Please standby, we are about to begin. Good day and welcome to the Ideal Power Second 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. Sir, 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 second quarter 2017 conference call. Your hosts today are Mr. Dan Brdar, Chief Executive Officer, as well as Mr. Tim Burns, the company's Chief Financial Officer. Dan will provide a business update, which will cover partner announcements and product updates, while Tim will discuss the financial results. A press release detailing these results crossed the wires this afternoon at 4 PM Eastern today and is 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'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 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. The second quarter of 2017 was highlighted by our shift in strategic focus to the solar-plus-storage and microgrid markets and the completed product migration to our new 30 kilowatt Stabiliti and SunDial series power conversion systems. The new strategic emphasis on solar-plus-storage leverages our unique multi-port power conversion system and the newly enhanced microgrid capability for our products. These attributes open new doors in these markets and contribute to several orders we announced in recent weeks from both new and existing customers including a major order in the third quarter with an existing customer, a global technology company in the California market. I'll expand more on this later but a large part of our development of the Stabiliti and SunDial product portfolio was due to both the large opportunity now emerging in the solar-plus-storage market and the work we've been doing with solar market leaders such as NEXTracker. We are also seeing some of our existing customers leveraging their experience in the standalone storage market to enter the solar-plus-storage market as well. A theme we see accelerating and clearly transacting as evidenced by our recent announcement. On the SunDial front a significant part of the second quarter was spent working with NEXTracker to solidify a master purchase agreement and support their testing, system integration, and NX Fusion Plus demonstration activities to enable their roll out efforts to their targeted commercial, industrial, and utility customers. For those of you new to the story NEXTracker, a flex company will be selling our SunDial solar PV plus-storage string inverter as part of their newly launched NX Fusion Plus system which will provide a single axis tracking system and Ideal Power multi-port power converter and a battery system designed as a highly integrated system to reduce insulation cost and maximize performance.…

Thank you Dan. I will run through the second quarter 2017 financial results. Revenue for the second quarter remained unchanged at $0.3 million compared to the second quarter of 2016. In the second quarter a majority of our revenue was from the sale of the company's next generation of 30 kilowatt products. Going forward we do not expect any revenue from our legacy products because these products have been discontinued. We expect moderate growth in third quarter revenue with more pronounced growth in the fourth quarter, further accelerating throughout 2018. Over the next several quarters we expect our revenue mix to be heavily weighted to the solar-plus-storage market and to a lesser extent the microgrid market. As many of you that have followed us over the last couple of years know the market opportunity for standalone storage is projected to be large, the expected growth in the market has not materialized. This market has been and continues to be heavily dependent on California's self generations incentive program or SGIP. The pace and deployment of the SGIP has been slow and despite an excess of 800 projects being submitted in the first two program stages this year, few projects have reached the funding stage where funding has been approved for the specific projects. This has caused many companies to seek opportunities in standalone storage outside of the SGIP and has also caused -- in certain of our customers to reevaluate their strategy and to seek additional funding which for many has become increasingly difficult to secure. As an example, we have a customer representing a majority of backlog over the last several quarters have exited the system integration business for commercial industrial standalone storage. For us the market challenges has resulted in our backlog not translating to revenue in a timely…

Thanks Tim. While the industry goes through the maturing of the standalone storage market, our focus on solar-plus-storage is enabling us to create new opportunities for growth. A recently announced order for megawatt of Stabiliti units for solar-plus-storage, the shift to some existing customers to this market segment, and the new customers coming to us for solar-plus-storage solutions were opening new market segments for us an allowing our partners to capitalize on the ability of our products to be the common power converter for multiple sources of generation. And little of the traditional approach of connection to power converter companies that require multiple units and complexed control systems. At our home State of Texas we recently announced our partnership with W Energies Solar One to develop the first commercial solar-plus-storage energy systems in North Texas. The system which will include grid resiliency and critical load backup is being deployed at the headquarters of Tyler Technologies Incorporated, a leading provider of end-to-end information management solutions and services to local governments. The solar panels backed by batteries are being implemented to help Tyler deliver environmentally friendly and cost effective power while withstanding power outages. With declining system costs primarily in batteries, public sector agencies and the companies that support them now have the opportunity to capitalize on clean, renewable energy coupled with energy storage to protect operations against power failures and keep our cities, counties, and States moving forward. We believe this project will become a unique value add to Tyler Technologies and the services it provides to its client. This project and other microgrid opportunities we briefly announced and others in development would utilize the expanded off-grid capabilities of our new Stabiliti product currently adding certification for UL1741 SA. As we look forward to the second half of 2017, our confidence…

