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Executives

Leah Gibson – IR Manager

Steve Rhoades – President and CEO

Don Peck – CFO and Treasurer

Analysts

Dale Pfue – Cantor Fitzgerald

John Hardy – Gleacher & Company

Sean Wieland [ph] – Piper Jaffray

Jesse Pichel – Jefferies & Company

Colin Rush – ThinkEquity

Adam Krop – Adour Capital

Joe Maxa – Dougherty & Company

Jeff Osborne – Stifel Nicolaus

Satcon Technology Corporation (SATC) Q4 2010 Earnings Conference Call February 22, 2011 5:00 PM ET

Operator

Good afternoon and welcome everyone to Satcon’s fourth quarter and full-year 2010 conference call. Today’s call is being recorded. You may listen to the webcast on Satcon’s website located at www.satcon.com.

In addition, today’s news release is posted on the site for those of you who did not receive it by email.

With us today, are Satcon’s President and Chief Executive Officer, Mr. Steve Rhoades; Chief Financial Officer, Mr. Don Peck; and Investor Relations Manager, Ms. Leah Gibson.

At this time for opening remarks, I’d like to turn the call over to Ms. Gibson. Please go ahead.

Leah Gibson

Thank you, Ming, and welcome to the call everyone. Before we begin, please note that the comments made on this conference call today may include forward-looking statements that involve a number of risks and uncertainties. For this purpose, any statements contained herein, that are not statements of historical facts, may be deemed to be forward-looking statements and may include the words, believes, anticipates, plans, expects, intend and similar expressions, which are intended to identify forward-looking statements.

Important factors that could cause actual results to differ materially from those inferred by such forward-looking statements are set forth under the caption Risk Factors in Satcon’s Annual Report on Form 10-K for the year ended December 31st, 2010. These factors are included there for reference. Once filed with the SEC, copies of the 10-K will be available from Satcon upon request and will be posted to the company’s Investor Relations website at www.satcon.com.

In addition, today’s call is being recorded and a webcast replay will be available on the Investor Relations website. This conference call and associated recordings belong to Satcon and are prepared for the benefit of our investors.

Finally, I would like to remind everyone that Satcon is presenting at the Jefferies 2011 Global Clean Technology Conference in New York, this Thursday, February 24th at 10 AM Eastern Time. A live webcast of management’s presentation will be available on our Investor website Satcon.com and an archived recording will be available for 90 days.

I will now turn the call over to our President and Chief Executive Officer, Steve Rhoades. Steve?

Steve Rhoades

Thanks Leah and good afternoon everyone. I couldn’t be more pleased to be sharing our 2010 results with everyone today. Not only did we post record earnings in growth, but we achieved both our margin and profit targets for the year. In the fourth quarter, revenues were $72.6 million, bringing our annual revenue to a $173.3 million. That marks a quarter-over-quarter growth of 237% and a year-over-year growth of 230% respectively.

Our Q4 revenue was within the range we announced at our last earnings call of $70 million to $75 million, and our gross margins were 28.2%, which results are within the range of 28% to 32% we guided for the quarter. We ended the year with a backlog of approximately $103 million, up 764% over our backlog at the end of 2009.

During the year, we also booked 1.1 gigawatts in orders for our inverter solutions, up from just over 160 megawatts of booking in 2009. Gross margins increased in every quarter of 2010, with significant improvements over 2009, where our Q4 margins were 13.2% on $21.5 million of revenue. Meeting our margin targets enabled us to achieve an operating profit in the last two consecutive quarters of the year and we expect this trend to continue into 2011.

The increase in gross margin from Q3’s 26.9% to Q4’s 28.2% was at the lower end of our guidance, primarily due to cost associated with supply chain issues that continued to plague the power electronics industry last year, including an unforeseen nationwide labor strike in France that affected several suppliers and component shortages at other suppliers around the world.

To compensate for limp in supply chain and in order to meet the high demand for Satcon solutions in North America, we made greater than expected use of our Ontario manufacturing facility. This led to a temporary increase in our material, freight, and labor costs. We expect some of the supply shortages that we experienced in Q4 to continue through Q1 and into the beginning of Q2. However, we continue to expand our worldwide supply chain network for increased flexibility, improved performance and we expect reduced cost throughout 2011.

2010 was a tremendous year for solar PV, and in particular our target segment of utility scale solar power fronts. We, along with several industry analysts expect this PV market segment to continue to add significant growth over the next several years. Looking forward to 2011, we do anticipate the typical seasonality in the European region and the North American commercialize rooftop business to affect our first half revenues as it has in past years. However, we expect that this slowdown will mostly be offset by strong demand in the North American utility scale markets and in China.

We also expect a very strong second half of the year as we continue to take the market share in Asia, in Europe, and other emerging markets. Our outlook for Q1 2011 revenue is relatively flat over Q4 of 2010. We are expecting our Q1 revenues to be between $65 million and $70 million, which would be a 340% to 375% increase over revenues in Q1 of 2010.

We also expect gross margin percentage for Q1 of 2011 of approximately 25% to 27%, compared to gross margins in Q4 of 2010 of 13.8%. This slight drop in expected gross margins from Q4 2010 is primarily driven by three factors.

First, a larger component of our first quarter revenue is coming from the Asian PV market, which typically delivers modestly lower margins than our European or North American revenues, and a significantly smaller portion of our Q1 2011 revenue is coming from Europe than what we saw in Q4.

