Erica Mannion - IR Guy Sella - Founder, Chairman and CEO Ronen Faier - CFO.

Philip Shen - Roth Capital Partners Tyler Goldman - Deutsche Bank Michael Morosi - Avondale Partners Jason Rosenfeld - Canaccord Genuity Edwin Mok - Needham & Company Carter Driscoll - FBR Colin Rusch - Oppenheimer.

Good afternoon. Thank you for joining us to discuss SolarEdge’s Operating Results for the Quarter Ended September 30, 2016 as well as the Company’s Outlook for the Quarter Ending December 31, 2016. With me today are Guy Sella, Founder, Chairman and CEO; and Ronen Faier, Chief Financial Officer.

Guy will begin with a brief review of the results for the quarter ended September 30, 2016. Ronan will review the financial results for the quarter and provide the company’s outlook for the quarter ending December 31, 2016. Then, we will open up the call for questions.

Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description.

All material contained in the webcast is a sole property and copyright of SolarEdge Technologies with all rights reserved. Please note, this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U.S. GAAP.

The non-GAAP measures are presented in this presentation as we believe that they provide investors with the means of evaluating and understanding how the company’s management evaluates the company’s operating performance.

These non-GAAP measures should not be considered in isolation from, as a substitute for, or superior to financial measures prepared in accordance with U.S. GAAP. Listeners that do not have a copy of the quarter ended September 30, 2016 press release or the presentation may obtain a copy by visiting the Investor section of the company’s website.

Now, I will turn the call over to CEO, Guy Sella..

Thank you, Erica. Good afternoon and thank you for joining us on our conference call. We concluded another quarter of growth with positive results. We are reporting record revenues for the quarter of $128.5 million. Our gross margin was 32.6% and a non-GAAP net income of $20.9 million and non-GAAP diluted earnings per share or $0.46.

Despite the downturn in the solar market that has put pressure on our topline numbers; we generated record positive cash flow from operations. On today’s call, we will address what we are seeing in the market and how we are positioning the company to address these challenges.

In the quarter-ended September 30, 2016, we shipped 466 megawatt of AC nameplate inverters, approximately 306 megawatt of which was shipped to North America. Overall, we shipped over 1,600,000 power optimizers and 63,000 inverters, an increase from the previous quarter.

While we continue to invest in growing our geographic footprint and spending on R&D for development of new innovative products as well as focusing on cost reduction of our existing products, we are doing so without impacting our bottom line numbers. The residential solar market in the U.S. is going through changes and we are adjusting accordingly.

As we reported last quarter, we see a general slowdown in the growth rate of the residential PV business in the U.S.. Specifically, we’re seeing a shift in business from large TPOs to mid and small size installer, which cause lower growth in our revenues from the U.S.

residential segment in this quarter and is expected to impact our business in the short term. In response, we are adapting our sales and marketing strategy to better address the total residential market.

Well, this may take a quarter or two, we are confident that our plans will enable us to continue to grow market share without jeopardizing our gross margins and profitability. On a separate note, it would be a remiss not to mention the concern in the market about the entrance of Asian manufacturers into the U.S. residential market.

Many seems to have left the SPI Show in Las Vegas in September with the feeling that there are new threats from Asian competition in the solar residential market and the DC Optimizer space. We have seen inverter manufacturer from Asia selling in the commercial market worldwide and in the U.S. for the long time.

Outside of the United States, we compete with Asian companies routinely and successfully in both commercial and residential segment. So far in the U.S., we have seen less of such competition in the residential market.

However, while we do not mean to anticipate the intensity of such potential competition, we believe that our quality products and track record position us well to compete successfully if and when such competition will arise.

On another note, we would like to address the storage market, because here too we feel there are some misconceptions that are driving speculations about the effects of recent announcements on our revenues and growth. We were among the first to introduce full solution that combines PV with storage for both grid-tied and off-grid applications.

