Good day, ladies and gentlemen, and welcome to the Enphase Energy’s Third Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded. I’d now like to turn the call over to David Niederman, Investor Relations. You may begin.

Good afternoon and thank you for joining us on today's conference call to discuss Enphase Energy's fiscal third quarter 2013 results. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of Enphase Energy's website at enphaseenergy.com. With me on today's call are Paul Nahi, Enphase Energy's Chief Executive Officer and Kris Sennesael, Chief Financial Officer. After the market closed today, Enphase issued a press release announcing the results for its fiscal third quarter ended September 30, 2013. We’re providing an accompanying presentation with our earnings call that you can access on the Investor Relations portion of our website. During the course of this conference call, Enphase’s management will make forward-looking statements, including but not limited to statements related to Enphase Energy's financial performance, market demands for its microinverters, advantages of its technology, market trends and future financial performance. These forward-looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties. Enphase Energy's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties. Factors that could cause results to be different from these statements include factors that company describes in its press release of today, especially under the section entitled Forward-Looking Statements as well as those detailed in the section entitled Risk Factors of the company's reports on Form 10-K for the year ended December 31, 2012. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. Enphase Energy cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in its expectations. Also please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We’ve provided reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release posted today which can also be found in the Investor Relations section of our website. Now, I would like to introduce Paul Nahi, Chief Executive Officer of Enphase Energy. Paul?

Thanks David. And welcome to everyone joining us on the call today. The third quarter 2013 was a record breaking quarter for Enphase with highest ever revenue of $62 million and highest ever gross margin of 28.3%. Operating expenses which totaled $20.4 million were once again flat for the fourth consecutive quarter. We are continuing to drive leverage in our model by focusing on operating expense control while making the necessary investments to sustain the growth of our business. Our financial discipline combined with our top line growth and improving gross margins enabled us to narrow our loss from operations and improved cash flow. During the third quarter of 2013, Enphase shipped its 4 millionth microinverter representing approximately 885 megawatts of AC microinverter capacity. This marks yet another milestone for Enphase as the world’s leading microinverter systems provider. Another important achievement is the introduction of the latest Enphase system which featured our M250 microinverter. You will recall last quarter we announced that we have shipped the first few thousands units of this fourth generation product. During the third quarter, we offered our new M250 on a limited availability basis to our North American customers as we continue to ramp production and as our customers started the transition from our highly successful third generation product for our newest microinverter. During the third quarter, we shipped approximately 60,000 M250s which represented 15% of total unit shipped during the quarter. The transition to our latest microinverter will continue over the next several quarters and we expect our fourth generation product will represent approximately 20% to 30% of total units shipped in the fourth quarter of 2013. Our latest microinverter system is an example of the step function improvement which accompanies each new product generation. The M250 contains our most advanced custom semiconductor device…

Thank you, Paul. First, I will provide some more detail on our third quarter financial results before turning to the business outlook for the fourth quarter. As a reminder, the financial measures that I’m going to provide are in non-GAAP basis unless otherwise noted. During the third quarter, we continued our track record of execution and improving top and bottom line as well as cash flow. Revenue for the third quarter was a record $62 million up 7% sequentially and coming in at the upper end of the revenue guidance of $59 million to $63 million, During the third quarter of 2013, we shipped 426,000 microinverters representing 94 megawatts. Approximately 15% or 60,000 units were the Enphase fourth generation microinverter systems. Domestic revenue comprised 84% of third quarter total revenue, while the international revenue made up 16%. As Paul mentioned, our international revenue was down sequentially mainly driven by weak seasonal business environment due to the summer holidays and various regulatory actions impacting the solar industry incentives. In the third quarter, we set another gross margin record at 28.3% which is an increase of 140 basis points compared to 26.9% in the third quarter of 2012, an increase of 20 basis points compared to our previous gross margin record in the second quarter of 2013. The third quarter gross margin improvement is driven by relatively stable average selling prices, ongoing cost reduction efforts and the benefit of the higher margin on our fourth generation system. During the third quarter, we continue to focus on our financial discipline delivering on our operating expense management strategy and leveraging the infrastructure that has been put in place. Operating expenses for the third quarter were $20.4 million, this is the fourth consecutive quarter we have maintained our spending at this level. R&D was $7.7…

(Operator Instructions) Our first question comes from Vishal Shah of Deutsche Bank. Your line is open.

