Ceragon Networks Ltd. Price & Performance (CRNT)

Hosting the call today is Doron Arazi, Saragun's Chief Executive Officer and Ronan Stein, Chief Financial Officer. Before we start, we'd like to note that certain statements made on this call will constitute as forward looking statements within the meaning of the securities Act of 1933 as amended and the Securities Exchange Act of 1934 as amended and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Ceragon intends forward looking terminology such as may, plans, anticipates, believes, estimates, targets, expects, intends, potential or other comparable technologies. Terminology, although not all forward looking statements contain these identifying words. Such statements reflect current expectations and assumptions of Ceragon Ceragon. Actual results may differ materially as they are subject to certain risk and uncertainties, which could cause actual results to differ materially from those projected in these forward looking statements. A full list of risk uncertainties are disclosed in Ceragon's Ceragon report on Form 20 F that was published on March 21, 2024, as well as with other documents that have been subsequently filed by Ceragon from time to time with the Securities and Commission. Forward looking statements relate to the date initially made and they are not prediction of future events or results.

And there can be no assurance that they will prove to be accurate. Ceragon undertakes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at sec.gov and they may also be obtained from Ceragon's website at ceragon.com Ceragon. [indiscernible] In addition, today's call will include certain non GAAP financials. For a reconciliation between GAAP and non GAAP results, please see the table attached to the press release that was issued earlier today which is posted on the Investor Relations section of Ceragon's website. With all that said, I'd now like to turn the call over to Doron. Dorone, the call is yours. Thank you, Rob.

And good morning, everyone. This was a record year for Ceragon financially achieving record operating profit on the highest revenue levels since 2012. Importantly, we made significant progress in our strategy to expand our TAM and diversify our revenue streams. To remind everyone, our growth strategy consists of 3 pillars: Focusing on millimeter wave products that are expected to be the fastest growing in the wireless transport market increasing our market share in private networks of end to end solutions and increasing our recurring revenue primarily by helping our customers in network operation and optimization. Let me highlight some of the achievements in this regard. We grew our annual revenue during 2024 by more than 13% Even as the wireless transport market, according to industry analysts, declined more than 10% year over year. About half of that growth was organic and the balance was contributed by CCLU acquisition. We grew our bookings from private networks by more than 50% And we secured additional recurring revenue [indiscernible] With approximately $7,000,000 annual recurring revenue, which is more than 30% of our current ARR. These additional revenues are expected to have gradual impact on our recurring revenue in 2025 and 2026. Simultaneously, we continue to execute against our product roadmap extending our technological lead.

We have introduced the IP50CX enabling us to win a significant new business and take market share in India. We have introduced the new millimeter wave series IP50EX that we believe is the best price performance millimeter wave product in the industry as demonstrated by the recent indication of demand for the IP50EXA product in India. On that same front, we have finished the tests of our proprietary Nepton chip successfully and have been developing the first 25 gigabit per second in a single box Our IP5500E that once again is expected to be the best price performance product in the industry, enabling us to also provide a multi band solution in a split mount configuration of 29 gigabit per second likely the highest in our space. And finally, on the millimeter width, we have launched a new product version of CICLO by Ceragon product The eightytwenty that many CIClubiceragon customers have been waiting for. During 2024, we also started developing a new split man product after many years of focusing primarily on an all outdoor solution. This product can address the needs of a large part of the market, including private networks, that Steve refers split mount products and we expect it to be commercially available within the first half of 2025.

On the software front, we've introduced the Smart Activation Key, that enables more flexibility and ease of use of different features and configurations of our products opening the door for Software as a Service business models. We have recently seen an increase interest in our encryption features Due to the increased threats of cyberattacks, This can drive higher software revenue for us from both our installed base and future purchases. Our smart activation key can make this feature even easier to use. With these achievements, we entered 2025 in a strong competitive position. I believe our position is the strongest it has been since I became CEO. We are making our strides to the continued execution of our strategy. The recent acquisition of e2E Technologies is another attestation of our determination to pursue the private network market organically and inorganically. The 2 acquisitions completed over the last fourteen months improve our ability to compete in this domain. I firmly believe that we can continue increasing our market share significantly. Said that, the dynamics of the private network market results in projects shifting from quarter to quarter. And this impacts our visibility on revenue until we reach a critical mass of projects in our backlog.

