Ceragon Networks (CRNT) 1 Aug 222022 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to the Ceragon Networks' Q2 2022 Earnings Call.

Our presentation today will be followed a question-and-answer session. [Operator Instructions]. I would like to hand over the call now to our first speaker today, Ms. Maya Lustig, Investor Relations. ahead. go Please

and Doron operator everyone. am I Thank Ceragon's good Chief by Arazi, Executive joined you, morning, Officer.

and statements. in of include forward-looking the from including but Before expression we as the Such to on reference. actual Ceragon’s statements financial company’s subject Annual call certain Safe statements and the uncertainties constitute meaning such results and of are forward-looking and Act XXXX, note to and to such as as Private risks materially statements Litigation expects, information should, future projected Ceragon’s and within cause not similar initiatives amended, most start, I forward-looking made SEC Securities of by the to would expressly amended, those from on limited XXXX, may, like and other intends the anticipate, the Securities Exchange results of the recent which XXXX. forward-looking supplemented that Securities Reform to believes, Ceragon’s as plans, identify Act differ described in to provisions all are statements. projected that incorporated Such terminology Form XX-F uncertainties Act as those filings of with time Ceragon herein are of risks will, Harbor or which Report time are maybe other could in this

purport at can from of today's And non-GAAP to accurate. will website would Forward-looking Securities statements Ceragon’s be on no them. at to www.ceragon.com. also be certain public obtained available they predications update not Ceragon’s the obligation that and may and date include undertakes website relate assurance Exchange prove Commission's and be do are www.sec.gov Ceragon the numbers. events Also made, call to no or to future initially results there be filings

the non-GAAP press earlier call release I will see attached that results turn For GAAP the now today. Please ahead. Doron. a please go table issued was reconciliation and over between to to the

may Thank earlier propel To we and three everyone. outlined you from recall good as to off, you discussions Maya pillars forward. morning our business kick things strategic

our Our is millimeter-wave in core business relates and class first market strategic outdoor, all best segment. microwave pillar the to which

involves strategic architecture into the business open pillar of network second domains. expansion our Our

share Our solutions this unit, first can increasing to fastest operator solutions, our their managed is services new strategic virtual the our end our XX% a our flagship be makes relationship quarter product our of in of cell at the in best strengthening XXXX on a site pillar gains our in And used market. second In high the market According market to for domain the with indoor market router. up also as that deepen particularly customers. focuses to of approximately priorities. we the third experienced networks offering transition our and demands to Ceragon in they This by coverage core segment the business remote of as Starting multiple and Latin breed backhaul selected our is Asia, backhaul. and largest first driven transport leading XG. America Africa, strength expand our serving global islands of market one tier of we our execution network. countries witnessed the of strategic strengthen wireless A pillar, wireless the with their to result growing and of the estimates,

first is choose the testament unique business. our true have our on We Ceragon POC with African already operators global core time we frame our a Pan tier performance with space diversity run agreement also and the one a reputation a and the operators to history signed feature. of in new advanced for Having them

total million market well as second disaggregated is routing. next our reach segment an leverage domain billion increase cell see helps the $X.X as few potential. market to and The overall growing open our even rapidly pillar market We disrupt which signals of $XXX in core growing the site the fast trend. bigger a approximately which IP-XXFX site cell will Our opening new years. the us virtual indoor our product reach network disaggregated over will This expected with is in market value to unit our potential new

already the While to exceeding take off, begun overall just has market with margin XXX margins our average we units booked have gross profile.

