Good day, and welcome to the Ideal Power Fourth Quarter and Full Year 2017 Results 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'd like to thank you all for taking time to join us for Ideal Power's fourth quarter and full year 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 4:00 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 would also 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 and welcome everyone to our Fourth Quarter and Full Year 2017 Conference Call. 2017 was a challenging year for smaller commercial and industrial energy storage systems. As the promise of energy storage remains the ahead of the rate of actual customer adoption. Before I review the storage driven markets for our PPSA technology I want to first highlight the significant advances we've made on our power switching technology of B-TRAN. As we look to commercialize our unique technologies, diversify our business and enhance the performance of our existing product lines we've made significant progress with the development of our B-TRAN technology that validate the expected performance and informs our commercial strategy for B-TRAN. For those of you not familiar with our B-TRAN semi-conductor technology it's a unique double sided bi-directional switch that's expected to deliver substantial performance improvements over today's power semi-conductor devices and power control applications. Currently four conventional devices, two IGBTs and two diodes are required to control power bi-directionally. Based on third party simulations we believe that the B-TRAN has the potential to perform the same functions with efficiency losses predicted to be as low as 1/10th that of conventional switches. Additionally the faster switching performance predicted for the B-TRAN could result in more efficient, smaller and lower cost power converters and could be used in both bi-directional and traditional unidirectional designs. The low switching and conduction losses also make B-TRAN an enabling technology for applications such as high voltage DC breakers and electric vehicle drive trains [ph]. Now moving on to the progress we've made recently with the B-TRAN. We've been working to manufacture two different designs for the B-TRAN one we call the standard B-TRAN and the second is the full featured B-TRAN. The two designs differ and their features complexity, expected…

Thank you, Dan. I will run through the fourth quarter and full year 2017 financial results. Revenue for the fourth quarter was $0.2 million compared to $0.4 million in the prior quarter in the fourth quarter of 2016. Revenue for the full year 2017 was $1.2 million compared to revenue of $1.6 million in 2016. The decline in revenue was due to lower selling prices for both the Stability and SunDial, our third generation 30 kilowatt products relative to the selling prices of our legacy products. On a megawatt basis 2017 sales were flat compared to 2016. Due to inherently lower cost and improved manufacturability of our Stability and SunDial design we did see a corresponding decline in manufacturing costs for these products. Gross margins were negative 46% in the fourth quarter of 2017 compared to negative 10% gross margins in the fourth quarter of 2016. In the fourth quarter of 2017 we reported an unfavorable $170,000 adjustment to increase our warranty reserve primarily to our first generation IBC30 and 125 kilowatt products. Excluding these warranty reserve adjustment gross margins were 26% in the fourth quarter 2017 as reduced manufacturing overhead and product costs. The reduction in product cost which we first saw in the third quarter of 2017 was the result of completion of the shipment of units from the initial low value build of our Stability products early in the third quarter of 2017. As we previously mentioned we expect short term downward pressure on margins when we launch new products and prior to achieving production scale volumes. The margin improvement in the second half of 2017 highlights the low manufacturing overhead adhering to our contract manufacturing based business model. Gross margins were negative 85% in 2017 compared to negative 19% in 2016. In 2017 gross margins were…

Thanks, Tim. As we move into 2018 I couldn’t be more excited about our recent proof of concept validation with our B-TRAN technology. While it's been a long process working with our semiconductor fabrication partners we've now demonstrated the bi-directional transistor behavior and low potential conduction losses that make B-TRAN a unique power semiconductor device. We're looking forward to producing B-TRAN's that we can use for engineering samples with potential customers and partners. Well we're pleased to see orders from existing partners such a Sharp and JLM Energy and new partnerships with companies such as Bosch we recognize that the pace of deployment for energy storage markets is not meeting the broader market expectations. Even market leaders such as NEXTracker are seeing a much slower pace of adoption than anticipated. Since we cannot affect the rate of market adoption for commercial industrial energy storage and with the success we're now having on our B-TRAN development we plan to adjust our priorities, development activities and spending to reflect the market conditions. The recent success with our B-TRAN technology is bringing new opportunities for partnering, collaboration and funding for development and demonstration activities. With proof of concept validation complete our efforts in 2018 will be to prioritize B-TRAN's development and accelerate its path to commercialization for the multi-billion dollar power semiconductor market. This allows us to use our resources most effectively and aggressively manage our cash use. We're looking forward to seeing our B-TRAN technology leverage our results to-date and take the next steps in commercialization. At this time I would like to open up the call to questions from our listeners. Operator?

