Chris Tyson - Managing Director, MZ North America Daniel Brdar - President and CEO Tim Burns - CFO.

Colin Rusch - Oppenheimer & Company Eric Stine - Craig-Hallum Capital Group Sameer Joshi - Rodman & Renshaw Carter Driscoll - FBR Capital Markets.

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.

Flex is the first licensee of our PPSA technology that we've already agreed to sell product directly to NEXTracker initially and as volume grows transition to a licensing model where Flex will manufacture our products for their subsidiary NEXTracker.

Under licensing model, Flex will bring their formidable manufacturing and supply chain scale and expertise to bear enabling accelerating growth for NX Fusion Plus.

I'm pleased to report that we announced the completion of this agreement for our 30 kilowatt SunDial storage enabled multi port PV string inverter, our 30 kilowatt microgrid capable Stabiliti power conversion system, and a custom NEXTracker product the NX15 which is a 15 kilowatt SunDial storage enabled multi-port PV string inverter.

The agreement creates a commercial framework for our collaboration covering sales volume forecast, commercial terms and conditions of sale, volume pricing, product specifications for the NX15, product warranties, etc that will allow the NEXTracker team to focus on execution and growing this new offering while we focus on expanding our supply chain to accommodate the growth expected from this relationship.

In addition NEXTracker has created a dedicated sales and technical team to support the sales and pipeline development of their NX Fusion Plus system and are targeting significant sales of these systems beginning in late 2017 and continuing throughout 2018.

The NX Fusion Plus is a strategic initiative within NEXTracker to grow their presence in the commercial and industrial market through the increasing use of energy storage and solar and microgrid and provide a high value retrofit solution for utility scale projects.

It's important to note that the addition of the Stabiliti product with the NEXTracker match of the purchase agreement clearly validates our strategic direction and their outlook for microgrid application in addition to their established commitment to the solar-plus-storage market.

NEXTracker's NX Fusion Plus will include either the SunDial, Stabiliti, NX15, or a combination thereof depending on the specific needs of each project and will come fully equipped, pre-wired, preassembled, and ready to power up with the systems in place.

Following completion of the master purchase agreement NEXTracker shared with us their sales forecast and what their sales team is getting measured against for success. While we can't disclose NEXTracker sales targets, their targets are aggressive and we're doing everything we need to do to support their successful launch.

There have been several recent industry publication interviews with NEXTracker management and they stated publicly that once their business ramps up hey are targeting 15 megawatts per week of their NX Fusion Plus solution translating to 500 power conversion systems per week.

But it will take time to scale the business even assuming a fraction of this target in 2018 would result in substantial revenue growth for us. NEXTracker has a demonstrated track record of strong growth and in five years has grown from low volume to having shift in excess of 8.5 gigawatts of trackers.

According to Greentech Media Research they are the market leader in the global PV tracker market holding a 30% market share as of April 2017. Another data point communicated during Flex's recent first quarter 2017 conference call was the associated strength in their industrial and emerging industry segment.

This is where NEXTracker is domiciled and Flex is projecting revenue in this business unit to be up 5% to 15% for the year. These data points are supported by the sales target they shared with us for the NX Fusion Plus solution.

We're currently in discussions with NEXTracker to finalize the product mix for their first order based on their current sales pipeline to support their goal of first NX Fusion Plus shipments in the fourth quarter.

I would encourage our listeners to visit NEXTracker's website to get their perspective on the need for solar-plus-storage solutions and their approach to capture the opportunity.

It's now clear that momentum with our progress in the aforementioned markets is taking shape and now accelerating and we expect microgrid applications and solar-plus-storage in particular to be the near-term driver for our growth.

This week at the MG Storage North America conference NEXTracker is displaying the NX Fusion Plus system in their booth which is located right next to ours and the NX Fusion Plus is generating significant customer attention.

Turning to the standalone energy storage market, the opportunity for energy storage to mitigate demand charges for commercial and industrial customers and to solve issues in the electric transmission and distribution system remains a great opportunity.

