Good day, and welcome to the Ideal Power First Quarter 2018 Results 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, sir.

Thank you and good afternoon. I'd like to thank you all for taking time to join us for Ideal Power's first 2018 conference call. Your hosts today are Dr. Lon Bell, Chief Executive Officer; Dan Brdar, BTRAN Chief Commercial Officer; as well as Tim Burns, the Company’s Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:00 p.m. 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 Ideal Power’s Chief Executive Officer, Dr. Lon Bell. Lon the floor is yours.

Thank you, Chris and welcome everyone to our first quarter 2018 conference call. On balance the first quarter of 2018 was encouraging. We saw an interest build in the standalone storage and solar-plus-storage markets as evidenced by new wins through JLM Energy, Bosch and BCI. Most importantly the BCI win represents our first large scale deployment for a solar-plus-storage solution in the Chinese market. We're encouraged to see a large international market such as China embracing solutions utilizing solar-plus-storage. However, sales for the quarter were down in part caused by our production cycle and apart what appears to have been a low point in demand. Tim Burns who now oversees our PPSA business development, customer service, and supply chain will provide a granular update on our power conversion business. The first quarter of 2018 saw the fabrication and testing of our first proof-of-concept B-TRAN prototypes. Critically, test results supported third party simulation. The match between simulated performance and laboratory test results validate key performance metrics of our patented B-TRAN solid-state power switch architecture. As we move into the second half of 2018, we expect to have laboratory engineering samples with which we will perform comprehensive characterization, we expect to then begin sharing this information with potential customers and partners. Dan Brdar our new Chief Commercial Officer of the B-TRAN division will provide an update on this front later in the call. As many of our dedicated shareholders and followers already know, today's call format is different from that of prior earnings call. Shortly after the closing of the first quarter of 2018 we’ve announced executive management changes as part of a strategic restructuring to support operational needs to grow our two primary technology PPSA and B-TRAN. Power Conversion Systems division PPSA will focus on products based on our patented power…

Thank you, Lon. In January, we completed a 750 kilowatt purchase order with JLM Energy for our Stabiliti series products. Units are scheduled to be shipped in the second quarter and early third quarter of this year. JLM energy is one of the early market leaders for standalone storage and they have aggressive plans to scale their C&I business. Will supply JLM’s portfolio of commercial battery energy storage systems in microgrid projects with our 30 kilowatt Stabiliti series products. This latest JLM purchase order is for 25 30 kilowatt, dual port Stabiliti series power conversion systems to primarily provide behind the meter, peak-shaving solutions to California manufacturing and industrial companies. In early March, we signed an agreement with Bosch to supply our Stabiliti power conversion systems for inclusion in their microgrid solution. We expect to receive the first orders under this agreement in the next few weeks with shipments likely beginning in the third quarter. Our Stabiliti power conversion systems will be included in Bosch’s high-efficiency building solutions. Bosch will be providing microgrid solutions to the commercial and industrial market using solar as the primary energy source with our advanced power converter technology at the heart of their high efficiency solution. We will provide more detail on Bosch’s solutions after they formally announce and begin the commercial rollout of this new offering. We wrapped up the first quarter of 2018, with a two megawatt purchase order with Brantingham & Carroll International BCI a global leader in mechanical steel design engineering and global manufacturing. BCI is the EPC or engineering procurement and construction contractor for a high profile demonstration project in China that will integrate Ideal Power’s SunDial Plus inverters in an advanced solar-plus-storage solution into the first large scale deployment of its kind. Initial SunDial Plus units have shipped with…