from growth third our roughly services managed our strengthened for our $X customers. world has an for of garnering of with This become XXXX. an increasing managed terms our networks, in year is services have carriers higher offering and the full has and around relationships important million and of our networks the deepened than bookings services attention Finally, pillar, operators, the and offering private is world Managed we become first XX% area half bookings already which and the us. carriers where for important around XXXX around group

tools to our or managed We business. software direct achieve continued as business also our expect services growth tools for with sales

to Middle see is which XG thanks wireless India, spectrum Latin fiber. Africa. more take parts tools software and backhaul XG we auctions increase over deployments is of more comes than XG new microwave drive and recurring the demand. believe around and it to on East equipment Asia, share. it expected We coming these to market as we revenue market addressable When our the America, deployments further world Demand for and launches rely overall will transmission to enhanced in margins expect drive growing. We years

improve performance and headwind we and in address shipment said, were will On across the operational QX later witness industry. the the we financial in still our to discussion. component positive That this results initiatives costs different which from begun shortages to took a have delivery front we

actions of still to XXXX, compared lower QX gross in our our result XXXX. to our XX.X% XX.X% margin QX while in a QX rose As XX.X% than

revenue We experienced expect backlog. healthy regions to a margin enjoy and and very drive We across expansion forward. further bookings going different growth strong

excited enhancing a also key the that that momentum thanks across to our expect that's QX we will the translate in business that are that capabilities converted margin know We're to gross than competitive backlog our technology margin these We differentiator. seeing many we're when revenue is because taking. we're gross development about to a higher initiatives

develop to cutting in investment culture house in and our is ability strong rooted in innovative Our innovation. continuous products edge

margins. in-house. during as our of and products to as of serve as suite POCs half revolutionary we received with using radio as can We're in allowing System-on-a-Chip in radio For numerous earlier to reduce market networks. drive IP-XX our to year. a XX% to of that of February trials software begun three and units, first just launched be the share competing cell XXXX years including market. site higher all chipset chip and open are operating that well bill part of expected aggregated the and as are our developed also approximately market by gain in we system, already or an and also transport the true open unit SoC, fully new these a I orders of technologies ahead customer us networking costs and We expected and are These Further believe This enhancing products launched material to Xth products traction first generation is have integrated has strong seeing indoor the the mentioned elements open bring virtual network example, demonstrated units, router. unit

first SoC with it the competitive will years customers. chip savings market Being advantage important our performance. be significant extremely in-house technology generate expect for to developed cost enhanced a come. to to Because is to and is key deliver our new We it

our concepts competition. ahead high our We are level of better to in strategy next remaining estimate only are we We of productization introducing in-house that manufacturers create of merchant chip costs our chips superior now next technology lower while chips. their allows products that over with the chipset generation competitors and believe developing and strongly while us of

this I'd overview now you give to trend expect continue. We to like region. per an

our history, our bookings above track in first capitalize leading North India. fastest America one this on rollouts grew the are the now America for time In second on region our We us, first who largest we enhanced internal with two market look strategy to demonstrated with For North represented full tier looking we quarter. to our America as private largest with the swing one in of comprehensive margins. activities. made well to total wins. customers. projections we building expansion solid on operator of at to now in we is quarter. continue see over potential was of contribute grow networks future, expand growth as customers. tier least our XX% success relationships are the that continue overall When activities a services and tier the compare projections. say record as national began A our part In mobile to at rural progress as achieve in we to position which year maintain bookings we network presence quarter QX. with of well new QX our is We new represents in the the In strengthen with least expect as the broadband of ambitious momentum. add this our solutions by signals America XX% board and installation North full across We new North bookings When also XG by XG XX% to tied QX employees to our and its the will and we network on-boarded our expand to and operators portfolio share in and see XG projects. services recent of and as capitalize their in QX utilizing

wireless growth part among tier and XG this in have accelerate our one to become the domain. And adoption operators. We for also operators region transport expect tier we services this portion in our of number broader one vendor increase one as

the expected in and to In and for for frequencies sale. auctions part private us. multiple is environment. XG infrastructure The our XG rural XG In technological, in at spectrum regulatory, services highly the gearing wireless spectrum on among of countrywide. are bands broadband up significant auction end increased of dynamic in started carriers, India July. of broadband addition, XX market networks, providers there a presents small different the is is E-band a gigahertz domains. growth are which many The rollout opportunity investment competitive drive

for expect E-band to XXXX. start QX up We in demand products ramping

deployment other see well In as another too gaining India. with XG in private were infrastructure we in strong nationwide Western that potential bookings board networks and in strong QX companies across progress we the great are Europe. especially in as QX here Europe Our operate quarter. making environments. We're traction Like rural regions operators had

projections securing new include focused business transform to Our and market In our exceeded growing ongoing we strong QX ultra-competitive. to such portfolio is to That issues. internal In being our revenues and experience to said and on delivery accounts backlog. as we continue have APAC existing we the IP-XXFX. solutions product

