Good day, everyone. Welcome to the Ceragon Networks Limited Second Quarter 2020 Results Conference Call. Today’s call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks. Before we start, I would like to note that this call includes information that constitutes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations there from will not be material. Such statements involve risks and uncertainties that may cause results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to the effects of general economic conditions, the effect of the COVID-19 crisis on the global markets and on the markets in which we operate, including the risk of a continued disruption to our and our customers’ providers, business partners and contractors business as a result of the outbreak and the effects of the COVID-19 pandemic and such other risks and uncertainties and other factors that could affect our results as detailed in our press release that was published earlier today and as further detailed in Ceragon’s most recent annual report on Form 20-F and in Ceragon’s other filings with the Securities and Exchange Commission. Such forward-looking statements including as to the risks and uncertainties and other factors that could affect our results represent our views only as of the date they are made and should not be relied upon as representing our views as of any other subsequent date. Such forward-looking statements do not purport to be predictions of future events or results. And there can be no assurance that it will prove to be accurate. Ceragon may elect to update these forward-looking statements at some point in the future, but the company specifically disclaims any obligation to do so. Ceragon’s public filings are available from the Securities and Exchange Commission’s website at www.sec.gov and may also be obtained from Ceragon’s website at www.ceragon.com. Also, today’s call will include certain non-GAAP numbers. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier today. I will now turn the call over to Ira Palti, president and CEO of Ceragon. Please go ahead, sir.

Good morning and good afternoon to everyone joining us on the call today. With me on the call today are Ran Vered, our Chief Financial Officer and Osi Sessler, Head of Investor Relations. Before getting into the quarter, I hope that you, your loved ones and coworkers are healthy and well. I want to assure you that our top priority is ensuring the health and safety of all our employees wherever they are, even as we work to serve our customers. It has been 3 months since we first discussed the impact that COVID-19 was making on our business. In some ways, we are smarter than we were then. And in other ways, there is still plenty of uncertainty. But taken as a whole, I believe we are in a very good shape. As you can see from the results, Q2 was better than Q1, with improved revenues, margins and net results. All of these metrics came in better than market average projections. With a focus on execution, we have reduced our accounts receivable and inventory, enabling us to generate a healthy $4 million in cash flow but also allowing us to reduce our loans. Our ability to deliver continues to improve day-to-day. And perhaps most important, our bookings for the quarter were above one, driven by an improving business environment and a growing number of 5G opportunities and other projects in many regions. So despite the uncertainty in the market, we have performed well and continue to move forward. Though it remains very difficult to make predictions, current indications are that we are on track for returning to our normal quarterly revenue run-rate of $70 million to $75 million in Q3. Ran will give the details. In fact, as we said in May, we believe that the net effect…

Thank you, Ira. Since you have all seen the press release, I’ll focus first on the highlights. As you can see, our revenues for the quarter were $62.4 million. The revenues were divided more or less equally across the major regions, demonstrating our global diversification. In North America and APAC, business continued more or less normally. While in Europe, revenues were strong during the quarter, in alignment with the strong bookings from the region during Q1. Revenues from Africa were weak for the quarter, with two above 10% customer in the second quarter. Our bookings for the quarter, was stable despite the situation, giving us a book-to-bill ratio above one. However, there were significant differences between regions. Bookings in Europe, APAC and North America were stable. Bookings in India were weak because of the very strong bookings we recorded in Q1. In Latin America, bookings were weaker due to delays of several projects, currency devaluations that caused a delay in CapEx investment and the fact that some of our customers in the region placed their orders for Q2 and Q3 deployment already during Q1. Africa had very strong booking for the quarter, the strongest we have seen since 2014, mainly due to the large project with Orange Niger that we signed during the quarter. Our non-GAAP gross profit for the quarter was $16.5 million giving us a gross margin of 26.5%. This is a slight improvement over the first quarter, though still much lower than normal. Given the relatively low revenues, the increase in cost of sourcing and the increased supply chain expenses of the current environment, together with our focus on reusing inventory, our less favorable regional and sub-regional mix, this is the level that we expected, but not that we are satisfied with. Going forward, we expect our…

Thank you. [Operator Instructions] Your first question comes from the line of Alex Henderson. Please go ahead.