Thank you, Tim. As Lon mentioned earlier, I'll be leading our efforts in the new B-TRAN division. And I’m excited and energized to be at the forefront of this disruptive solid-state switch technology that addresses a mature multi-billion dollar market opportunity. Separating B-TRAN into its own division will accelerate maturation of our technology and also accelerate our progress with strategic partners. B-TRAN is a bi-directional low-loss power switch that offers the potential for reduction in conduction and switching losses of 50% to 90%, depending on the device design and configuration. To-date we have successfully produced two double-sided versions of the device including a thicker simpler design, a thinner full featured device and both have addressable markets for their respective performance levels. Also both versions of the device were made in silicon with conventional silicon manufacture and fabrication equipment. Finally, the result of our testing demonstrated the proof-of-concept of the double-sided design and its bi-directional transistor behavior. It also confirmed keep performance parameters such as gain, breakdown voltage and low conduction losses. We also observed other devices operational results, which included the devices demonstrated high voltage junction on both sides with the breakdown voltage levels necessary for a commercially viable device. The junctions function as both emitters and collectors a key requirement for B-TRAN operation. The combination of strong breakdown voltage and junctions acting as the emitters and collectors validates true bi-directional operation. Low fluctuation voltage was demonstrated a key differentiator of B-TRAN, compared to other bipolar devices such as bipolar junction transistors. Current gain in the range of five to 10 was also demonstrated with good gain uniformity over the tested range. And finally, the test results were consistent with third-party simulations how B-TRANs are expected to operate. Our next phase includes three important steps. First, we're currently in the…

Thank you, Dan. I will run through the first quarter 2018 financial results. Revenue for the first quarter was $0.2 million, flat compared to the preceding quarter and down from $0.3 million in the first quarter of 2017. Revenue in the first quarter consisted entirely of sales for our Stabiliti series products, primarily for the standalone storage market. Beginning in the second quarter, we expect our revenue mix to shift with the trend toward higher sales of our SunDial Plus product for the solar-plus-storage market. Gross margins were negative 84% in the first quarter 2018, compared to negative 58% gross margin in the first quarter of 2017. In the first quarter of 2018, we reported an unfavorable $150,000 adjustment to increase our warranty reserve related primarily to our first-generation IBC-30 product. Excluding the warranty reserve adjustment, gross margins were negative 2% in the first quarter 2018 as lower revenue did not fully cover our manufacturing overhead and product costs. Research and development expenses decreased 36% in the first quarter of 2018 to $0.8 million from $1.2 million in the first quarter of 2017. The decrease was due primarily to lower personnel and other costs in connection with our cost reduction activities. We expect research and development expenses to fluctuate on a quarter-to-quarter basis depending on the timing of B-TRAN fab spending. For 2018, we expect increased research and development spending on the B-TRAN in flat to lower research and development spending on a more mature PPSA technology. We will focus our 30 kilowatt product development activities on improving the efficiency and lowering the manufacturing costs of our Stabiliti and SunDial series products. SG&A decreased 21% to $1.1 million in the first quarter of 2018 from $1.4 million in the first quarter of last year. The decrease was primarily due to…

Thank you, Tim. Although we have seen signs that the market for our PPSA products are starting to ramp, we continue to expect potentially significant quarter-to-quarter variability or lumpiness in revenue. Our revenue will be impacted by the timing of a customer wins, permitting schedules, installation cycles and content awards. After bottoming out in the first quarter, we expect revenue growth to begin to ramp in the second quarter due to customer orders Tim mentioned earlier and the result of backlog for Q2. We expect Q2 revenues to be at least $500,000. Shareholders who follow our progress know that we have modest quantities of PPSA units currently in the field. We are able to monitor their performance which gives us some valuable data and experience as we look to supply higher volume. Our R&D team continues to learn from these field experiences and we currently have programs underway to improve product performance and make our technology increasingly competitive. We are also working to support customer requirements for mid-size power conversion with storage. With respect to the future of our B-TRAN division, we have completed studying the performance of our first laboratory proof-of-concept B-TRAN design and are pleased to report that we have successfully demonstrated satisfactory performance against key metrics. And these we’ve mentioned earlier low conduction losses, bi-directional function and high voltage operation. These results matched well with our computer models thus verifying our ability to model performance and to employ our models to design the next-generation to B-TRAN devices. In the next several months, we plan to fabricate new laboratory prototype B-TRAN devices for internal testing and external characterization. As these results become available, we will begin to share this information with target customers that we have identified. To conclude both operating divisions are showing significant progress. Our recent restructuring will allow both the PPSA and B-TRAN divisions to operate to maximize the potential of each respective technology. While our cost reduction initiatives continue to accelerate our path to break-even. I've never been more optimistic about the future of Ideal Power than I am today. We are a technology leader with exciting patented product opportunity. At this time, I would like to open up the call to questions from our listeners. Operator?