Second, a larger portion of the product mix we expect to ship in Q1 is our new products, Solstice, Equinox, and Prism platform solutions. These new solutions are just becoming generally available and have temporarily higher supply chain cost than our more mature PowerGate volume. As we complete the transition of our Solstice, Equinox, and Prism platforms to our low-cost Asian manufacturing facility and Asian sources of supply, we expect increasing margin contribution for these products throughout the year.

Finally, we continued to focus on our supply chain management process in order to improve upon our procurement, manufacturing and distribution cost structures. The measures implemented across our global manufacturing and supply chain network have delivered significant margin contribution over the past year. We have many further opportunities for improvement and expect to realize the benefit from these opportunities throughout 2011.

As for our revenue outlook for all of 2011, we have reviewed and are comfortable with the full-year 2011 consensus revenue estimate currently published by First Call for our company.

For 2010, we shipped 688 megawatts of Satcon’s industry-leading solutions versus 164 megawatts shipped in 2009. In a greater than 100 kilowatt segment of the solar PV inverter market, we believe we took additional market share in all three of our core regions, gaining the most share in Europe and Asia, but still outpacing the growth of the North American market where we are already the dominant solution provider. Based on recent analyst reports, we believe our global market share to be between 12% and 17% of the greater than 100 kilowatt market segment.

Satcon’s 500 kilowatt PowerGate Plus solution continued to be our strongest performing product, shipping 472 megawatts and representing over 300% growth over the number of 500 kilowatt units shipped in 2009. In the year, we crossed a significant milestone with our PowerGate Plus solutions, booking over 1.6 gigawatts since its introduction in 2002. They’re getting in the world’s most widely selected utility ready solution on the market today.

In addition to the increasing success of our PowerGate Plus solutions, we’ve seen a significant amount of demand for our Solstice, Equinox, and Prism platforms. The expansion of our product portfolio, allows us to continue to deliver the most advanced utility-ready PV solutions that enable increase energy yields and power conversion efficiencies along with decreased ongoing operations and management costs, maximizing in installations’ overall levelized cost of energy.

Our product strategy is built on a building block solution of architecture, leveraging the best-in-class performance of each of our product families and combining it with the industry’s most complete and specialized delivery methodologies. This blend of advanced technologies and a comprehensive suite of services enable us to work closely with our customers to help them fully realize the differentiated value of our technologies, from the design stages throughout the entire lifespan of the projects. This solution model allows us to leverage the deep intellectual property we have within our engineering and field organizations and deliver a highly differentiated value proposition to our customers worldwide.

Built on a foundation of PowerGate and PowerGate Plus, Equinox is our third-generation utility-ready solar PV inverter solution and delivers best-in-class efficiency of 98.5% and offers the industry’s widest thermal operating range, enabling the highest efficiencies in the widest range of environments.

Solstice is the industry’s first complete power harvesting and management solution for utility scale power plants. With over 100 megawatt sold since its introduction in October of 2009, Solstice has seen significant demand. Having been selected by CIRO One the largest ground mounted solar PV plant in the United States. With the successful launch of the 500 kilowatt solutions in both North America and Europe, we expect significant growth with Solstice going forward.

Prism platform is our utility-ready building block for multi-megawatt installations. Prism is a fully integrated utility platform that comes complete with factory integrated medium voltage transformers, switch gear and electronics, and combines it with our best-in-class inverter technologies. Each 1 megawatt Prism solution is delivered complete in all climate outdoor enclosure and ready to connect to the PV array and utility grid, enabling rapid installation through a modular prepackaged design.

With over 250 megawatts sold since its launch in June of 2009, including multiple installations in North America, such as our 20 megawatt project with Q-Cells in Sault Ste. Marie, Canada, Prism is the industry’s most advanced utility-scale solar platform.

Wrapping around our technologies, our newest solution offering is energy equity protection, which includes Satcon design services, APEX project management, preventative maintenance and warranty programs, and system up-time guarantees. Born out of the extensive experience we have developed, working on many of the world’s largest, most advanced projects, our energy equity protection programs extends the value that Satcon can deliver to our customers and protect their investment across the entire lifespan of a project.

As of December 31st, 2010, the company’s backlog which consists of purchase orders to the customers was a $102.8 million. This includes 422 megawatts of our large-scale inverter solutions, reflecting our growing global footprint and success securing market share in Europe and Asia, while maintaining our dominant position in the evolving utility-scale North American inverter markets.

Given the continued strength of the utility-scale market coupled with our robust revenue growth, current backlog and pipeline, we plan to add additional capacity of each of our manufacturing facilities in Boston, Ontario, and China, bringing our current facilities from 1.5 gigawatts of capacity to over 3 gigawatts of capacity in the second half of this year.

While we see this growth potential coming from each of our core markets, we see significant opportunity coming from North America and China, where we hold over 50% and 30% market share of the utility-scale segments respectively. We see the US in particular emerging as a global industry driver for the utility-scale solar over the next three years with market potential approaching an estimated $1 billion by 2014 according to IMS Research. This marks a very large market opportunity for Satcon in a region where we have been the leader in providing large-scale commercial and utility grid power conversion solutions for over a decade.

Our strong long-standing relationships with North America’s leading PV integrators and utilities, positions us to continue to gain share and maintain our dominant position in this dynamic market.

