Welcome to Silicom’s Third Quarter 2013 Results conference call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded October 21, 2013. I’d like to remind everyone that forward-looking statements for the respective company’s business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include but are not limited to product demand, pricing, market acceptance, change in economic conditions, risks in product and technology development, and the effect of the company’s accounting policies as well as (indiscernible) risk factors which are detailed from time to time in the company’s filings with the various securities authorities. If you have not received a copy of today’s press release and would like to do so, please call CCG Investor Relations at 1-647-201-9246, or view it in the News section of the company’s website, www.silicom.co.il. I would now like to hand over the call to Mr. Ehud Helft of CCG Investor Relations. Mr. Helft, would you like to begin?

Thank you, Operator. I would like to welcome all of you to Silicom’s Third Quarter 2013 conference call. With us today on the call are Mr. Shaike Orbach, the CEO, and Mr. Eran Gilad, the CFO. Shaike will begin with an overview of the results, followed by Eran who will provide the analysis of the financials. We will then turn over the call to a question and answer session. Before we continue, I’d like to draw your attention to the company’s disclosure of certain non-GAAP financial measures in today’s earnings release. Such non-GAAP measures will be discussed during this call. Such non-GAAP measures are used by management to make specific decisions, forecast future results and evaluate the company’s current performance. Management believes that the presentation of these non-GAAP financial measures is useful to investor understanding and assessment of the company’s ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that financial disclosure in this conference call will be on a non-GAAP basis. Non-GAAP financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial conditions and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures is included in today’s earnings release, which you can find on Silicom’s website. With that, I would like now to hand over the call to Shaike Orbach.

Thank you, Ehud. Good morning everyone and welcome to our third quarter 2013 results conference call. We are exceptionally pleased to present our strongest-ever quarter with outstanding growth over last year, as well as the prior quarter. Our financial results broke all previous records in terms of revenues, operating income, net income, and earnings per share. Revenues grew by 49% over last year to a record of $17.2 million, and non-GAAP net income grew strongly by 55% to a record of $4.2 million. This is a substantial growth rate in a short period for any company, and we are very proud of these achievements. While showing extraordinarily strong year-over-year growth, our expenses have increased at a much more conservative rate. Our non-GAAP net margin this quarter of 24.4% demonstrates the strong inherent operating leverage in our business. The contribution to our growth was diversified across all our product lines, particularly the newer ones. We sold product across our broad base of 90-plus design wins customers with initial sales to the new customers while continuing to ramp sales to existing customers in all our target markets. Our results truly speak for themselves and are very much a demonstration of the success of the business platform which we’ve built for continued long-term and stable growth. Our balance sheet remains very strong with net cash standing at $50.2 million. This large cash position remains a significant asset for us and is beyond what is needed for ongoing working capital uses. It demonstrates to both our existing customers as well as any new potential customers to which we market that we are a company that can meet all their needs and provide them with support over the long term. It also provides us with the deep financial resources to meet and exceed all our…

Thank you, Shaike, and hello everyone. Revenues for the third quarter of 2013 were $17.2 million, a growth of 49% compared with revenues of $11.5 million in the third quarter of 2012. Our geographical revenue breakdown for the first nine months of 2013 was as follows: North America 77%, Europe and Israel 12%, Far East 11%. I will be presenting the rest of the financial results on a non-GAAP basis, which exclude the non-cash compensation expenses in respect of options granted to employees and directors, as well as amortization of intangible assets. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the third quarter of 2013 was $7 million, representing a gross margin of 40.9%. This is compared with $5 million or 43.5% of revenues in the third quarter of last year. The growth margin does vary between quarters mainly as a result of the specific mix of products sold during the quarter. Operating expenses in the third quarter of 2013 were $2.8 million or 16.3% of revenues, compared with $2.2 million or 19.2% of revenues in the third quarter of last year. Over the long term, our revenues continue to grow at a faster pace than our expenses and this is a solid indication of the inherent leverage in our business model. Operating income for the third quarter of 2013 was $4.2 million or 24.4% of revenues. This is a 51% increase over operating income of $2.8 million as reported in the third quarter of 2012, or 24.3% of revenues. Third quarter 2013 net income was $4.2 million or 24.4% of revenues. This is a 55% increase compared with a net income of $2.7 million or 23.5% of revenues in the third quarter of last year. Earnings per diluted share were $0.58 in the quarter compared with $0.39 in the third quarter of last year. Now turning to the balance sheet, as of September 30, 2013, the company’s cash, cash equivalents, bank deposits and marketable securities totaled $50.2 million or $7.06 per outstanding share. As of September 30, 2013, our inventory increased to $31.6 million compared with $26.8 million at the end of the previous quarter. This increase in inventory reflects the strong growth in our business. Our decision to increase inventory levels is based on the forecast we received from customers and their requirements for quick delivery, even given orders significantly above initial customer estimates. We are confident that the inventory is at the right level, given our current operations. I stress that we see no risk with regard to the current inventory level and expect it to be sold and converted to revenues. That ends my summary, and we would be happy to take any questions. Operator?