This innovative technology is still in its infancy and like many new technologies, we believe it will take time until storage product will be cost efficient enough to capture large market demand. Since launching our storage products, the revenues have been in line with what we expected and comprised approximately 2% of our revenues.

We expect this to grow gradually as new battery products are introduced, battery prices reduce and become more cost effective. Our HD-Wave inverter rollout is progressing as planned. We have reached mass production of most models. We’ve shipping these products worldwide and the feedback from the field is good.

We remain confident that this innovative technology will enable us to continue to grow our market share in a competitive environment, while maintaining and even increasing our profitability.

Our commercial sales remain strong and our focus here continues in growing our market share in the current geographies, improving our total commercial offering, and entering into new geographies. And with this, I hand the speaker over to Ronen, who will review our financial results..

Thank you, Guy, and good afternoon.

Before starting the review of our financial results for the quarter ended September 30, 2016, I would like to mention that while the overview will be on a GAAP basis; in certain cases, I will be discussing non-GAAP numbers and measures, which exclude the impact of stock-based compensation and deferred tax utilization as well as non-GAAP earning per share.

Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. I would also like to remind the listeners that at the end of the calendar year 2016, the Company will change its fiscal year to the calendar year.

As such, in this call and going forward, the discussion will be on a calendar quarter basis. Now, let’s start with the discussion of the financial results for the quarter ended September 30, 2016. Total revenues were $128.5 million compared to $124.8 million last quarter and up 11.7% from the same period last year when revenues were $115.1 million.

Gross margin for the quarter was 32.6% compared to 31.4% in the prior quarter and 29.1% in the prior year period. The increase in gross margin is attributed to our continuous cost reduction activities as well as further logistic effectiveness.

It is also worth mentioning that while manufacturing rollout of our HD-Wave product is on schedule, the impact of HD-Wave cost savings on our margin is still negligible due to the relatively low proportion of HD-Wave revenues out of the total revenues recognized in this quarter.

In addition, our automated assembly lines for the Chinese manufacturing facilities are expected to arrive in the fourth calendar quarter and production of optimizers with these lines is expected to start in the first quarter of 2017.

Moving to operating expenses, research and development expenses were $9.9 million, an increase of 7.6% compared to the previous quarter and an increase of 42.1% year-over-year, mainly as a result of an increase in headcount as we continue to execute our plans for further development and innovation of new products.

Sales and marketing expenses for the quarter were $10 million, an increase of 12.4% compared to the previous quarter and a 21.7% increase on a year-over-year basis. G&A expenses were $3.7 million for the quarter, an increase of 19.5% from the prior quarter and a 7.2% increase year-over-year.

GAAP G&A expenses include this quarter a one-time expense of approximately $0.5 million related to restricted share units grant as well as a small allowance for doubtful accounts.

In total, operating expenses for the quarter ended September 30, 2016 were $23.6 million or 18.4% of revenue compared to $21.1 million or 17% of revenues in the prior quarter and $18.7 million or 16.2% of revenues in the same quarter last year.

Operating income for the quarter was $18.2 million compared to $17.9 million in the previous quarter and an operating income of $14.9 million for the same period last year.

Financial income for the quarter was $0.4 million compared to a financial expenses of $0.5 million in the previous quarter and financial expenses of $0.1 million for the same period last year.

This quarter, we recorded income tax expenses of $3 million compared to income tax expenses of $0.1 million in the previous quarter and income tax expenses of $0.4 million for the same period last year.

This increase in tax expenses is mostly related to the change in our deferred tax assets recorded in the previous quarters as the company has used most of its NOLs. We therefore expect to start paying taxes in the various countries at the end of this year.

GAAP net income for the quarter ended September 30, 2016 was $15.6 million compared to a GAAP net income of $17.3 million for the previous quarter and a GAAP net income of $14.4 million for the same quarter last year.

Our non-GAAP net income was $20.9 million compared to a non-GAAP net income of $19.9 million in the previous quarter and a non-GAAP net income of $16.3 million for the same quarter last year.