In 2010, North America represented 52% of total revenue for the year, and bookings reached over 600 megawatts. We had strong demand in both US and in Canada, for the Ontario feed-in tariff drove an expansion of our manufacturing there, and we added 50 new jobs at the Burlington plant in the last six months. As I mentioned earlier, one of the driving forces behind our performance in North America is the considerable growth in the region’s utility-scale solar market where our revenues in 2010 grew 120% over 2009.

We also continued to see growth and opportunity in Asia-Pacific or in China, the utility-scale market for PV is expected to grow at a compound annual rate of nearly 80%, representing an addressable market of 4.5 gigawatts according to IMS Research by 2014. By moving the core of our manufacturing to this region and creating a direct sales force, we have established Satcon as a local inverter company which is fundamental to building customer relationships there.

Our investment in China continues to deliver results, enabling us to be a part of many of the country’s largest and most advanced utility-scale solutions, including the 15.5 megawatt Jiming solar farm and the 20 megawatt [inaudible] solar power plant, the largest in China to date, both of which were brought on line in the fourth quarter.

We have further strengthened our presence in China, by developing key partnership with industry-leading company such as GCL, China’s largest solar integrator. This partnership with GCL includes construction of a new facility located in Nanjing that will produce our inverters to be sold by GCL into the Asian solar market as well as for GCL projects.

Under the agreement, GCL owns and operates the plant and procures all raw material costs and Satcon will manage the facility and on the equipment that does the final testing to ensure we maintain protection over our core technology and IP. The facility is expected to be in on line in April and to ramp to targeted volumes by the end of Q3. Through this agreement, we are not only strengthening our position in one of the fastest growing solar markets in the world, we also mitigate margin pressure in China.

Another key strategic focus for Satcon has been to grow our business in Europe. Through leveraging our innovative solutions and adding a superior sales and services organization, Europe now represents 36% of our business, that’s compared to less than 13% in 2009. For 2010, we’ve booked nearly 300 megawatts of our large commercial and utility-scale systems. We’ve made rapid progress gaining market share particularly in Germany, Italy, and France. And we are seeing opportunity coming from other emerging markets in Greece, Belgium and Eastern Europe.

Satcon’s PowerGate inverters have been used on some of the largest PV solar plants built in Europe in 2010, including the 18 megawatt Les Mees solar project in the South of France, and the 19.5 megawatt Tauberlandpark installation in Wertheim-Dörlesberg, Germany. Both of these projects marked a significant step in Satcon’s continued growth in the European utility-scale solar market.

The strategic investment that we have made over the past year in both operations as well as engineering are delivering tremendous growth and we expect to continue to gain share of the growing global utility-scale market in 2011. These growth opportunities have also enabled us to a diversify the effects of seasonality and macroeconomic forces we used to see in our business resulting in a more balanced growth rate.

With the successful introduction of these industry-changing inverter solutions and the strength of our market position, we were able to take a number of steps to significantly strengthen our balance sheet during the year. Close to $12 million subordinated debt facility with Horizon Technology Finance and increased the amount available under our senior debt facility with Silicon Valley Bank to $15 million.

In October, we raised $37.5 million through a public offering of our common shares, streamlining our capitalization structure and decreasing the overhang of preferred shares on our stock. These debt structures and infusion of capital are provided with us with the resources we need to fund our rapid growth and satisfy the increasing demand for our solution.

So again, 2010 was a tremendous success for us, and we believe that 2011 will be another stellar year for Satcon as we continue to innovative and remain the technology leader in developing utility-scale PV solutions.

With that, I’ll now turn the call over to our CFO, Don Peck, who will review our financial results. Don?

Don Peck

Thanks Steve. Revenues for the fourth quarter ended December 31st, 2010 was a record $72.6 million, an increase of approximately 238% from $21.5 million for the quarter of 2009, and directly in line with the guidance the company provided during last quarter’s earnings call of fourth quarter 2010 revenue between $70 million and $75 million. Our full-year revenue of $173.3 million is 230% higher than our full-year revenues for 2009 of $52.5 million.

Bookings for the fourth quarter of 2010 were $89.1 million and bookings for the full-year 2010 were $288.6 million, more than five times the bookings we recorded in 2009 of $52.1 million as we expanded our market share in North America and China, and increased our sales presence in Europe. Bookings were also up over 16% quarter-over-quarter from Q3 than our recording bookings recorded then of $76.8 million.

Our backlog which consist of purchase orders from our customers was $102.8 million as of December 31st, 2010. This compares to the backlog at the end of 2009 of $11.9 million. About 85% of the year-ended 2010 backlog is currently scheduled to ship by the end of the second quarter of 2011.

During the quarter, we sold 298.5 megawatts of products as compared to 73 megawatts last year and 228 megawatts last quarter in Q3. For the full year, we sold 688 megawatts of product, far out pacing the 164 megawatt sold in 2009.

On a product-by-product basis, our revenue per watt has remained generally consistent over the past few quarters. The decrease in our overall revenue per watt to $0.24 per Q4 2010 reflect a geographic shift in the mix of our revenue. As our sales into Asia were a higher percentage of our sales in Q4 than in prior quarters.

Our gross margins continued to improve despite component pricing and logistical challenges we overcame as Steve described in his comments. Our gross margins improved to 28.2% up from 13.2% in Q4 of 2009, and 26.9% last quarter.

Our operating expenses for the quarter were $16.9 million compared to operating expenses of $6.9 million the same period in 2009 and $14 million for the third quarter ended September 30th, 2010. For the full year of 2010, our operating expenses were $51 million compared to operating expenses in 2009 of $26.8 million.

