Ceragon Networks Q4 2024 Earnings Call Transcript

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February 11, 2025
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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Saragon Networks earnings conference call. Our presentation today will be followed by a question and answer session, at which time, if you wish to ask a question, you will need to raise your hand using your mobile or desktop application or press 9 on your telephone keypad and wait for your name to be announced. 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.

Rob Fink
Rob Fink
Investor Relation at Ceragon Networks

Thank you, operator, and good morning, everyone. Hosting the call today is Daron Orazi, Saragun's Chief Executive Officer and Ronen 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 Security 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.

Rob Fink
Rob Fink
Investor Relation at Ceragon Networks

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 risk uncertainties are disclosed in Ceragon's annual report on Form 20F that was published on 03/21/2024, as well as with other documents that had 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 dot com. In addition, today's call will include certain non GAAP financials.

Rob Fink
Rob Fink
Investor Relation at Ceragon Networks

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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 Seqlo acquisition. We grew our bookings from private networks by more than 50% and we secured additional recurring revenue from managed services 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 Neptune chip successfully and have been developing the first twenty five gigabit per second in a single box. Our IP5100E 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 wave, we have launched the new product version of Ciclobiceragon product, the 8,020 that many CCLU by Ceragon customers have been waiting for.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

During 2024, we also started developing a new split mount 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 still prefers split mount products and we expect it to be commercially available within the first half of twenty twenty five. 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 increased interest in our encryption features due to the increased threats of cyber attacks. This can drive higher software revenue for us from both our install base and future purchases.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Our smart activation key can make this feature even easier to use. With these achievements we enter 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 and seeing the signals of success tied 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

The two 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 suggest that the CSP market has been soft for at least a year. Recently, some of the companies, especially in the run and fiber domain are reporting on signs of potential recovery. Run and fiber deployments typically come before wireless transport deployments, serving as a leading indicator for growth for us.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 if CSP market recovers and subject to the pace of success in private networks.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon 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 Q4 highlights by region. In North America, revenue was $13,400,000 This reflects the lower levels of booking we had in Q3 as previously discussed and into Q4. We saw a nice uptick in bookings in Q4 and we expect another sequential growth in Q1 of twenty twenty five. This trend reinforces our confidence that lower bookings in Q3 were reflective of timing issues not demand.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

We also see opportunities for deployment of our encryption capabilities as cybersecurity is getting more attention. In India, revenue was $55,600,000 an all time record quarter for Ceragon, exceeding the $50,500,000 reported in the third quarter, our previous record. We have been shipping and deploying equipment related to several projects in India including the new customer we won in Q4 twenty twenty three. These deployments are supporting customers in both the expansions of four gs and five gs networks. During the last few months, we have finished negotiations of the commercial terms with two of our customers securing our market share with a potential for a certain increase on account of competition.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 Eben products. Importantly, our IP50EXA has generated significant traction being most probably the best price performance product in our space. Our strong relationship with one 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 attestation to our strong position in India. In our Asia Pacific region, we finished the year strong, winning business that included significant Seqlu by Ceragon products.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

This was primarily in the point to multi point 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 a $3,500,000 win in the energy domain. We expect to have final agreements signed by this, final agreement signed by the first half of twenty twenty five. With that, I'll turn the call over to Ronen Stein, our CFO to discuss the results in more detail. Ronen, over to you.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Thank you, Doron, and good morning, everyone. Q4 twenty twenty four 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 $9,100,000 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.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Let me now review the fourth quarter results. Revenues for the fourth quarter were $106,900,000 up 18.3% from $90,400,000 in Q4 twenty twenty three. Our strongest regions in terms of revenues for the quarter were India and EMEA with $55,500,000 and $16,200,000 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 $36,700,000 an increase of 15.5% compared to $31,800,000 in Q4 twenty twenty three.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Our non GAAP gross margin was 34.3% compared with gross margin of 35.1 in Q4 twenty twenty three. 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 Seclo acquisition at the end of twenty twenty three and thus impact the comparison to 2023 operating expenses.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Research and development expenses for the fourth quarter on a non GAAP basis were $8,800,000 up from $7,700,000 in Q4 twenty twenty three. As a percentage of revenue, our R and D expenses were 8.2% in the fourth quarter compared to 8.5 in the fourth quarter last year. Sales and marketing expenses for the fourth quarter on a non GAAP basis were $10,600,000 up from $10,200,000 in Q4 twenty twenty three. As a percentage of revenue, sales and marketing expenses were 9.9% in the fourth quarter compared to 11.3% in the fourth quarter last year. General and administrative expenses for the fourth quarter on a non GAAP basis were $5,100,000 compared to $6,100,000 in Q4 twenty twenty three.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