We have likely all seen market studies that speak to the magnitude of the opportunity for standalone energy storage that will be created as a result of rapidly declining battery cost and increasing utility demand charges and timely use energy rates. California is expected to remain the leader of the U.S.

storage market for the next five years with Arizona, Hawaii, Massachusetts, New York, and Texas all announcing programs to foster the adoption of MG Storage.

While the projected market opportunity is compelling and is drawing new entrants, today the standalone energy storage segment is struggling with early market issues particularly related to incentive programs.

We intend to be a significant provider to that market but the slow pace of the near-term standalone energy storage market development is what drove our recent emphasis on solar-plus-storage.

Our products and technology are very well suited to the solar-plus-storage application and it leverages a more mature market and solves key issues limiting the growth of solar.

The largest market today for standalone energy storage is California where high demand charges for commercial and industrial customers and state incentives drive project economics. In addition the State utilities have mandates for behind the meter energy storage that create the policy framework to drive adoption.

To create attractive project returns and draw project financing, the State created an economic incentive program, the Self Generation Incentive Program or SGIP to provide nearly 400 million incentives for energy storage that will be allocated over five stages.

We are asked why with the robust incentive program and the number of partners we've captured that the pace of adoption isn't quicker. The problem with standalone energy storage is a systemic one that affects everyone in the space not unlike the early days of solar.

For the commercial and industrial segment in California, the pace and deployment of the SGIP program is dictated by the California's Public Utility Commission guidelines.

Fortunately the program data is public and at looking at last week's program report here is what we see, in May and June of this year the incentive program was open for project submittals and project demand was very strong.

An excess of 800 commercial and industrial projects were submitted for an incentive awards by a large number of project developers and system integrators. The responses confirmed there is a strong demand for energy storage solutions in the State and an increasing number of solution providers.

Once submitted each project is reviewed by the CPUC staff and those that satisfy the program criteria are given a reservation for the incentive dollars for their project. We know of numerous projects submitted by our customers and partners, that plan to utilize Ideal Power equipment.

Unfortunately to date less than 20 of the 800 plus projects have advanced to the funding reservation stage which would trigger the beginning of project execution.

In fact according to a June 2017 report from the energy storage association, the prime meter [ph] market segment which is made up of residential and commercial energy storage deployment declined 27% year-over-year in megawatt hour terms. Report attributes the slowdown to delays in incentive awards from California's SGIP program.

So while the opportunity remains great, we can affect the pace of system deployment and as a result have used this time to leverage our product development work to add to a more mature market like solar with a unique value added solution in solar-plus-storage and with a market leader in the space like NEXTracker.

The solar market is transacting and is looking to incorporate energy storage to solve key end customer demand management, backup, and critical load support problems that solar only solutions cannot.

The solar-plus-storage vertical was the largest component of our revenue mix in the second quarter of 2017 and growth in this market is accelerating for us in the third quarter.

In addition to our newly announced relationship with NEXTracker our confidence with our new emphasis on solar-plus-storage is further supported after speaking with customers and integration partners that are now recognizing the value proposition of a solar-plus-storage system and what it can deliver outside of a solar only solution or traditional demand charge management.

A couple of weeks ago we announced a 1 megawatt order with an existing customer, that’s a global technology provider who is also now focusing on solar-plus-storage installations.

35 of our 3 kilowatts Stabiliti units will be integrated with energy storage in solar and in municipal school district in Northern California with systems to be installed at six different campus locations.

The fixed solar-plus-storage systems will lower high electricity cost caused by time of use and demand charges while also reducing the impact of power disruption to the grid constraints.

Utilizing energy storage and our grid resilient 30 kilowatt Stabiliti PCS, a C&I customer now has an environmentally friendly backup power source in the event of grid outages due to rolling blackouts, brownouts, or severe weather event.

The return on investment on these projects are substantial when you factor in the associated cost for our business to be down due to grid outages as well as high electricity cost and peak demand charges.

The Stabiliti series is a microgrid capable 30 kilowatt power conversion system that is available on two versions, a two port AC DC system for energy storage and a versatile multi-port AC DC DC system that enables the direct integration of solar and storage.

The Stabiliti series is used by project developers and system integrators who need to efficiently connect distributed energy resources to the grid.