GAAP net diluted earnings per share was $0.35 for the quarter ended September 30, 2016 compared to $0.39 in the previous quarter and $0.32 net diluted GAAP EPS for the prior year period.

Non-GAAP net diluted EPS was $0.46 compared to a non-GAAP net diluted EPS of $0.44 in the previous quarter and a non-GAAP net diluted EPS of $0.36 in the same quarter last year.

Turning now to the balance sheet, as of September 30, 2016; cash, cash equivalents, restricted cash and investments were $206.7 million compared to $186.6 million at June 30, 2016. During this quarter, we generated $24.4 million of cash flow from operations resulting mainly from our profitability and a decrease in inventory levels.

From a customer concentration perspective, this quarter we had only one customer that accounted for above 10% of our revenue. As of September 30, 2016, our inventory level, net of reserves was $68.4 million compared to $81.6 million in the prior quarter.

Our guidance for the quarter ending December 31, 2016 is as follows; we expect revenues to be within a range of $110 million to $1120 million and gross margins to be within the range of 30% to 32%. I will now turn to call over to the operator to open it up for questions. Operator, please..

Thank you. [Operator Instructions] We’ll go first to Philip Shen with Roth Capital Partners..

I’d like to focus on ASPs to start.

Historically, you guys have talked about a 7.5% to 10% year-on-year decline, is that pattern still in effect or do you expect that to shift or change? And if you can comment also may be on the rate of declines of resi ASPs versus commercial ASPs; that would be helpful?.

For this year, we would expect the total ASP erosion to stay at around 10% for the year as we expected in the beginning.

While saying that, for 2017, I would expect that ASP erosion will be a bit higher and we are well-prepared with the cost reduction activities in order to verify that we have the room to reduce ASP even more than 10%, while improving gross margin..

And can you comment on the segment ASP shifts as well?.

For this year, it’s pretty much equal. For next year, we might -- as you see the market, we are planning at least to be able to reduce prices in the resi a little bit faster than to reduce prices in commercial, but it’s a little bit earlier to judge..

Let’s shift to volumes, with California slowing down and I know, California, it might be just 15% of your overall mix.

But to what degree can you comment on SPG&E hitting its NIM, 1.0 cap earlier this year and then PG&E is likely going to hit its cap by year end 2016 and so with that slowdown in California heading into 2017, how do you expect volumes to trend for you in general for Q1 and Q2 of next year?.

With what we see today, it’s very hard to estimate the growth of the resi segment in the U.S.. I think that the kind of the common knowledge about it is that the market overall will grow by at around 20%.

But due to ASP erosion, I would expect that next year resi market in the U.S., dollar wise, will stay more or less flat and equal to this year or maybe a little bit higher in size. I think that the changes in California, probably would be compensated in other states, but it’s, I think, too early to judge at this point..

We’ll go next to Vishal Shah with Deutsche Bank..

Hi guys.

This is actually Tyler on for Shah and I was wondering if you could provide some color around the pricing outlook for the next few quarters and what kind of visibility you have in terms of the Q1 outlook, and I have a follow up?.

Your question was about prices, Vishal?.

Yes, over the next few quarters, just kind of the visibility you guys have in terms of the Q1 outlook..

Again as I mentioned to Phil before, it’s a little bit hard to estimate, but for the full 2007, I would expect that the ASP erosion of commercial will be more or less at the same ratio as the ASP erosion in 2016 for commercial and I would expect that the residential ASP erosion will be higher than what we had in 2016.

For 2016, it’s a little bit a matter of if you measure it on a blended way or by marketing part number, but more or less will end up at around 10%, which is what we expect in the beginning of the year, 7.5% to 10%. And for next year, I would expect that it will be a higher ASP erosion on the resi market..

And I know you guys were guiding next quarter’s, Q1 2017 gross margin to 30%, 32%.

Do you have kind of a broader outlook for the first half of 2017 and what margins will look like?.

The guidance we gave was for Q4 this year. We would expect the gross margin to grow next year, but at a smaller rate compared to the growth we had this year..