Thank you. [Operator instructions] The first question is from Don McKieran of Landolt Securities. Please go ahead. Don McKiernan – Landolt Securities: Oh, thank you. Congratulations not only on a great quarter but year after year after year of fantastic performance. My question is on the timestamp products that you announced in February. I think you had an initial design win that you talked about at the time that you announced the product. Do you have any additional design wins since then?

Well first of all, the answer is yes. We have another design win related to the timestamp. We have not announced anything because it’s a small one as of yet, but yes, we do have another one which I could say by itself is a surprise because typically the time it takes, the sales cycle to get design wins for that kind of product is much longer. When we announced the timestamp, we had the first design win which was just like you said – I mean, we had this design win then. It was a surprise to us then that it was accepted so well by the industry, that we immediately had a design win, which is why we announced it at that time together with the launch of the product itself. During this quarter, actually, we had another design win. It was a small one at that time, so that’s why decided that it did not justify an announcement, but since you are asking, yes, we had another design win and we are making progress with other potential customers for the timestamp. Don McKiernan – Landolt Securities: And I think you had somewhere between 10 and 15 additional companies that are evaluating timestamp. Is that still the case?

Yes. Don McKiernan – Landolt Securities: Okay. Can you give us an idea of this new technology that you acquired, the virtualization offload engine technology, is there anything like it in the marketplace from a competitive standpoint and if so, can you describe that?

Okay. I would say that there is a general competition to that approach, and I think that the technology that we have acquired is attacking the same problem in a slightly different way which could be more effective. But the general problem is a very well known problem in the industry, and the problem is that once you start to run the servers under virtualization operating systems, the IO performance is reduced. It is being reduced because the CPU or the host has a lot more to do than just a regular host within a server because it has to perform, I would say, all the internal networking between the virtual machines and between the actual IO, and this is quite a heavy task. So performance is reduced. So there is a variety of technologies which are trying to reduce the load of the CPU, so there is technology to reduce the host on the CPU by handling, let’s say, encryption (indiscernible), and we have solutions of that kind as well. But we believe that this kind of offload—we are not aware of any other company who is doing exactly this kind of offload. It’s, I think, a relatively complicated idea in technology, and I’m not aware of any other company who is doing this kind of an offload. So if you look at the competition from a broad sense, then yes, there are other companies proposing a variety of offloading which are more common, I would say, or known from the days of regular service. I think that going this deep into the essence of virtualization and taking tasks that the CPU is doing there, putting them on an add-on card is quite unique right now, and that’s why we feel that it’s a very important technology. Don McKiernan – Landolt Securities: And it’s patented technology? Is that correct?

It’s not yet patented, but it’s in the process. Don McKiernan – Landolt Securities: Okay. And then my last question is did you acquire some people with the technology, or just acquire the technology?

We have made arrangements to make sure that the team for the technology is working with us and only with us. Don McKiernan – Landolt Securities: Okay, great. Thank you.

The next question is from Edward Balinsky of Segmark. Please go ahead. Edward Balinsky – Segmark: Good morning. I assume that the orders for the Q4 shipments are already in hand, or you can reasonably surmise what they are. For the past four years, the fourth quarter shipments were the largest of each calendar year and averaged close to a third of the total year’s shipments. Do you think it is likely or possible that the Q4 of 2013 will replicate the results of the four prior years?

Well, I don’t remember exactly the four previous years. Just like you’ve said, indeed the fourth quarter typically is the strongest one in the year, and we believe—we don’t have all the data right now, I should say that. It’s not as if we have all the orders for this quarter. No, we don’t have that, but we do believe that the fourth quarter of this year will also be the strongest in this year. Edward Balinsky – Segmark: Thank you very much. That’s it. You’ve answered my question.

Okay, thank you.

The next question is from Robert Sussman of Bentley Capital. Please go ahead. Robert Sussman – Bentley Capital: Good morning. The inventories at the end of the third quarter were higher than at the end of the second quarter, and I had presumed from your prior call or gleaned from the second quarter call that they would start to decline; and yet, you grew them again. Can you tell us what you’re seeing in the business to encourage you to continue to build inventories, even from the second to the third quarter?