[Operator Instructions]. And we will take our first question from Colin Rusch with Oppenheimer.

Thanks so much guys. As you think about the solar-plus-storage market and the velocity of demand, can you talk a little bit about the potential for an inventory sell in with NEXTracker and others and then also the pace at which you are expecting things to pick up, we're seeing an awful lot of bidding but sometimes these projects have long lead times?

Yeah, I would expect that getting the first project done always takes a little bit of time. Actually why the carpets are going out, I had several calls with NEXTracker management today and they're pretty excited about what they've seen. But initially their focus on this was the C&I space. And what they have come to really discover is with such a large installed base of utility customers and many of those projects were done years ago when solar products were much higher and a lot of that equipment is reaching at least on the inverter side the end of life. So it creates a great opportunity for them to get some quick wins by really going in and doing a retrofit as part of an upgrade to underperforming power purchase agreement to bring in new power converters coupled with storage to make that fuller and more valuable. So it's been a couple interesting opportunities but that they're pursuing beyond the traditional C&I space that I think is going to create some interesting wins for them. As they're looking at their pipeline one of the things that they share with us is what they're probably going to do is just start to buy in advance of closing stuff, because their confidence level is getting pretty high. So I think we are going to be starting to fulfill orders for them without necessarily knowing who the end customers are going to be. Does that answer your question.

Yeah, it is helpful. And then with BTRAN validation project when can we start seen something in the public realm about the results of that, is that something that we'll see in the next quarter or you are expecting that in the next couple of quarters?

Yeah, it's difficult to predict. The process development work that we have been doing on the full production process is one of the things where you've got hundreds of process steps and you get pretty far down and you discover the next issue you have to go solve. So it has been a little unpredictable. We are actually pretty far through that whole process at this point in time where we know what the remaining process issues are from our last run here. But it's part of why we wanted to do this simplified version that doesn't necessarily have all the features that the sort of the state of the art device will have because it's just a quicker path to get through that semiconductor fabricator. So, unfortunately we are -- I can't say with definitive nature whether that is going to be a couple of weeks, a couple of months, a couple of quarters. And it's rather the nature of the development activity.

Okay, and then the final one for me is really about what the real OPEX needs are going to be over the next year as you start to see some of this work get done and BTRAN come to fruition and then see a ramp in revenue with the solar-plus-storage and to certain extent the microgrid product. Now you are at a decent level where you can kind of hold your spending at the current level or you are going to need to beef up some of the overhead here over the next couple of quarters?

Yeah, our overall goal is to keep it stable or actually reduce spend even with the revenue growth. From a R&D perspective it will be a little bit lumpy because of just the BTRAN development efforts tend to hit us harder in some quarters than others depending on just on the timing of those activities. So R&D will fluctuate but it should be relatively in line with what we've seen over the past few quarters. For G&A I would say this quarter is actually little bit of an aberration, higher than normal particularly because of the work we did on it really focusing on a patent portfolio. We had a pretty significant non-cash charge related to a abandonments on patents that we didn't think values what we decided to go forward with. Sales and marketing this quarter was also a little bit of an aberration because of the bad debt expense. But if you exclude that, the sales and marketing line is actually probably a little bit lower than we would expect going forward because that's the one place which is a logical place to add headcount potentially and expand the sales team a little bit to help drive this revenue growth and accelerate it.