Thank you. [Operator Instructions] And we'll go first to Carter Driscoll with B. Riley FBR.

Good afternoon, appreciate taking the question. Kind of characterize maybe geographically where you're seeing the uptick, I mean, outside the United States in solar-plus-storage as well as opportunities do you obviously talked about responding in China upcoming maybe some of the other markets outside North America that you are explaining about.

Yes, I think that I would like to just mention China in a little more detail. What we see in China is a fairly large order and the large order was for solar panels built in China, the tracking system built in China, for battery – storage batteries built in China and/or convertor. That's telling us something about our global competitiveness as the market unfolds. As we look we see opportunities in – the Caribbean, we see opportunities admittedly in North America, for Canada, we see opportunities in Central America. And I think over time we'll see more opportunities in Asia and in Europe, the demographics are somewhat different in each of the regions. I think that there are some areas where the cost of electric power production and the emphasis on having green energy is very different than it is at the moment in America. I also would not like to exclude the U.S. We are seeing initiatives by various organization including the Sierra Club related to green cities and city that are carbon neutral. There are about 100 cities in the U.S. that are working to achieve this and some are in red states run by red mayors, there is our in blue states again run by blue mayors. So we're seeing a mix across the board.

Okay, appreciate that. And then kind of the go-to-market, I mean it seems like you're making progress in B-TRAN allocating more of your R&D spend towards that product. How would you evaluate the kind of the potential first order, do you think there will be more on the licensing side, as I would imagine or and do you expect an extended valuation of the prototypes that potentially push that first order into 2019 or is it possibly can get your first commercial order in calendar year?

I would expect the first commercial orders to be in 2019 not 2018. I would expect to see signs in late 2018 of commercial interest. The interests that we are seeing as we evaluate the technology, I'd like to expand to maybe address some of that because we have seen considerable interest. But one thing I would comment is that the B-TRAN product has two really important characteristics that we have to learn to communicate well. And that as we communicate it well, I think people will get more and more excited about this technology. The first is that it is bi-directional, while that doesn't sound like right much, what it means is one B-TRAN replaces two conventional IGBTs and two conventional blocking diodes. So we in fact replace more than two parts with one of our part that has impact on raw state, that has impact on circuit design as we will be showing more and more as the year progresses and what it means to various applications. The second is that the losses are considerably less. The most – probably to most customers the most important implication of that is greatly reduce need for managing waste heat, the devices simply will not get as hot. If they do not get as hot, fans are eliminated, sizes can be made smaller. Ways to conduct heat away can be greatly reduced. These are all substantial advantages. Having said that their efficiency also means that there is a very short payback period for the part. So not only is their impact on the initial cost of the system but there is impact on the operating cost of the system. These are two very significant advantages, some of that is not part of your question. But I did want to make those comments. Dan, do you want to make any additional comments of what you are seeing?

One of things has been interesting as we have been out talking to people that we are, just trying to make aware of the B-TRAN and also getting input in for our own product planning. We're engaging with people that are coming to us and say, this device enables something that I haven't been able to do before. I’ll give you a couple examples, we have one firm that we're working with, who's come to us and said, medium voltage and high voltage DC systems need a DC breaker and there's not a good solid-state version of that out today and it needs to be because of all the DC based renewable energy is going in. This actually enables that application and other one is you look at variable frequency drives which are used very commonly in air conditioning systems, refrigerators, all kinds of applications now. And want to think that it would really make a variable frequency, drive more efficient, smaller and less harmonic is the use of a matrix converter but a matrix converter doesn't get deployed because there's not an AC – bi-directional AC switch, while this solve that. So as we start to engage with these players, we're learning more about the applications that become enabled for them because of the characteristics of the B-TRAN, I think it create some interesting opportunities for us both to secure funding sources for B-TRAN development but also potential partners that we can continue to grow at because we enable some business that there wasn't a technology solution for them previously that we bring through the B-TRAN.

Yes. And I think that as we think about this it's probably in our view at least better to characterize it rather than going to recreate a licensing to going to partnership agreements. I think the characteristics of this strongly favor some form of partnership agreement.

So I mean that would manifest maybe in the form of your production partner as well or with the end customer?