Hi, thanks for taking my question. Paul, I wanted just talk a little bit about how you can improve your gross margin going forward, is it going to be a function of overall product mix as you start selling more of these higher margin products or is it also going to be a function of volumes and just talk a little bit about what’s your profitability looks like sort of what kind of breakeven levels are you looking at now? Thank you.

Sure. Currently our gross margins have been affected by three specific factors. One, clearly is technology and our ability to integrate more of our device on to a single asset and thereby reducing the part count and reducing the size of the inverter. Another element certainly is volume and the scale associated with that. Another is simply just the growing size of the inverter, the fact that modules are becoming more powerful and attendant microinverters that’s also equally powerful. Going forward, we see those three main factors still at play. There is a lot of technology in front of us, a lot of technology development that’s going to help continue to reduce the cost. We have seen that in every subsequent generation of our product and we don’t see that slowing down. Our volume continues to increase and that is also having a very significant effect. Now I would only caution you that as we have seen in the past, we have reduced ASPs anywhere between 6% and 12% year-on-year and we certainly see a similar trend in the future. So there is going to be some downward pressure as a result of normal ASP trend. But the continuing upward momentum on gross margin as a result of technology volume and inverter size will continue.

Okay. And when should we start – what kind of breakeven levels are we looking at and when do we start looking at profitability at bottom line?

Right. We have a breakeven model with revenue at $80 million per quarter, 30% gross margin and 30% OpEx which is $24 million of OpEx. However, as you have seen in our financials we have been able to keep our operating expenses well below the $24 million level, it’s currently at $20.4 million, $20.5 million. So as a result of that our breakeven model is actually currently below the $80 million per quarter.

Okay. Appreciate that. Thank you.

Our next question comes from Philip Shen of ROTH Capital Partners. Your line is open.

Hi, guys. Thanks for taking my questions.

Sure.

Hey, first one is on, the revenue guidance came up a bit short versus consensus, but it seems like your better than expected gross margin guide may completely offset that. So if we use the upper end of your guidance range there appears to even be a touch of upside to Q4 EPS estimates. And you may possibly even reach breakeven on a non-GAAP basis. Can you talk to us about how confident you are in the upper end of your guidance range and what the potential may be to exceed that range in Q4?

So Phil you are absolutely correct and just mathematically, if we hit the upper end of the guidance, we have $65 million of revenue and 32% gross margin. We have operating expenses flat at $20.5 million range; we would hit profitability from a non-GAAP operating income point of view. However, having said that we provide guidance within a range and so the range is 62 to 65 for revenue and 29% to 32%. There is no commitment or indication as of today that we will hit the high end of the guidance or even do better than that. Phil?

Our next question comes from Krish Sankar of Bank of America/Merrill Lynch. Your line is open. Andrew Hughes - Bank of America/Merrill Lynch: Hi, guys. This is Andrew Hughes on for Krish. One question on competition, just who you are seeing in the U.S. residential market specifically not really in terms of micros because it’s not something that we have seen but any new competitive threats among some of the new string offerings and just comment on that and perhaps our market share as well?

Sure. So starting with your last question first, we are seeing our market share in the U.S. hold steady, if anything it may be slightly trending up but let’s call it holding steady for now. In terms of competition you are exactly right about micros, in fact at this point all the largest inverter manufacturers have announced that they are currently selling micros. We have not seen any appreciable effect in our market as a result of that. Clearly our competition today is coming more from traditional string and central inverters. And there all I would say is that we are not seeing any change in the fundamental landscape. The players are not really changing there, the market shares are staying relatively constant, one versus the other. So I don’t think we are seeing anything dramatic occurring in that area. Andrew Hughes - Bank of America/Merrill Lynch: Great. And then just one more and in terms of hitting $80 million revenue target whether or not that’s breakeven or not, does your level of confidence and your ability to do that while keeping OpEx where it is now and where you are going to – where you see most of that additional revenue coming from. Is it U.S. market or is it primarily internationally focused? Thanks.