Well okay, as I’ve said, the inventory that we are building is in accordance with the forecasts that we are receiving from our customers, so actually you can say that we take these forecasts and we build the inventory for them. Now I should add to that, and I’ve mentioned that I think last quarter as well, and I’ve said that during the discussion in this conference call also that our customers not only are requesting us to be ready in accordance with their forecasts but also they want us to be ready for the upside, which happens. I mean, many times it happens but sometimes it doesn’t, so we need to be ready for that. We need to be ready for an upside that is coming to them. Now add to that the fact that some of the lead time of materials is very long and we need to be ready, so all of that at the end of the day is just for the purpose of being able to deliver based on the forecasts that we are getting plus an upside component that we, together with our customers, are adding to this forecast. This is what has taken us to where we are right now. As Eran has said, we’re pretty sure that this will be converted into sales moving forward. Robert Sussman – Bentley Capital: Is there any particular products that the inventory build is taking place, or is it across the board?

I think it’s across the board. Obviously there are products that take more inventory than the other products, and that’s also based on the forecasts; but if you are talking about the increase and where did we feel the increase, then we felt the increase across the board. Robert Sussman – Bentley Capital: Okay, thank you.

The next question is from Michael Weiss of (indiscernible). Please go ahead.

Hi. Just want to make sure – are you reiterating the dividend policy, and what should it be for the year?

The dividend policy has not changed. Eran, you can provide the details.

Yes, the dividend policy has not changed. The dividend policy at Silicom means that up to 50% of our profits will be distributed as a dividend. The actual date for announcing the actual dividend is supposed to be at around March 2014.

Okay. So based on everything you’re seeing early in the fourth quarter, and it sounds like based on current indications from your customers, growth seems like it’s going to continue at the current pace. Is that a correct read?

I’m not saying that forever we will grow 50% year-over-year. I’m not saying that. I’m saying we are definitely growing. We are in the midst of our growth, and I believe and I’m confident that we will continue to grow, but no one can guarantee a 50% year-over-year forever.

Okay, thank you. Great quarter.

The next question is from Jeffrey Meyers of Cobia Capital. Please go ahead. Jeffrey Meyers – Cobia Capital: Great, thanks a lot, guys. So maybe you could talk a little bit about the increase in your total addressable market from the Intel encryption chipsets that you guys just talked about adding to your cards.

Well, I can talk about that. I would say that we believe that there is a significant potential for us moving forward using encryption chips by Intel, but that has not happened as of yet. As a matter of fact, Intel has not even released formally the new chip on which these plans are based, so nothing’s happened yet but we do believe that there is significant potential there. Jeffrey Meyers – Cobia Capital: Got you. Okay, great. Thank you.

The next question is from Noah Steinberg of G2 Investment Partners. Please go ahead. Josh Goldberg – G2 Investment Partners: Hey guys, this is Josh Goldberg. Congratulations on the good results. I was wondering if you could just talk a little bit more about your balance sheet. Clearly your DSOs went down again this quarter to a number that seems pretty low for a terms business to the U.S. at 56 days. Was the quarter a little bit more front-end loaded? Was there just better terms that you were getting from your customers? Some more color on that, thank you.

I don’t think that the DSO reflects any specific change, or at least we have not been able to identify any specific change. I think that—well, I agree with you that the number is low. I’m assuming that next quarter it would not be that low because it seems to be some random fluctuations that—I mean, we did not investigate it exactly why it was that low this time, but I don’t see anything specific which says now this is the way that it’s going to be, or any specific trend which is responsible for that low number. Josh Goldberg – G2 Investment Partners: Okay. Your comments in your prepared remarks about the inventories, obviously it seems like you seem even more confident today than you were 90 days ago that the inventory was going to be (indiscernible), and yet you increased your inventory by another $5 million. Is that just another indication of as you get closer with your customers toward year-end and the beginning of next year, just confidence that they have in terms of these new product introductions?

Well, I’d like to distinguish between the feeling of confidence that we have and the procedure. I mean, the feeling of confidence that we have that we will really use this inventory is based on two things. It is based on really what we’re talking to our customers, and also it is based because we’re looking at that inventory, we are analyzing it each time to see what it is made of, and that’s why we have the highest level of confidence that it will be used. Now the actual amount as to how do we get exactly to this number and not to another number is the result of a different procedure, which is not our feeling and not an analysis but rather a straightforward procedure of taking the forecasts that we’re getting from our customers and then adding the upside that they would like us to take, because they believe that they may have an opportunity for this kind of an upside, and then putting that into our systems, which is then obviously translated into the MRP requirements, et cetera. So this inventory on the one side is being built based on these forecasts; on the other side, we talk to our customers to understand what is going on and we see that these two are in line, the forecasts with what we believe from our customers, all together with what the inventory is actually made of. Josh Goldberg – G2 Investment Partners: Got you. Could you give us a breakdown of your top 10% customers, how’d they go there in the quarter?