Wireless Open Transport delivered Disaggregated some our cost different Solution in showcased ownership is phenomenal the TIP as We in was Indonesia. of subsided. pandemic the the Event achieve In The countries. total finally flexibility operators we the also utmost investments response savings. Latin impact rising Despite XXXX America, Network value instability, see of to political in the has to

progress managed projects made in in potential some We now arrangements interest. starting see are new have other our expansion very rollouts We countries pushing customers. with offering, are services underway. XG discussing strong in while

as are routes Here, take Africa, That opportunities. and see the traction to new we place, our In said, market-leading to the beginning working are long-term a IPXXFX modernizations, slow we had start we hard of to many product. increase year. upgrades,

run earlier, we I signed a operator As have already a POC. mentioned Pan-African and with

results, financial briefly Before our supply the climate. like disruption business impacted turning current to our the financial has to recent to adversely chain over I’d The about comment performance.

conversion temporary adversely impacted revenue While our industry-wide, these to a and into have significant in resulted seem headwinds in are slow-down gross and margins. backlog our they be

a of partners, As our our products reduce we of vendors. contract with and the terms backlog streamlining been conversion aimed improve to our the our redesigning conversion contractual one including: series pace have production subsystems new improving enhancing I margins, the and revenue addition surcharges, manufacturers, into replacing of process adding and costs, initiatives and at shipment mentioned, improving implementing backlog of with

will software on until time start take more as and contribute sales. but of We financial am to upgrades course, maintenance as all that are well It I confident will, also robust more significant software performance. focus increasing actions our contract these results, seeing we

new industry. for strong CFO Lastly, to role I’d position few our to hiring to next to our share also a are we our CFO close in be experience recent candidate like a hope in the with weeks. We that in announce

To Now you non-GAAP mainly help the will numbers. results, be the understand financials. to I referring

you we to of For regarding our more measures, of measures, financial today’s refer release. information including use press non-GAAP reconciliations these

with numbers QX by million up were in to last actual Revenues now the compared year. me million, Let the you. $XX.X review for second $XX.X quarter X.X%

experiencing earlier, impact we mentioned even our revenue. and convert backlog are continues component high, to ability be to As which still shortages though to supply demand our disruptions chain I

revenues the in strong Our for this strongest quarter reflecting with our region in customers and for $XX.X was main line terms with of million, ongoing India demand the region. in we see deliveries

Our giving the second margin in revenues We was region followed in was million. compared Gross terms QX a $XX.X XXXX, and second the above fourth non-GAAP quarter second non-GAAP $XX.X XXXX. revenues quarter. with basis two gross in had XX.X% us by with North of $XX.X profit with Latin strongest million, in for customers Europe of million, of million. $XX a to on America XX% QX America XX.X% was XX.X%

as was compared software well as shipment to costs. to expenses basis as reduce QX in we million, in QX from other taken on with BOM gross our million reduction non-GAAP primarily year the for were were measures and a projected. Development improved as expenses second second Our XXXX, portion, due quarter same XXXX, $X.Xmillion, in in basis the line on certain this to our QX increased up our for the and Research a $XX.X QX non-GAAP costs quarter for margin Operating $X.X as the expectations. &

XXXX. relatively quarter primarily in year-over-year $X.X non-GAAP to basis investments R&D on expenses Administrative North $X.X a $X.X as our for General face-to-face and Sales second to expenses were non-GAAP boost $X.X as QX as The is in and compared commissions, sales well in were consistent million remain compared America the America. a our basis the travel intensified salespeople second the on increase QX due in remainder expenses, million basis expect million higher second quarter million, came of on XXXX our & We expenses Latin and for million expenses a $X.X to million, in million and XXXX. due Marketing of to QX is for services year. quarter Latin balances in non-GAAP trend FOREX India, and other in and the This our million expectations. QX XXXX, the that and equipment, dollar U.S. to $X.X our to a quarter. strengthening related $X local Financial primarily primarily in The $X.X during local eroded accounts significantly than higher for the expenses of due and currencies cash approximately APAC, to receivable sales than were this America have expectations. the

