Good day, ladies and gentlemen, and welcome to the Ideal Power Third 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 morning. I'd like to thank you all for taking time to join us for Ideal Power's third 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 8:30 a.m. 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 would also 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 Ideal Power's Chief Executive Officer, Dr. Lon Bell. Lon the floor is yours.

Thank you, Chris, and welcome everyone to our third quarter 2018 conference call. The third quarter of 2018 was highlighted by our largest installation in company history with BCI in China. This high-profile demonstration project is now being commissioned, and creates the opportunity for additional solar-plus-storage installation in the region. Our BCI win represents our first large scale deployment of a solar-plus-storage solution in the Chinese market. We are encouraged to see a large international market such as China embrace solution utilizing solar-plus-storage. Our partnership with NEXTracker continues to move forward. And in October, we shipped our second largest single site installation in our history of NEXTracker for a SunDial Plus solution. During the third quarter, we commenced shipping in a new vertical EV charging for stability power conversion systems. We shipped additional systems, eCAMION for a network of EV class charging stations in Canada. In the same market vertical, we also shipped additional units to Coritech as their OEM supplier for their electric vehicle by directional DC chargers. Most notably, we shipped over 500 kilowatts of stability PPS for inclusion in Sharp SmartStorage behind the meter energy storage system. Unfortunately, due to a delay in timing of the NEXTracker project, the shipment was moved from the third quarter to October. And we will recognize revenue from this project in the fourth quarter 2018. This product delay was the primary reason for our lower sequential revenues in the third quarter of 2018. We expect similar revenue in the fourth quarter of 2018 with revenue growing in 2019. I'll provide additional updates on these customer activities later during the call. As a result of the slow and sporadic growth in commercial energy storage, we are focusing on tightly restricting our cash usage. We believe the right path in energy storage is…

Thank you, Lon. Our B-TRAN division made notable operational progress highlighted by producing wafers to our collaboration with the university wafer prototyping facility. In addition, we upgraded our wafer testing equipment for our Austin, Texas engineering labs to test these prototype wafers and second-generation prototypes being produced by our commercial fabrication partner. I'll drill down more on these items shortly, but I want to quickly provide an overview of our disruptive solid-state switch technology B-TRAN for those who are new to the value power of storage. B-TRAN is a bidirectional 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, today, we have produced two double sided versions of the device. The first version and the focus of our current efforts is what we refer to as the standard B-TRAN, it's a thicker double side die with fewer features, making it simpler and quicker to fabricate requiring about one-third of the manufacturing process steps as the full feature device. Since it is thicker, it also does not require the complex wafer bonding and de-bonding process steps to handle and process both sides of a very thing wafer. The standard B-TRAN has the potential to reduce switching and conduction losses by more than 50% compared to conventional power switches. This level of performance was validated, and our most recent testing. The second version is the full feature B-TRAN, which is thinner with more complex features and has the potential to reduce switching and conduction losses by more than 90%. Both B-TRAN designs have addressable markets for the respective performance levels, and both versions can be made with conventional silicon manufacturing fabrication equipment. Based on our manufacturing success and early performance data on the standard B-TRAN,…