Sure. So we are actually growing in a number of new markets. As we mentioned in the prepared remarks, the U.K. and Australia are tremendous residential markets for Enphase and we are just beginning there. In fact, those markets individually while not quite as big as U.S. market or close to the same size. And our market share in both of those cases is relatively small simple because we’re new entrants in those markets. So there is a potential – there is a tremendous amount of growth potential in those new markets. There is also growth potential in the U.S. commercial market which we’re continuing to do well in. So our overall, growth trajectory, I think is going to be very healthy in 2014 and beyond, we see a lot of room both domestically and internationally for growth. When you look at Enphase in the scheme of all the solar, even all of DG, you will find that we are still in the very early innings of this game and we have a lot of headroom in front of us.

Our next question comes from Colin Rusch of Northland Capital. Your line is open.

Hey, guys. Can you talk a little bit about the cost reduction performance in the Gen4 product so far, historically you have seen, if I recall correctly about 35% or 40% cost reduction on the generational shift. Are you seeing what you had hoped to see at this point in the ramp?

So you are right. Every subsequent product that we introduced does see a significant cost reduction. And as we said in the past, you don’t necessarily see all of those cost reductions on day one often times in fact almost in every case, you will some cost reduction immediately. But then, through the course of that product life time, we will continue to reduce cost through a variety of different means. We have seen what we have expected to see from the fourth generation product, primarily as a result of technology and specifically semiconductor design. But, we also expect to see continued cost reduction throughout the – its life time as well. Again, that is good news on cost reduction, good news on gross margin, should be tempered with what we have fully expect to being a normal definition ASPs as we have seen in the past.

Okay. And as we look at the gross margin guide from 3Q to 4Q was that a ton of revenue increase. How of much that is being driven mixed shift and how much of that is being driven by management or the supply chain?

Yes. So part of that is driven by an increase of the fourth generation as we mentioned during the call. In the third quarter roughly 15% was fourth generation, we expect in the fourth quarter that to increase to 20% to 30% of overall shipments. So that is definitely helping us. Now in addition to that we will continue to drive down the cost on our third generation product and made further improvements across the board. And so that all together gives us a view to 29% to 32% gross margin for the fourth quarter.

Great. And then just one final one for me. Can you talk about the ramp in Australia and the potential entrance into Japan, obviously, those [indiscernible] very strong markets particularly for applications you guys said well? Love to understand how you see that playing out over the next couple of years?

So the team is being built in Australia as we speak. We really do believe it could be a very strong potential market for Enphase. The dynamics of that market are very healthy. It is effectively while not entirely, it is effectively an unsubsidized market right now in roof top PG, which we believe to be a very positive trend. The initial indication has been extremely positive, our product has been very well-received and again we are just starting, so we feel very comfortable about our current position and our ability to grow that market. Japan is a little more complicated for a variety of different reasons. We are actively engaged with several potential strategic partners. Japan has both some marketing challenges as well, some technical challenges which needs to be over come, all of which are eminently doable but its just a question of resource and time. We do view Japan as a strong market for Enphase, not exactly should sure when we are going to enter that market.

Great. Thanks so much.

Thank you.

Our next question comes from Pavel Molchanov of Raymond James. Your line is open.

Hi, guys. This is Ryan Berney in for Pavel. I just wanted to ask last quarter you alluded to some excess [indiscernible] channel, as that subsided over the past three months and also have you been able to identify the reasons for that original issue?

So the answer to the question is, yes, we feel that we have done what we had set out to do which is reduce the inventory in the supply chain. And the reason for that as we talked about in the past, it’s in large part due to the transition from the third to the fourth generation product. And I think part of it is just normal course of business, throughout the year. Inventory levels will fluctuate and because we have very clear visibility on our -- not just ourselves in data but out data its very important for us to maintain a healthy level of inventory in the channel, which means that we need to manage it from time to time.