We’ll go next to Michael Morosi with Avondale Partners..

First of all, as we look at the impact from HD-Wave, could you remind us when we should expect these new products to become a significant percentage of the recognized revenues in the quarter? And then I have a follow-up on gross margins..

In general, you need to differentiate between the time that we’re manufacturing until the time that it’s recognized as revenue where the main difference is the period that it takes from the time that the product actually leave a manufacturer’s warehouse, gets to our warehouses around the world and then distributed to the customer themselves.

We usually look at it as anything between 60 to 90 days, again, depends very much on the region. So as we mentioned in previous calls, by the end of the first calendar quarter of 2017, the vast majority of our manufacturing will be HD-Wave. This is still in line of what we see and we still expect it to be the same.

And therefore, we assume that by the first calendar quarter of 2017, we will see growing portion and at the second calendar quarter of 2017, it will be the majority of our single phase inverters revenue recognized..

And then as it relates to gross margins, there’s always this push and pull between pricing and market share, but when it comes down to it, are you more interested in holding the line at a certain margin level or are you basically going to lean on your product roadmap to take you to higher levels of share regardless of the prevailing pricing environment?.

When we have to choose, our view is that we are going to run here in this market, it probably won’t be our only market, but we are going to be here for many, many years. So we believe that in order to service the product we have in the field and the customers for many years to come, profitability is key.

So if we had to decide between a little bit more market share, but losing on profitability or keeping profitability and taking little bit less market share, we would prefer profitability over market share.

I think that with the development of the HD-Wave and the benefit it gives us from cost perspective plus many other things we have in the R&D pipeline, I would expect that we can take market share while growing our gross margin in few point, not outside of the reasonable boundary of industrial markets, but still better than what we have today..

And then if I could, just a couple on mix.

As we look domestically, what percentage of your shipments in 2017 would you expect to be to those kind of TPO Top five companies and what percentage would be to the Tier 2, Tier 3 regional and local installers?.

Honestly, we do not have the analysis of this and if you ask me, it will be a very complex guess to try to analyze to this level at this point..

Looking internationally, what are some of the key markets we should be looking to for growth as we move into 2017.

Are there particular pockets of strength or areas where they carry outsize importance in terms of the overall mix?.

So, for us, I think Europe is growing all the time. Our second strongest market is in The Netherlands, but we are taking market share constantly in Germany, Italy. The other three markets, two of them will probably be very influential in 2017 are Australia, India, and Japan.

It’s a little bit depends on certification schedules and resources, but I am sure that all three will contribute dramatically to our revenues in the coming two years, which one, exactly at what point, it’s a little bit early to give color..

We’ll take our question from John Quealy with Canaccord Genuity..

Hey guys, this is Jason on for John.

First, I guess, as far as your plans may be moving into the utility market at some point, what’s the timing on that and then assuming optimizers don’t scale to that size, is the way you’re thinking about it that HD-Wave is your competitive advantage there?.

We already involved in quite a few installations in the size of few megawatts, nine of our installations is reaching the type of 50 megawatt, 60 megawatt.

I think we are about a year away from having technology that will meet the price point, which allow us to keep the same gross margin as we see in residential and being able to serve this size of very large utility installations..

And then maybe a follow-up on, so on HD-Wave, do you have any way of quantifying ASP premium versus competitors or any other efficiency metrics that could act as a proxy to that?.

The efficiency of the inverter itself is 1% to 1.5% better than any other inverter in the market when you look at the c-Si list.

The benefit of the HD-Wave is beyond the efficiency, much easier to install, use only thin-film capacitors, so the life expectancy potential is much higher and its involved all the lessons learned from years of serving the residential market in many, many countries.

So we think that this product is superior on any other product for any aspect, not only the efficiency..

We’ll take our question from Edwin Mok from Needham & Company..

First question I have, what was the commercial mix this quarter and how is that business progressing in the U.S.

market?.

