Ceragon Networks Ltd (CRNT) 2012 Q4 法說會逐字稿

Good day, everyone. Welcome to the Ceragon Networks Limited Fourth Quarter and Full Year 2012 Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks and Aviram Steinhart, CFO of Ceragon.

Today's call will include forward-looking statements under the Private securities litigation Reform Act of 1995. These statements are based on current expectations and projections that involve a number of risks and uncertainties. There can be no assurance that future results will be achieved and the actual results could differ materially from forecasts and estimates.

These are important factors that could cause actual results to differ materially from forecasts and estimates. Some of the factors that could significantly impact the forward-looking statements in this include the risk of a significant expenses in connection with potential contingent tax liabilities associated with Nera's prior operations or facilities, risks associated with increased working capital needs, and other risks and uncertainties which are discussed in greater detail in Ceragon's annual report on Form 20-F in Ceragon's other filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date on which they are made and Ceragon undertakes no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made. Ceragon's public filings are available from the Securities and Exchange Commission's website at www.sec.gov or may be obtained on Ceragon's website at www.ceragon.com.

I will now turn the call over to Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Thank you for joining us today. With me on the call is Aviram Steinhart, our CFO.

Revenues in Q4 were consistent with the guidance and our operating expenses declined showing the effect of the initiatives we implemented in Q4. As expected, our operating cash flow improved dramatically and we had a net positive cash flow of $13 million.

We are also pleased to report that our book to bill ratio in the fourth quarter was above 1. We see no significant changes in the market since our last call. The quarter to quarter shift in geographic mix relate to typical customer ordering cycles and revenue recognition patterns rather than a change in demand trends.

Near-term we still expect macroeconomic uncertainty has difficult economics of adding capacity to hold back spending growth but we see spending priorities shifting more in our favor over the next 12 months.

Telecom equipment is a healthy but not an easy business especially in the current environment, but we are executing well and we have achieved a number of important goals.

These achievements are not apparent in the financial results as we had to adjust results for the first three quarters of 2012 to reflect the impact of change in acceptance procedures with one of our large customers.

However, from a business execution perspective, these achievements are very real and they position us for much better profitability in 2013 followed by a return to growth and improved operating leverage.

Therefore, I would like to go through some of the strategic business accomplishments over the past year. We increased our market share in the long haul business and became the clear number one. We successfully converted all of the former Nera [Shoretel] customers to the Ceragon solution as a proportion of the orders in our backlog shifted towards all Ceragon products, our gross margin profile improved. Meanwhile, we also reduce the product cost for the long haul product line.

These two initiatives combined with our continuous design to cost program enable us to achieve and sustain gross margin in the mid-30s. In terms of the deals we are booking, we are already at the mid-30s level, however, the lag in revenue recognition means that this is not yet apparent in our financial statements.

Another major achievement of the 2012 which is yet to be, fully reflected is the addition of several new Q1 customers in the strengthening the relationship with several others.

Since purchasing decisions are not always a centralized, our channels will be to continue expanding with these large customers a region by region, country by country. This can take time, but we fully expect to continue expanding our presence with these large Tier 1 customers.

Operators are spending more carefully than ever before recognizing is that they simply can't afford to keep adding capacity the same way they have in the past. According to their traditional model, keeping pace with capacity needs would require operators to quadruple the CapEx investment at a time when they are losing substantial revenue to over-the-top services.

A substantial decline in revenue per unit of bandwidth is making capital efficiency a must. This is one reason why telecom equipment CapEx isn't growing more rapidly these days. In this environment, operators must look to equipment suppliers as strategic partners will help them break the linear relationship between cost and capacity.

Therefore, operators are being forced to change it the business model, increase the complexity and diversity of their networks, and accelerate the adoption of new technology.

This in turn creates a lot of buzz about network sharing, small sales, super macro cells, cloud run, distributed architectures, and Wi-Fi offloading as carrier-grade solutions. Our view is that all these various technologies and business models will have a place. There is no single silver bullet solution to the wireless carrier's dilemma. We refer to a vision for the next generation network as 3H, Holistic HetNet Hauling.

It means going beyond traditional backhaul in all directions from super macro cells to small cells with a combination of backhaul and front haul solutions.

The term frontal solutions refers to connectivity between the base station and remote radio heads. When we have been discussing and showing the 3H vision or with many of our customers and potential customers with excellent reception.

