Ceragon Networks Ltd (CRNT) 2004 Q3 法說會逐字稿

Good day everyone and welcome to the Ceragon Network Limited Quarterly results Q3 2004 conference all. Today's call is being recorded and will be hosted by Mr. Shraga Katz, President and Chief Executive Officer of Ceragon Network; and Mr. Tali Idan, Chief Financial Officer of Ceragon Network.

Today's presentation will include forward-looking statements under the Private Securities Litigation Reform Act, of 1995. These statements are subject to risk and uncertainties and could cause Ceragon's actual results to be materially different from those expressed or implied by such as statements. For additional information, regarding the risks associated with Ceragon's business, please refer to Ceragon annual report on Form 20F and Ceragon's reported filed with the SEC. Web users can visit Ceragon at www.ceragon.com to read the complete forward-looking statements language. I will now turn the meeting over to Mr. Shraga Katz, President and Chief Executive Officer.

Thank you and good day to everyone participating in today's conference call. With me today is Tali Idan, our new CFO who recently joined the Ceragon team. Tali brings with him many years of experience in leading publicly traded hi-tech companies including the [modern] wireless sector. This strong background will serve the company well as it continues to grow. We welcome you and wish you my success.

Earlier today we released our results for the third quarter of '04, Q3 was yet another good quarter for Ceragon, showing competitive revenue growth as well as continued profitability. Our quarterly revenues have grown consecutively for 12 quarters with revenues reaching a record of 14.5 million up from 13 million in Q2, '04, and from 9.1 million in Q3, '03. Our revenues beyond the first three quarters of '04 were a record of 38.9 million as compared to 24.3 million in '03, representing the increase of 60% year-over-year, in short revenues during the first three quarters of '04, exceeded revenues for all of 03.

We continued to successfully expand our global footprint and market reach. During Q3, we continued to receive substantial orders from both new and existing customers in our different market segments. Geographically we sort of extended our reach in Asia and Africa and have seen in both a growing demand as well realizing significant revenues from these regions. Our focus on the service provider market and in particular cellular operator continues to pay off as we expand our customer base. We are pleased with our progress in the cellular market which represent a significant portion of our business in this. We are currently competing for the number of exciting bids and implementing deployment.

On the fixed operator front, our products are increasingly being deployed to extend fiber optic backbone in the reach of remote locations. For example CYTA, the Cyprus PTT in the project which we announced in September is doing exactly that. We are installing seven GHz (GigaHertz) low frequency SDH radio links which will serve to provide the full range of voice and data services by extending their fiber-based broadband network. This is a four year project and the first phase is already under way. In addition to the income bends we are beginning to see a growing number of our [inaudible] fixed operators purchasing our equipment to either build or extend existing network. An example of this, this is a recent customer in the Caribbean Islands, who is deploying a SDH link connecting several locations and providing its customers with Ethernet services.

In the private networks and enterprise market we are seeing both repeat business as well as the new wings from our system integrators. This market continues to be a key contributor to our revenues. Over the past several quarters, Ceragon has expanded its product offering to meet the growing needs of the private networks market. We now provide FibeAir product in the license-exempt frequency bands thereby extending our addressable market. To that end, we have added two new products to our range.

The FibeAir 4858 and the FibeAir 10060; the FibeAir 4858 which we introduced two months ago is a carrier-class wireless from those recent system. This is a point-to-point system that provides both voice and data over a singular radio link. It carries IP&TDM over 5.8 GHz of license-exempt bands and provides the maximum rate of 48 mega bit per second, Ethernet and up to 6 E1/T1. It can operate at a maximum distance of 60 miles. It's quick and simple deployment is a plug and play functionality and competitive pricing make it the third option for network expansion in the enterprise and private networks market.

Now to update you on the pricing developments of our recently introduced product FiberAir 1500P; this product is being received very well by the market and initial price have already translated into substantial revenues realized in Q3. We expect this product to contribute significantly to our revenues going forward. As we close in on an annual revenue of well over 60 million, with an eye towards 100 million, we continue with out multi-launch strategy towards achieving these goals. Now I will turn to call over Tali, who will go into greater detail about the quarter.

Thank you Sharaga. Hello everyone it's a pleasure to be here and I look forward to working with all of you. I will start with the P&L, move on to the balance sheet and conclude my remarks with guidance. Q3 was our third quarter of profitability, following our strong topline performance. Revenues grew for the 12 consecutive quarter reaching a record of $14.5 million representing an increase of 59% compared to 9.1 million in the third quarter of 2003 and an increase of 11.5% quarter-over-quarter. The service providers market contributed about 60% of Ceragon's revenue this quarter, with the cellular operator segment accounting for two-thirds of this market or about 40% of total revenues. The private networks and enterprises market represented the other 40%of our revenues in Q3. This quarter we had only one 10% customer which was a cellular operator.