Thank you, Dan. I will run through the third quarter 2018 financial results. Revenue for the third quarter was $300,000, a decrease of 45% compared to the preceding quarter, and down from $400,000 in the third quarter of 2017. This decrease in revenue in the third quarter of 2018 was primarily due to the rescheduling of a large SunDial Plus shipment to October, and lower sales of our Stabiliti product as we were faced with supply chain delays caused by extended wait times for electronic components. Gross margins were negative 61% in the third quarter of 2018, compared to positive 6% gross margins in the third quarter of 2017. In the third quarter of 2018, gross margins were impacted by an unfavorable adjustment to the company's product warranty accrual, and higher component costs partly due to tariffs. Research and development expenses decreased 21% in the third quarter of 2018, to $900,000 from $1.1 million in the third quarter of 2017. The decrease was due primarily to the impact of cost reduction activities, including lower personnel, development, and certification costs, as well as the timing of semiconductor fabrication expenditures. For the balance of 2018, we expect a modest increase in research and development spending on the B-TRAN, and relatively flat research and development spending on our more mature PPSA technology. SG&A was flat, at $1.2 million in the third quarter of 2018, as compared to the third quarter of last year. The impact of cost reduction activities was offset by higher legal fees and consulting costs due to the evaluation of strategic alternatives. We continue to see the positive impact of the cost reduction program we began implementing in the second quarter of 2017, accelerating our path to cash flow breakeven. As noted, the cost reduction program aligns with the product roadmap simplification efforts that we communicated in 2017, including our focus on our 30 kilowatt product families. The benefits from this cost reduction program were demonstrated again in the third quarter, as we reported a cash burn of $1.4 million, 13% lower than during Q3 of 2017. Operating expenses for the third quarter of 2018 totaled $2 million, yielding a net loss of $2.2 million or $0.16 per basic and fully diluted share. On September 30th, our balance sheet included $5.5 million in cash and cash equivalents, and no debt. In summary, we experienced a low quarterly cash burn rate of $1.4 million due to aggressive cost-cutting initiatives. Cash used in operating activities for the nine months ended September 30, 2018, was $4.3 million, compared to $5.9 million in the nine months ended September 30, 2017, a reduction of 27% year-over-year. The combination of the impacts of our cost reduction plan, continued, strong cash management and no debt provided Ideal Power with a stable financial runway well into 2019. I will now turn the call back over to Lon for closing remarks. Lon?

Thank you, Tim. To conclude, the B-TRAN division is progressing to having prototype devices available for customer sampling. And in the PPSA division, we have entered into strategic discussions which utilize our PPSA as part of a fully integrated system offering. We believe the level of interest is encouraging, and look forward to communicating additional details in the coming months. At this time, I'd like to open the call to questions from our listeners. Operator?

Thank you, sir. [Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much. Guys, can you give us a sense of how long these strategic discussions have been underway, just wanted to get a sense of maturity on that, and how quickly something might come to fruition?

We've had strategic discussions underway for about two-and-half months at this point.

And are you getting to the point where you've got real plans in place that you're discussing or really a more, I guess I would call it, more in the abstract about potential collaboration?

I think it's a broad range. Certainly we have some -- we have at least one discussion that is fairly far along. And we have others that seem to be coming to us that are in very early stages. So we have quite a mix.

Okay, great. And then in terms of the monthly cash burn, appreciate with happened in the third quarter. Where are you guys at right now in terms of cash out the door on a monthly basis?

So, it's still roughly $450,000 a month. And that's been pretty consistent throughout the year. There's timing that bounces that around, but we're through nine months at $4.3 million, and if you just do the simple math there, it's in that ballpark.

Excellent. That's super helpful. Thanks guys.

We'll take our next question from Craig Irwin with ROTH Capital Partners.

Good morning, and thanks for taking my questions. So, Lon, can you maybe share with us some of the lessons that you've learned from the BCI project in China. Are there logistical considerations or project implementation considerations that maybe enhance your ability to execute on future projects going forward?

Craig, yes. I think that there are several lessons that we have learned and are learning. What you mention, certainly Tibet has some interesting characteristics. First of all, they're quite important and new to us logistic characteristics, especially since that's our largest order. Second of all, it's high elevation. This creates certain differences in the operation of electronic equipment at higher elevations. Some of the properties of the air are different enough that the units are exposed to that it changes withstand voltages and other internal properties of the electronic circuit. Fortunately, we have not had much problems in that area. There also is switching changes that are required because of the nature the particular location and the particular geometry that the customer has chosen to hook things up with. So there are several changes. I think another are that we are all learning from is how to do effective program management, because there is complexity associated with tracker installation, battery installation, our system installation, and software integration. So there has been quite a learning process. And fortunately, at this point, some of that learning has matured so that we think we have a good understanding of how to work in future projects to take advantage of this knowledge. I would say -- and there's also one more factor that's interesting. When we have single-unit installations it's very difficult to get robust statistical information on performance, also on the stability of our units and their reliability. When we have a large array, then it greatly helps, and gives us great insight into the strengths and weaknesses of our product, and it's allowed us to identify certain failure modes that we corrected rather quickly, but would not show up until, again, there are a large number of units out in the field. So it was quite a learning process for us, and a positive one.

