Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Second Quarter 2016 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. You should have all received by now the company’s press release. If you have not received it, please contact Silicom’s Investor Relations team at GK Investor Relations or view it in the news section of the company’s website, www.silicom-usa.com. I would now like to hand the call over to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?

Yes, thank you, operator. I would like to welcome all of you to Silicom’s second quarter 2016 results conference call. Before we start, I would like to draw your attention to the following Safe Harbor statement. This conference call contains projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and may change as time passes. Silicom does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demands for Silicom’s products, the timing and development of new products, and their adoption by the market, increased competition in the industry and price reductions as well as due to risks identified in the document filed by the company with the SEC. In addition, following the company’s disclosure of certain non-GAAP financial measures in today’s earnings release, such non-GAAP financial measures will be discussed during this call. Such non-GAAP measures are used by management to make strategic decisions, focus future results and evaluate the company’s current performance. Management believes that the presentation of these non-GAAP financial measures is useful to investors understanding and assessment of the company’s ongoing corporation and prospects for the future. Unless otherwise stated, it should be assumed that the financials discussed 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 to 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. Now, with us on the call today 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 the question-and-answer session. And with that, I would like to hand over the call to Shaike. Shaike, please?

Thank you, Ehud. Good morning, everyone and welcome to our conference call to discuss the results of the second quarter of 2016. We are exceptionally pleased with the results we achieved in this quarter. Our revenues at $26 million represented outstanding 52% growth in year-over-year revenues, while our non-GAAP net income grew even stronger demonstrating a year-over-year increase of 59%. These superb results which are the highest we have ever achieved in a second quarter confirmed that Silicom is very much in a solid growth phase. We see our achievements as a testament to the success of our strategy. Our growth reflects our continually expanding sales activities as well as the deepening relationships with many of our customers, including the top tier OEMs. It also demonstrates increased sales across all our product lines. In particular, these results validate our ongoing success in our traditional networking appliances market and they also show increasing success in our newer high growth segments, which we are targeting where over the past recent months we have begun to see strong momentum. These markets includes cyber security on the one hand and cloud-related technologies on the other which include SDN, NFV, IoT, SD-WAN and virtualization all of which depends on top performance connectivity. We reported net income of $4.7 million, up 59% over last year and 55% sequentially over the first quarter. This is a fantastic achievement. And we delivered this growth even while we are increasingly investing in the future accelerated growth of our business. We managed Silicom with the focus on our leadership and growth over the long-term. To achieve these goals, we consistently invest heavily in expanding our product portfolio, our new product introduction activities and growing our addressable market by penetrating additional market segments, providing additional solutions which address more needs of…

Thank you, Shaike. With regards to the results of the quarter, revenues for the second quarter of 2016 were $26 million representing year-over-year growth of 52%. Our geographical revenue breakdowns for the first six months of 2016 were as follows; North America 68%, Europe and Israel 23%, Far East and the rest of the world 9%. I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the non-cash compensation expenses in respect of options and RSUs granted to directors, officers and employees and acquisition related adjustments. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the second quarter of 2016 was $9.9 million representing a gross margin of 38%. This is compared with $7.2 million or gross margin of 42.3% in the second quarter of last year. As Shaike discussed during the first quarter conference call, the gross margin has been affected by our decision to sell some of our offerings at lower margins and varies between quarters as a result of the specific mix of products sold during the quarter. Operating expenses in the second quarter of 2016 were $4.6 million or 17.8% of revenues compared with $3.9 million or 22.6% of revenues in the second quarter of last year. Sequentially, compared with the first quarter of 2016, our operating expenses were almost the same. Operating income for the second quarter of 2016 was $5.3 million or 20.2% of revenues compared to $3.4 million or 19.8% of revenues as reported in the second quarter of last year. Second quarter 2016 net income was $4.7 million or 18% of revenues compared to $2.9 million or 17.2% of revenues in the second quarter of last year. Earning per diluted share in the quarter were $0.63 in the quarter, a significant step-up of 58% compared with $0.40 in the second quarter of last year. Now turning the balance sheet, as of June 30, 2016, the company’s cash, cash equivalents, short-term bank deposits and marketable securities totaled $40.1 million or $5.46 per outstanding share. In the second quarter of 2016 we shared a total of $7.3 million as a dividend to our shareholders and paid $4.3 million in earn-outs to former shareholders of our recent acquisitions. That ends my summary and we would be happy to take any questions. Operator?

