Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations and involves risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential" or "continue" or the negative of these terms or other comparable terminology. For example, statements regarding our expectations as to future financial performance, expense levels and liquidity sources are forward-looking statements. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those discussed below and those discussed in the section entitled "Risk Factors" included in this Quarterly Report on Form 10-Q and our prospectus filed pursuant to Rule 424(b) under the Securities Act, as amended, with the Securities and Exchange Commission, or SEC, on March 30, 2012, or the Prospectus.

Overview

We deliver microinverter technology for the solar industry that increases energy production, simplifies design and installation, improves system uptime and reliability, reduces fire safety risk and provides a platform for intelligent energy management. We were founded in March 2006 and have grown rapidly to become the market leader in the microinverter category. Since our first commercial shipment in mid-2008, we have sold over 2,200,000 microinverter units as of June 30, 2012, According to data collected from our Enlighten web-based monitoring service, this represents more than 44,000 system installations. Our products have been installed in all 50 U.S. states, eight Canadian provinces, France, Italy and the Benelux region.

We sell our microinverter systems primarily to distributors who resell them to solar installers. We also sell directly to large installers and through original equipment manufacturers ("OEMs") and strategic partners. A substantial majority of our revenue has been generated by sales within North America. We anticipate that the majority of our 2012 net revenues will continue to come from North America, with the balance from Europe.

We continue to experience significant revenue growth. Our net revenues were $55.7 million and $29.6 million for the three months ended June 30, 2012 and 2011, respectively, and $98.3 million and $47.7 million for the six months ended June 30, 2012 and 2011, respectively, reflecting deeper market penetration and broader acceptance of microinverter technology. Despite the growth in net revenues, we incurred net losses of $11.4 million and $10.3 million for the three months ended June 30, 2012 and 2011, respectively, and $21.6 million and $19.6 million for the six months ended June 30, 2012 and 2011, respectively, as we continue to invest substantial resources to develop new product offerings, expand our operations into new product markets and geographies, and focus on critical research and development activities required to enhance product quality and innovation. To support these efforts, we expect to increase our workforce which will result in an increase of headcount related expenses, including stock-based compensation. As of June 30, 2012, we had 368 full-time employees, compared to 244 full-time employees at June 30, 2011, an increase of 51%. We expect to incur net losses for the remainder of 2012. However, we believe the significant investments we are making in our business will allow us to achieve an increasingly efficient operating cost structure as a percentage of net revenues.

On April 4, 2012, we consummated our initial public offering ("IPO"). As a result, the following transactions were recorded in our condensed consolidated financial statements in the second quarter of 2012:

• we issued 10,315,151 shares of common stock (including exercise of the full over-allotment by the underwriters of 1,345,454 shares of common stock), at an offering price of $6.00 per share, for gross proceeds of $61.9 million. Certain related parties, who owned convertible preferred and common stock and held convertible notes, purchased 2,500,000 shares of the total amount of shares issued of our common stock at the $6.00 offering price. The net proceeds from the sale of the shares were $53.8 million, after deducting the underwriters' discounts and commissions of $3.3 million and other estimated offering costs of $4.8 million;

• the 22,220,856 outstanding shares of our convertible preferred stock ($93.6 million carrying value) automatically converted into 25,171,017 shares of common stock;

• the convertible preferred stock warrant liability ($0.9 million carrying value) was reclassified to additional paid-in capital and the warrants to purchase 187,243 shares of convertible preferred stock became warrants to purchase 199,458 shares of common stock;

• the outstanding balance of principal and accrued paid-in-kind interest thereon for our convertible notes ($21.2 million gross carrying value) automatically converted into 3,533,988 shares of common stock at a conversion price equal to the initial public offering price of $6.00 per share;

• the aggregate debt issuance costs and debt discounts of $2.8 million related to our convertible facility were written-off to interest expense as a result of the conversion of the outstanding notes and the automatic termination of our $80.0 million convertible facility; and

• we filed an amended and restated certificate of incorporation, which authorized 100,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Components of Condensed Consolidated Statements of Operations

Net Revenues

We generate net revenues from sales of our microinverter systems, which include microinverter units, an Envoy communications gateway device, and our Enlighten web-based monitoring service. We sell to distributors, large installers, OEMs and strategic partners.