Going expenses range forward, our a environment, to stabilized FOREX million subject expect $X.X $X we of finance the million. to be to in

second $X.X the $X.XX for on million, a $X.X expenses diluted share. non-GAAP basis loss loss per tax non-GAAP basis for was the quarter Our Net quarter million. were a or on

and lead-time reflects customer QX orders at shortages. inventory balance level XXXX combined of our of QX million, of increased was the long $XX.X inventory the end sheet, for from our As the result stock at $XX.X million up ongoing a need XXXX. to items end The as and still of component strategic our

disruption inventory cash deliveries, In to in one also working impacted our and replace increase manufacturers and contract minimum with temporary resulted capital. of to decision addition, our our flow

the impact industry we an quarters this up expect and as coming speed. is lower our new levels in improves. to period, gradually We as transition to We reduction contract expect components decline and strive the inventory manufacturer keep the to inventory the fully finish

from up are $XXX.X at end million Our of $XXX.X million, trade the QX XXXX. receivables at

XXX days. DSOs now Our at stand

of flow QX the manufacturers. from it our by primarily cash to we was changes higher been Our activities making the operations driven have contract than and was XXXX, investing and composition

$XX.X quarter operating $X.X activities was cash and for for million. in provided used million. the cash quarter unused second million activities and $X.X $XX.X facility financing by second cash, of available was have credit the Net have Net investing We we of million.

our we XXXX forward, guidance $XXX million and Looking XXXX revenue million are to $XXX of $XXX to revenue reaffirming of our million. $XXX guidance million,

facing supply the is to of guidance chain Our upsides downsides challenges and to subject address continue we course as industry. potential

Our margins our to increasing least $XXX we gross same five-year million, is to approximately XX% at XX% revenue the target over and also target period.

Aviat’s I to a offer. turning take before regarding Finally, to moment purported want Q&A,

seen, communications serving our of issued our have have all engagement best the interest to and you we record commitment shareholders. with them, of several As reviewing Ceragon

not your same, now that, do for the and the more we to remains position With I open Aviat share today. questions. have Our call on Operator?

[Operator Instructions].

comes today of the question from Alex line first from Please Henderson Our ahead. go Needham.

you Can Great. hear me?

Hey Alex, clearly. very I can you hear

quarter and the because Right. I to relative the backlog it's really your I half of as quarter, -- what were a where book-to-bill was -- the get opposed in got orders on year-over-year stands? give the gauge a product some book-to-bill first quarter, of much can us couple the could. more in you sense up just of in the you questions. interested some gauge wanted general How I'm better sales to what if and to is, the on the

first Yeah, the so up our higher than -- of second on half, XX% first booking XXXX. first of all were half the the approximately

I a terms strong an will of you give have number. backlog, In backlog. we very approximate

very about gross We we which the initiatives the that margins and more are further. are we of gross margin million current important XX.X%, backlog. before even of a gross is taking XXX the than it of higher the piece actions And is obviously over margin some And important. this that's to is our analyze backlog improve talking of and

Well, to that… going Go back ahead.

it's terms ratio in above one. Just build significantly of book-to-bill

of revenues supply components that give associated abnormal. to margin. logistics us that Just the gauge OPEX cost going Can Obviously on back with you absorbing you're challenge? on the some and are chain quantify, the question components and drag

give some magnitude. level of sort can high you I

or normal than more less bit think that condition, are higher a I terms less more versus revenue lower we of that XX% achievement even that. are I more in think we or

of challenges chain. these $XX all quarter, the per if the having think we not of range could I million be at supply

In X%, as element gross revenue. the by terms added than more I revenue to region we're software of is on depends mix the about sometimes X% product even once that our said of to margin, the GAAP X% also talking and always

current than that…? talking in somewhere component come equivalent on to the you're the backlog higher given XX XX about to be to the margin, it's margin the actually that reasonable costs range, if being back as So that it in the think would