Yes, this quarter we had two 10%-plus customers, which is the same as the first nine months of this year. Actually, these two customers are the same customers as it was in 2012. Together, these two customers are still approximately 40% together as it was in 2012. Josh Goldberg – G2 Investment Partners: Just so I understand that, you said they are the same or they are not the same?

They are the same. Josh Goldberg – G2 Investment Partners: They are the same – okay, great. Great, congratulations. Thank you.

Thank you.

The next question is from Ken Farsalas of Oberweis Asset Management. Please go ahead. Ken Farsalas – Oberweis Asset Management: Hi. Just a follow-up on the last question – can you just remind us again who those two large customers are?

No, we can’t. We never say the specific names of our customers; but again as I said before, these are the same customers, the same 10%-plus customers that we had in 2012. Ken Farsalas – Oberweis Asset Management: Would you expect to have a third 10% customer or even more beyond that, let’s say, in the next six to 12 months?

One of the customers is quite close. A third customer is quite close to 10%. Ken Farsalas – Oberweis Asset Management : Okay, great. Thanks guys.

If there are any additional questions, please press star, one. If you wish to cancel your request, please press star, two. Please stand by while we poll for more questions. The next question is from George Marima (ph). Please go ahead.

Hi guys, great quarter. I had a couple questions, one on the acquisition you made. I didn’t see anything in the expense side to account for that. Was that part of your G&A, or how did you account for the expense you had, or did you have expense in the quarter for it?

Well, we did have some expense. By the way, I’m not sure—I did not hear all your question, so I may not be responding exactly to what you asked, so let me know if I didn’t answer your question. We obviously did have some expense buying the IP that we bought. As we said, it’s not significant, which is why we did not give any details about that, and on top of that we are continuing with the team to develop the technology and productize it, which will include some more expenses which are going as a part of our—will go as a part of our R&D expenses moving forward.

Okay, so it’s just part of your normal R&D then.

Yes.

Okay. And then I know we’ve beaten the inventory horse to death, but I have one more question about the inventory. On the amount of—you know, last quarter you expressed a certain amount of that inventory, you called it buffer inventory. What I wanted to know is in this quarter, did the amount of just the buffer inventory change meaningfully or is still roughly this sort of 6, 7, $8 million sort of range of buffer inventory?

Well, I’m not sure that we mentioned figures or numbers for the buffer part of the inventory, but I would say that in general when we’re talking about this buffer, we mean this upside that we were talking about, so that’s a part of—that goes into the system as a part of the regular calculation. I think that to a certain extent, you could say that the buffer has increased because just like the overall forecast is increasing, the buffer is increasing with that. In most cases, most of our customers will define the upside that they would like us to be ready for in percentage, so once the forecast grows, the buffer or the upside that they want us to prepare against such an upside grows as well in terms of absolute figures.

Okay. Also, could you just comment about your pipeline in general, how that looks today?

Well, I’m not sure whether you are asking about pipeline of orders or pipeline of customers.

Pipeline of future design wins.

Oh, future design wins. Well, I think that this is as strong as ever, maybe even more simply because we have more products which attract more interest. I mean, the timestamp, I discussed before. I think—I know it’s been a long time, but sometimes it does take time. I think that some of our intelligent cards are being not only in the pipeline but very close in the pipeline, which is making it even better, so I think that even from a pipeline perspective we’ve never been in a better position than we are right now.

Do you have any qualitative gauge from your customers as to the general atmosphere of launching their new products with Silicom inside? Are there a lot of new products launching soon that you’re aware, or how is the mood out there with that?

It’s a little bit difficult for me to quantify, but I know that actually—I mean, when you speak to our at least big customers, so there is not even one of them which is not looking right now at one or more new products from us to incorporate into their appliances.

Okay. Thank you. Shaike.

There are no further questions at this time. Before I ask Mr. Orbach to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom’s website, www.silicom-usa.com. Mr. Orbach, would you like to make your concluding statement?

Yes, thank you, Operator. Thank you everybody for joining the call. We look forward to hosting you on our next call in three months time. Good day.

Thank you.