Key features of the Stabiliti include full galvanic isolation, grid forming capabilities for microgrid applications, and a smaller footprint of weight compared to traditional power converters resulting in lower installation cost.

Stabiliti is the next generation of our patented power switching architecture technology and incorporates new benefits for commercial and industrial customers.

For microgrid projects better costs can drop to the point where the project economics are sufficient without incentives but we're seeing orders and growth in our pipeline for microgrid that confirms this.

Late in the second quarter we announced our relationship with Azimuth Energy for 300 kilowatt, 500 kilowatt hour remote solar-plus-storage microgrid that will provide off grid and virtually fossil free power to remote building complex in rural New York.

We believe critical facilities such as military bases, hospitals, airports, and industrial facilities as well buildings in rural areas are logical choices for microgrids to allow these facilities to continue to operate during grid outages For decades one of the few backup power solutions has been the diesel generator which carries a heavy environmental and economic footprint.

Bringing power to remote communities in critical facilities through a combination of clean energy and energy storage is now a more economical solution. This is driven by the rapid decline in battery costs which are predicted to fall by as much as 70% over the next 15 years according to recent report by DNVGL, Price Waterhouse Coopers and others.

Designed and installed by Azimuth Energy, the solar-plus-storage project will use a microgrid site controller and include leading well battery supplier’s lithium ion batteries providing approximately 500 kilowatt hours of energy storage.

The 300 kilowatt solar rate will use multiple Stabiliti 30 kilowatt multi-port power conversion systems, a compact solution that enables bidirectional power flow between solar, storage, and the microgrid all in one box.

The result will be an independent microgrid system that can provide fossil free energy at a significantly reduced cost compared to traditional converter solutions.

As awareness continues to grow around the increasingly affordable use of solar and energy storage based microgrids, that displace the use of diesel fuel or mitigate the impact of grid outages, we believe that a growing number of projects like this one will come to fruition around the world is the future of distributed power generation.

Recently a new customer deployed multiple Stabiliti 30C3 multi-port power conversion systems in a hybrid microgrid application for a business on the Island of Saint Croix in the Virgin Islands. This is the first international installation of our product in the microgrid market.

Like, many buildings in the Caribbean this facility does not have reliable power supply available from the utility grid and has relied on diesel generators for power 24 hours a day.

With the deployment of an Ideal Power's six Stabiliti 30C3 multi-port power conversion systems that integrate solar voltaic and batteries with the existing diesel generators, the facility could be run completely independent of the electric grid by reducing fuel and energy costs and cut greenhouse gas emissions by harnessing the power of the sun to power the facility.

The cost of electricity in the Caribbean Islands averages $0.40 to $0.50 a kilowatt hour about three to five times that of the Mainland U.S., decades of persistently high electricity prices, coupled with poor power quality and frequent grid outages it attributed to the regions high cost of business and undercut growth in many of these remote economies.

Renewable energy technologies hold much promise for the region by bringing a diversification of energy sources and substantial cost reductions.

On the R&D front, development efforts over the next few months will be focused on our second generation lower cost Stabiliti and SunDial products as well as firmware development for certification to the new UL1741 SA standard. A standard that will impact everyone in the power conversion industry.

The UL1741 SA standard defines a new class of smart inverter from our power converter features that allows distributed power systems to contribute to grid stability during periods of abnormal grid operation such as brownouts and blackouts.

Under the new requirements of UL1741 SA power converters must be certified for grid support functions enabling smarter, safer, reactive grid interconnection. The UL1741 SA standards includes smart inverter feature requirements including voltage and frequency regulation support.

The State of California has announced that inverters installed in the State will be required to comply with these new requirements later this year. Other States will adopt similar installation requirements especially in areas with grid congestion and high levels of solar penetration. Certification to this new standard will be required in many U.S.

markets and power conversion products not certified to this standard were not allowed to be installed in these markets after October 9th of this year.

Our development work to provide these capabilities is now largely complete and will shortly enter the testing and certification stage with UL which is expected to be complete and incorporated into our fourth quarter shipments.