In Q4, we announced our first product as part of our 3H vision, the FibeAir IP-20C. It is a disruptive breakthrough, premium solution for LT and LTE advanced network that offers virtual fiber capabilities using standard licensed bands. The FibeAir IP-20C is based on multicore technology. One way to think about it is to compare it to Intel's pioneering steps with the PC going from single core to multicore.

The IP-20C enables multi-gigabyte capacity on a single channel which sets a new standard for efficient user spectrum and improve operators' total cost of ownership addressing what I mentioned before about the need to break the CapEx bandwidth relationship.

By using 4X4 MIMO, operators can reach four times the capacity of current solutions with a form factor half the size. We will enjoy the first mover advantage because this product is based on our own propriety chipsets for baseband and RFIC technologies. We believe commercial chips by others with the same capabilities will not be available anytime soon.

We have been sharing demos of this product with about two dozen customers and we expect to announce our first orders this quarter. We anticipate seeing material revenues from this product only towards the end of the year.

Like any disruptive revolution, this will begin slowly and build momentum. I want to emphasize that this is a premium product that complements our existing portfolio. It doesn't replace our existing products because not every situation calls for the ultrahigh capacity that this product offers.

Just as it took several years for backhaul to evolve from mostly low medium capacity to all high-capacity, we believe it will take several years for the market to evolve from high-capacity to ultrahigh capacity.

We believe that we are very well positioned as a number one specialist to outperform the market long-term for several reasons. We have a well-established lead in technology with the best cost position. Assuming we continue to innovate, it will be difficult to catch us.

We have a complete portfolio of short and long haul solutions and the scale and geographic reach to provide the type of services required. We are still a specialist and not focused on protecting a world garden relationship with operators. We believe that we are better equipped than the large integrated equipment providers to complete in the multi vendor best of read HetNet environments that is developing.

Although topline growth may take a little bit longer to develop, we are confident that achievements of 2012 will begin to become apparent in our results during 2013 and we will be able to deliver substantially better profitability as planned.

Now I would like to turn the call over to Aviram to discuss these matters in more detail from a financial perspective. Aviram?

Thank you, Ira. Before I go through the Q4 results, I would like to explain briefly the impact of the delay in revenue recognition from one customer that we announced on January 4. The adjustments presented in the table at the end of this morning's press release and fully-adjusted comparative information is available in the slides on the financial report page in the investor relation section of our website.

All comparative information we are giving is on as adjusted basis. To recap what happened, in late December 2012, we learned that the major customer was requiring additional acceptance procedures and documentation for part of equipment it had purchased from us and was previously accepted.

After investigating the appropriate accounting equipment, we decided to defer a portion of the revenue previously recognized in 2012 related to this equipment, obtain the additional acceptance procedure completed is currently expected new in 2013. The deferral impacts revenue and related costs, commissions, inventory, accounts receivable and accounts payable for the first three quarters of 2012 which have been adjusted accordingly.

According to the accounting costs, we were not able to defer all the costs associated with the $15 million revenue that moved out of Q1, Q2 and Q3 to future periods. Therefore, our gross margin was affected disproportionately and the deferral had the effect of taking away most of our [non] profits for 2012. There will be very little distortion of 2013 because under the new procedures, roughly the same amount of revenue being shifted from 2012 into 2013 will also shift from 2013 to 2014 and so on.

So with this background on the adjustments, I will quickly go through the results for the quarter.

On the fourth quarter, revenue was $106.8 million within the range of our guidance. Our GAAP gross margin of 32.8% includes $300,000 of amortization of intangible assets, $100,000 of inventory step ups, $200,000 of restructuring charges and minus $100,000 of charges requisitioned in direct tax position. Excluding those items, non-GAAP gross margin was 33.3% the same as Q3 on an adjusted basis.

Fourth-quarter GAAP operating expenses were $42.1 million excluding $500,000 in amortization of intangibles, $1.2 million of stock-based compensation and $6.5 million of restructuring charges. Our non-GAAP operating expenses were $33.8 million compared to an adjusted $35.9 million in Q3 reflecting the cost reduction initiatives implemented during Q4.

On a GAAP basis, we reported an operating loss of $7.1 million. Our non-GAAP operating profits for the fourth quarter was $1.8 million or a 1.7% operating margin.

Finance expenses in Q4 was about $900,000 and tax expenses was about $400,000. On a GAAP basis, we reported a net loss of $8.4 million or $0.23 per share. On a non-GAAP basis, we reported a net profit in Q4 of $400,000 or $0.01 per share.