The main drivers to the increase in our operating expenses were higher research and development expenditures as we continued to fund product innovations and higher sales and marketing expenses as we continue to expand our sales and services footprint globally, and increase our travel requirements and facilities.

In particular, in Q4 2010, we expanded our research and development staff from 97 to a 125 people, reflecting our continued focus on innovation and product excellence. As long as our continued drive to qualify additional sources of component suppliers particularly in light of some of the supply shortages experienced during the past two quarters.

Our quarter-over-quarter increase in sales and marketing expense reflects our higher revenue achievement, expansion of our sales staff, increased travel costs for our direct sales efforts, and increased trade show expenses related in particular to the SPI Show held in Los Angeles in October. While we expect we will continue to hire and expand in these areas. We do not anticipate that the overall rate of increases in either research and development or sales and marketing over the next few quarters will be at the same rate as those experienced during 2010.

During the fourth quarter of 2010, the company generated positive operating income of $3.6 million, our second straight quarter of positive operating income compared to an operating loss the same period last year of $4.1 million.

With respect to non-operating items, during the fourth quarter of 2010, the change in the fair value of outstanding warrants generated its charge of $2.1 million, compared to a charge during the fourth quarter of last year of $1.8 million. This noncash charge relates to the mark-to-market revaluation of a subset of our outstanding warrants. Our warrant As and warrant Cs.

These warrants combine to be about 12% of our outstanding warrants at December 31st, 2010. The $2.1 million Q4 2010 charge resulted both from the increase in our stock price between September 30th and December 31st, as well as the fact that we met the conditions for a call of 50% of these outstanding warrants at the end of the quarter, which shortened the predicted duration of the warrants and hence their evaluation methodology.

As a result of the call and other exercises made in November, December, and January of these warrant As and warrant Cs, 66.8% of the warrants outstanding at the beginning of Q4 2010, they were subjected to quarterly revaluation have been exercised and converted into common stock, thereby, greatly reducing our exposure to this noncash accounting charge in the future.

Other non-operating expenses consisted of interest expense on our subordinated debt in our Silicon Valley Bank senior debt line combined $550,000 and foreign exchange losses mostly related to fluctuations in the Euro of $654,000. Our foreign exchange losses for the year were $630,000 or less than one half of 1% of our total revenues.

With regard to the net loss attributable to common shareholders, for the fourth quarter of 2010, one month’s worth of noncash dividends and accretion related to the Series C preferred stock of $536,000, plus a noncash charge of $1.6 million related to the accelerated accretion to bring the carrying value of the Series C preferred stock up to its conversion amount, and the $1.25 million paid to the Series C preferred shareholders as an inducement for them to convert their shares as part of our recent equity offering, combined result in a total charge of approximately $3.4 million below net income, but impacting our earnings attributable to common shareholders and earnings per share during the fourth quarter of 2010.

Perhaps most importantly, as a result of the conversion of the Series C preferred stock in October as part of our equity offering, the company will not need to record any further charges in 2011 related to dividends, deemed dividends or accretion related to the Series C preferred shares. These charges cost us $0.105 per share during 2010.

Turning now to the balance sheet, we ended the quarter with $30.1 million in cash. Accounts receivable at the end of the fourth quarter were approximately $73.7 million, up $17.6 million at December 31st, 2009 and $55.2 million at September 30th, 2010. Of the $73.7 million year-end accounts receivable balance, approximately $8.1 million represents pre-bills on orders to be delivered and recognized as revenue in future quarters, which is also driving the increase in our current deferred revenues.

Inventory at quarter-end was $40.5 million, up from $11.9 million at December 31st, 2009, as we ramped up for increased revenue targets over early 2010 levels.

As I mentioned last quarter, we’re taking a number of steps to streamline our capitalization structure. In early October, all of our Series B preferred shares were converted to common. Also, as part of our equity offering, our Series B preferred shareholders agreed to convert their preferred shares into common. As a result, our capitalization no longer includes any preferred stock and now includes only common stock, common stock warrants and outstanding stock option.

Our pro forma common shares outstanding as of December 31st, 2010 on a fully diluted basis using the treasury stock method and a closing price on December 31st is 135.4 million shares made up of approximately 117.9 million shares of common stock, 11 million shares of common stock warrants and 6.5 million shares of common stock options.

With that, I’ll turn things back to Steve.

Steve Rhoades

Thanks Don. And with that, I’ll let the operator to open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is from the line of Dale Pfue with Cantor Fitzgerald. Please go ahead.

Dale Pfue – Cantor Fitzgerald

Good afternoon, gentlemen.

Steve Rhoades

Hi Dale.

Dale Pfue – Cantor Fitzgerald

Don, just a quick housekeeping, can you give me the percentage of revenues from each of the geographic areas and their percentages in the backlog. And then, I’ve got another question for Steve.

Don Peck

Sure. So for the year, 52% of our revenues were generated in North America, 36% of our revenues was generated in Europe, and 12% of our revenues was generated in Asia-Pacific. And on the backlog, as of yearend, as we say in the press release, 78% of our backlog is in North America, 17% in Asia, and 5% in Europe.

Dale Pfue – Cantor Fitzgerald

Great. And Steve, could you talk a little bit about your competitive positioning, what you see going on out there in the marketplace, and then maybe give us your view on the overall PV market worldwide which is, of course, everybody stopped concern today?