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from Alex Henderson of Needham & Company. Alex, please go ahead.

Thank you very much. So super quarter guys. I am pleased to see you guys were producing such good revenue numbers and I guess you got the margin guidance pretty much on target. A couple of questions off of that, so obviously the enormous acceleration here in the second quarter, I guess I am not sure I understand why would low sequentially into the third quarter, can you delineate between sort of demand drivers that are industry and macro related and what’s new product related and what’s just baseline related can you break it out a little bit for us, we have some sense of how those drivers played out?

Well, I will try to add something to and there are two parts of a – to your question. First of all obviously, while what we provided guideline for – guidelines for Q3 is less than what we have done in this quarter. But it’s obviously much more than what we did last year. So what we are saying here, I mean the general message here is we are definitely growing right now. Now we are trying to provide figures or numbers which we – with which we are confident. I mean things could happen. I mean, last quarter three months ago when we were discussing revenues, we were forecasting or providing guidelines for the revenue of the second quarter and in the actuality as you could see I mean we have done much better than that, because there are some things that we couldn’t see in advance. Now, so the guidance that we provide for the third quarter is based on what we see right now just like it happened in the previous quarter, some other things could happen in the same way. So, we believe that we will demonstrate, I would say, more or less the same annual growth rate moving forward and that’s what we see right now and that’s what we are committing to. Now, in terms of one other fact that we need to tell you about the way that we build our guidance, we are building bottoms up. So, we look at the customers and their forecast what they are telling us that from that going up we build the revenues model. Now, when things are happening in the good way, which is what happened this quarter and we hope it would have happened next quarter as well, but we are not – we…

One last question on the fundamentals here, I am still trying to understand the mechanics of the gross margins, it seems to me that your historical business model was always predicated on essentially the 40% type gross margin and what you normally would get when you see a transition in margins is not a step function, but rather a gradual movement in the margins down as you mix shifts over time. Can you help us understand how the gross margin is feathering? Should we be assuming the gross margin will continue to edge lower as the mix shifts to more white label, more cloud related stuff or are you now comfortable with where you are on the gross margin in the middle of that band that you gave earlier?

Okay. We need to remember that the gross margin is not only a function of the strategic shift that we have made, it’s actually a combination of both the mix of products and then we have made a strategic move offering some of our products at a gross margin which is lower than the gross margin that we used to have before. So, I mean, that’s why we are saying we said last time, 35% to 40% as the range of the gross margin, but not necessarily it’s going to go down, go down and go down, because the actual result of a certain quarter say for example this quarter is a combination of both this strategic move that we have decided, which just like you have said, you wouldn’t see the impact of that on all our products. You would see that on some of our products. And then the other part of that is a mix. So, in general, I am not saying that if we were around right now, 38, I am definitely not saying that we would go quarter after quarter lower and lower until we are at 35. No, that I don’t think that’s going to happen, because the mix of the products is going to take us towards the higher limit as well. For modeling purpose, I would take something like the mid-range of what we defined as something where we would be for relatively long time.

Okay. Just one last question, can you give us the headcount at the end of the quarter?

The headcount at the end of the quarter is very similar to the previous quarter which means approximately 240 employees.

Thank you.

Thank you. The next question is from Edward Balinsky of Segmark. Please go ahead.

Thank you. I am interested in the contingent consideration, with regard to Fiberblaze at the end of the period allotted you reversely in all of the contingent consideration, can you tell us what portion of the contingent consideration has actually been earned in this up till June 30?

Okay. First of all, the contingent consideration related to Fiberblaze is no longer valid which means…

Yes, I understand that. But was ADI, now I am talking you have almost $5 million worth of contingent consideration on the balance sheet, the question is I assume that you are keeping a little decent paper in you desk draw indicating what – how much of that considerations are ADI, are for ADI has been earned – has actually been earned?

Right now we believe that the number which appears on the press release is the appropriate number which forecasts the future.

I see, alright. Thank you then. When you say forecasting the future, this if you believe that this is what you will wind up paying out when the period earning of contingent consideration ends?

Exactly.

Okay, alright. Thank you very much.

[Operator Instructions] 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 the 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 in our next call in three months time. Good day.

Thank you. This concludes Silicom’s second quarter 2016 results conference call. Thank you for you participation. You may go ahead and disconnect.