Great, that's really good to hear. So I was hoping for a little bit more on the customer side on B-TRAN. How many customers do you expect to move towards potential bench testing and preliminary product designs with B-TRAN? Is this something where we could see mockups or, let's just call them, prototypes early next year? Is this something where we could see a relatively quick adoption in the power electronics industry or is this something that you think will have a little bit more of a protracted timeline for potential revenue generation.

I'm going to let Dan answer that question.

Yes. I think the rate of adoption is going to vary a lot customer-by-customer. One of the things that we're doing is as we look to kind of how wide-bandgap materials, like silicon carbide devices and GaN devices in particular have gone into the market. One of things that I think has really slowed their uptake, aside from just the difficulties of working with wide-bandgap materials is they were coming out with discrete devices, and we have chosen deliberately not to do that. We're going to actually bring an integrated power module where it's the die packaged for thermal management with the device driver. Because that makes it much simpler for people to evaluate, people don't have to come up with their own driver designs. From a lot of the customer discussions that we've had with potential partners, it's been a clear message that people want to get that integrated device. And we've already been designing the driver and testing it, and getting the packaging designs done. So we think we're listening to those customers. We cant provide much color on them yet because really, for us, the important thing is getting devices in peoples' hands here in late Q4 and early Q1 of next year so that they can actually see the value that the technology brings through much lower switching losses, and the impact that it has on them for the thermal management being much simpler, lower cost, easier to deal with. Because that's really where it creates the opportunities to explore a variety of relationships with partners, whether they end up being just a channel partner or whether they are somebody who wants to put NRE dollars in for co-development on the application side, or collaborate with us, like some of the things we've already done where we are working with partners to propose government demonstrations of B-TRAN. So, I think there's still a lot more yet to come. And as we get through getting these devices in peoples' hands I think we'll have a lot more to say about who we're potentially working with, and what sectors of the market they're in, and why they view B-TRAN is important for their business.

Because our technology is fundamental, and because it is novel in a very constructive way, we are in contact with companies in the automotive industry, in various other industries, certainly in the energy renewables space. And in some of the other key verticals that currently are served by IGBTs, we think our offering will be a very strong competitor to IGBTs which are the standard product that services $12 billion industry. And we think that some of the verticals are very appealing because of the differences in the properties and characteristics of our B-TRAN device compared with that of IGBTs.

Great. Congratulations on the progress, and thanks again for taking my questions.

We'll take our next question from Eric Stine with Craig-Hallum. Please go ahead.

Yes, hi. It's Aaron Spychalla on for Eric. Thanks for taking the questions. Maybe first for me on China, with BCI, good to hear about the commissioning there, can you just maybe talk about the size of the pipeline, and any thoughts on timing there?

Our pipeline is rather short. In terms of the nature of the business sector that we're in, the small C&I space, and the projects such as what we have with BCI, the companies tend to come to a decision and then want quite rapid action now, and response. So the pipeline is one of the things that we struggle with, and it's throughout the industry, it's not just us, in that the pipeline is quite short. So while we have many opportunities, and many opportunities to quote, those spread out over a fairly long period of time. Where we do have greater visibility is with particularly customers that service many smaller companies, such as Sharp, where their product offering is something that they are beginning to see a dependable flow of business, and therefore can work with us to establish a more uniform flow of product. That is not true when the projects are larger, and in which case they tend to be lumpier, and there's a project released and it could be quite infrequent, and the timing is not very certain. So it's a bit of a mix, but overall we are very much suffering from the lumpiness of the market and really a fairly short visibility for the future.