A key aspect to keeping our technology at the leading edge of performance and cost over the long term and a means of diversifying our business is the commercialization of our BTRAN technology. We've got strong intellectual property protection around our BTRAN technology with 29 issued patents in the U.S.

and key international locations with many more pending. Our patents covered the device, it's used some of the key manufacturing process developed for it fabrication.

To those of you not familiar with our BTRAN semiconductor technology it is a unique, double sided bidirectional AC switch that is expected to deliver substantial performance improvements over today's power semiconductor devices and bidirectional power control applications.

Currently four conventional switches two IGBTs and two diodes are required to control power bidirectionally. We believe that the BTRAB will be able to perform the same function with efficiency losses predicted to be one tenth data conventional switches.

Additionally the faster switch performance predicted for the BTRAN is expected to result in more efficient, smaller, and lower cost power converters that can be used in both bidirectional and traditional unidirectional design.

During the second quarter of 2017 our BTRAN efforts were focused in two areas; first, is the continued manufacturing process development for double sided devices using a production type process. The objective is to develop the manufacturing processes that could be translated at later date to a semiconductor production house to make parts and scale.

As many of you know this has been a lengthy effort collaborating with our semiconductor fabrication partner to develop and validate the hundreds of process that is necessary to make a fully implemented double sided BTRAN.

But this effort is taking longer than expected, our second area of focus is to accelerate our proof of concept efforts and reduce development risk in time by identifying and engaging a second semiconductor fabricator to produce a simplified, easier to manufacture BTRAN on an accelerated schedule.

The simplified version of the device is intended to show the key qualities of BTRAN over IGBT including reduced losses both switching and production losses and increased speed without the complexities and high number of process that's necessary to manufacture the full feature BTRAN design.

Based on the test results from the single sided devices tested last year we're optimistic about the performance potential of the devices. The result of the characterization of the initial devices would be used to guide our further development efforts and any changes on how the devices are manufactured or driven in a natural circuit.

Our initial plans are for the first use of the devices to be in our power converters that demonstrate the potential performance improvement at BTRAN as well as implementation of natural products. We will keep you apprised of our progress.

In addition to the 29 patents that have issued on our BTRAN technology, we now have 42 patents on our PPSA technology bringing our intellectual property portfolio to 71 issued patents with many still pending in our key geographic markets.

With such a strong and broad base of coverage for our IP, our patenting efforts going forward will be focused primarily on those high value innovations that extend the time period, aggressive applicability, or enhance the value for our current and new licensees and the new value -- high value markets we're targeting in the near term.

With that in mind during the second quarter we recognize some non-cash impairments as we eliminated certain filings to focus on patent filings with higher strategic value. Before I provide a look into the remainder of 2017 I would like to turn the floor over to our CFO Tim Burns to discuss the financial results.

Tim?.

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 or predictable manner and we believe our backlog is no longer a strong indicator of our future revenue.

Additionally in recent quarters we have seen in an increase in our day sales outstanding or DSO to well above normal levels and overall increase in bad debt expense related to our West flow capitalized customers that are solely dependent on this market.

While we remain confident in our expectations for our revenue growth going forward, as we are shifting our focus to solar-plus-storage which leverages the mature and global solar market, the customer as I mentioned has resulted in a significant decline in our backlog.

For the reasons just mentioned we don't expect a significant amount of revenue from the standalone storage market in the near term but will continue to be optimistic with regard to selling into this market leveraging our existing Stabiliti series of products.

Gross margins were 202% in the second quarter 2017 compared to 7.2% gross margin in the second quarter of last year. Our gross margin in the second quarter were negatively impacted by non-cash write down of legacy product finished good and component inventory of $359,000 and a $98,000 unfavorable adjustment to the company's warranty pool.

Both of these items relate to the discontinuation of our legacy products and transition to our next generation SunDial and Stabiliti products. This transition is now complete. As we mentioned in last call we expect short-term downward pressure on gross margins when we launch new products.

As expected the higher cost, lower volume pilot builds for the SunDial and Stabiliti both launched late in the first quarter did result in lower gross margins for the quarter and year-to-date period and we expect the initially depressed margin on these new products to continue from one to two more quarters.

Also as previously communicated as we ship at low to moderate volumes our quarter-to-quarter gross margins will have variability for retiring gross margins of 30% to 40% scale and exclusive of any benefit from licensing.

