Ladies and gentlemen, thank you for standing by and welcome to the Ceragon Networks Earnings Conference Call. [Operator Instructions] I must advise you that today's call is being recorded. I'd like to hand the call over now to our first speaker today, Rob Fink Head of Investor Relations. Rob, please go ahead.

Thank you operator, and good morning everyone. Hosting the call today is Doron Arazi, Ceragon's Chief Executive Officer; and Ronen Stein, Chief Financial Officer. Before we start, I would 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 terminology although not all forward-looking statements contain these identifying words. Such statements reflect current expectations and assumptions of Ceragon management. Actual results may differ materially as they are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected in these forward-looking statements. A full list of risks and uncertainties are disclosed in Ceragon's Annual 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 Exchange 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 and 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. 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. Doron, 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 three pillars; focusing on millimeter-wave products that are expected to be the fastest growing part 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 the Siklu acquisition. We grew our bookings from private networks by more than 50%. And we secured additional recurring revenue from managed services worth approximately $7 million 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 continued to execute against our product roadmap, extending our technological lead. We introduced the IP-50CX, enabling us to win a significant new business and take market share in India. We have introduced the new millimeter-wave series, IP-50EX that we believe is the best price performance millimeter-wave product in the industry as demonstrated by the recent indication of demand for the IP-50EXA product in India. On that same front, we have finished the tests of our proprietary Neptune chip successfully and have been developing the first 25 gigabit per second, in a single box our IP-50100E [ph] that…

Thank you, Doron, and good morning, everyone. Q4 2024 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 $9.1 million benefit 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 markets. To 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 fourth quarter results. Revenues for the fourth quarter were $106.9 million, up 18.3% from $90.4 million in Q4, 2023. Our strongest regions in terms of revenues for the quarter were India and EMEA, with $55.5 million and $16.2 million respectively, followed by North America. We had three customers in the fourth quarter that contributed more than 10% of our revenues. Gross profit for the fourth quarter on a non-GAAP basis was $36.7 million, an increase of 15.5% compared to $31.8 million in Q4, 2023. Our non-GAAP gross margin was 34.3% compared with gross margin of 35.1% in Q4, 2023. We continued 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 Siklu acquisition at the end of 2023, and thus impact the comparison…

Thank you. [Operator Instructions] Our first question today comes from the line of Ryan Koontz of Needham & Company. Please go ahead. Ryan, you should be able unmute.

Got that. Sorry for delay. Thank you for the question. Yes. My question was about the End 2 End 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. E2E is a 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 a 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 one 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 two 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, Doron. These are energy producers or distributors or kind of broadly across...

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're saying that probably their solutions can be applicable for 80% to 90% of the use cases.

Nice. It sounds like a great opportunity. You mentioned on the call here, on the private network side, maybe some deal slips. Are these coming due from channels? And what types of customer opportunities are these in terms of market verticals that you're seeing some slips in?

Yes. So usually, 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 expansions in India. Any color you can share with us there? These are the big mobile operators that have been your traditional customers there?

Yes. So, we're still talking about the large players. We are 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 CX series. But more importantly, especially, nowadays when the demand for E-Band for millimeter-wave solutions is higher, I think that the IP-50EX A is a winning product. And actually this -- the pricing and the conditions of delivering this product to the India market, at least for two customers out of the three we own are already closed. And they are waiting for this product to be in mass production which is going to happen, -- start in Q3.

Got it. That's great. And one last one if I can around, gross margins and new products. A lot of times new products have lower yields and higher start-up costs. How should we think about shaping gross margins for the year in consideration of kind of the new products ramping?

No. This is also associated for sure, with the regional mix in each and every quarter. But generally speaking, I believe that, as we introduce these new products although, we may face certain -- a 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.

Great, 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 to follow-up on some of Ryan's questions on the Private Networks' front, Doron, 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 level with that returning in the second half of this year? And also on the M&A front you have been acquisitive in that area with Siklu now and End 2 End. Are you still looking around 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 one. So it is part of our strategy to actually execute with continuous search for M&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 Ceragon. 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, we are 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 Siklu, point to multi-point 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, I'm wondering 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 4G and 5G builds. I'm wondering how E-Band, fits into that particularly as we start to get into the latter portion of this year?

Yeah. So look, the way the process works usually is that we -- before the next fiscal year for the operators in India, that basically starts at April, we start the negotiation and the discussions about the volumes that they expect to buy from us, the kind of product that they want to buy from us given their plans for rollout. And obviously, following a negotiation about commercials, we get a strong indication about our market share. And basically, we finished this process with two out of the three customers. The other one is the one that we won back in 2023, and we are still delivering under the old contract. So there, there was no need, at least not yet to discuss further the terms. Now when we look into 2025, we see a very strong phenomenon of 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 E-Band 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 second part of 2025. But I can tell you that as we speak, we already received orders for E-Band, both the old product and the new product a few days ago, and we intend to start delivering certain quantities in Q1 and Q2.

Thank you. Very helpful. And lastly, if I could, Ronen, 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 first quarter? Thanks.

So as I mentioned 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 -- the actual is as close as possible to the targets of the 10%. The gross margins, on the other hand, is obviously dependent on what Doron mentioned before regarding the mixture of the revenues and also the volume of the revenues.

Thanks so much.

Thank you. Our next question today comes from the line of Theodore O'Neill from Hills Research. Please go ahead.

Yeah. Thanks. Congratulations on the revenue in the quarter. That was very good in this challenging environment. I was wondering if you could talk about your success in India, just sort of briefly. Is this -- 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 in 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 has 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 one as we did with the IP-50CX 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 us and asking for specific use cases for 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 sort of how do you manage the challenge of having Tier 1 business ramping up and down and what kind of impact that has in terms of you managing the balance sheet the income statement your personnel?

Well, first of all, I want to start by saying that our three 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 networks or for 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 previous conference call, we have a very structured model and strategy where we are changing the baseline of our cost by building 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 the productivity. So that's one piece. It's a part of our strategy. It's a 3-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 becoming lower, we are taking the measures to do certain alignments 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 sub-contractors or we also make the necessary adjustments in specific activities that we don't see them as very strong as applicable.

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 significant supply chain issues. There might be some cases here and there where 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 [ph]. Please go ahead.

Can you guys hear me?

Yes, hi, Jonathan.

Awesome, how its 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 ARR 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 two quarters of Q2 and Q3 are impacted. It had like a one-time impact of resolving 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 $9.1 million altogether in Q2 and Q3. The settlement is for a higher amount, but we are still chasing further amounts, but it's not on our books anymore. So the customer is not active. The ARR is zero. There is no -- anything -- no impact on the ARR anymore. The ARR itself went up, as I mentioned 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 Ronen'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 two very significant collections, just to normalize for the investors community, how do we see 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 [ph]. Please go ahead. Q – Unidentified Analyst: Can you hear me, okay.

Hi, Gunther. Yes, we can hear you very well. Q – Unidentified Analyst: 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 that have been encountered and it looks like, you're on the way. Congratulations. We may not be around the next time, but I wish you well and congratulations. Thank you.

Gunther, 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. Q – Unidentified Analyst: Yes, actually, I will do that as long, as I can. Thank you, Doron.

Thank you. We have no further questions. Please proceed.

As we enter 2025, following our achievements in 2024, our long-term outlook and confidence has only grown. We remain focused on executing on our strategy towards achieving our stated long-term revenue and profitability targets. In the near-term, visibility is limited. Hence, we are prudent in our projections. Long-term, we continue to move forward towards our target of $500 million in annual revenues. 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.