On the managed services front, we had a few recent successes. That are reflected in our increased committed ARR and make us more optimistic or even much more optimistic about this path of growth. We have seen increasing interest in the market for full turnkey deals where we are expected to design deliver, deploy and manage the performance of our products over periods that can range between five to ten years. We expect to continue this approach even if it impacts our growth pace in the short run. Ceragon has been outperforming the market in 2024. And we expect to continue to outperform the market in 2025. That said, data from analysts as well as other companies' performance in the telecommunication technology space [indiscernible] that the CSP market has been soft for at least a year. Recently, some of the companies, especially in the run-in fiber domain, are reporting on signs of potential recovery. Run-in fiber deployments typically come before wireless transport deployments Serving as a leading indicator For growth, For us, In 2024, Ceragon outperformed the industry in this respect due to being the vendor of choice in particular parts of the market, primarily in India and North America.

Yet, we are not immune to the global market trends. But with the huge progress we have made with our offerings, we are very well positioned to benefit from a recovery in the industry. To summarize, I'm very optimistic about long term direction. 2025 is indeed starting with low visibility. But can also turn into another successful year for Ceragon CSP market recovers and subject to the pace of success in private networks. As we navigate this period, I continue to believe that Ceragon is well positioned and we expect to continue to outperform the market. I'd now like to provide an overview of our highlights by region. In North America, revenue was $1,340,000,0.0 This reflects the lower levels of booking we had in as previously discussed and into We saw a nice uptick in bookings in and we expect another sequential growth in This strength reinforces our confidence that lower bookings in were reflective of timing issues, not demand. We also see opportunities for deployment our encryption capabilities as cybersecurity is getting more attention. In India, revenue was $5,560,000,0.0 an all time record quarter exceeding the $5,050,000,0.0 reported in the our previous record. We have been shipping and deploying equipment related to several projects in India, including the new customer we won in 2023.

These deployments are supporting customers in both the expansions of 4 gs and 5 gs networks. During the last few months, we have finished negotiations of the commercial terms with 2 of our customers securing our market share with the potential for a certain increase on account of competition. We have started receiving orders for delivery in 2025 based on the new commercial terms and we expect more orders in the coming quarters. For both our microwave and even products. Importantly, our IP50EXA has generated significant traction being most probably the best price performance product in our space. Our strong relationship with 1 of our customers and their trust in us and its appreciation of our strong technological capabilities, are opening for us more opportunities that are beyond our core domain and current roadmap. While these opportunities are in the initial exploration phase, they are another station to our strong position in India. In our Asia Pacific region, we finished the year strong winning business that included significant CCLU by Ceragon products. This was primarily in the point to multipoint access solutions for municipality projects which included managed services following deployment. We also were awarded a project worth of approximately $20,000,000 in collaboration with a tower company to provide capacity as a service to certain communications service providers as well as $350,000,0.0 win in the energy domain.

We expect to have final agreements signed by this final agreement signed by the With that, I'll turn the call over to Ronen Stein, our CFO, to discuss the results in more detail. [indiscernible] over to you. Thank you, Doron, and good morning, everyone.

Was another successful quarter closing 2024 With 13.5% revenue growth year over year and more than 10% in non GAAP operating profit even when eliminating an approximately $910,000,0.0 Benefits related to collection on account of a debt settlement agreement from a South American customer.