Okay, that it, real helpful. Thanks guys.

And we will take our next question from Eric Stine with Craig-Hallum.

Hi Dan, hi Tim. Hey, I just wanted to just stick with BTRAN, this simplified device, I mean can you just talk about that a little bit, is that for R&D purposes only or I mean is this a device that is looking forward does have some commercial applications, applications where maybe the fewer features would be sufficient for that use?

You really hit it and that there is a simpler version of BTRAN where the devices are, the wafers are a little thicker and there are less features and attributes to them. That for some applications aren’t necessary but there are applications that really could actually use the simpler version of the design. It's part of why as we look at this a lot of the complication on the manufacturing side has been dealing with, getting all the features right on these very thin bonded wafers. So, if we have an opportunity to do something that's a much quicker development activity from a manufacturing side of things that will leverage the things we've already done and result in something that we can commercialize for some other applications it just seems to make sense in terms of a good way to accelerate the program and a good way to use the cash that we are spending on it.

Okay, thanks for that. And then I just wanted to just touch on NEXTracker a little bit. I know as you said they've been talking about and I assume this is longer-term but 15 megawatts of storage per week just doing the quick math there, that is 25,000 plus units a year. I mean is it fair to say that if you're -- if you're at that level or if they're at that level with NX Fusion Plus that you likely will have transitioned to the license model at that point?

Yeah, we will have transitioned to licensing models well before that because it would exceed capacity of our current contract manufacturer.

Okay and then I mean this is I guess longer-term but I know NX Fusion being solar only, I mean is that when you have transitioned to the license, is that something that potentially you could displace the incumbent at some point?

It's certainly possible with that kind of volume. It would certainly do a lot in terms of continuing to drive down the cost of our products. But since that is longer term, we really are just focusing on making sure that they've got the best product for the NX Fusion Plus that we can provide for them. And that we're doing the things that we need to help them do to get a really well integrated system that's going to be able to be installed quickly and easily.

Okay, thank you.

We will take our next question from Sameer Joshi with Rodman & Renshaw.

Hi Dan, hi Tim. Going to the GIP and CPUC process, you mentioned that 20 projects out of hundreds of projects went through the preservation of fees, were any of these projects, where your partners and you were involved?

You know I don't know which of the 20 have actually made it. I know of the 800 -- actually it is closer to 850 when I looked at the data. Many number, I just don't know the first 20 which include us and which don’t. I just -- I can go looking and we can circle back to you on that one.

Okay, coming back to the NX Fusion Plus, did you say that you expect first deliveries or at least first orders by 4Q 2017?

Yes, that is the plan. And that is certainly what NEXTracker is off executing against.

Okay, and that will be deliveries or you will receive orders at that time?

We are targeting being able to actually make and ship products for them in Q4. It's a function of how quickly they get their early opportunities closed. Which is why I think based on the most recent discussions we're having, they may just -- because their confidence level is pretty high.

That's good, okay. So you also mentioned that this was your first licensee implying that there could be other licensees for PPSA technology down the -- or in discussion. Are there any and do you intend to engage in more discussions like that?

Yeah, the relationship with NEXTracker and Flex certainly gives a lot of credibility for the technology just because of the scale of them and what they do. We have actually been approached by others that personally they want to start with potentially right labeling our product and then at a volume that would make sense transitioning to a license. I think as NEXTracker really starts to deploy product I think it will accelerate some of those opportunities and it will draw others to the model. Because we're not restricted in terms of what we've done with NEXTracker. So whether it's other companies that are in similar space or there are people who want to do it for other market segments were pretty free to actually go, engage the same kind of model with others.

Understood. One last one from me. The implementation of BTRAN, and I understand you are going through a mass production issues or problems, but is there any effort we made or any R&D dollars being spent and actually you designing these BTRAN into actual products?