As a percentage of revenues, G and A expenses were 4.8% in the fourth quarter compared to 6.7% in the fourth quarter last year. Operating income for the fourth quarter on an non GAAP basis was $12,200,000 compared with $7,800,000 for Q4 twenty twenty three. As a percentage of revenues, non GAAP operating income was 11.4% in the fourth quarter compared to 8.6% in the fourth quarter last year. Financial and other expenses for the fourth quarter on a non GAAP basis were $3,500,000 negatively impacted by foreign exchange fluctuations and the strengthening of the U. S.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Dollar versus several currencies, offset by continuous reduction in interest expenses. Our tax expenses for the fourth quarter on a non GAAP basis were $1,000,000 Net income for the fourth quarter on a non GAAP basis was $7,700,000 or $0.09 per diluted share compared to $3,700,000 or $0.04 per diluted share for Q4 twenty twenty three. Turning to the full year results. Revenues were $394,200,000 up 13.5% from $347,200,000 in 2023. Gross profit for 2024 on a non GAAP basis was $138,200,000 an increase of 14.3% compared to $120,900,000 in 2023.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Our non GAAP gross margin was 35.1% compared with gross margin of 34.8% in 2023. Operating income for the year on a non GAAP basis was $48,800,000 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 a non GAAP basis was $36,400,000 or $0.41 per diluted share compared to $16,700,000 or $0.2 per diluted share for 2023. As for our balance sheet, our cash position at the end of the year was $35,300,000 compared to $28,200,000 at the end of 2023.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Short term loans were $25,200,000 compared to $32,600,000 as of 12/31/2023. We had a net positive cash position of $10,100,000 compared to a negative net cash position of $4,400,000 at 12/31/2023. We believe we have a cash and facilities that are sufficient for operations and working capital needs. Our inventory at the end of twenty twenty four was $59,700,000 down from $68,800,000 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.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Our trade receivables at the end of twenty twenty four are at $149,600,000 as compared to $104,300,000 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 in 2023 was $8,600,000 Turning to our 2025 outlook. We expect 2025 revenues to be between $390,000,000 to $430,000,000 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.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

We also expect to increase our free cash flow compared to 2024 levels. With that, I now open the call for your questions. Operator?

Operator

Thank you. Our first question today comes from the line of Ryan Kunz of Needham Company. Please go ahead.

Ryan Koontz
Senior Analyst at Needham & Company

Yes, my question was about the end to end acquisition. Can you maybe outline for us the role that this company plays in the energy industry and what types of customer relationships

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

question. Itu 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 stronger 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.

Ryan Koontz
Senior Analyst at Needham & Company

Truly helpful, Doron. Thanks. These are energy producers or distributors or kind of broadly in the crowd

Ryan Koontz
Senior Analyst at Needham & Company

sourcing year?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon 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.

Ryan Koontz
Senior Analyst at Needham & Company

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

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Yeah. 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 slip edge 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.

Ryan Koontz
Senior Analyst at Needham & Company

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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Yeah. 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 20 C 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 EBEV, for millimeter wave solutions is higher, I think that the IP 50 EXA is a winning product and actually, this, the pricing and the conditions of delivering this product to, to the India market at least for to two customers out of the, the three we own are already closed and they are waiting, for this product to be in mass production, which is going to happen starting Q3.

Ryan Koontz
Senior Analyst at Needham & Company

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 startup costs. How should we think about shaping gross margins for the year in consideration of kind of the new products ramping?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 period of, I would say more investment, generally speaking, I would expect our gross margins to improve during the second part of the year.

Ryan Koontz
Senior Analyst at Needham & Company

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

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Thank you.