Yeah, I of the success think of a subject assumption our initiatives. to it's reasonable all

Okay.

the into shekel you the the against coming Going for back year. a believe January New shekel, the fully through hedged timeframe, the Year shekel you're protected I to guys second, calendar around the

at you to is where today, If where were into XXst December looking XXXX, will to it look impact which relative out your structure? cost on the of shekel the shekel reset is be what the would you

it $X.XX $X.XX EPS. easily would think I to hedge between our to

a given wouldn't why to be rate, explain XX% like exchange can on you seems larger the the small impact OPEX? It in swing that your number XX%

you First was the about impact I are also of have expenses let's sheet. all also being actually obviously EPS the forget that not in balance hedged and of talking financial our

all our is So I EPS on all, be it Yes, $X.XX higher. reasonable. think to could in $X.XX

point period impact paid a timeline, would exposure sheet by to that think would I would therefore balance year you end out constructed back in going given out Just right? though, financial year be end, DSO aren't your shouldn't the be XXXX, that before the that paid

is year. to All actually all But balance a correct. the on fact against the QX numbers. balance full primarily to salary fixed shekel sheet are for expenses, we expenses at But, sheet weakening dollar. also shekel I'm impacted other on in enjoy that in negatively had hedged monthly the hedging our looking basically and sorry, opportunity quarterly between the numbers QX and we indeed U.S. Yes, actually the has hedged hedge an And basis. is our that's our

right, current to that's It negative, again, on. all headwind paid in in those, you before a because sounds level, you a XXXX, hold out EPS of like a Therefore, pay XXXX your out a -- [Multiple but falls future that I you on, dear can assuming should end. that that Speakers]. at stuff factor, Hold not it be positive shouldn't be get But, mean, XXXX. year the

material What the if the it, use because OPEX, ignore financial experiencing is this ignore right? services big sheet. versus positive XXXX, is exchange a side should just the your how XXXX, of what a it's be on expenses, the in a positive to impact it pretty -- Just rate your balance we in

Yes.

it's If the year. operating for going only of be millions you're couple talking on a the to indeed, whole numbers,

very I Great. looking for. That's what Yeah, you much. the floor. Thank I'll was see

you, Thank Alex.

you. Thank

from Oppenheimer. Our the next ahead. line Please Iwanyc question from comes of go George

George. Hi,

When made coming how your initiatives? of you questions up, for of and that's you from you like share your gains, that much much from is from sense a can us much coming and your Thank taking how give how XXXX five-year look business, at is market targets, my new is coming how existing Doron.

the XX% five-year in of expect router growth very terms the CAGR And shy a terms percentage, or approximately will mid-single-digit we we growth above is of in expectations to of on site little business, that, in and managed cell growth. core of of slightly us which in a the a of a domain industry XX%. So bring services significant horizon, expect of a our top that

about sense what's do competition basis? Okay. When feel give look how North can like on competitive you're you environment, at a us driving global seeing a in of the that, momentum America, the you you

start with So North America. let's

We and been orders the from receiving one North only America one the are very, this not performance very three satisfied in recent by of in operators with tier region. we've our

operators steps that gaining are with other fit concept more We taking business into unique run. our this therefore making in North very additional believe that trajectory actually open nice we also business of of the from America one will continue. the can And in operators tier in solutions

it of worldwide, orders. very say rollout. see in the that is When behind a and tier this in I account bit share a looking of of the actually XG at tier think Part still We it two turning that due is on market we reflected beyond terms and would similar trajectory, to are into competitors the also existing I in that is three. taking market growth but

we're a solid showing regions give an unit, turn in with as this such doesn't where very orders example different getting also we in are in traction indoor Europe, but to our and virtual a into yet, advanced other of phases Just architectures lot but IP-XXFX, concepts It are we you APAC. that the in dramatically. deployment save their discussions And need. all TCO their India, just Obviously existing of spectrum and of of can operators the bid money E-band we improve with big multiple to our solutions accordance for with of in lot with in a was customers finished. starting provide are