While further strengthening our financial position, and increasing our operating leverage we have invested organically and inorganically in positioning ourselves better in the fastest growing segments, of now more diversified [indiscernible] Help you understand the results, I will be referring primarily to non GAAP financials. For more information regarding our use of non GAAP financial measures, including reconciliations of these measures, we refer you to today's press release. Let me now review the results. Revenues for the were $10,690,000,0.0 up 18.3% from $9,040,000,0.0 in Our strongest regions in terms of revenues for the quarter were India and EMEA, with $5,550,000,0.0 and $1,620,000,0.0 respectively followed by North America. We had 3 customers in the that contributed more than 10% of our revenues. Gross profit for the on a non GAAP basis was $3,670,000,0.0 an increase of 15.5% compared to $3,180,000,0.0 in Our non GAAP gross margin was 34.3% compared with gross margin of 35.1% in We continue to achieve this gross margin despite the change in regional revenue mix. We achieved this by increasing revenues continuous focus on improving product costs and maintaining control over our fixed costs. Our gross margins may continue to fluctuate from quarter to quarter due to changes in volumes and revenue mix.

As for our operating expenses, in general, operating expenses in 2024 fully include the impact of the CECL acquisition at the and thus impact the comparison to 2023 operating expenses. Research and development expenses for the on a non GAAP basis were $880,000,0.0 up from $770,000,0.0 in As a percentage of revenue, our R and D expenses were 8.2% in the compared to 8.5% in the Sales and marketing expenses for the on a non GAAP basis were $1,060,000,0.0 up from $1,020,000,0.0 in As a percentage of revenue, sales and marketing expenses were 9.9% in the compared to 11.3% in the General and administrative expenses for the on a non GAAP basis, we're $510,000,0.0 compared to $610,000,0.0 in As a percentage of revenues, G and A expenses were 4.8% in the compared to 6.7% in the Operating income for the on a non GAAP basis was $1,220,000,0.0 compared with $780,000,0.0 for As a percentage of revenues, non GAAP operating income was 11.4% in the compared to 8.6% in the Financial and other expenses for the on a non GAAP basis were $350,000,0.0 negatively impacted by foreign exchange fluctuations and the strengthening of the U. S. Dollar versus several currencies. Offset by a continuous reduction in interest expenses.

Our tax expenses for the on an ongoing basis were $1,000,000 Net income for the on an ongoing basis was $770,000,0.0 or $0,.09 per diluted share. Compared to $370,000,0.0 or $0,.04 per diluted share for Turning to the full year results. Revenues were $39,420,000,0.0 Up 13.5% from $34,720,000,0.0 in 2023. Gross profit for 2024 on an ongoing basis was $13,820,000,0.0 an increase of 14.3% compared to $12,090,000,0.0 in 2023. Our non GAAP gross margin was 35.1% compared with gross margin of 34.8% in 2023. [indiscernible] Operating income for the year on an ongoing basis was $4,880,000,0.0 an all time record compared with $29,000,000 for 2023. As a percentage of revenues, non GAAP operating income was 12.4% for the year compared to 8.4% last year. Net income for the year on an non GAAP basis was $3,640,000,0.0 or $0,.41 per diluted share, compared to $1,670,000,0.0 or $0.2 per diluted share for 2023. As for our balance sheet, Our cash position at the end of the year was $3,530,000,0.0 compared to $2,820,000,0.0 at the end of 2023. Short term loans were $2,520,000,0.0 compared to $3,260,000,0.0 as of Dec. 31, 2023. We had a net positive cash position of $1,010,000,0.0 compared to a negative net cash position of $440,000,0.0 at Dec. 31, 2023.

And facilities that are sufficient for operations and working capital needs. Our inventory at the was $5,970,000,0.0 down from $6,880,000,0.0 at the December, 2023. The reduction is mainly related to our continued efforts since 2023 to streamline inventory levels following the improvement in components availability and substantial shipments to India. Our trade receivables at the are at $14,960,000,0.0 as compared to $10,430,000,0.0 at the December, 2023, reflecting the growth of our business in India. Our DSO now stands at one hundred and twenty six days. As for cash flow, net cash flow generated by operations and investing activities 2023, was $860,000,0.0 Turning to our 2025 outlook. We expect 2025 revenues to be between $3.90,000,000 dollars to $4.30,000,000 dollars inclusive of E2E acquisition. We expect non GAAP operating margins of at least 10% even at the low end of our revenue range as we continue improving our cost structure and look carefully at our expenses, especially in times like these, lower visibility. We also expect to increase our free cash flow compared to 2024 levels With that, I now open the call for your questions. Operator?