Steve Rhoades

Yes, I think that as we pointed out in the remarks earlier, we picked up share in each region. I think our solutions are competitive both in technology and in overall cost performance for our customers. We spend a lot of time working in partnership with our customers to provide them with solutions. I think that’s highly valued by our customers and is part of the reason why we see the success that we saw last year.

We – as we look out into 2011, we see a quite strong utility market here in North America and in – both in the US and in Ontario, and we think we are well positioned for that. China is off to a good start. I think we did several large multi-megawatt plants in China in the fourth quarter and we have a good amount of equipment heading into China this year. I don’t think it’s going to be as big as some of our projections that are out there, but it does look to be a very, very robust market as we look out in 2011.

And then, in Europe, Europe has become an increasing portion of our overall market. We did about 30% of our business for the last year in Europe. It’s an important market for us, we think we are continuing to gain share in that market off of world [ph] base, but continued to gain share. Much of the worry in the European market is more tied to the sub 100 kilowatt market, the residential and light commercial and that’s not where we plan, we don’t have any products in that market in European there.

So we think 2011 is going to be a strong year for us. And as we pointed out, we’ve taken a look at yours and other analyst projections for us for revenue and we’re comfortable with the revenue projections that have been put out for us for the full year.

Dale Pfue – Cantor Fitzgerald

Great. Thank you very much.

Steve Rhoades

You bet.

Operator

Thank you. Our next question is from the line of John Hardy with Gleacher & Company. Please go ahead.

John Hardy – Gleacher & Company

Yes, thanks. Thanks a lot for taking my questions. Steve, I was wondering what were sort of the main things, main components that are changing your view on seasonality for Q1? And then, maybe more importantly how have bookings been trending through the first couple of months of the year against that slower seasonal shipment period?

Steve Rhoades

Well, I think that we had very strong projection for the quarter. We’re projecting 65 to 70 against a number 72.6 in Q4, so we’re not seeing the kind of seasonality we’ve seen that we saw in the past when we were completely dependent on the North American commercial market. But it is a fact that we had good success in Europe and the European utility market is very, very slow in the first quarter and that has been an increasing portion of our business. We made up for most of that with utility-scale and large-scale commercial business in North America and Asia.

As we look through for the past three years that I’ve been with Satcon we’ve always seemed that we’ve had a bit slower first half of the year and a much more robust second half of the year. That being said, our first quarter 2009 was just below $15 million. This quarter we’re projecting a number 4.5 to 5 times that, at 65 to 70. So we’ve seen a great pickup in our year-over-year compare and I think it set us up for a stronger Q2 and a stronger second half as we look out at the rest of 2011.

I think some of which is that the European market has become – was an important component of our revenue in Q4 and that’s not the strong place for us as we look here at the beginning of 2011. We expect it will be as we look out at the rest of the year.

John Hardy – Gleacher & Company

Okay. And then, if I could have one follow-up about your comments on new capacity in the second half of the year. How much of that is going to be in China? Anything beyond that initial 500 megawatts with GCL? I’m just trying to determine. Obviously the margins are a lot different on that business, so I’m just curious what the mix might be there in the second half.

Steve Rhoades

What we’re increasing the volume on primarily for China and for the rest of the world as we look through 2011 are our platform solutions. The integrated medium voltage packages for PowerGate, for Equinox, and for Solistice integrated with switchgear medium voltage transformer delivered as a prepackaged solution. Our ability to drive margin on those products as they come into volume is actually stronger than on our central inventers that’s a complete solution, we can drive more value, and that’s really where we are adding a lot of the capacity both for China and for North America and Europe.

John Hardy – Gleacher & Company

Thanks so much.

Operator

Thank you. Our next question is from the line of Ahmar Zaman with Piper Jaffray. Please go ahead.

Sean Wieland – Piper Jaffray

This is Sean Wieland [ph] for Ahmar. Just wanted to ask you guys if the slowdown in the US commercial market might have been related to any sort of inventory build that might have happened late in the year as people sort of anticipated cash grant possibly expiring?

Steve Rhoades

Yes, we are – our business is really focused on large central inventers. And we haven’t really noted any build-up in inventories in the channel for the large central inverters. That doesn’t tend to be the way that this business run. We do almost, I think 85% of our business right now maybe a little bit higher from direct sales and not very much in channel sales. So I think that we’re – it’s not a build-up of inventory, it’s – it really is seasonal weather effects in certain regions of the country where it’s hard to build ground-off systems at this time of the year. But I don’t think it really has much to do for us with inventory build-up.

Sean Wieland – Piper Jaffray

Okay, thanks. And as far as ASPs is lower in the quarter, I believe Don said around $0.24, that’s what I’ve got here. I know that we’re seeing a mix – shift mix to Asia. Are these the kinds of levels of ASP that we should sort of think about going forward or is this something that is probably just going to be a 4Q thing and then might rebound in 1Q?

Steve Rhoades

We’re trying to move an increasing amount of our business as I said to platform solutions. Our dollar per watt on the platform solution is significantly higher than this for central inverters. I think as we – we’re going to see an increasing amount of our – we’ve got great pipeline and good traction of that portion of our business as we look out into the middle and the end of 2011.

So I think we’re going to be able to hold dollar per watt kind of numbers at these levels and there may be some shifts around as we see the distribution more toward Asia than it is toward Europe. But our plans is to continue to be a solution provider and bring a lot of value to our customers and use that as means to hold up our ASPs and our dollar per watt.