Well, you really need to have the BTRAN device itself and the. Driver circuit put together. We have driver circuits that we've designed for our testing purposes. You really need the results of that work before people will really go spend the time and energy to create engraded module like WC, a lot of times like IGBT. That's why we're eager to get to the test data because it will encourage the most significant semiconductor players in the space to be willing to go spend money on it because it gives them rights to commercialize the technology.

Understood, thanks for taking my question.

[Operator Instructions]. We will go next to Carter Driscoll with FBR Capital Markets.

Good afternoon John. I realize the strategy is shifting away from solar-plus-storage but if you are just revisiting SGIP, what other states are starting to embrace storage, are there take away that they can learn from what has been a structurally poorly designed incentive program. I know it's been revised, clearly it's not having the intended effect in the legislature trying to continue to tinker with it, are there other States that can do so, could it move, could the implementation whether the states can directly involve -- evolve from standalone solar-plus-storage from that perspective, just trying to get your puts and takes on moving away from the California market in such a heavy dependency for that product and for that type category?

Few comments, one is we do have projects in the queue and the products that we are bringing out the SunDial and Stabiliti are very well suited to those projects as they execute. So we're not in a case where we're not going to be able to serve it. We're just spending our time and energy where we think there's a market that's really ready to transact. If I could give one recommendation for other states in terms of how to structure their program to make it more successful it would be to make the dollars that are available for these projects to be time bound. Because the challenge with this process is because the dollars don't ever disappear, there's not a great urgency to get projects approved, even when they're approved there's no great urgency to get them executed. As I look through the historical information that is out there, there are projects that involve other technologies and even some storage projects to go back several years where the dollars are sitting there and the projects are not moving forward. So I think if people had a real incentive to use or lose the dollars it would accelerate the deployment to what everybody is doing.

Understood, I think last time we chatted Flex was looking for maybe multiple battery partners, anything you could comment there about how they solidified their kind of supply chain relationship, did that have any impact on kind of timing of pull through what you're trying to do with them?

Flex because of their further size and their capability, there is really a couple of solution. There is the battery technology that NEXTracker has used for the NX Fusion Plus. Flex has also worked with and done packaging for some integrated systems with multiple lithium ion batteries. Part of what they like about our technology is we're agnostic. So if at some point they have opportunities where the battery technology they're using is not the right one, there's a need for a different mix of power and energy. Our power converter can deal with it. So it gives them an added degree of flexibility for the systems. I think they're really looking for how does that market itself develop because one of the things that they're targeting with the NX Fusion Plus is to give them the opportunity to have more duration so they can really add value to the solar and it's dispatchability. Because of their opportunity to go in and start to retrofit some of the utility installations that they've done over the years.

I mean is that not showing the flow battery is going to be more prioritized as they try to extend the duration?

I think for some of the early opportunities it'll be a flow battery but they have spent a lot of time and a lot of hours testing and cycling. But again I do like that it doesn't preclude then from switching to something else if they decided not to write to it.

Right, and then just last one from me. So, the customer there was a big part of your backlog, trying to get out of that aspect. Are they reengaging or restrategizing their product development and/or go to market strategy and could you still potentially partner with them if that is the case?

We don't have a lot of visibility to it right now. I mean we don't see their presence at trade shows and we know that they have gone through some broader corporate restructuring. So I think until there's better visibility we can't say whether we're going to see them come back or not.

Thanks, I will get back in the queue. Appreciate it.

[Operator Instructions]. And that concludes our question-and-answer session. I'd like to turn the conference back to our speakers for any closing remarks.

Thank you everybody for joining us and we look forward to getting some news out here soon and some things we are doing with NEXTracker and some other customers. I think you will find we have some pretty interesting things in the works here particularly as it relates to what we're doing on solar-plus-storage. So thank you for joining us and please if you get a chance, take a look at the NEXTracker website. I think you will get some great information on their view of the opportunity and why from one of the market leaders in the solar space. Thanks again everybody.

Thank you everyone. That does conclude today's conference. We thank you for your participation.