Thank you. In order to ask a question, please raise your hand or desktop application, and wait for your name to be announced. Once again, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question today comes from the line of Ryan Kuntz of Needham and Company. Please go ahead. Ryan, you should be able to unmute. How about that?

The question.

Yes, my question was about the Andean acquisition. Can you maybe outline for us the role that this company plays in the energy industry and what types of customer relationships they have that they can bring to the company related to this new target market? Thank you.

Hi, Ryan. This is Doron. So thank you for your question. Itu is very well known System integrator, primarily in North America, for networks within the energy and utilities domain. They have very good reputation And they have very nice portfolio of customers Some of them are very prominent in those industries. And their relationship are very strong. And over time, they were able even to kind of build the relationship to a level that they are providing a software to their customers that is helping them very nicely in managing the network post deployment. This software is actually also being OEMed via 1 of the other technology vendors to this particular space that is using this software for his own customers. I think the combination of a strong understanding of the needs of these 2 segments in the private network market together with the very strong relationship they were able to build over time, And the additional capabilities in terms of software development can boost our success in the private networks market in North America and outside predominantly in the energy and the utilities space.

That's really helpful, Droral. Thanks. These are energy producers or distributors or kind of [indiscernible] It's broadly. You see different use cases This could be producers, this could be oil and gas, manufacturers, that have both offshore and onshore networks I would it could be mining, There's a lot of different use cases under the energy segment and I would they are saying that probably their solutions can be applicable for 80% to 90% of the use cases.

Nice. Sounds like a great opportunity. You mentioned on the call Ceragon the private network side maybe some deal slips. Are these coming to you from channels? And What types of customer opportunities are these you're seeing in terms of market verticals that you're seeing some slips in? [indiscernible] the reporting about private networks is focusing primarily on deals where either we go direct or we go via system integrator, but we have The ultimate relationship with the end user, helping them and the integrator to come up with the best solution. So eventually, the slippage is driven by a pattern in this industry that it takes time to close deals, especially if you are working with some government institutions that may make the decision based on available budget and sometimes defer the decision. But generally speaking, it's either direct or system integrators where we have a very strong direct impact on the architecture and the solution.

Got it. Thank you. And you talked about some contract renewals or [indiscernible] In India, any any color you can share with us there? These are these are the big mobile operators that have been your traditional customers there?

Yes. So we're still talking about the large players And we're starting 2025 probably with the best position I think since 2013 or 2014, when we just announced the IP 20C at the time, This was a product that was winning for us the market. It was like a silver bullet I feel that we are kind of repeating this same position at the beginning of 2025. This time we obviously continue being very successful with the microwave product with our [indiscernible] [indiscernible] But more importantly, especially nowadays, when the demand for EBIT for millimeter wave solutions is higher, I think that the IP50 EXA is a winning product. And actually, this the pricing and the conditions of delivering this product to the India market at least for to 2 customers out of the the 3 we own are already closed and they are waiting for this product to to be in mass production, which is going to happen starting Got it. That's great. And 1 last 1 if I can around gross margins and new products. A lot of times new products have lower yields and higher startup costs. How should we think about shaping gross margins for the year in consideration of kind of the new products ramping?

Look, this is also associated for sure with the original mix in each and every quarter. But generally speaking, I believe that as we introduce these new products, although we may face certain certain period of, I would say, more investment, Generally speaking, I would expect our gross margins to improve during the second part of the year.

Right.

Thanks for that. That's all I've got.

Thank you.

Thank you very much.

Our next question comes from the line of Scott Searle from ROTH Capital. Please go ahead.

Hey, good morning, good afternoon. Thanks for taking my questions.

Maybe just a follow-up on some of Ryan's questions on the private networks front. Duran, I'm wondering if you could give some of your longer term expectations in terms of growth for private networks I know there's a little bit of softness in North America this quarter. What's the comfort returning in the second half of this year. And also on the M and A front, you been acquisitive in that area with Synclu now and end to end. Are you still looking around in the space to continue to add to and enhance the portfolio?