Research and development expenses decreased 8% in the second quarter of 2017 to $1.1 million from $1.2 million in the second quarter of 2016. The decrease were due primarily to the timing of costs associated with our BTRAN development. Our research and development spending is now focused entirely on the 30 kilowatt product families.

And development efforts over the next few months will be focused on second generation to further cost reduce the Stabiliti and the SunDial products as well firmware development for certification for the new UL1741 SA standards that Dan mentioned earlier.

SG&A increased 23% to $1.6 million in the second quarter of 2017 from $1.3 million in the second quarter of last year.

The increases due to higher non-cash patent impairments of $178,000 as we abandoned certain patent and filings to focus on filings of higher strategic value as well as higher bad debt expense related to prior standalone storage sales.

We expect SG&A to return to more normalized levels in the second half of 2017 with G&A returning to levels closely what we've seen in the quarter preceding the second quarter this year. And sales and marketing increasing modestly is to strategically expand our sales team to drive future growth and product revenues.

During the quarter we implemented a cost reduction program and it accelerated our path to casual break even. The cost reduction program aligned to the product roadmap simplification efforts that we communicated on our last call including our focus on our 30 kilowatt product families.

We have eliminated development efforts that didn’t have a clean line of sight midterm growth providing enhanced focus allowing to more tightly manage our spend. The benefits from this cost reduction program were demonstrated in the second quarter as we reported a cash burn of $2 million, our lowest cash burn since early 2015.

We expect this program to continue to benefit us during the upcoming quarters and do not expect this program to have any noticeable effect on our ability to execute our 2017 growth plan. Operating expenses for the second quarter of 2017 totaled $2.7 million yielding a net loss of $3.2 million or $0.23 per basic and fully diluted share.

In connection with the discontinuation of our legacy products and transition to our next generation SunDial and Stabiliti products, we reported a write down of our finished goods and component inventory for our legacy products that resulted in the increased net loss.

We now have a clean slate for the revenue ramp expected to begin in the second half of 2017 and accelerate in 2018 driven by our sales growth in the solar-plus-storage and microgrid markets. From a working capital perspective as most orders are still financing, remaining payment terms to the manufacturer and accounts receivables are closely aligned.

We typically see a positive impact on cash flow as revenue is stable or growing and a negative impact on revenues declining. During the second quarter we saw a positive impact from working capital and we expect a neutral to positive impact from working capital as revenue ramps in the back half of the year.

We currently have ample capacity on our contract manufacturer to meet forecasted growth over the next several quarters. On June 30th our balance sheet included $13.3 million in cash and cash equivalents and no debt.

Lastly I want to mention that the [indiscernible] 5th Annual Roth Solar and Storage Symposium at SPI on September 10th to 13th in Las Vegas. I will now turn it back over to Dan.

Dan?.

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 on driving meaningful revenue growth is supported by a recently signed NEXTracker agreement and there are lots of the NX Fusion Plus systems. Our pending first commercial order with NEXTracker, our enhanced product portfolio and new customer wins.

From an operational perspective this foundation provides us the necessary flexibility to focus our efforts on our 30 kilowatt size units to one, ensure a successful ramp with NEXTracker; two, further reduce our cost to drive improved gross margins overtime; three, trying to identify and engage new solar-plus-storage and microgrid customers that could scale meaningfully; and fourth, further develop a 30 kilowatt platform with standard products encompassing leading features and functionality; and five, allow a systemic reduction of cash burn as we focus on the opportunity at hand.

We look forward to communicating new wins in the microgrid and solar-plus-storage markets. More news on our growing relationship NEXTracker, the expansion of our current pipeline and completion of the proof of concept phase of the BTRAN development in the quarters ahead.

It has been a long journey for many of our shareholders and we as a management team recognize your patience and support as the new market for standalone energy stores take shape.

The execution chapter of the Ideal Power story has commenced and we're focused on bringing best in class products to the solar-plus-storage and microgrid markets while preserving capital to leverage the immense opportunity in front of us with our innovative power conversion technologies.

At this time I would like to open up the call to questions from our listeners.

Operator?.

[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..