Sean Wieland – Piper Jaffray

Great, thanks. And if I can just give final one; in terms of gross margins, are they kind of – we’re talking about gross margins again in the 20s. Last quarter we had some hope of getting them above 30%, obviously that did happen. Can we look for the business to cross the 30% threshold at some point in ‘11? How can we look at that?

Steve Rhoades

We still believe that that’s where we’re headed with the business with the load inventories. We’ve got a lot of new products shipping here in the first quarter and a high proportion for our Asian solutions. But as we look out into the year, that remains our goal, and that we think we have the plans in place to achieve that.

Sean Wieland – Piper Jaffray

Great, thank you.

Operator

Thank you. Our next question is from the line of Jesse Pichel with Jefferies & Company. Please go ahead.

Jesse Pichel – Jefferies & Company

Hi, good evening. I think congratulations are in order. You doubled your operating profit. And it looks like – and I wanted – this is my first question, you’re backing consensus analyst expectations for ‘11, we’re showing that as above $317 million, does that jive with your numbers Don?

Don Peck

Yes, it does. There is one outlier in there that we’d want to take out and take the average of the rest.

Jesse Pichel – Jefferies & Company

Okay, we’ll look for that. That’s solidly 80% plus growth for 2011. How should we think of that growth regionally? Is it all US or –?

Don Peck

No, we think that we’ve got strong growth in all three of our major markets. North American utility section looks particularly strong, but we’re expanding our direct sales presence in Europe, and we’re working closely with our partners in China to expand our growth there. So we expect growth in all three regions. I think in terms of timing, we’ve set a good beginning to the year, great quarter-over-quarter growth as we look 2010 to 2011. But I still expect the second half to be significantly stronger than what we’re looking at as we look at the first half of 2011.

Jesse Pichel – Jefferies & Company

And Steve, it looks like the pace of the utility-scale installations is accelerating in the second half ‘11 and then into ‘12. But we haven’t really seen Satcon or your competitors announce any wins there. Can you walk us through the sales cycle there and would it be reasonable to expect that you’re going to have your share there with some of these very large announcements that utilities have made in recent weeks?

Steve Rhoades

Yes, I think that our relationships with the EBCs and with the project owners has been built over many, many years of time. People believe in our products, believe in our technologies, we think we are going to have more than our fair share of wins here in North America. In all of those facilities, Jesse, are going to get building phases, and they’re going to be multi-year installations. And I think that what you’re going to see announced our phases on those kinds of deals rather than somebody saying I took down the entire piece.

Jesse Pichel – Jefferies & Company

In the past, Satcon didn’t have a strong of a balance sheet and it certainly wasn’t operating profitable as it is today. And I’m just wondering have you seen some of the larger project developers who may also be module companies kind of come to the table and say, “Would you like to bid on some projects?”, or in other words what I’m asking is, are there any new developers that might have excluded you in the past because of the balance sheet and operating losses that are now taking a second look?

Steve Rhoades

I think that is particularly true of new interest in the market players that are bigger construction companies that have not been big solar players in the past, they’re looking for partners. Having the strength in balance sheet, having profitability right now makes the conservations with them very – much more straightforward. And I think that has really played to our advantage as we look out into these projects this year.

Jesse Pichel – Jefferies & Company

And could you also give us a little bit more color on the ASP changes that you mentioned? Maybe if you can talk about the relative ASP change you’re seeing in North America versus Europe versus Asia and maybe that would be somewhat helpful.

Steve Rhoades

Well two things that I’d say about ASP changes, we are seeing deal sizes grow. And as a higher and higher percentage of our business goes toward multi-megawatt installations, if you look on just the central inverter portion, the deals are competitive and they’re large, and so there is volume discounting going on. I think we’re seeing that in every market.

Our response to that is to bring higher value, higher efficiency, higher energy harvest solutions and to bring integrated packages. And as that becomes a higher percentage of our business, we think that that will allow us to increase our opportunity for the total capital spend on a particular project and allow us on dollar per watt basis to hold up our prices. So we’re seeing in all markets that deal sizes are growing larger and that does tend to drive us toward our higher power solutions which sell at a lower dollar per watt and leads to some level of discount, because it’s a large order so. And that’s in every market.

Jesse Pichel – Jefferies & Company

My last question is, you talked about the revenue guidance for Q1, is that in line down with the shipments that you’re going to have in Q1 or is there any disconnect there between shipments and rev rack [ph]?

Steve Rhoades

No, they should be in line.

Jesse Pichel – Jefferies & Company

They should be in line, okay. Well, listen, great – and maybe one more Don for you. I mean it looks like all these noncash items might have been – might have given you a pro forma number of around $0.02 positive, will that be – if we remove that would it get you to that kind of positive low single-digit EPS and if you could kind of confirm that? And then should we just assume none of that going forward, is that what I heard on the call?

Don Peck

Yes, we took operating income and we divided it by which was what would have been our denominator for an EPS calculation if we were profitable. We certainly hit numbers – certainly positive numbers and – yes, up $0.02 to $0.03 a share.

Jesse Pichel – Jefferies & Company

$0.02 to $0.03. And then, the share count for Q1, the weighted average, I guess, would be somewhat less than that 135.4 then you mentioned or it would be 135.4?

Don Peck

The 135 that I mentioned in my remarks was the December 31st balance. So weighted average for Q4 would be low, because the shares in the recent offering went out at the end of October. So for your planning purposes you may want to focus on the weighted average shares outstanding as of December 31st as your proxy of what would be outstanding during the Q1 and beyond.