So good morning, Scott, and thank you for your questions. I will start with the last 1. So it is part of our strategy to actually execute With continuous search for M and A opportunities. So definitely, we'll continue to pursue for such opportunities that can strengthen our position And that's part of our daily work here as management in Seragon. When it pertains to the private networks, We believe that the second part of the year could be stronger for us I think that also with the last organizational changes we have done internally, were even more well positioned to pursue such opportunities and to take business There are certain indications that there is an increased demand for that, particularly in North America, But just to remind you, this strategy is not solely focused on North America. We see a lot of other private network opportunities in other places in the world. This deal that we won in APAC that is actually leveraging the CClu point to multipoint product for municipalities is just another example So I am very, very optimistic about private networks in general. Yes, I believe that we will continue in high percentage of growth in this domain And I believe that North America will be much better in 2025.

Very helpful. And maybe to shift over to India for a second.

Wonder if you could talk about the comfort level and visibility in the second half of this year. You also indicated you're benefiting from both 4 gs and 5 gs builds I'm wondering how e band fits into that particular as we start to get into the latter portion of this year? [indiscernible] the way the process works usually is that we before the the next fiscal year for the operators in India that basically starts at April 0 We start the negotiation and the discussions about the volumes that they expect to buy from us the kind of product that you want to buy from us given their plans for rollout And obviously, following negotiation about commercials, we get a strong indication about our market share. And basically, we finished this process with 2 out of the the 3 customers. The other 1 is the 1 that we won back in 2023 and we are still delivering under the the old contract. So there, there was no need, at least not yet, to [indiscernible] further the terms. Now [indiscernible] when we look into 2025, we see a very strong phenomena of [indiscernible] operators basically going to increase their fixed wireless part of the network in order to serve not just mobility but also to serve homes.

And this is driving an increase in demand for our Eben solution as the backhaul for the fixed wireless access that usually will contain much more capacity. And this is the main driver for at least some of the customers that we are working with to go back and to start buying E band products I believe that we'll see a very significant ramp up on the But I can tell you that as we [indiscernible] for Eben both the old product and the new product a few days ago and we intend to start delivering certain quantities in and Thank you. Very helpful. And lastly, if I could, Ronan, on the operating margin targeting 10% plus for this year, I wonder if you could give us some directional guidance in terms of OpEx as we go into the [indiscernible] in the remarks, we are going to align on the OpEx and to ensure that as visibility is not that high, We are monitoring the OpEx. As much as possible. So generally, we will align that with the revenues and the gross margin to ensure that the target is as the actual is as close as possible to the target of the 10%.

The gross margins, on the other hand, is obviously dependent what Doron mentioned before, regarding the mixture and of the revenues and also the volume of the revenues.

We thank you so much Thank you. Our next question today comes from the line of Theodore O'Neil from Hills Research. Please go ahead.

Yes, thanks. And congratulations on the revenue in the quarter. Very good in this challenging environment.

I was wondering if you could talk about your success in India, just sort of briefly. Is this can you talk about the combination of technology wins versus market share? There for you.

I would start by saying that The most important thing that drove our strong position in India is our technology. We are not a new vendor to the Indian market.

And many years of delivering very reliable products and most cases cutting edge and also coming with a very good price performance factors is creating this ongoing demand for us. I think that this actually is also built for us very strong relationship over time. Where the customer know that even if we are introducing a new product that they did not fully test They know that they can rely on us that 90% probability it will be functional from day 1 as we did with the IP50CX in 2024. And, if it's not they know that we will do the utmost and find the solutions. And that has created an intimate relationship for us with at least some of the customers and it actually opens up more opportunities for us where they are coming to ask and asking for specific use cases specific products, that they are pursuing knowing that if we can eventually commit to meet the spec They can trust us So all in all, it's a combination of very strong technology, very in-depth understanding of the Indian market needs in terms of price performance And over time, obviously, building a strong relationship with the customers' executives.