Understood. And then on Sharp, I mean you kind of talked about a 60 megawatt pipeline and like you were kind of saying starting to see a little bit more dependable flow of business. Is that something -- how do you characterize the timing of that kind of 60 megawatt?

I'm going to let Tim answer that because - Yes.

Yes, so for Sharp, I mean, we saw a pickup of orders starting, I guess, in the second quarter largely for delivery in the third quarter into the fourth quarter, that Sharp was our largest customer in the third quarter in terms of shipments. I think there's been a little bit of a temporary slowdown in that just as they work through being acquired by NantEnergy. But I think it definitely is a very good opportunity for us longer-term. That 60 megawatt number is not a number that Sharp necessarily gave to us, it's a number that was in a recent article about the acquisition of NantEnergy is what their pipeline is in the C&I space, which is where they're using us as their supplier. So, we'll try to get some more visibility into that now that the acquisition is complete. But obviously, 60 megawatt pipeline is pretty attractive from our perspective in terms of the revenues that that could bring to Ideal Power.

Right, thanks for the color there. And then maybe last for me, just on NEXTracker timing, you kind of talked about early to mid '19. Can you just kind of talk about how the discussions are going there and maybe anything on the size of that pipeline since we last heard about it?

I think with NEXTracker we do of course have very frequent discussions. I think the focus with NEXTracker is to make certain that at this point we have a robust product that is commissioned effectively. And I think that that will somewhat dictate how we go forward with them. I do think that as they are working to get additional projects, very hard, but as we've all seen, their process has experienced delays over several years now. So I think that their solution is very attractive to certain customers, but at this point acceptance is still, I'll use my word again, lumpy.

Understood. Thanks for taking the question.

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

Good morning. Lon, just take a step back into -- I know you gave quite a bit detail. Just at a high level, the strategic discussion, I mean, is it just a focus on PPSA, I mean is it companywide, are all options on the table right now in terms of your discussions?

I think that we certainly will listen to anyone who has a good value proposition for our shareholders. Now, that's not quite an answer to your question, but I just have to say that, we do think of the PPSA is benefiting from integration with other components. The PPSA is part of the system, what we are experiencing is that that part of the system were very valuable and very flexible, really needs to be tied together with related systems and I'd just mention a couple, one is a battery with a battery management system, the other is an overall energy management system that talks between and activate certain parts of our system, the battery, the grid and the usage and organizes the flow of power among the various sources of power and users of power. That function plus thermal management associated with the battery and associated with the whole system encompassed a system, at this time often those are separate parts, now Sharp has an integrated offering, NEXTracker has an integrated offering but several of the other customers that we deal with do not have really integrated offerings. So what I think is an opportunity for us and for companies in the C&I space is to come up with an integrated offering attacking a particular market sector, so that the acquisition cost of the customer is reduced because the installation cost and the adaptation cost are considerably lower. So, one activity that we have is looking for partner that that can work with us where our technology fits well and which can integrate in such a system and offer it to targeted customers that can replicate that particular usage again and again throughout a large area and a large number of customers much have in the residential space, there…

No, no quite a bit of color, I really appreciate that one. Maybe shifting gears a little bit, EV charging you start about like how you see programs being funded just kind of like pushing forward the gives and takes versus subsidies available on a state level versus some of the public companies or private companies trying to kind of go alone and how you that evolving and whether you think that could be potentially bigger contributor over time?

Tim, do you want to answer that?

