as they would like to. I look at Stem for example. Stem has a great pipeline of projects, but a lot of the things that they and others spend time with are the permitting and education issues related to the installation. I see that getting better, but it's a process that takes time. One thing that I think has really changed that we've seen in the mix here, just in the last quarter is, batteries have taken another step down in pricing. And now, all of a sudden, a lot of things that were kind of in the pipeline on the microgrid side whether you typically don't have a lot of incentives to go after, now certainly the numbers penciled [ph], because what we've seen on our pipeline on the microgrid which was -- it would always tend to be a small portion of it, has now stepped up to be pretty significant relative some of the other things that we're doing. I think the other thing that we see that's changed are business models for things like what NEXTracker is doing, where people are leveraging what they're doing in spaces like solar and saying, how can I actually bring more value, add scope, because the solar market itself is one where there's just a lot of pressure. So people are looking for how they differentiate themselves and actually add value. What we've done with NEXTracker I think is going to be a significant driver for our revenue from the way things look. But we're finding that that's attracting others that want to explore similar kind of relationships. That answer your question?

Yes, absolutely. In particular, it does seem as though microgrids are becoming less -- depending [ph] potential [indiscernible] but that also might be causing just a pause because you're kind of waiting for that other shoe to drop. I would've thought that you made ahead the MSA in place by now with NEXTracker. Is the -- you'd mentioned NIM programs and shifting around, and worried about the economics changing once they're in the deployments. Is that a component of the negotiations you have? And is the retrofit market a significant component of that MSA in your opinion going forward [indiscernible]?

Well, I think when the MSA is in place and -- one thing they have to do with that is provide us a forecast. We'll get a better idea of what their view is of where the mix is. What actually took more time than anything to get the agreements to the part where it is now is really the product specs, because as we provided some units for their battery provider, as they have gotten more knowledgeable with their own people on what our technology can do, it just opened up all this interest on the ability of our product to do microgrids, the ability of our product to actually be grid connected, grid isolated, seamless transfer, things that were not into the original SunDial product, which they were one of the ones that we collaborated with who've come up with its design features. So what happened was as they got deeper into our technology they got more and more excited about other things they could do. So I think that agreement is also probably going to have two or three different products that'll largely be leveraging what we've already got, but it's a step beyond what they were originally thinking about, because they see an opportunity to leverage the technology, and they're pretty dominant space in the market to do more than just [indiscernible], but also to retrofit the end [ph] microgrid installations as well.

And then since it's not an exclusive agreement, you can potentially have discussions with other vendors as well. Can you talk about where those might be, at what stage?

Yes, it's interesting that every discussion that we've started always starts with, is it exclusive. And we tell people, no. We can do similar things with anybody else that wants to bring some similar kind of a model to the marketplace. Where we are with a couple of them, it varies. We've got some that we're actually going through some project economics to find a launch project that would make sense. Then we've got others that are in the exploratory stage. I think when NEXTracker did their announcement at the previous conference is when everybody started to realize they're really serious about this. I think the next to really drive some of these NEXT players to move more quickly is going to be getting the agreement with NEXTracker actually announced, because a lot of people there are going to want to follow what they do because they just the leader in this space. So that's why we're so focused on getting this thing done here in the next few weeks.

?:

Yes, when we think about Germany, Germany is a market that really started with residential, could be the way to rate structures there are different. Here you see very high rates and demand charges on the commercial industrial space in terms sort of keep the retail rate low because it's different there where the retail rate tends to be high. So, it drives the residential market to transact first, but our Russian in the start has been very good, they actually -- because of what they've done deploying units over there, I think it really started to build the case of why the C&I space needs to be thinking about energy storage not just residential. For us, we want to see more than just done, we're in evaluation with Mercedes; Mercedes has indicated they're going to start with residential, move to C&I after that, just like [indiscernible] did, because they're coming from the German market or residential makes sense. We really want to see more than just one player that wants to do C&I over there, because to go through the certification for Europe, it'd rather might be an expensive process. So, we're ready to do that. We design the products and they would be compliant with the requirements over there, but to actually go through that process, we want to do it when -- we get to the part where we've got some partners they can say, "We have real demand that's going to transact here in the next quarter too, why can you bring the certification that we need for Germany?"

Thanks for taking my question. I will takethe rest offline. Have a good day.

Okay, thanks.

[Operator Instruction] We'll go next to John Girton with Girton Capital Management.

Hello. I had a question, last year, Elon Musk said, "I'm building a Tesla with solar and inverter hub, we are probably the best in the world on advanced inverter technologies." I wondered if you would take issue with that given that you're pretty advanced. And even if they are the best, are they kind of captive to their own business and would you be perhaps the best outside of Tesla going to other customers?

Well, I think what's a nice way to say that? We obviously take a lot of our technology, but we also see a lot of fights and Tesla is one that I think really has drawn a lot of hype. Their focus really is leveraging the power converter technology they're using in the vehicles into other spaces, and typically what you need for a vehicle is not what you -- it's not what's the best choice for a stationary application; we think about how their systems come together where they're putting multiple power converters in parallel and modules. At some point, that becomes a challenge both in terms of the cost associated it, the overhead associated with it. There's a reason that people make megawatt cross power converters, they just ultimately end up being lower cost, and just easier to service, and a whole variety of other things. So I think there's plenty of space for a lot of people to play. What we are seeing though is because they are integrated doing this the AC battery approach and occasionally are in the development side, we're hearing quite often from some developers they're not sure whether Tesla is their supplier or their competitor. But I think some of these business models unfold, we will get a better view, but like it's a very different approach for power conversion and we think we've got a great answer that is good or better for the application we're going after. We don't think our technology would be the right one for automobiles. We don't know if their's is the right one for large scale energy storage, but the market will ultimately sort it out.

Okay. And I had a follow-up; you talked about kind of refocusing off of certain product areas and on to others, could you say what you've kind of left behind and then maybe what your top three focus areas are now?

Yes, from product perspective where -- our major focus right now obviously is on the stability in SunDial series converters. From an international perspective, it is on Australian certification for our product. We had been looking at other geographies and the timing of when they enter other geographies, where rollout a larger version of our product, or even potentially a smaller version of our product. Those are decisions that we've delayed into it. So we can really focus our efforts on maximizing the value of the stability in SunDial platforms and getting into our first international market in Australia just because there's a lot of customers or potential customers and partners that we'd spoken to in Australia that are ready to launch in C&I space. So, it's something that -- that's our initial focus here is we will over the next six to nine months, and we'll -- there's other opportunities that we get on a regular basis they come our way because they evaluate you know what's the next thing in our roadmap, and at some point we may make sense to you temporarily increase spend to give opportunities large enough with the large enough commitments from perspective customers. So, things will continue to evolve, but that's our focus today. Thank you.

And due to time constraints, that will conclude our question-and-answer session. I will turn the call back over to management for any additional or closing remarks.

Thank you everybody for joining us, and to -- please keep an eye on some of the announcements that we have coming regarding our agreement with NEXTrackers and orders that we think are about to clear in terms of some of their financing hurdles and some new initiatives that we have going with some new customers. And we look forward to keeping you update on what we are doing here, and we will talk to you again here -- talking about the next quarter and the results and what we have been to accomplish. Thank you everybody.

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