There is an interesting play there over time. This as we mentioned, as Dan mentioned it is a silicon-based device. And it could be silicon carbide as well with different properties and some very exciting potential property. But if we think of it as a silicon device, it takes a fairly conventional silicon fab house and allows them a high globally patented proprietary product that is aims at capturing a fraction over time of $12 billion market. That's a very exciting potential for an existing fab house.

Appreciate all the commentary and color. Maybe just last one for me, so the solution – the SunDial Solution, in particular if you go to market with NEXTracker, finally a long time coming out a sizable commercial board. You see them – and they kind of changed, I think their kind of go-to-market strategy a couple of different times, is that the fair characterization. You see this finally kind of having gotten to a tipping point where you think you can get a more consistent order pattern as we see this particular customer, which is obviously leading tracking solution provider in the world?

Yes. I think that they have evolved their go-to-market plan. And I think they've done that favorably. I think there's a couple of external factors that maybe you’re influencing things a little bit right now, one in my mind is that there is more recognition of the value proposition for solar production plus storage. And I think that the storage component is coming onto people's radar screen, it is being validated at a very large scale by virtually all new programs that are evolving and new contracts that are being written in for large applications as having a storage component. This tends to validate the importance of storage. It also has the second implication once you validate the need for storage and you see large facilities going in. Then it creates the ability to finance solar-plus-storage for smaller users as well. That model transitions downward and as it transitions downward, it makes the economics more favorable to smaller entities, whose primary mission is not energy production but they want to take advantage of lower cost energy production and in some cases more reliable energy production. So, it's a mix of those two things I think.

I think it’s very helpful, I appreciate the answering of the questions Lon, Dan.

We will go next to Craig Irwin with Roth Capital Partners.

Hi, good evening this Anna on for Craig, thanks for taking my questions. So just continuing a bit more on B-TRAN discussion, you talked about engaging with a variety of customers, could you give us a bit more color on the kind of customers that you have been engaging with, what’s the number of customers that you are broadly looking at. Anything, any more color.

Dan, do you want to talk to that.

We actually have been in a process where Lon and I have been actively engaging with a whole variety of potential users of the technology because part of what we've been really looking to focus on is as we think about the two versions of the device, what’s feature set and capability they need to have. So it covers players that are in the solar space that would use a conventional solar inverter, it covers people that are in the grid equipment place. It would provide breakers in transformers. We're now engaging with folks that are involved with supporting military applications, things like what the Navy is doing, with ship electrification. So it really covers a wide gamut and it is also leading us into where we think some of the earlier opportunities are versus those that may take longer to penetrate because of their need for high reliability in thousands of hours of operation. So to give you examples is probably better because it's a pretty diverse group that we've been talking to help drive our thinking.

A further comment. We really at this stage, really want to understand deeply how the markets act for this product and their timing. Because we can't be all things to all markets, we have to pick one. And we want to pick wisely. What are the decision factors that are potential partners and customers use. And for military it might be very different than certain commercial applications and there might be early adopters in either because of pressures in various ways where weight, efficiency, thermal management, other factors associated with our technology are most important. In summary, I think that we think of it in looking where do we have the most unfair advantage. Where do we have the best advantage, what combination of bi-directionality, low loss in inefficiency, high voltage operation gives us the greatest differentiation. And so Anna, that's really what we're looking at, are that combination of factors and over we're taking the necessary time, right now to really work hard on that. And we hope to have answers that then take us in a very positive direction coming over the next quarter or the answers and then we'll go out and start attacking the most advantageous vertical.

That is exciting, looking forward to more information on that. And moving on to the Bosch, equipment I understand that you can’t give out to me details but it is obviously a big ongoing relationship, so is there any further information that you can share in terms of how that is progressing and when we can expect some more details on it?

As far as Bosch is concerned I want to make just a couple of very fast comments and I'll let Tim talk. But we are under confidentiality agreement and I think we all have to understand that that limits of what we can say. I think the other characteristic that I want to mention is, its going to be a slow round but it is global, it's not just America, their ambitions go beyond America. Tim?