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

Can you talk a little bit about the maturity of the conversations around potential licensing agreement for the B-TRAN technology? Obviously this is a watershed moment to have gone through all of this testing. So would love to understand you know how that that testing gets translated into bit more cash in the door and now the technology starts to filter out into the market probably?

Yes it's really, start talking about especially in a public forum about what our thoughts are in licensing until who we might be talking to. It's really now really focusing on taking what we've learned and actually start to make devices that we can get into the hands of potential partners so they can really start to assess the technology themselves not just rely on our test results but really do their own tests and validation and also give us feedback in terms of what are they looking for in the device and how it's packaged and how it might be used. So I think that's really going to be our focus here from the near term is focus on getting some devices where we start to get some of that direct customer feedback that will ultimately lead to other types of relationships.

Okay. And then just on energy storage and the revenue ramp how should we start thinking about the [indiscernible] Sharp announcement is a positive but should we expect you know something meaningful here in the first half on the revenue compared to where we've been in terms of the product revenue?

I think it's really difficult to predict and it has been. I saw where Greentech Media came out today with their kind of summary of 2017 and they were trying to draw conclusions on quarter over quarter for different segments but I thought what was really telling was an executive summary it showed what it's actually been deployed and '15, '16 and '17 in terms of total megawatts were flat. So I think the prediction of when storage is going to ramp is been one that nobody's really been able to predict accurately because it's just you know it's a new market with customer education process has been tough for everybody to predict.

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

So on B-TRAN I know your goal and as you said it was to come out with the standard device to get in the hands of customers. I may have missed in your prepared remarks, did you kind of give a timetable for that both the standard advice and I guess the full featured device and then as a follow on to that I know in the past you've talked about interest from GM, I think you've called out defense contractors maybe just where that interest is today as they anticipate those products coming to market.

You know the timing, I would say we haven't laid out yet our next runs are going to focused more on the standard B-TRAN because it's not as complicated, it's not as a longer process to manufacture. They really are designed for different customers and different applications depending on the level of performance they need. So let's first get the next run done as we start to get into some of the customer discussions and sampling we will certainly give everybody feedback on how those talks are progressing.

Got it. And then just turning to Bosch you know obviously first we've heard of that good to see, is that I mean I'll ask it and maybe this is something away to wait later in the year but just more details on how they're thinking about that and then also you know just ability your ability to expand with your technology to you know other parts of their platform.

We actually were hoping to be able to say more about it they asked us not to yet, they have their own roll up they want to do and they don't want us to be ahead of their own messaging. It is part of a dedicated effort within Bosch itself that's being run here out of the U.S. and it does create the opportunity through that relationship as it unfolds to actually get connected to other parts of the Bosch organization but we expect they are going to have some other announcements that they're going to lead here in the not too distant future and then we will be able to say more specifically about what their application is the kind of customers they're targeting. Tim maybe you want to add to that?

I just mention that Bosch's roll out, it looks like its planned for the back half of 2018 so this is not something will obviously will impact the next few months that we -- so that is something that just want to make sure the expectation is correct there. We sign the agreement here with them just in the last few days and we're actually doing, it's only a couple weeks' worth of work probably but some firmware modifications specific to their application because this is a new application for our technology and it's something that Bosch is very excited about but it's also something that they didn't want us to kind of pre-announce on their behalf they want to make sure that they're able to have the appropriate fanfare on their announcement of their new product.