Our revenue is affected by changes in the volume and average selling prices of our microinverter systems, driven by supply and demand, sales incentives, and competitive product offerings. Our revenue growth is dependent on our ability to market our products in a manner that increases awareness for microinverter technology, the continual development and introduction of new products to meet the changing technology and performance requirements of our customers, and the diversification and expansion of our revenue base.

Cost of Revenues and Gross Profit

Cost of revenues is comprised primarily of product costs consisting of purchases from our contract manufacturers and other suppliers, warranty, personnel and logistics costs, depreciation and amortization of test equipment and hosting services costs. Our product costs are impacted by technological innovations, such as advances in semiconductor integration and new product introductions, economies of scale resulting in lower component costs, and improvements in production processes and automation. Certain costs, primarily personnel and depreciation and amortization of test equipment, are not directly affected by sales volume.

We outsource our manufacturing to third-party contract manufacturers and generally negotiate product pricing with them on a quarterly basis. In addition, a contract manufacturer also serves as our logistics provider by warehousing and delivering our products in North America and Europe. We believe our contract manufacturing partners have sufficient production capacity to meet the growing demand for our products for the foreseeable future. However, shortages in the supply of certain key raw materials could adversely affect our ability to meet customer demand for our products.

Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product cost and mix, warranty costs and seasonality.

Operating Expenses

Operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories and include salaries, benefits, payroll taxes, recruiting costs, sales commissions and stock-based compensation. We expect to continue to hire significant numbers of new employees to support our growth. The timing of these additional hires could materially affect our operating expenses, both in absolute dollars and as a percentage of net revenues, in any particular period. We expect to continue to invest substantial resources to support the growth of our company globally and anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts for the foreseeable future.

Research and development expense includes personnel-related expenses such as salaries, stock-based compensation and employee benefits. Research and development employees are engaged in the design and development of power electronics, semiconductors, powerline communications and networking and software functionality. Research and development expense also includes third-party design and development costs, testing and evaluation costs, depreciation expense and other indirect costs. We devote substantial resources in ongoing research and development programs that focus on enhancements to and cost efficiencies in our existing products and timely development of new products that utilize technological innovation to drive down product costs. We intend to continue to invest substantial resources in our research and development efforts because we believe they are essential to maintaining our competitive position. Investments in research and development personnel costs are expected to increase in total dollars for the foreseeable future.

Sales and marketing expense consists primarily of personnel-related expenses such as salaries, commissions, stock-based compensation, employee benefits and travel. It also includes trade shows, marketing, customer support and other indirect costs. We expect our sales and marketing expense to increase in absolute dollars for the foreseeable future as we continue to increase the number of our sales and channel support personnel to enable us to increase our market penetration geographically and into new markets by expanding our customer base of distributors, large installers, OEMs and strategic partners. Historically, substantially all of our sales have been in North America. We began selling into France, Italy and the Benelux region in the fourth quarter of 2011 and commenced volume shipments to such regions in the second quarter of 2012. In addition, we opened a sales office in the United Kingdom during the second quarter of 2012. We expect to continue to expand our geographic presence in strategic markets in the future.

General and administrative expense consists primarily of salaries, stock-based compensation and employee benefits for personnel related to our executive, finance, human resources, information technology and legal organizations, facilities cost, and fees for professional services. Professional services consist primarily of outside legal, accounting and information technology consulting costs. We expect to incur additional accounting and legal costs related to compliance with securities and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.

Other Income (Expense), Net

Other income (expense), net includes interest income on invested cash balances and interest expense on amounts outstanding under our credit and convertible note facilities and non-cash interest expense related to the amortization of debt discounts and deferred financing costs. Other income (expense), net also includes mark-to-market adjustments to record our preferred stock warrants at fair value, which were issued in conjunction with credit facilities, as well as losses or gains on conversion of non-U.S. dollar transactions into U.S. dollars and foreign currency forward contracts.