Okay. And Doron, I wonder if you could talk about the so how you manage the challenge of having Tier 1 business ramping up and down and what kind of impact that has terms of you're managing balance sheet, the income statement, your personnel, Well, first of all, I want to start by saying our 3 pillar strategy is exactly meant to resolve at least partially for this phenomenon. So by going after private networks, and by going after managed services, whether it's for private service providers, that's exactly the long term answer for this fluctuation in the CSP market that is very cyclical. Now On the expense and the cost structure side, we are obviously looking into this piece, and as I mentioned in a few we have a very structured model and strategy where we are changing the baseline of our cost by building a low cost centers of excellence where a lot of back office functions are concentrated in those centers and by that are becoming more efficient and obviously in terms of low cost they are also reducing our cost versus productivity. So that's 1 piece. It's a part of our strategy It's a three year plan that is being looked at every three years and then we come up with a new plan.

And this is a gradual approach. On top of that, when we see that the visibility is we are taking the measures to do certain alignments usually usually, in the regions that we see that the weakness is the strongest and we don't expect an immediate recovery. So generally speaking, we are striving to contain our costs and expenses and we are making the necessary adjustments either we use subcontractors or we also make the necessary adjustments in specific activities that we don't see them as very strong as applicable.

No, thanks very much. My last question is, are you seeing any supply chain issues The short answer is that so far we have not seen any any significant supply chain issues, there might be some cases here and there whether a specific component is missing And since we are managing our inventory and our liabilities to the vendors very meticulously in order to minimize the exposure Sometimes it comes on component scarcity and sometimes we may need to pay some expedite fees But this is a very tactical situation And eventually, I truly believe that this policy is actually driving much better operational and financial results for us. Okay.

Thanks very much.

Thank you. Our next question today comes from the line of Jonathan Pierce. Please go ahead. Can you guys hear me?

Yes. Hi, Jonathan.

Awesome.

How's it going?

Not too bad.

Hey, just want to say congratulations on a great quarter and a great year. It seems like you guys are starting to fire on all cylinders which is really, really nice to see. My question has to do with the AR in issue with your South American customer.

It seems like the past two quarters, you guys have seen a positive impact from that issue. And then from what I understand this quarter, actually had a negative impact. Just wondering if you guys could shed a little bit more light on that and then also, how you guys see it affecting subsequent quarters, if at all, or if that's now behind us? Okay.

Hi, Jonathan. The of and impacted it had like a 1 time impact of resolving and all the debt that was already provisioned in 2022. So it's not on our books anymore. And the fact that we collected something that was fully provisioned added up about $910,000,0.0 altogether in and The settlement is for higher amount, but we are still chasing further amounts. But it's not on our books anymore. So the customer is not active. The AR is 0 There is no, anything, no impact on the AR anymore. The AR itself went up, as I mentioned in the in my comments, that and that is more or less in line with the fact that the business shifted more towards India and obviously DSO in India is higher.

I would just add that on top of Oren's comments, if you look at our investor presentation, there is a chart that shows the adjusted non GAAP operating profit and margin And there, we are actually carving out these 2 very significant collections just to normalize for the investors community how do we [indiscernible] the operating non GAAP profit in the normal course of business.

Okay.

All right. Thanks, guys. Thank you. Our last question today comes from the line of Gunther Karger.

Please go ahead.

Can you hear me okay?

Hi, Gunther. Yes, we can hear you very well. Yes, thank you. I just want to remark that over the years I've followed your company and yourself, you've done remarkably well. Through the storms have been encountered and look like you're on the way. Congratulations. We may not be around the next time, but wish you well and congratulations Thank you. Gantu, thank you so much for your kind words. I wish that you will continue being with us for as long as possible. I wish you best health And I wish you to be able to continuing following up on us hopefully with continued success. Thank you, Doron. Sure.

Thank you. No further questions. Please proceed. As we enter 2025, following our achievements in 2024, our long term outlook and confidence has We remain focused on executing on our strategy towards achieving our stated long term revenue In the near term, visibility is limited. Hence, we are prudent in our projections. Long term, we continue to move forward or towards our target of $500,000,000 in annual revenue. We believe that the pieces are in place for us to achieve this level of scale from a combination of organic growth as well as strategic acquisitions. I look forward to updating you further on our next quarterly call. Have a good day, everyone.