Operator

Thank you very much. Our next question comes from the line of Scott Cyril from Roth Capital. Please go ahead.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

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. 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.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

What's the comfort level with that returning in the second half of this year? And also on the M and A front, you have been acquisitive in that area with Sickloo now and end to end. Are you still looking around in the space to continue to add to and enhance the portfolio?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 and A opportunities. So definitely we'll continue to pursue for such opportunities that can strengthen our position And, that's a part of our daily work here, as management in, in Saragun. When it retains to the private networks, we believe that, the second part of the year, could be, stronger for us.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 particular 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 SeCLU point to multipoint product for for municipalities is just another example.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

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 four gs and five gs builds. I'm wondering how E band you know, fits into that particular as we start to get into the latter portion of this year.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Yeah. So so look, the the 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, 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 finish this process with two out of the the three customers. The other one is the one that we won back in 2023 and we are still delivering under the, the old contract.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

So there there was no need at least not yet to discuss further the terms. Now when, when we look into 2025, we see a very strong phenomena 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 a 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're working with to go back and to start buying eBend products. I believe that we'll see a very significant ramp up on the second part of twenty twenty five.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

But I can tell you that as we speak, we already received orders for Eben, both the old product and the new product a few days ago, and we intend to start delivering certain quantities in Q1 and Q2.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Thank you. Very helpful. And lastly, if I could, Ronen, on the operating margin targeting 10% plus for this year, I'm wondering if you could give us some directional guidance in terms of OpEx as we go into the first quarter? Thanks.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

So as I mentioned in the pre 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.

Operator

Thank you.

Operator

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

Theodore O'Neill
CEO at Litchfield Hills Research

Yeah. Thanks. And congratulations on the revenue in the quarter. That was very good very good in this challenging environment. I was wondering if you could talk about your success in India just sort of briefly.

Theodore O'Neill
CEO at Litchfield Hills Research

Is this, you can talk about the combination of technology wins versus market share there for you.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 50 CX in 2024. And, if it's not, they know that we will do the utmost and find the solutions.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 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.

Theodore O'Neill
CEO at Litchfield Hills Research

Okay. And, Duran, I wonder if you could talk about the so how do you manage the challenge of having Tier one business ramping up and down and what kind of impact that has in terms of your managing balance sheet, the income statement, your personnel?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Well, first of all, I want to start by by saying that our three pillar strategy is exactly meant to resolve at least partially for this, phenomena. So by going after private networks and by going after managed services whether it's 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

So that's one 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 becoming lower, 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

So generally speaking, we are striving to con to contain our costs and expenses, and we're 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.

Theodore O'Neill
CEO at Litchfield Hills Research

No. Thanks very much. My last question is, are you seeing any supply chain issues?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 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 a 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.

Theodore O'Neill
CEO at Litchfield Hills Research

Okay. Thanks very much.

Operator

Thank you. Our next question today comes from the line of Jonathan Pierce. Please go ahead.

Analyst

Can you guys hear me?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Yes. Hi, Jonathan.

Analyst

Awesome. How's it going?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Not too bad.

Analyst

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 issue with your South American customer. It seems like the past two quarters, you guys have seen a positive impact from that issue.

Analyst

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?

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

Okay. Hi, Jonathan. The '2 quarters of Q2 and Q3 impacted it had like a one 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 $9,100,000 altogether in Q2 and Q3.

Ronen Stein
Ronen Stein
Chief Financial Officer at Ceragon Networks

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 zero. There is no impact on the AR anymore. The AR itself went up, as I mentioned, in my comments 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.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 cost of business.

Analyst

Okay. All right. Thanks, guys.

Operator

Thank you. Our last question today comes from the line of Gunther Karger. Please go ahead.

Gunther Karger
Hedge Fund Manager at Discovery Group

Can you hear me okay?

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Hi, Gunther. Yes. We can hear you very well.

Gunther Karger
Hedge Fund Manager at Discovery Group

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 looks like you're on the way. Congratulations. We may not be around the next time, but wish you well and congratulations.

Gunther Karger
Hedge Fund Manager at Discovery Group

Thank you.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Gantor, 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.

Gunther Karger
Hedge Fund Manager at Discovery Group

Yes. Thank you. I will do that as long as I can. Thank you, Doran.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

Sure.

Operator

Thank you. No further questions. Please proceed.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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 or towards our target of $500,000,000 in annual revenues.

Doron Arazi
Doron Arazi
Chief Executive Officer at Ceragon Networks

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.

Executives
    • Rob Fink
      Rob Fink
      Investor Relation
    • Doron Arazi
      Doron Arazi
      Chief Executive Officer
    • Ronen Stein
      Ronen Stein
      Chief Financial Officer
Analysts
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Earnings Conference Call
Ceragon Networks Q4 2024
00:00 / 00:00

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