Hey, guys. So nice quarter. Thanks for the detail on the guide. I was hoping you could give us a little bit more granularity around the gross margin commentary. Clearly, returning to normal levels, somewhere in the 30% to 35% range is a nice improvement. But can you give us some sense of how much of the pressure was a function of geographic mix and how much of the pressure at 26.5% was a function of COVID-related cost to expediting and related expenses? And to what extent you think that that latter COVID-related stuff falls out as we go through the third quarter and fourth quarter? I mean, is it reasonable to think that the mix shifts back and the combination of that – those two can get you up toward the middle of that pack or is it more toward the lower end of the gross margin range? How should we be thinking about it? Thanks.

Hi. Alex, it’s Ran. Thanks for the question. So as you saw – as you say, it’s really a mixture of all of that. So it’s a mixture of more India in our revenue, which is really the geographical mix. It’s also a matter of the low revenue of the product taking into effect into account that we have some fixed costs built in, in our cost of revenue. And as I also mentioned, the impact of COVID-19, at this point, when we are looking at Q3 and Q4, and assuming the quarterly average run rate, we do forecast it to be in the range that we used to have between 30% to 35%, but probably at the lower end of the gross margin. We do not see – we do still have COVID impact on supply chain, on shipments, on the cost to install that still has a toll on our operations. But at this level of revenue, we do expect it to get back to the 30% to 35%, again, probably at the low end of the range.

You broke up a little bit when you were talking about the OpEx number. I think I heard you say the third quarter OpEx was expected to be in the $20.5 million to $21.5 million, is that right?

That is correct, Alex, and mainly because of ramping up R&D, mainly for the new chip development.

Right. And then you said that you expect financial expenses to good return to normal. Can you define what normal looks like?

So actually, I think that Q2 was normal. If you are looking on 2019, our average was $1.5 million. I would say that it’s also very dependent on the exchange rate impact. But given the – taking into account the fact that we reduced our loans because we had a strong positive cash flow in the first half of the year, so our interest is probably going to be down, but I cannot expect the FX rate. I would still forecast a normal rate of $1.4 million, $1.5 million. What happened in Q1 was really a one-timer.

I see. So it’s compared to the Q1 that you are referring to. That’s helpful.

Yes, exactly, exactly.

And then you made a comment about a U.S. field trial. Was that the same as the Tier 1 win that you had earlier or is that something different?

No, that’s something different. We are – still in that Q1, we are referring to earlier, which is a current Tier 1. We are still in their labs. And this is a new account, a new 5G operator in the U.S., which we are – invited to participate in the field trials.

Great I will see the floor. Thanks.

Thank you, Alex.

Your next question comes from the line of George Iwanyc. Please go ahead. George Iwanyc. Your line is open. Please go ahead.

Can you hear me?

Good morning, George.

Hi, good morning.

Yes, George. Good morning.

Can you give us a sense of what the linearity was like during the quarter? Did it improve? And is it continuing to improve at this point from month to month? And then if we are back in the normal kind of 70% to 75% range, how do you feel seasonality kind of kicks in from here?

Quarter was not linear and very hard to focus linearity moving forward. We have various degrees across the quarter depending on the regions. I would, if I intend to characterize in the quarter, it was back-end loaded on some of the activities. Moving forward, my belief, we are returning at least in Q3 to a more normal linear, while linearity in quarters were never linear, but more linear than in Q2. But very hard to predict, and especially that – and I think I said it a few times on the comments, situations locally in different places around the world changes on a daily basis based on authorities, regulation. We might move in and out of lockdowns on deployments, on ability to deliver. Sometimes it’s also on the supply chain. And this is very, very hard to predict at this point because we are dependent on a whole list of many suppliers. Some of them we do carry inventories of parts some of them is more just in time. So it’s very hard to predict the linearity at this point. Longer, in general, on the other hand, I see a significant improvement in the sense that the number of surprises that we see was much, much lower than in Q1 and as the quarter progressed towards June, less and less surprises. And I think that in – moving into this quarter, which is Q3, July was even less surprises from that perspective.

Thank you. And then following up on the North America trends so, you do have the new customers that you are working with there. Can you give us a sense of what’s happening with your existing customers, with T-Mobile and Sprint and how everything is starting to unfold there?

At this point, the only thing I can say is that TMO and Sprint are continuing to be customers. We do see orders, but it’s lower levels. I think they are very much focused to this point on integrating their two organizations. Let’s remember, they did the merge and then started integration into COVID-19, which didn’t make it quicker from that perspective. But I think they are very much focused there and making a lot of progress. We do expect to see them as significant customers back sometimes, probably toward the end of this year at this point.