Provision (Benefit) for Income Taxes

We are subject to income taxes in the countries where we sell our products. Historically, we have primarily been subject to taxation in the United States because we have sold the vast majority of our products to customers in the United States. We anticipate that as we expand the sale of products to customers outside the United States in the future, we will become subject to taxation based on the foreign statutory rates in the countries where these sales took place and our effective tax rate may fluctuate accordingly. We have not recorded any U.S. federal or state income tax provision for any of the periods presented because we have experienced operating losses since inception. Due to the history of losses we have generated since inception, we have recorded a full valuation allowance on our deferred tax assets.

Critical Accounting Policies and Significant Management Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We consider an accounting policy to be critical if it is important to our financial condition and results of operations, and if it entails significant judgment, subjectivity and complexity on the part of management in its application. We consider the following to be our critical accounting policies:

• Revenue recognition;

• Inventory valuation;

• Product warranty; and

• Stock-based compensation.

For a complete description of our critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to the Prospectus under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Management Estimates."

Results of Operations for the Three and Six Months Ended June 30, 2012 and 2011

Net Revenues



                                   Three Months Ended                                 Six Months Ended
                                        June  30,                Change in                June 30,                Change in
                                    2012          2011          $          %          2012         2011          $           %
                                                               (In thousands, except percentages)

Three months ended June 30, 2012 and 2011

Net revenues for the three months ended June 30, 2012 increased by 88% compared to the three months ended June 30, 2011 primarily due to the increase in the overall volume of our products shipped. The number of microinverter units sold increased by 98% from approximately 203,000 units in the three months ended June 30, 2011 to approximately 403,000 units in the three months ended June 30, 2012. The overall increase in units sold was attributable primarily to sales of our third generation microinverter, which was introduced during the second quarter of 2011. In addition, the increase in unit sales was driven by deeper penetration of our existing customer base, the addition of new customers, and broader acceptance of our products resulting from, among other factors, investments made in sales and marketing.

Six months ended June 30, 2012 and 2011

Net revenues for the six months ended June 30, 2012 increased by 106% compared to the six months ended June 30, 2011 primarily due to the increase in the overall volume of our products shipped. The number of microinverter units sold increased by 112% from approximately 327,000 units in the six months ended June 30, 2011 to approximately 695,000 units in the six months ended June 30, 2012. The overall increase in units sold was attributable primarily to sales of our third generation microinverter, which was introduced during the second quarter of 2011. In addition, the increase in unit sales was driven by deeper penetration of our existing customer base, the addition of new customers, and broader acceptance of our products resulting from, among other factors, investments made in sales and marketing.

Cost of Revenues and Gross Profit



                                     Three Months Ended                                    Six Months Ended
                                          June  30,                 Change in                  June 30,                 Change in
                                     2012           2011           $           %          2012          2011           $           %
                                                                   (In thousands, except percentages)
Cost of revenues                   $  42,096      $ 24,785      $ 17,311        70 %    $ 75,389      $ 40,206      $ 35,183        88 %
Gross profit                          13,601         4,807         8,794       183        22,908         7,455        15,453       207
Gross profit percentage                   24 %          16 %                                  23 %          16 %

Three months ended June 30, 2012 and 2011

Cost of revenues for the three months ended June 30, 2012 increased primarily due to an increase in the number of microinverter units sold to customers, consistent with the overall increase in net revenues as described above. Gross profit percentage increased to 24% in the three months ended June 30, 2012 as compared to 16% for the same period in 2011. This increase in gross profit percentage was driven by the introduction of our higher-margin third generation microinverter, which has a lower per unit manufacturing cost than our second generation microinverter. The lower per unit cost was achieved primarily through design enhancements, which resulted in a higher level of product integration, and improved efficiencies on increased production volume.

Six months ended June 30, 2012 and 2011

Cost of revenues for the six months ended June 30, 2012 increased primarily due to an increase in the number of microinverter units sold to customers, consistent with the overall increase in net revenues as described above. Gross profit percentage increased to 23% in the six months ended June 30, 2012 as compared to 16% for the same period in 2011. This increase in gross profit percentage was driven by the introduction of our higher-margin third generation microinverter. The lower per unit cost was achieved primarily through design enhancements, which resulted in a higher level of product integration, and improved efficiencies on increased production volume.