Geographical [speeds] of revenues was as follows; Europe, Middle East and Africa accounted for approximately 40% of revenues, North America for approximately 30% and Asia and Latin America about 30%. Our gross margins of 41.2% continued to lead the industry. While revenues have grown substantially we have maintained expenses in line with our plan all resulting in an improved bottomline and our third quarter of profitability. Operating profit grew impressively to $423,000 in Q3. Net income almost doubled than we recorded a net profit of $572,000 as compared to a net profit of $290,000 in the previous quarter, and to a net loss of 3 million in Q3 of last year. Earnings to a share were 2 cents up from 1 cent in the previous quarter, and a loss of 13 cents per share in Q3 of last year.

Moving on to the balance sheet, cash balance at the end of the third quarter was at $38.2 million and DSOs were 59 days. Now for guidance, for Q4 we are guiding for revenues of 15 to 15.5 million, gross margins, we expect them to remain in the low 40's. Few weeks ago we announced that Ceragon's shares will be traded on the Tel Aviv's stock exchange. The company's share are now included in two industries. The Tel Aviv 100 and the hi-tech index known as Tel-Tech; we believe that listing our shares on the Tel Aviv's stock exchange in addition to NASDAQ, will diversify and expand our shareholders base, increase trading volume creating greater shareholder value.

To conclude revenues are consistently up profitability continues to improve and visibility is very good. Now we will open up the call for question and answers.

If you would like to ask a question at this time please press "*" and the number "1" on your touchtone phone. Your questions will be taken in the order received. If you are in the question queue and you no longer wish to ask your question, simply press "*" "9". Your first question comes from Kevin Dede of Merriman.

Congratulations gentlemen, very nice quarter and welcome aboard Tali

Thank you.

Would you mind giving me a little bit more input on how you see changes in the overall market. Do you see a growth in the market because of equipment costs coming down? What do you think is driving your overall growth?

Overall growth in our business comes from two main drivers, its cellular operators and the private networks. From the cellular operators what we see is more cost customers, more data applications, more demand for coverage. Now the operators are moving from a PDH type of network to ring SDH topologies of network and they are installing rings of SDH and our product is relevant for bit way of goals and this is the main driver for goals. As well we have the private network that is going to a different market like utilities, government, education and so. And these are the main drivers and there is more demand and of course we are growing our -- also market share.

And could you comment to -- Shraga on your gross margin it slipped just a little bit sequentially. Do you think its stable here obviously guidance costs were in the in low 40s, what do you think the drivers in change of the gross margin are?

The gross margin that we have said it in the last quarter is more reflected by the different projects that we have in the different quarters and we are seeing that gross margin is stable now in this level and we project that it will remain in the same level.

And could you comment on where you are seeing demand for the 1500P and for what applications you see it going in predominantly?

Well 1500P product that has advantages that we are not seeing with competitors. For instance we have an instant technology that enables the customers that don’t have enough channels to use both polarization in the same channel actually, is doubling the capacity in the same channel. That is something that we have and the customers -- the demand is growing for this technology. And this is one example of the advantage that we have with the product.

And which geography do you see it being most effective in sell through?

Its -- we are seeing the 1500P as a very good product for cellular operators and as we sell to cellular operators throughout the world the product is relevant to all of them.

Very good. Okay thanks for taking my questions and congrats again on a good quarter.

Thank you.

Your next question comes from Matt Robison of Ferris Baker Watts.

Ditto the accolades given by Kevin. The, on the 1500P is that across the spectrum range of your product line now, or do we have more versions coming out in the future?

We -- the 1500P is actually we have in one unit we are dealing with [peculiars] within one indoor unit. It enables us to do a better way of protection, a better way of diversity as I mentioned before. It’s the -- it's a product that we are adding more functionality to the same -- to this platform and we will see later on more functionalities coming out with this platform.

I guess that I was specifically talking about the frequencies that's available and is it across the range or?

It's across the range. We are providing 6-38 GHz, and we are -- we have the same [requisite] balance in this product as well.

If you look at the drivers of your business and you have -- obviously there is a, there is some fixed network business you talked about, there is little bit in the cellular. There are some architectural shifts, you didn’t mentioned much but I think some people correlated that with SDH. What -- how would you rate the factors in terms of their relative importance to your growth in the near term?

Matt, I am not sure that I got the question but maybe I will take it this way. The growth is coming from cellular operator because it is coming from private networks. We have mentioned in the script that’s we have also growth from the telecom operators. Some of them is alternative, some of them are incumbent. What we are seeing is that when an alternative operator wants to be in this network we have mentioned in application of building the ring of SDH, that would be the infrastructure and then providing access doing that and this in one particular example that we have given the access is fast Ethernet. So it's actually building a telecom infrastructure with Ethernet applications. This is a very interesting application that we have. Our product with minor changes it can deal with SDH and with Ethernet, and we are actually -- build our own network. The same can be done with the mesh topology in the case that is what the customer wants, and we are seeing people and we hear people talking about that. I didn’t see much deployments, its more rings of SDH, but it might be also mesh topology indicate that’s where they will [want]. Sometime its chain, what is call the chain sometimes its ring.