So the mix is pretty much similar to what we saw before. Proxy, it’s close to a quarter of our business is coming from commercial. It changed a little bit between quarters.

We mentioned it in the past, it depends a lot on, these are big project, when exactly the project is assembled and that reflects the time of shipments of the product, but it’s approximately quarter of our business and it’s pretty much the same percentage in most of the countries in Europe and in the U.S...

And then on the storage, thanks for giving some color on that, you said 2% of, roughly around 2% of sales from storage, but given that Tesla has just announced a new battery that has dual inverter in there, do you expect that to come down in the, at least in the fourth quarter before other battery products start to take off in the market?.

I think it will stay the same. What Tesla is, first, the next two quarters are a little bit complex because of when batteries will be available. The way I understand it from the information we get from Tesla, they stop producing what the battery they called Mark 1 or whatever and they are not yet producing the next generation of batteries.

So there are X amount of batteries in the market that are not being installed. It’s not easy to find and to close number is between what we see and what you might understand from Tesla announcements and these batteries will be installed probably in Q4. I would expect that the total number will be more or less equal to what we had in Q3.

From the end of Q1, I think we’ll see higher inflations because of the end of this is now in Europe, which is still by far the biggest market for storage today plus the fact that the solar -- the Tesla 2.0 battery and the relevant LG batteries will be ready for shipment..

I see, but the Tesla 2.0 battery, do you actually generate any revenue for that product or they actually just take everything in-house?.

So from what we understand and this -- I must admit that it’s not -- I’m not sure that we see the full picture. From what we understand, the 2.0 battery will have two versions, the AC version, AC coupling version will be equipped with the Tesla inverter and the DC coupling battery will behave as the older one and will work with our inverters.

That’s the way we understand it, but you know Tesla like I know it’s -- you can always expect changes or surprises..

Question for you Ronen, we’ve seen a few quarters of the increased operating expense, partially we understand, obviously you have expanded product, but just curious in light of how the market has changed quite a bit over the last few months, any thought about OpEx, not just for December quarter, but also going forward?.

So we think that this is the point in time that we need to leverage the fact that we are profitable and have lots of cash to even increase the development of the solar product and other products in order to keep our advantage in technology.

And therefore, I believe that while we are very cautious in our expenses, the ratio of OpEx relative to revenue will stay the same or even increase a little bit until Q2 2017 where due to seasonality, we expect market to grow much faster and the ratio to go a little bit down again..

Guy, if I take that comment and given that you are guiding revenue to be down in the fourth quarter, then that implies OpEx will be down in the fourth quarter or are you just talking more longer term in terms of that ratio?.

I was talking about only about the ratio..

[Operator Instructions] We’ll go next to Carter Driscoll with FBR..

Following upon that point Ronen, you have obviously built a significant war chest in your cash position and how do you evaluate the kind of build in-house versus central technology acquisition and maybe just at a high level some of the categories you may be appraising and anything of interest, obviously not looking for a specific announcement, but anything just that you can point to that would give like whether it’s on the storage side, C&I, utility scale, further product development, I appreciate it and I have a follow-up..

So we are looking at many areas of development that are using our core capacity and core knowledge and there are lots of options around solar that we analyzing some of them we even more than analyzing, but none of these are mature yet. As part of this, we’re looking at quite a few companies, hopefully we’ll find some good acquisition potentials.

Again, not yet something specific that we said combine the knowledge we like and the type of business that we believe will assist us but that’s something that I believe will happen in the future. We do believe that in this market, there is so much more to develop that investing in R&D is probably the best investments we can do with this money..

And then you highlighted a go-to-market strategy, you highlighted a change of strategy and focusing more on the Tier 2 and Tier 3 players and the distributors at least in the U.S.

market, is it a noticeable shift on how you go to market and then maybe the impact on OpEx, is that part of the reason is you’re going to continue kind of see in a, maybe on a dollar basis and maybe little bit elevated levels versus what you expect on the top-line as you kind of press that advantage given your financial position.