Sure. So the EV charging market is something that we just recently got involved with our stability to family of products. As of now with our two primary customers and we mentioned little bit on our last call, eCAMION which is out of Canada which is doing some work for the TransCanada Highway and then Coritech which does access some of the grant defense money to fund some of their projects on the EV charging space. Right now, I would say we're much more active in the product marketing side and market research side of the EV charging space, that is a space that we do not have that much experience with outside probably of our relationship with the Coritech, we know them for a few years. We did do a project a while back with a couple of years ago now with EVgo with one of our legacy products as well but we think there's a good opportunity for our power converters in both the fast charging environment but also when it's combined with buffer storage as well, so we think it's a natural fit and it's something that we'll be doing a lot more BD work on here over the coming months but it's still little bit early for us in that market other than our established relationships.

Okay. And then maybe just last one for me, Lon you had mentioned Amber Kinetics, could you talk the high level about the pairing of your two technologies and where you think this could lead to over time?

Yes, I think just to broaden it just very slightly, one of the qualities of our PPSA technology is that it has the ability to interface with various forms of energy. Production or storage and storage I should say, so for example in one case in Saint Croix, it's paired with a generator, a diesel generator as well as solar. So that is the pairing that has certain characteristics that frankly took some learning on our part but our characteristics are quite different from a battery and PV and our system delivering power to the usage. In the case of EV, there can be a combination and there are some subtlety as we mentioned earlier, EV is a storage system itself and electric vehicle has quite a bit of capacity, so in some cases there is the desire to take the power that has been stored in the EV in emergency or special circumstance return it to a home or grid. Our technology has capabilities to do those different transfer mechanisms and to do it rather simply without much change or addition that is mainly software. The other aspect of it I think that's important is that if we look at charging there is slow charging in the home, there is charging stand in industrial complex, there is fast charging and so we're looking and as Tim said, we are looking at different mechanisms for that now as far as Amber is concerned, their mechanism compete in some ways with other systems, so they compete with batteries and our system can adapt very well to their conditions and the various voltage changes, the various power changes associated with flywheel system. So when we look at it especially with Amber, we see that that is potentially really a brand new vertical. So we have the EV vertical which really could use some of the Amber technology over time, when we see the markets that they're focused on now and we see the opportunities, we see it as very complementary but we see our system as having the flexibility to work regardless whether it's a flywheel or a battery system. I want to little off track there but I just want to add a little color.

Last question for me if I may, so given this internal review, is there fair to say that maybe some of your relationships are watching this closely to see how the direction of some of your potential that often might shape kind of check out going forward that their?

I think you'd have to say it's always fair but I think that the business models for our space and the business model for the residential space is pretty well understood. There are obviously as a need for innovation and there are some terrific innovation going on there in terms of business models. Similarly on the very large scale, there is a utility scale there's the introduction of storage as a new component and that is being validated if you will like for example in back with us. And what that model may look like but in CNI space, the model is still evolving. We've seen companies come and go. We've seen various entities make approaches to it but that business model is still evolving and I think it needs to turn more in the direction that I mentioned previously.

Okay, I appreciate that. Thanks, guys.

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

Yes, good morning. Thanks for taking my question. Most of the questions have been answered but just a few clarifications on revenues and then on track, so you mentioned there were delays in the third quarter shipments which were shipped to knock over. So do you expect or should we expect the October revenues incremental to your expected 4Q revenues or 4Q revenues are for that pushed out as well?

So in general, so Q4 is a little bit tough because of the holidays, so the back half of the quarter is relatively light to begin with. I think there in the prepared remarks we said revenue be can pretty close probably to what we see in Q3 could be up some but it's not going to be significantly up from the third quarter. We're expecting more of the growth to occur in 2019 and it is dependent as want that a little bit on lumpiness. So for instance you know obviously the second quarter with the BCI order we shipped was a big quarter for us based on just that one large project. So we'll continue to see things like that happening as well where large projects can have a significant impact as long as were relatively low revenue numbers.

Understood, and then the 1.1 megawatt order that was shipped to Iowa was that revenue recognized on shipment?