When you do that blend of SDH and fast Ethernet, are you doing the -- are you implementing your IP over SONET routing on your equipment or are they using another company’s box to do that [piece].

It’s -- we have an integrated ABM at the [Op] market sector so it depends on the type of the application, the number of the ports, the capacity; sometimes we are using our product sometimes we are using cell [product].

Now when you look at that -- your main -- you have made some geographic commentary and some applications mix commentary it looks like the service provider side is growing a little faster than the private network side. Should we correlate that with the gross margin coming down a couple of 100 basis points and over a 150 basis points over the last two quarters?

It's right that the cellular end service provider is growing more than the private networks, but I wouldn’t say that the gross margin is related to this immediately. It's connected the right thing that these two. Its actually the gross margin is coming more on deposit basis and, of course if are spending the volume is smaller in private networks and the volume is bigger in cellular operators then there will be a change. But sometimes we have also big projects with private networks and small projects with cellular operators. So I wouldn’t say that it comes relative directly to the effect of the customers.

When you say you have got some strength in Asia, should we be thinking China more or India. Is there -- how -- what part of -- can I say that you have some pretty distinct economic factors going on in different parts of Asia?

Its -- we have grown our activity very nice in Asia Pacific. We have a very nice growth in India. We have also growth in other regions in Asia Pacific. I wouldn’t say that the growth comes from China.

Okay. I will let somebody else ask some questions. Thanks.

Thank you.

Your next question comes from Ehud Eisenstein with Oscar Gruss.

Yes, hi. Congratulations guys. I understand if you are very pleased with the growth in the customer base and obviously visibility and book-to-bill are improving. Can you elaborate and give us some more color on that and then I have a follow up please?

We -- growing on in the last quarter the book-to-bill is more than one, and we are growing the backlog. The visibility is good and the booking is actually diversified as the sales of the revenue. So, going forward, I would assume that we left and the percentage even after what we have right now.

How many carrier-class accounts you had at the end of the quarter?

I would say -- we have, before we’re accounting the cellular operators and we had come to about 30 in the last quarter we had, addition of the three.

Addition of three, okay.

And a bit for the cellular operators.

I understand. And also Shraga, if you can catch on the competitive landscape and if you see any changes by the fact that is near our changing their operating?

I don’t see much change. We are seeing DMC with their clips and [inaudible] and we are seeing a little bit obvious in the competitive landscape. I don’t think that there is much change there. They did some changes on the operating they are outsourcing more of course we have to give them to explain the outsourcing more and than doing internally. I am not seeing in the market in the -- with the customers to change in this aspect?

But so far no change in the environment?

I don’t see a change.

Not on also from the accrete?

Not that much.

Okay thank you.

Your next question comes from Greg Wiser (phonetic) of Karen Capital (phonetic).

Hi are you sure it's currently trading in the Israel?

Yes it is.

Okay that’s already happened. And in terms your 10% cellular customer operator is that the same guys last quarter?

Yes it is.

Is that unusual?

It's not -- again what was the question?

Whether or not having the same 10% customer sequentially is unusual?

It actually what happened to that when you have a new customer you will have deployment of the network and then some quarters you will have more work with this customer, and then it can be more than 10% customer and then after some quarters you will see this is the first phase and then you will go to the second phase. So it happens in these moves from one customer to another.

Is that -- is this particular customer one of the largest orders you have ever had?

It's a I am not sure it's the largest order, but it's one of the largest one.

Okay do you think it will be a 10% customer this quarter?

It would be -- we assume that it would be 10% customer in this quarter as well.

Okay how is the 60-Gig product going?

60-Gig product, yes, shipped one product -- two products this quarter. Its ramping up, it's not that quickly. We will have to wait some may be another quarter or two to see how we are going on with this product.

Is that more of an issue of the channels there, given that the integrated types that might sell that or global?

It's not related to channels at all because it's an unlicensed product. You don’t need the permission you can operate it. The 60-Gig product is relatively limited distance, it's a lot of capacity and the question is -- and to find out applications and the customers it's a new technology to introduce, to do drives and to make the customers feel comfortable with the product. It is a process that takes time.

Okay and on the 1500P it sounded like things are going well there. What percent of your revenue was the 1500P?

About 10% of revenues.

Okay and any sense to where that number might be going this quarter?

This quarter this number will grow. We are very pleased with the way that we have introduced the product, it works very fine. Customer like it and we will grow the percentage quarter-after-quarter.

Great thanks nice quarter.

Thank you.

Again for questions please press “*”, “1”. And at this time you have no further questions.

Okay as we near the end of ’04 a record is also done in all respects. We are very pleased with our overall performance allowing us to set high targets for ’05. We are moving on all fronts. We are expanding geographically and introducing new product, we are adding new customers and meeting the needs of our existing ones. We are seeing consistent revenue growth and we are enjoying ever increasing profitability. As always I look forward to updating you on Ceragon’s continued success in our next call. Thank you for your time today.