Is that the way we should think about it or is there a really different strategy going after Tier 2 and Tier 3 versus the kind of the Top 5 players?.

In a way, of course a different strategy, different tactic, I’m not sure of different strategy because when you go after the biggest 10 or 20 players, it’s much easier to be in a personal contact with them on a weekly or bi-weekly basis where when you go after a much broader amount of installer, which has a much, much smaller business, you need to use more advanced ways to be in touch with them and to understand their needs and to adapt your products accordingly.

One of our strength point in the last few years especially in the U.S. was that we were very close to our customers and we understood well in advance what is the change in the product and what is the needed offering for them and we were adapting our technology accordingly.

Of course, this is much more complex to do when you try to reach many more customers and as mentioned, we are now adapting the tactics in order to be able to serve and to be in touch with many more smaller companies..

I would argue that there are still probably a little bit more margin potential in dealing with some of the maybe the large distributors, even if there is some maybe incremental investment upfront, is that the right way to think about it given the size of the national players?.

I’m not sure that I understood the question, but….

I was just going to say in terms of the margin opportunity moving down market to the Tier 2 and Tier 3, I would expect you could get some incrementally better margins even as your broadening out the number of customers you are pursuing once you get past the kind of initial investment?.

I think that on average, you’re right. I think that once you reach better to -- especially to the long tail or if you want to call it Tier 3, then in average, your gross margin percentage will be a little bit better..

We’ll go next to Colin Rusch with Oppenheimer..

As I look at the working capital, you’ve got an increase in receivables, inventories got worked down and you’ve increased payables.

When you look at what you’ve seen from your customers in terms of their inventory levels now versus where you were last quarter, what are the differences and what can you tell us about sell-through from what you’re hearing from your customers at this point?.

So in general, the way that we work is that when we work especially with the distributors, we do have a little bit of visibility into their inventory levels given the way that we work with them commercially and that means that we basically get reports from them.

We do not see a major pattern or change in the pattern in which they hold inventory at least at this time.

We are seeing that especially and again, it comes with Europe at the quarter that ended in September, some of the sales are concentrated towards the later part of the quarter, just given the fact that vacation takes place in July and August and therefore installations are smaller.

In the U.S., you’ll see a little bit less of this, but also we do see that there is a shift towards the distribution more than the large installers and payment terms there are usually a little bit longer. So from an inventory perspective, we do not see changes.

From concentration of sales, we still, because of the seasonality or I would call it a placement of vacations that more sales were at the second part of the quarter. And in addition to this, the longer payment terms that usually distribution channels are getting contributed to this increase in AR..

And as you look at across the geographic mix over the next quarter plus, are there areas that you are seeing as pleasant surprises in terms of sell-through and demand that we may not be seeing necessarily?.

So I don’t think that there are many surprises there. At the end, most of the solar markets or developed solar markets are known.

I can tell you that in general, when we started to plan 2016 or 2017, this was more than a year ago, in our view, the ITC was about to expire or to be reduced by the end of 2016 and we started to invest a lot in international markets outside of the United States taking into account that they will bear some of the fruits in 2017.

This investment is starting to pay out and we do see growth.

This will come usually from the markets that are the usual suspects, again, the European markets where we continue to grow our market share and as Guy mentioned before, the Australia, India, and Japan market where at least in two of these markets, the solar market is relatively developed, but we took a smaller share in the Indian market where we believe that there is a lot of development to come..

And that concludes today’s question-and-answer session. Mr. Guy Sella, I’d like to turn the conference back to you for any additional or closing remarks..

In summary, our quarter ended September 30, 2016 results show strong financial parameters in a shifting market.

We are focused on maintaining and growing our market share by adjusting our plans to the challenging environment and continuing to invest in R&D for new innovative products, diligent cost reduction, operational efficiency, and geographic diversification.

We remain confident in our business strategy and we’ll continue to bring to the market innovation without jeopardizing profitability. Thank you all for joining us on today’s call..

This concludes today’s call. Thank you for your participation, you may now disconnect..