So all in think strong sometimes to of that all, the products. many again, not is of it's is very but the is and our opportunities we needs see the our giving customer's there, competition. technology it ahead us a evaporated, competition once traction mindset the serving Obviously I superior

how with pass you customers? are the having through the the And shipping chain you're you overall from to feel side on either able a of pricing, one-time Right. supply your Doron, basis having about on any challenges constructive costs do discussions or

it's it a So, eventually, so combination.

with the all, end QX issued obviously dialogue all of of we in as customers. partners of First we to towards good are a of And letter them. surcharge our

initial innovation some Customers satisfied far, very should products with and situation the with this is this discuss the positive. that are they strategic to receptive us fact very gives So understand that benefit situation, signs last of our to long, a partnership that sort a the are and calmly. our are

environment, increase price bond costs looking deals higher shipping are increased our the on based specific we In discussing addition, [ph]. that increase macro the in well into obviously as prices current and new obviously the in especially as component in the RFPs,

process. So all not in all, an easy it's

with least the a at better far think due demonstrating and discuss to that calmly technology part Our very customers usually our in of our are buying to again capabilities most products than some tailwind is selling our and requests. their are I and sort us to success that But customers higher and very, big this higher understand our that cases giving stronger to in tend time by with situation power. is of accommodate power

side right question, on do hiring last you've And level my need Okay. do the comfortable or made the people a OPEX on feel you add have and at in with all any side, just to that you you're headcount you're sales to areas? that you the any more now

have point I shape. on huge demand this good seeing our North trying slightly and once plan, increased America, even our a think again, in to it, North positive based on demand plans in our in for very there beyond we America strong would and salesforce we're because XXXX I budget the see just region. At we mention very basically the trend capitalize this

you. Thank

Thank you.

Our from ahead. Alex the go Needham. line from comes Please Henderson of next question

tangents the conditions, any impact I that's the deals, actually ask seen any stretching one your you you duration, thanks. Great, have on talking is, been I as questions the hesitancy, have seen any for different closing have macro any front to to in pipeline? pullback, seen have have two the of seen wanted about -- given any you've in of first your showing you change number customers of up needed signatures you macro

is And watching at those at that and no, the in parts the carefully that to this continuing. is seen The rollout, But watching to it's and to carefully. we short XG signals are not that looks answer me speak might the especially many moving and places in so because start things obviously this decided this we initial point time. cautious even are It thing very very of forward change. we digitization customers beyond, world. recession have Obviously

that and is channel seats a sale Aviat ongoing obviously, on even equation. so this it in to side tit should in predicated your there of some earlier, negotiations having is a willingness contemplate and the describe public out and if still of getting or press how be Board with back vote ongoing you strong a discussions there's on put actually just they the how showing on is be only one fluid, at been it's had they comfortable that tat quarter How price more them, on with conversation And obviously is the they on situation. is -- you are something think would shareholder is quarter with progress? plus to it of three is that would or that done second their conversation given them, The characterize the point, the the kind that we would category three really Obviously PR the the built? more lot a one should November, a were anticipating backlog we

to first all do was long to not Alex, need question DNA the of a Americans it. I good apologize. to and adopt that I'm very the and culture of very trying interrupt But

my remarks, discuss we on these in our questions mentioned keep business prepared we focused I and earning you ask topics. And are As your that results. to here

We be commenting this on apologize, time. Aviat Alex. I will not at further

That's listening. Thanks. for fine. Thanks

proceed. You have no further questions, please

Thank In effectively have are have that begun to our executing and we performance we taken decisions positive like I’d improve making growth The signs. the initiatives tough bear to our you. reiterate have strategy. been to we financial closing,

day the you not of we We will I continue confident the skillful was the faced, large ongoing to about the robust look will Have strategy, I last. storm With impact strong mitigate remain call. disruptions implement on that company, people, measures first be forward and a chain long-term updating to our further it good market we our short component aiming any with and Like well-established and have to supply next business a technology potential. shortages. and doubt drivers, and growth this everyone.