Jesse Pichel – Jefferies & Company

And that would be what about 130, 129-ish.

Don Peck

That was – I think it’ll – it still has some dependency on stock price, Jesse.

Jesse Pichel – Jefferies & Company

Okay. Well, listen, thanks very much, and good luck as you execute on this big backlog. Thanks.

Steve Rhoades

Thank you.

Operator

Thank you. Our next question is from the line of Colin Rush with ThinkEquity. Please go ahead.

Colin Rush – ThinkEquity

Hi guys. Can you give us some trend lines on operating cost from an absolute basis going forward? Should we be thinking about the fourth quarter run rate as a reasonable proxy, with some appreciation or should we be thinking about a percentage of revenue for both R&D spend and the sales expense?

Steve Rhoades

Don, you want to take that?

Don Peck

Sure. Again, as I mentioned in my comments, we’re going to continue to hire and expand these areas. But we see a great deal of operating leverage coming into the business in 2011. As you can see we’ve [inaudible] pretty significantly in 2010 as we’ve looked to get ahead of the growth. But our hiring plans for 2011 are certainly much lower than what they were during the year. So I think what you’ll see is a leveling out of these operating expenses over the next few quarters, but they will certainly do expand as we look to seize opportunities and we would expand our leadership on the product side.

Colin Rush – ThinkEquity

Okay. And we understand that COGS represent about – or components represent about 70% to 80% of your total COGS. As you see increased competition in both North America and China, you’ve talked about the additional value of the package solutions, can you talk about how you’re working on design cost out of the components to support margin and how much path there really is in terms of moving from sourcing components from distributors towards direct sourcing?

Steve Rhoades

Yes, that’s a good question. There is tremendous opportunity for us in design as we look toward productizing the Equinox and the Solistice, Prism solutions that we have, we are focusing very aggressively on cost reduction, and we are doing that with by not just on the design, but choosing Asian sources in the initial portion of the design. The PowerGate line was designed over from 2004 through 2009, mostly in North American and European suppliers.

This time as we work through the Equinox and the Solistice high-volume manufacturing, we’re working to take cost out of these designs and we are initially starting with lower cost sources. Also, our buying power is increasing at lot, Colin, as our volume goes up and so that’s helping us as well. So we expect – we expanded margin in each of the quarters last year. We have slightly lower starting point than we had in Q4 here and projecting for Q1, but we expect to expand margins throughout the year and our target is still to be in the low-to-mid 30s range for gross margin.

Colin Rush – ThinkEquity

Okay, great. And just one final one for me. Your receivables are still running about a full quarter, can you talk about what you’re seeing in terms of any short name of the sales cycle and adjustments on payment terms from competitors. We’ve been hearing certain amount of basically providing customer’s working capital, are you guys seeing that as a necessity to continue to maintain ASPs going forward?

Steve Rhoades

Don?

Don Peck

No, we’re not. I mean customers are always looking to extend their payment terms, but ours generally run in this 60-day range, 45 to 60. And as I mentioned, about 8.1% of our accounts receivable balance is actually pre-bills for orders that are going to be delivered in future quarters. So that brings down which one take a look out in outstanding receivables.

Colin Rush – ThinkEquity

Perfect. Thanks a lot guys.

Steve Rhoades

Thanks Colin.

Don Peck

Thanks Colin.

Operator

Thank you. Our next question is from the line of Adam Krop with Adour Capital. Please go ahead.

Adam Krop – Adour Capital

Hi guys, thanks for taking my question.

Steve Rhoades

You bet.

Adam Krop – Adour Capital

Most of my questions have been answered, but I just wanted to kind of touch on the pricing question again maybe from a different angle. It sounds like you’re comfortable with the $318 million that’s out there on the revenue side. If you look at that from a volume perspective, is a 100% volume growth kind of the number that we should be kind of modeling in? And then if you can give your specific, maybe your specific assumption for ASP decline in your 1Q guidance and gross margin, that would be helpful. Thanks.

Steve Rhoades

Yes, I don’t – I don’t think we – I’d have to go do the math. I don’t think it will be that big of a volume growth at that revenue number, Adam. I think that – but I haven’t done the math. I don’t think we’re looking for that much ASP decline as I listened to the call.

In fact, we – as I said earlier, we are working to drive a higher and higher proportion of our sales to our Prism solution, the PowerGate, Equinox, and Solistice versions of our Prism platform solutions, and our opportunity on a dollar per watt basis for those products is significant. So I don’t – I don’t think we will see a – that kind of erosion in ASP. What we will see is that – we’re spreading that ASP across a higher value solution.

Adam Krop – Adour Capital

Okay. And your 1Q assumption on ASP?

Steve Rhoades

Don, do you have a – I don’t think we’re going to give that one out right now.

Don Peck

Yes, we generally don’t.

Adam Krop – Adour Capital

Okay. That’s all I have. Thanks.

Steve Rhoades

Thanks Adam.

Don Peck

Thank you, Adam.

Operator

Thank you. Our next question is from the line of Joe Maxa with Dougherty & Company. Please go ahead.

Joe Maxa – Dougherty & Company

Thank you. On the operating line, can you give us your thoughts on – or do you have a target operating margin you’re looking for that you’ll be willing to share for two to three years.

Steve Rhoades

Yes, Joe, we will do that at some point, but we haven’t published the model beyond our targets for gross margin yet. And I think that we’re going to save that for a future – a future conversation. We – our statement has been that we expect to be profitable with the operating lines throughout the year and that’s I think something we’re very, very focused on as a company. But in terms of the long-term model there, I think that might have to wait for a later discussion.