So a lot of that improving bookings trends that you are seeing in North America have been normalizing is from the WISP activity?

It came mainly from the WISP activity. Yes. Smaller WISP activities, some smaller operators, and a lot of it is WISP. And I said in my comments, we see a lot of WISP activities, both in Europe and the U.S.

Alright. And then just one more regional question and then one modeling question, from an India perspective, how sustainable do you feel the demand environment is there and kind of like what are you budgeting maybe for the rest of the year?

I think at this point, stable demand, mainly from our main customer for this year, which is Bharti. For the rest of the year, we know the deployment plans they have mainly for 4G across India and my believe, they will stay at those levels probably into – well into second half of next year with a caveat that India on the revenue perspective is highly dependent on deployments. And India is 700-plus different districts. And each district has its own lockdown policy. And I know the team’s map with red, greens and yellows and what’s locked down and what’s not, where we can deploy and not deploy across the region. So there are fluctuations in there. But from demand perspective, it’s there. Longer term, my believe, we will see and probably not the beginning of next year, also 5G coming on board and making sure that it’s there. The two things that are happening in India is also Chinese telecom equipment is banned at this point. Although to our effect, we have been able to push the Chinese out from some of our accounts by using a better technology a long time ago. And I do expect that India, at some point during next year, will also do the 5G auctions and delivery outbound.

Okay. And then just a modeling question, when you look at OpEx in that $20.5 million to $21.5 million range, when you get to the take out in the beginning of next year, does OpEx start to pull back on the R&D side or does it – did you anticipate it kind of to staying flat at that point?

We do expect that R&D will pull back significantly at that point. Because most of the increase is all sorts of subcontractors and activities outside the company, not internal headcount, which supports the tape-out.

Thank you very much.

Next, we’ll go back to the line of Alex Henderson. Please go ahead.

Thanks. I was hoping you could talk a little bit about the progress you are making on partnering with other people relative to your chipsets and what you are seeing in terms of competition in the chipset market and whether there is any change that you are seeing from MaxLinear in particular?

Okay. So first, we are working on our technologies and the chipset is part of that with NEC and continuing to work very closely with them on different technologies and part of it is the chipset in there. And we are in discussions with others, with ups and downs, like any discussions that we are having, and details, if something will come out, we’ll probably announce. Up until that point, I don’t want to refer to different discussions. And at this point, we still believe that we are way ahead from anything from anyone else at this point, especially millimeter and microwave chipsets moving forward.

I see. And is there any sense of what the time line for this new chipset to actually get into a finished product? When do you expect the chip design that you are talking about taping down to actually be in the next-gen product?

Usually, from tape-out of a chipset to next-gen products is sometimes usually around 12 months.

So it would be roughly when?

So it’s the beginning of 2022, beginning mid-2022.

Alright. And then going back to the U.S. market, you’ve got a lot of potential there. Margins are higher. You are seeing strength in Europe. Europe margins tend to be higher. You are just talking about 5G, 5G tends to have more features and be at higher-end speeds. Africa has historically actually been a higher-margin area. I get it that you have got some weakness in some other geographies, but it sounds like the mix should be shifting back to a better mix in 2021 than what you are just looking at now. Is that a reasonable assessment?

I think it’s a reasonable assessment. It is a reasonable assessment. That’s what we are targeting.

Great. I’ll see the floor. Thanks.

Thank you, Alex.

Your next question comes from the line of Gunther Karger. Please go ahead.

Yes, good morning. I don’t have a question. I have a comment. I want to commend Osi for since she has come aboard, there has been a significant improvement in communications, telling the world what you are doing. So Osi, thank you very much.

Thank you, Gunther, in the name of Osi. She is here in the room with me. There is a big smile on her face.

[Operator instructions] And at this time, there are no further questions.

Thank you. So there you have it. We are operating well in an uncertain reality, working to position the company to benefit both from short-term opportunities and long-term market growth. Second quarter was an improvement over the first, and we expect even better for Q3 and beyond. Thanks for joining us here, and we would be happy to see you on next virtual R&D tour as at least for the short term, we probably want to meet face-to-face virtually, would love to see all of you. Thank you, and a good day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.