It is and it was shipped in October, our FOB shipping point that we've record revenue upon shipment.

On the B-TRAN I think that I heard two versions, two types of prototypes being developed one with the slightly lower efficiency losses compared to the other which is a fully integrated system. Was this an organic there that you progressed with because you could do it or was it that something that customers directed or customer desired?

The two versions of the device really have different performance levels and as we have engaged with potential customers and learn more and more about their potential use for it we're realizing that there's sort of a spectrum of performance and devices that all have markets. So for example, the version that we are focused on making devices for sampling right now is what we call the standard B-TRAN which still has pretty significant performance improvement more than 50% reduction in losses. It has markets for power control applications, DC breakers a whole variety of things that don't require the both the features, performance level and the manufacturing complexity of the full featured device. So we've really focused on let's get the standard B-TRAN made. We know there's an immediate market opportunity for that. We know we have people that want to partner with us for that. And it's simpler and quicker to do turns of fabrication of that device. So that's really where our focus is for what we're doing here in the near-term. And then we'll come back to the more featured device because it'll learn from all the manufacturing lessons that we will have come through on making the standard B-TRAN.

One thing on the B-TRAN is to have a product that really helps customers. So it really gives them advantage and that is what we're calling a standard B-TRAN. It's also helpful for many users to understand what the limits of the capability of the technology are and that's the other version that we have done some characterization and evaluation of. So if we have a product then we can say how much headroom we have to take the product and make it competitive and more competitive over a multi-year period of time. We did not talk but of course that since it is architecture a design, it can be made from other materials as well. So it could be made over time not now because we have to walk before we run. It could be made from silicon carbide which would substantially change the performance yet again. So there is a roadmap of performance and it depends on cost, maturity, particular application and the ultimate capabilities for the long-term competitiveness against technologies that are being developed or could be developed elsewhere. So I think that when we look at the B-TRAN we see that it should be sustainably competitive and offer advantages against what we know that people are developing or have developed at this time.

Yes, I did not know when Dan mentioned silicon carbide and again as the competitors. I was wondering why wouldn't you use your technology and those materials for even better performance I did catch.

Yes and that would give better performance in some circumstances. And the advantage of the standard is that it uses available standard of metal oxide processing technology. So bipolar technology, standard CMOS technology are the technologies that go in to the B-TRAN and its driver and then and it offers apparently from all of our testing for love we've seen such advantage that it's definitely a product that quickness to market and utilizing mature processing can take advantage of. So it can carbide some of the other technologies we compound our risk and now it's not the time to do that.

Understood, just to follow up on the R&D comment earlier, is most of thought and be spend on the B-TRAN program or is there anything else going on. And then how do you expect the TRAN to be in R&D going forward?

I'm sure you R&D spend is still on the PPSA technology. Most of our team of personnel is on the PPSA side and most of that personnel is engineers. So we're still working on making a 30 kilowatt both the stability in the sundial plus the best products that they can be for a myriad of applications. So that is most of our spend B-TRAN spend is somewhat lumpy which is just kind of depends on the timing of production runs and what we're doing at the time. But overall that R&D number will probably tick up somewhat in general because of B-TRAN spending PPSA will be flat or even potentially slightly down on the PPSA side but the B-TRAN will spend will be up somewhat over time.

Okay, so PPSA 30 kilowatt work is still going on. Okay

That is correct.

Thanks for that and thanks for taking my question.

Thank you.

Ladies and gentlemen, this does concludes today's question and answer session. At this time, I'd like to turn the conference back to your speakers for any additional or closing remarks.

Thank you very much. We are excited about, how about opportunities both for B-TRAN as we've talked about and the look we're seeing in our measurements in our laboratory work and we are excited about strategic prospects for our PPSA technology. These should unfold. We will keep our shareholders informed, as they do unfold and we think that over a reasonably short time will have decisions made and conclusions reach related to our strategic activities. Thank you.

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