Research and Development



                                      Three Months Ended                                  Six Months Ended
                                           June  30,                Change in                 June 30,                Change in
                                      2012           2011           $         %          2012          2011           $         %
                                                                  (In thousands, except percentages)

Three months ended June 30, 2012 and 2011

The increase in research and development expenses in the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was primarily attributable to a $2.4 million increase in personnel-related costs as we increased our headcount to support continued investment in our future product offerings. The remaining increase was due to higher depreciation costs from test equipment acquired for use in development.

Six months ended June 30, 2012 and 2011

The increase in research and development expenses in the six months ended June 30, 2012 compared to the six months ended June 30, 2011 was primarily attributable to a $4.0 million increase in personnel-related costs as we increased our headcount to support continued investment in our future product offerings. In addition, expenditures related to the use of outside services to develop our new products increased by $0.6 million, as compared to the same period in 2011. The remaining increase was due to higher depreciation costs from test equipment acquired for use in development and facilities related costs.

Sales and Marketing



                                      Three Months Ended                                 Six Months Ended
                                           June  30,                Change in                June 30,                Change in
                                      2012           2011           $         %          2012         2011           $         %
                                                                  (In thousands, except percentages)

Three months ended June 30, 2012 and 2011

The increase in sales and marketing expenses in the three months ended June 30, 2012 compared to the three months ended June 30, 2011 resulted primarily from increased staffing levels to support higher sales volumes and international expansion. Personnel-related costs increased by $1.8 million as a result of increases in sales and marketing headcount in the three months ended June 30, 2012, as compared to the same period in 2011. The remaining increase was primarily due to expenses related to trade shows held in Europe as we expand our international presence.

Six months ended June 30, 2012 and 2011

The increase in sales and marketing expenses in the six months ended June 30, 2012 compared to the six months ended June 30, 2011 resulted primarily from increased staffing levels to support higher sales volumes and international expansion. Personnel-related costs increased by $3.5 million as a result of increases in sales and marketing headcount in the six months ended June 30, 2012, as compared to the same period in 2011. The remaining increase was primarily due to expenses related to trade shows held in Europe as we expand our international presence and the increased use of outside marketing services.

General and Administrative



                                        Three Months Ended                                 Six Months Ended
                                             June  30,                Change in                June 30,                Change in
                                        2012           2011           $         %          2012         2011           $         %
                                                                    (In thousands, except percentages)

Three months ended June 30, 2012 and 2011

The increase in general and administrative expenses in the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was primarily attributable to a $1.1 million increase in personnel-related costs as a result of increases in general and administrative headcount and an $0.8 million increase in depreciation and amortization and other facilities related costs as we occupied our new corporate headquarters in March 2012. The remaining increase was primarily attributable to an increase in general insurance costs resulting of the expansion of our operations.

Six months ended June 30, 2012 and 2011

The increase in general and administrative expenses in the six months ended June 30, 2012 compared to the six months ended June 30, 2011was primarily attributable to a $1.7 million increase in personnel-related costs as a result of increases in general and administrative headcount and a $1.3 million increase in professional services, which includes post-implementation support of our new ERP system. In addition, depreciation and amortization and other facilities related costs contributed $1.3 million to the increase as we occupied our new corporate headquarters in March 2012. The remaining increase was primarily attributable to an increase in general insurance costs resulting from the expansion of our operations.

Other Expense, Net



                                     Three Months Ended                                     Six Months Ended
                                          June  30,                  Change in                  June 30,                  Change in
                                      2012           2011          $            %          2012          2011           $            %
                                                                              (In thousands)

Three months ended June 30, 2012 and 2011

Other expense, net increased primarily due to an increase in interest expense related to the write-off of unamortized deferred debt issuance costs and debt discounts totaling $2.8 million resulting from the termination of our Convertible Facility during the three months ended June 30, 2012. In addition, foreign currency losses accounted for $0.3 million of the increase, which was partially offset by a $0.2 million increase to other income from the remeasurement of our preferred stock warrant liability. . . .