Joe Maxa – Dougherty & Company

Okay. So we’re looking at R&D to maintain these levels first half of the year, maybe a little bit higher, and SG&A to be somewhat variable with selling?

Steve Rhoades

Yes, there is commission expense in there and we are expanding to try to take advantage of gains we think we’re going to pick up in Europe, so we are expanding our sales force primarily in Europe as we look out into the first half of the year.

Joe Maxa – Dougherty & Company

Right. On previous calls you gave the backlog of the report date, are you willing to give that again or is there a reason you’re not?

Steve Rhoades

I think we’re just – for that one we’re not giving at this time, and we’re probably not going to give that going forward. I think we’re going to move to where we are giving the backlog at the end of the quarter, Joe.

Joe Maxa – Dougherty & Company

All right, very good.

Don Peck

Comparable.

Steve Rhoades

Yes, we’re in line with what our other comparable companies do.

Joe Maxa – Dougherty & Company

I guess, one more last, have you seen in the competition start to heat up with new players coming into market?

Steve Rhoades

Most of the competition we see is from the players that we’ve been competing with for the last couple of weeks. As we’ve entered new markets, we’ve seen the local players. I think you and I’ve talked in the past, there is a strong player in each local market, whether that’s Sungrow in China or [inaudible] in Italy. And as we become more competitive in those markets, certainly we keep come against – we’re not seeing big new entrants, the big conglomerates as much as maybe we would have thought. The people we’re competing with are the players that we’ve been competing with for the last few years.

Joe Maxa – Dougherty & Company

I was just wondering if the Power-Ones and the SMAs were getting more aggressive in the United States who have opened facilities here.

Steve Rhoades

I guess I didn’t consider them new competitors. Certainly, it’s a competitive market out there, but we are seeing as a technology leader and as a trusted player in North American market. So we think we’re going to win more than our share of deals and we’re fighting every day to make sure that that happens by bringing high-value solutions and by supporting our customers over the lifetimes of their projects.

Joe Maxa – Dougherty & Company

Okay, thanks. That is it from me.

Operator

Thank you. There is time for one more question and that question comes from the line of Jeff Osborne with Stifel Nicolaus. Please go ahead.

Jeff Osborne – Stifel Nicolaus

Great, good evening, and congratulations on the strong results. I just had a question, Don, on the China business. I guess, maybe first for Steve, you mentioned that the market looks to be a little bit softer than you or some of the analysts were expecting. But I guess I was trying to get a sense of does that impact the GCL relationship at all?

Steve Rhoades

Our relationship with GCL is very strong. We’re continuing to ship them products here in this quarter. We’re continuing to work on the manufacturing facility with them in Nanjing. We’re actually increasing our contacts by working with the EPCR of the parent company. So I think that we’re very pleased with our partnership with GCL and look for that to continue to bring a lot of benefits to us and to them as we look out over 2011.

Jeff Osborne – Stifel Nicolaus

Perfect, that was what my thought was. I just want to make sure I wasn’t reading you wrong. And then, maybe for Don, can you just walk through again the mechanics as it relates to the – for the analyst building the model on the ASP for the GCL plant in Nanjing.

My understanding is that opens in April, so there will be no impact on ASP that you report for the first quarter. But as the 25 megawatts a month, I believe, which are contracted from April on ramp-up, that those would be at roughly half the ASP per watts, so that would have an adverse impact on reported revenue per watt in 2Q and onwards, but a similar gross margin, is that the right way to think about it?

Steve Rhoades

You have that correct.

Jeff Osborne – Stifel Nicolaus

Okay. Just want to make sure there was no impact for the month of March. So for the first quarter, it’s kind of an apples-to-apples comparison. And then, do you have a sense – the last question is just the sensitivity here for the most current quarter versus what you reported in gross margins, how many hundreds of megawatt – hundreds of basis points, the component issue cost you the mix to China. I’m just trying to get a sense of – as the component issue eases in Q2, what kind of an apples-to-apples number would be, is it mix a 100 basis points and components 300 basis points or flip-flopped, is there any color you can add on that?

Steve Rhoades

I think we actually [inaudible] I think I know, but I hate to do it off the top of my head. But I mean what I would say is all totaled between logistics and components prices and rest it certainly causes at least 200, 300 basis points.

Jeff Osborne – Stifel Nicolaus

Okay.

Steve Rhoades

Coming down to their individual components will be difficult to do.

Jeff Osborne – Stifel Nicolaus

And then mix is a little bit more in Q4 or that’s more the issue in the Q1 for the guidance?

Steve Rhoades

That’s more based in Q1.

Jeff Osborne – Stifel Nicolaus

Okay. And components is a similar amount or is that starting to ease in Q1?

Steve Rhoades

It’s getting easier in Q1, but the combination of the mix and particularly new products that are early on in their development cycle is lowering us a bit in Q1. And those are things we think we can work through inside the quarter.

Jeff Osborne – Stifel Nicolaus

Very good. Thanks for all the detail.

Steve Rhoades

Thanks Jeff.

Operator

Thank you. We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Steve Rhoades

Well, thank you, everyone. In closing, I would like to thank all of our customers, partners, and employees for making 2010 such an exceptional year for Satcon. We look forward to speaking with you all on our first quarter conference call and that will conclude today’s call.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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