All right. Thank you very much.

Our next question comes from Edwin Mok of Needham & Company. Your line is open. Edwin Mok - Needham & Company: Thanks for taking my question. So on the gross margin, if we think about the fourth generation product let’s say you ramped up to 400% of your shipment and you will get growth you are expecting and let’s say 10% price decline that you are thinking about on a year-over-year basis, right? What kind of gross margin, do you think you can achieve with that product fully ramped?

So Ed, now our long-term gross margin target is 35% to 40% and so we are well on our way to achieve that. I cannot guarantee however that we will achieve that. We have 100% of four generation shipments. A lot of that will depend as you pointed out what will happen from a pricing point of view. Competitive pricing and how we react to that with our pricing. And so that will be a key driver but yes, long-term 35%, 40%, we do have line of site to achieve that over time. Edwin Mok - Needham & Company: Okay. That’s fair. And then on the U.S. side market looks like it’s been strong this quarter. Can you quantify how much of that come from commercial versus residential. And as you look long-term maybe look at 2014, how do you think that makes [ph] mixed shift?

So sure, today approximately 15% to 20% of our shipments are commercial, most of that is in the U.S. Going forward, we expect that to increase, we have already seen a tremendous trend and there are examples of that which we shared with you on the prepared remarks on several multi-megawatt site. So we do expect the percentage of commercial to increase, while we increase the residential and we expect that trend to be not just U.S. but also international. Edwin Mok - Needham & Company: Last question, I have regarding [indiscernible]. What is roughly the timing at least based on your current plan the timing for fifth generation inverter?

We have not announced the fifth generation inverter, the timing for the release of the fifth generation. What we said in the past is that traditionally if you look at historically what we have done and if you look at Silicon Valley tech companies in general, from generation to generation can be anywhere approximately 18 to 24 months. Having said that I will note that the fifth generation as you all know is well underway it’s actually operating, its on rooftops. We have actually just started the sixth generation as well. So we continue to invest heavily both in hardware and in software to increase our lead. Edwin Mok - Needham & Company: Great. That’s very helpful. Thank you.

Our next question comes from Philip Shen of ROTH Capital Partners. Your line is open.

Hey, guys. Don’t know what happened earlier but I got cut off. Just a quick follow up here. In this quarter you guys had about 16% of your revenues exposed to international sales 20% in Q2. As you look out ahead, what kind of international revenue mix do you expect transferred all 2014?

So we can’t speak specifically to 2014. We don’t guide to that level of specificity but what we can say is that the – we are continuing to gain share in just about every international markets we are in. The adoption of the product, the reception to the microinverter technology has been fantastic. We are seeing the exact same level of response there that we did in the U.S. maybe back in 2008, 2009 which gives us a great deal of confidence that we are going to be able to achieve internationally what we have achieved in the U.S. Having said that of course, there are logistics issues, there are operational issues, having to build teams in those countries, establish sales, customer support, training and all the rest. We are well on our way to doing that in the core countries that we are focused on right now. So I would say long-term we expect the percentage of sales to come from rest of the world to increase very dramatically from where it is right now. And we are very confident we are going to able to achieve that.

Phil just to add the U.K. residential solar market as well as the Australian residential solar market, each of them is approximately the same size as the U.S. residential solar market. So it’s a really large market and we have only started our adventures there. And so we have a tremendous opportunity to go and take share in that market grow our share and grow our business.

Great. Thanks Kris. Thank you, Paul as well.

Thank you.

I’m showing no further questions. At this time, I’d like to turn the call back over to Paul Nahi for any further remarks.

Thank you for joining us on today’s call. The third quarter 2013 was a record breaking quarter with strong execution on our strategic initiatives and solidifying our position as the industry leader. We look forward to speaking with you beginning of next year as we report on our fourth quarter and full year 2013 accomplishments.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.