We will take our next question from Carter Driscoll with B. Riley FBR.

Can you talk about your expectations for the dollar spend on the full featured versus the scale back B-TRAN, I'm just trying to get some sense. Sounds like that's going to be the majority of your allocation this year and maybe less so on the storage side just on that and then as a second question, just I'm sure you're frustrated with NEXTracker and the roll-out schedule, can you comment is it more of the continued economic pressure and people are still waiting to see where total cost of ownership settles and does it continue to fall with each generation of new battery prices coming down, just trying to get a sense the retrofit market seems so attractive and yet somewhat disappointing from commercial standpoint.

Yes, let me just NEXTracker first and then I will come back to B-TRAN. What I've seen at least in some of the discussions that I've been familiar with that have gone on with some of the customers is I think part of the challenge is the solution that they have come up with is one that is competitive on a levelized cost of electricity basis because of the nature of the flow battery it's long life, the number of cycles it can do but they're selling to a customer base that's coming from solar that’s used to buying on cents per watt. So getting people to change that buying behavior I think is proving more challenging than they thought which is what's kind of driven them to start working on some things like their performance based contracting and financing and some other things to start to monetize those lifecycle benefits, but if you think about who their customer base is they are a sense for what kind of customer and I think that's really what they've been struggling through in terms of how do they package up that story, how they get them to think differently and make decisions to go with the technology that really shows it's benefits on a life cycle basis instead. As it relates to B-TRAN we're going through the discussions now with our semi-conductor partners and our own planning so it's a little early to say what the level of spend going to be it, will be prioritized on the standard version of device simply because everything we learn their benefits the full featured version and we think there are just near term commercial opportunities for both funding and potential partnering with this just because of the fact it is a less complex device for people to understand it and the drivers around and implement. So we will be talking more about what the spend looks like probably in future call since we have a better visibility to what that actual work's going to be with our semi-conductor partners.

And then maybe just a little follow-up for me any impact at least on new builds in 2001 in terms of changing the economics at least in the near term, is that any hindrance or was it just temporary hurdle?

I think it was hindrance really the second half of last year simply because it created uncertainty but in terms of the real impact in the things that we're involved in it's more just a blip on the radar. I mean the sector has seen these kind of trade cases multiple times before they've worked through them multiple times so I think it was really more of the uncertainty than anything else that was the challenge for people in the late buying decisions in the solar space but that's -- everybody understands what it is now and seems to be moving forward.

Last one for me just certification in certain European countries is still allocating some dollar spent 2018 towards individuals countries there?

We're really staying focused on the North American market since California particular tends to lead that process. Some of the other markets that are transacting like Germany for example it's more of a residential play rather than a commercial play. So we're going to have focus on making sure we get make the best 30 kilowatt product that we can, it has the features, performance that the customers need and build as much operating hours as we can as a basis for improving the technology.

We will take our next question from Sameer Joshi with H.C. Wainwright.

The street is projecting you to generate a around 12.4 million in 2018 and your 2017 revenues were 1.2 million, how do you see your path from here to there and can you give you some clarity on the JLM and Bosch and Sharp? Do you have any visibility in their pipelines that give you some confidence?

Yes, I mean with some of them we do. We have partners that share their forecasts with us, what they're thinking of the business is going to be. I think the biggest driver in that number though is what does NEXTracker actually do, you know the fact they've been talking big numbers if they were to deliver a fraction of what they are talking about be a big driver but you know the ability to forecast if and when that's going to happen is been a challenge for that man for us.

I would say we get some opportunities to scale some of our existing customers such as JLM Energy for instance in the standalone storage space obviously Bosch will be a new business for us, Sharp seems to be much more active particularly recently on the installation side and should be completing their deployment of their first order from us for a new products here shortly. So there is some opportunity there but as Dan had said the big wild card here is the timing and the ramp of the NEXTracker business.