Yeah, we mentioned Bosch first, I think was on our last call. Unfortunately to-date Bosch still has not publicly announced their specific offering. So, we are limited in what we can say to-date. As soon as they do – disclose that information publicly, we’ll share more details. And I would echo Lon’s comments in that we expect the impact of Bosch in 2018 to be very modest. It was a much brighter outlook for 2019. We are expecting first units however to ship in Q3 very likely.

Thanks for taking the question, I’ll hop back in the queue.

[Operator Instructions] And we will go next to Colin Rusch with Oppenheimer.

Thanks so guys. Can you talk about any visibility that you have downstream into project design wins at this point. Obviously we can see the orders that you've announced but are you getting any sense of your customers, sales funnel in what that might look like and how that might flow through over the next call it four or six quarters.

Yes. It is customer by customer at this point. If you look at a company JLM Energy for instance they're launching right now their grids offering really targeting the C&I space for standalone storage. They're actually one of the companies in that space that seems to have pretty aggressive growth plans here in the near term. That's somebody that we expect to be a meaningful contributor to our revenue here in upcoming quarters, including beginning here somewhat in Q2 and into Q3. NEXTracker is obviously a very large opportunity for us. NEXTracker the Iowa project will be installed here over the next two to three months and that should start a – more of a funnel turning into actual projects in the ground over the next few quarters. And something that we’ll manage through the ramp with them over the balance of the year but again could be a significant contributor for us and we expect it to be a significant contributor for us late this year and also into next year. Companies like Bosch are looking more like at least in terms of significant revenue growth for like a 2019 opportunity. We’ll probably have some benefit particularly in Q4. But overall what we're seeing particularly in the solar-plus-storage space is people really getting started in that space and launching projects and once projects get in the ground they get through their initial learnings. We expect the ramp to be pretty aggressive in that space and not be restricted to a single stage in the U.S. or even restricted in the U.S. More of a global the opportunity for rapid growth. There is one other aspect of this and that is when think of micro-grid and off grid applications. That's something that’s slowly developing. And as that develops that should give a pretty steady pace I would think over time the issue with micro-grid is that the units are in the 30 KW to maybe 120 KW range maybe a little higher. We have one for instance in St. Croix that is higher that 120 KW it is a 180. But when we look at those types of applications the companies who are servicing that market are learning how to service that market in a cost effective way. The parts are I think adequately cost effective, what isn't really set is again how they install them and their business models. So that is a work in progress, but we are seeing signs that people are getting better at them. We expect progress in that to be fairly rapid. I think, that area will provide a considerable opportunity for us especially in 2019.

And just the last two things I’d like to add one is Sharp who has been a customer for us for a long time. They're actually starting to ramp their business. So they have multiple standalone storage projects planned here over the next couple months. They've obviously completed their first solar-plus-storage installation. So, we expect Sharp to also be a meaningful contributor in terms of our revenues. The challenge we actually have in the very near term and will potentially impact Q2 is we are in the midst of trying to ramp production. I mentioned we added capacity, we’ll really see the benefit of that in the back half of the year. But in Q2 we’re probably more constrained on the production side actually than the order side in growing the revenues. So we potentially could have had even a better Q2 than we're expecting, and we will be able to see the benefits of that when our production kind of catches up to that the recent order flow.

It is surprising to us how there's been a sudden jump and I do repeat that this can be highly variable and but nevertheless it has been rather a sudden jump.

Great and just a quick one Dan. The key milestones for you to the balance of the year in the B-TRAN development, what should we be watching for?

You should be watching for us to get our next devices actually made. You should be watching for us to have our driver circuit done and tested, tested together with a B-TRAN device and it will probably talking about some things that we're doing on some collaboration either for some RV funding or some things that we think are opportunities to start upon the basis of some evaluation and collaboration relationships.

Awesome, thanks so guys.

At this time I would like to turn the call back over to Dr. Lon Bell for any additional or closing comments.

At this point, I think we've covered much of the information that we wanted to cover. We thank you very much for being attentive and for the questions that we had. And we look forward to the next quarter on reporting certain things that are going on right now, some of which we were able to talk about, some not quite able, but we look forward to having continued upward momentum both in the B-TRAN and PPSA. Thank you, very much.

That does conclude today’s conference, we thank you for your participation.