Good day, everyone. Welcome to the Ceragon Networks Limited fourth quarter and full year 2014 results conference call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks. Today's call will include statements concerning Ceragon's future prospects that are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including risks associated with increased working capital needs; risks associated with the ability of Ceragon's to meet its liquidity needs; the profit enhancement programs; the risk that Ceragon will not comply with the financial or other covenants in its agreements with its lenders; the risk that sales of Ceragon's new IP-20 products will not meet expectations; risks associated with doing business in Latin America, including currency exports controls and recent economic concerns; risks relating to concentrations of our business in the Asia-Pacific region and in developing nations; the risk of significant expenses in connection with the potential contingent tax liabilities associated with Nera's prior operations or facilities; and other risks, uncertainties detailed from time to time in Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission; and represent our views only as of the date they are made and should not be relied upon as representing our views as any subsequent date. We do not assume any obligations to update any forward-looking statements. Ceragon's public filings are available from Securities and Exchange Commission's website at www.sec.gov or maybe obtained on Ceragon's website at www.ceragon.com. I will now turn the conference over to Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Thank you for joining us today. With me on the call is Doron Arazi, our CFO. The sequential increase in revenue to $111 million was mainly a result of a strong booking from India during the first three quarters of the year. With a huge amount of business coming from one customer in particular, the Q4 revenue mix skewed even more toward India than it was in Q3. We saw further pressure on our gross margin, which was something we anticipated and spoke about on the last call. Nevertheless, we managed to achieve a small non-GAAP operating profit. And more important, during Q4 we took decisive action that will enable us to reach profitability and positive cash flow, as we move through 2015. Before I give you an update on those initiatives, I'd like to spend a moment looking back on the past year, to provide some context for how we see our future. 2014 was a year of major challenges, no doubt about that, but we also accomplished several things that will serve as the foundation for achieving better financial performance and creating value in the future. We successfully launched an entirely new platform, with state-of-the-art technology designed to cost advantages and the highest capacity in the industry, well ahead of our competitors. This resulted in getting a lot of attention for many directions. The [ph] IP-20 platform enabled us to get in front of operators, where we had only limited success in the past or where we had not been successful at all for variety of reasons; mostly due to the operator's own internal issues, a lot of this interest has yet to result in orders. But that does not diminish the fact that we are actively engaged in places, where we had little or no traction a…

Thank you, Ira. I will try to focus on providing some perspective on our results and discuss the outlook. I won't go through every single line item, because I assume you have all seen this information in the press release. Our fourth quarter revenue were just above the midpoint of the range at $111 million. The 12% sequential increase reflected strong demand from India. The geographic breakdown of Q4 revenue is presented in the press release. We had one above-10% customer in the quarter, our largest Indian customer. As Ira mentioned, we believe Q4 represents the peak in the revenue from India, resulted from the big surge of orders in 2014. We continued booking additional business in India during Q4 and so far in Q1, but not of the same magnitude as the first three quarters of 2014. With the revenue mix in Q4 skewed even more towards India and the other factors Ira mentioned, we saw further downward pressure on our gross margin as expected. Our GAAP gross margin was also affected by the impact of writing-off $4.4 million of discontinued product inventory related to our restructuring initiatives. We expect the trajectory of gradual improvement in non-GAAP gross margin from the 24.4% level reported in Q4, as we move through 2015. Our goal is still to exit 2015 with a non-GAAP gross margin of 27% or more. In addition to the usual items such as stock-based compensation, amortization of intangible assets and non-cash tax adjustments, our non-GAAP result excluded $42 million of restructuring and other one-time charges, in addition to the restructuring-related inventory write-off. Let me give you more color about these other items or at least the major ones. $5.9 million of restructuring cost. Note, that the major of the cash related to the Q4 restructuring will be…

[Operator Instructions] And our first question is from the line of Alex Henderson from Needham.

Couple of clarifications, because you went through a lot of numbers pretty quickly. The cash flow number that you cited would be similar in 1Q. Just to be clear, what was the exact usage that you were referring to? Want to make sure we're on the same basis?