So sort of related question, SGIB program, I know that is going to be your focus going forward but do you know how many projects were allocated and how many of your partners got into that. Do you have that? Are your partners winning that allocation?

We know that JLM and Sharp and several as we have worked have projects in that program. The state actually puts out a weekly report where we can see the totals of you know what -- the number of projects that move from one stage to the next so there is some visibility in terms of project as a whole what's moving forward and what's not, so we do see slow progress there but I think part of this has been there's just frustrating when people that are in that program with the length of time that it takes, we've got some partners that have told us they're not going to participate at program and some of the orders that we have announced here recently are outside of that program just because people want to get things executed.

Okay, last one from me. Tim, mentioned that SG&A and OpEx in general you're looking for opportunities to reduce that, can you give some more clarity on that, which area should we see reduction going forward?

Yes so I think the obvious place to continue to look at is just the G&A line. We're looking at our R&D spend but given the recent proof of concept testing success in the B-TRAN I don't necessarily expect that necessarily come down as we will need to allocate more dollars to the B-TRAN so we will be try to balance that throughout the year. Sales and marketing is already relatively low so I would expect significant changes there either but we're just taking a real focus -- the initial cost reductions we had were some of them did impact R&D but they were largely headcount reductions. We're looking at the balance of spend and just trying to find opportunities, we're at this stage in our development probably doesn't make us -- make much sense for us to devote dollars to certain things. So we will just continue to refine that and try to bring that $1.7 million cash burn here that we had over the last couple of quarters down further.

[Operator Instructions]. We will take our next question [indiscernible].

I wanted to know, I guess last month the [indiscernible] issued landmark order to reckon managers of the nation regional electric grid to develop rules allowing energy storage to compete in all the wholesale market. I was just wondering if you knew much about that and what sort of timeframe that would be and if that ever did get passed out how that would impact your business?

Yes, you know the things that [indiscernible] is doing really it even goes back further they worked closely with the PJM, the independent system operator in the northeast to bring storage in as part of fast frequency regulation for utilities. So I think you know the fork [ph] and others are really seeing that there's an opportunity to have storage as part of the infrastructure it really brings a lot of benefits because cops [ph] have gotten to the point where it takes a lot less capacity of storage to provide the same amount of support in terms of something that response fast versus a gas turbine or other things, it can only ramp at a certain rate. I think in general just as [indiscernible] and other rule makers just except this technology it drives interest in adoption for everybody but fork [ph] rules generally take quite some time before they're actually implemented into deployment programs and utilities actually figure out how do they monetize the opportunities they create. I think what's probably more interesting are the things that are happening more at the state level were states are actually setting goals as part of their own system planning to join with their host utilities that's really started increasingly drive the adoption of storage. We saw it with California but now you see Texas, Massachusetts, New York, many more states that are really looking at what they need to do to put rules in place to make storage part of the energy infrastructure.

Right. You know just as a follow up there I know California's had a number of initiatives for quite some time which I'm just curious -- it appears there hasn’t been that much activity based upon what that initial rules that they put into place, could you just comment on that?

Yes, part of it is -- the way California set up their programs they actually wanted the arguments made by the utilities where the utilities needed to be a significant part of that capacity that was going to get put with batteries and the utility procurement process in particular is a pretty long cycle for capital deployment. I think also part of what you've seen is just in the few years since California put those programs in place the cost of batteries have continued to decline so at some point you get to a point where a battery costs are low enough that things like incentives for the SGIP program and other things become less important in terms of what the return on investment looks like for a potential customer.

And that does conclude the question and answer session. Mr. Brdar I would like to turn the call back over to you for closing remarks.

Okay. Well I want to thank everybody for joining us today. We look forward to give you an update on the things that we're working on particularly as we continue to advance our efforts on our B-TRAN and begin to roll our next devices that we can sample with customers. Thanks again.

Ladies and gentlemen this does conclude today's conference. We appreciate your participation.