Yes, I was referring to $2.9 million of cash consumption in Q4, so roughly we expect the same number, which is $3 million of cash consumption in Q1.

And second, I took away that you said you expected your profit to improve in the first quarter, is that correct?

We said that the trajectory of the gross margin is towards improvement. I didn't indicate specifically about Q1.

Did you make the comment that you expect improvement in profitability, operating income in Q1? I thought I heard that in the commentary?

No. What I said that I expect the trajectory of improvement in the gross margins during 2015 exiting at 27% or higher, and that's it.

The North American mix obviously is an important piece of the puzzle. You've got a number of major contracts that you're working on. Then when do you expect to see North American orders that you can point to, to give clarity on the visibility of that improvement in mix?

We are continuing to receive orders from government and customers in the U.S. And we see even a little bit of increase of that and some other deals that are appearing within the U.S. market. I think we indicated before we expect to see towards the second half of the year, beginning the second half of this year, probably we'll start seeing orders from some of the other projects as well.

And on the covenants, obviously question here is how much confidence do you have in finishing the negotiations quickly to get back in compliance and what is the cost associated with that exercise?

So we are in relatively advanced stages of the negotiation and we believe we can close that fairly soon. In terms of costs, I don't think that the cost from bank commissions and so forth are going to be that significant. So at this point, I don't want to refer to that.

And then on the interest income line, can you give us any guidance of what we should be using for the first quarter in that line item?

I think that what you have seen in Q4 is probably a good baseline, but we hope to do something that is better than that, but not in big numbers.

Our next question is from George Iwanyc from Oppenheimer.

Ira, when you look at 2015 as a whole, how do you see the India contribution? And how much confidence do you have in managing that and continuing to grow the overall business, let's say, over the next couple of years?

I think, first of all, India contribution in Q4 peaked at, I think, almost 37%. I don't expect on a yearly basis in 2015, we'll be close to that number. India will return to probably the normal ranges that we had. Remember that this quarter was much above our running rates, because of that as well, and peaked at $111 million. So I don't need all of it to run forward. When we build that plans for next year with gradual improvement in the gross margins, and reduced expenses, that will bring us to the result in profitability that we want and a positive cash flow. We do not need very, very large India. We will be still getting good business from India, like we are planning in all other regions, and we're taking similar measures there as well.

If you look at exiting 2015, do you see the market growth allowing you to get back, let's say, $110 million, $150 million quarterly run rate?

You're talking about beyond 2015 and into 2016, and exiting or too early to tell. I think that's the challenge that we have on the table right now, and I think both, myself and Doron referred to that, we put the focus of the organization much more on the profitability, then just on the topline. And I'm not yet 100% sure what will be the total outcome of that. Yes, it will have probably some effect on the topline, probably not very large, but at this point we are not focusing on driving the topline growth, but making sure that we'll reach to the bottomlines that we want.

And then when you look at the supply chain type, as such you had on the IP-20 ramp. How do you feel you are positioned right now? Are the gross margins on the product where you would like them to be?

I think that probably if I look at the supply chain issues that are ramping up, we are 80% there. Now, as you know it's a very rough number somewhere there. I think I indicated on the call, we delivered more than 20,000 IP-20 links this year. And if you'll take a ramp up number, you will see that's because of ramp up performed very slow start in Q1 and in Q2, there were very large quantities already coming out in Q4. So I think we are well-track in there within the new supply chain issues and our manufacturing facilities.

And just a last question. Of that $21 million, $22 million OpEx run rate, what type of topline can that support before you start having to add new headcount?

Our assumption is that this account can support approximately level of $400 million. But it's yet to be seen, because we made significant organizational changes just to create better efficiency. So we need to see how this plays out. It could be that we'd be able to do more. But at this point, it's very hard to tell.

Your next question is from the line of Gunther Karger from Discovery Group.

Question as to the vertical markets. What percentage of your total business in terms of revenue, would you estimate vertical markets to be, which would be inclusive of homeland security, the defense-type business? And secondly, if you can give some outlook on that part of the business?

The whole homeland security market were, and if I look at that the whole -- I'll start from the top, 80% of our business is mobile operators, carrier-related type of activities worldwide. About 20% of our business comes, what we call, vertical and other applications, where homeland security is part of that business. I would put it, and I don't have the number off top of my head, but if I made an assumption, its a few percent points at this point from the total business.

A follow-up question on this. Given the unsettled circumstances worldwide with regard to defense, terrorisms, and that sort of thing, what kind of outlook would you give for that sector of the business, particularly in the defense and verticals?

The whole defense business worldwide; we seek for many years, by the way, also the demand. If I look at the telecom equipment from our perspective, we see a very, very small piece of it. It's quite constant, but it's one of kind. It's sometimes here, it's sometimes there. I cannot identify right now the market and the sizes of it, or neither can I tell you if it's growing or not with the worldwide unrest of different places.

We have a follow-up question from Alex Henderson from Needham.

I was wondering if you could just go through the geographies, and give us a reminder of what the relative margin is, whether it's above or below or at corporate average by geography, just to give us some gauge on that. I would assume Europe is somewhat above; North America is higher; APAC is average, excluding India; and India is much below; Latin America, I assume is also below. Is that right?

So I would say that India is probably at the lower-end and so is to some extent Latin America. APAC is close to the average. North America and Africa are higher. And Europe is more or less in the average.

Europe is average. I thought that was above average. And Africa is slightly above average, that's an improvement. Do you see any change in those trends?

No. Those trends are what we have been seeing for a while. You mentioned Africa and Europe. It depends on those two tend to fluctuate between average and above average in between them, depending on the type of projects. If we do a lot of long-haul with specialized vertical applications in Europe or vice versa, they tend to move into the above average. If it's a normal mix, it's about average. So it's a little bit more product-specific in those two regions.

Can you give us a sense of what portion of your business is long-haul versus short-haul?

I don't know. I'll look it up for you. I don't have the exact number on top of my head at this point.

And we have a question from James Kisner from Jefferies.

This is actually [indiscernible] for James Kisner. So you talked about your cash usage in Q1 should be similar to Q4. So for 2015, what is your estimate? You said the latter quarters will be positive?

Yes, we said on the initial announcement that we expect Q2 to be cash flow positive. And the current plan is to continue with this trajectory until the end of the year.

And then for the credit facility repayment, how much would be due in 2016?

So basically our credits facility contracts ends at the end or at the middle of March 2016. A part of our discussions are regarding for possible extensions, but this is still something that is in negotiation and we need to see how it's going to play out.

And so we have the amount around $50 million before, is that something in the range still?

I'm not sure I got your question, but just to put the things in perspective. As of the end of December, we utilized $51 million out of basically $68 million, I'll say, credit facility that is available. In terms of trajectory, we believe in accordance to our plan that we'll probably not need to grow below this level during 2015.

And the last question is about India. So basically your improving gross margin trajectory, is that because of stabilization of the ramp in India or what other factors are there?

Basically it's a combination. First of all, one, we generate our revenue from other geographies and this is a bigger portion of our revenue. Obviously, due to the region mix, the gross margin should go up. On top of that as we mentioned, we took some initiatives and we're working with some of the customers to basically renegotiate the prices. So that is another contributor. And the third contributor is things or initiatives like we mentioned, there is moving production to outsourcing and looking very closely at our supply chain cost that will reduce our cost. And all of these initiatives together should eventually result in a trajectory of a better gross margin.

Thank you. And there are no further questions for today. End of Q&A

I'd like to thank you for joining with us today. I know we are scheduled to meet some of you at the Mobile World Congress in Barcelona next week, which is the first week of March. I'd like to invite anyone else who will be attending to meet with us. Doron and I will both be attending and we would welcome opportunity to show you some of the unique new capabilities of the IP-20 Platform and further the discussion. Please contact Claudia if you have follow-up question or you would like to meet with us in Barcelona or elsewhere. Thank you very much for joining us today.