The geographic breakout of revenue increased in the press release, APAC where revenue tends to be lumpy increased from Q3 to Q4 mainly due to one large bill. This increase was more than offset by declines in India, Latin America, and Africa.

Latin America continues to be a strong growth engine and the sequential decline was insignificant because Q3 was quite high as it relates to revenue commission timing. In general, India has not opened up again and the quarterly pattern related to one major customer going through the typical ordering pattern.

Similarly we announced to very large bills in Africa in Q4 which are now underway and are expected to be completed over the next few quarters. This sort of lumpiness is normal. As Ira said, we have seen no particular changes geographically. We had one 10% customer in Q4. Overall to total OEM sales accounted for 5% of total revenue, a decline from Q3. This is a typical level overtime and the comparison --

Hello, operator?

You are still connected, sir. Hello?

Operator, you lost me?

Mr. Steinhart, you are still on.

I'm still on. Okay, sorry. I'll continue.

We had a one 10% customer in Q4. Overall, the total OEM sales accounted for 5% of total revenue. It declines from Q3. This is a typical level over time in the comparison reflect one large order in Q2 and Q3.

Turning to the balance sheet. Trade receivables decreased to $149 million putting DSO to 122 days substantial decline.

Turning to our cash position. Cash and cash equivalents increased to $51.6 million at year-end, that's after $10 million in debt repayments. As expected, we had strong operating cash flow of $17.1 million. At year-end, we had about $43.8 million in debt. We have long-term debt of $26.8 million including current maturity to be paid over 13 quarters. We have short term debt of the $17 million which we drew down from our $40 million short term credit facilities.

While we cannot rule out occasional timing issues, we expect to improve our profitability during 2013. Therefore, we do not expect cash flow issues.

Looking ahead to Q1, we are expecting revenue to range between $95 million to $105 million. The sequential decline primarily reflects the seasonal factor. There has been no change in overall demand, other than the book to bill was above 1 in Q4 but our outlook for the year as a whole is unchanged.

We will see the full effect, the operating expenses initiative implemented last quarter in Q2. We are targeting quarterly operating expenses of $32 million to $33 million per quarter, give it roughly as follows. R&D of $10 million to $11 million in the quarter, sales and marketing of $16 million to $17 million, and G&A $5 million to $6 million.

We continue to target significant improvement in profitability this year and retained our goal approaching 5% operating margin for the year and exceeding that level on a quarterly basis in the second half. We do believe it is realistic to assume gross margins in the mid-13's for the next several quarters. We believe this is realistic because our program to cost reduce the long haul product has been completed and the cost reduced product are walking through the backlog and will increasingly show up in revenues.

As we indicated on our last call, we are confident that we will ramp up -- that we will resume top line growth of the fundamental growth drivers in our business. We just don't know exactly when this improvement will begin.

We have set bigger revenue assumptions for 2013 based on the average of the last four quarters of booking. In the current environment, this is the best indicator that we have for the year ahead. Therefore, for the purpose of managing the operations, we are assuming 2013 revenue in the range of $420 million to $440 million, basically the same assumption we talked about in the last call.

With the improvements in operating expenses, once revenue begins to ramp again, we will have substantial operating leverage up to $120 million per quarter at which point we will have to start adding some OpEx to get to the next level.

Now I would like to turn the call back to Ira.

Thank you, Aviram. During 2013, we expect to continue our efforts to further penetrate new Tier 1 customer, execute on the 3H Holistic HetNet Hauling vision and gain traction with a new IP-20C product. Factors we mentioned on the last call could provide potential upside are still there. We could see things pick up after customers finalize the budget for the year because share gains or mixed changes we haven't considered and we could see faster than expected uptake of the new products.

The fact is, we don't have any reason to believe these are any more likely to happen than before. So we are excluding them for our assumptions. Taking a little longer view than the next few quarters, we believe we are on the verge of the next major wave of change in the microwave hauling market.

Just as the shift from low to high capacity, from TDM to IP has driven dramatic growth in our revenue over the past years. We expect the shift to happen at [architecture] and ultrahigh capacities to drive growth over the next decade.

We have done a lot of work and we are very well positioned to capitalize on the market as it shifts and as the changes are occurring. Now, I would like to open the call for questions. Operator?

Thank you. (Operator Instructions).

Our first question will, from the line of George Iwanyc of Oppenheimer. Please go ahead.

Thank you for taking my questions. So just looking at the outlook for 2013, you see some shifting and priorities helping out later in the year. In the near-term, are there any push outs or links innings of sales cycles still happening?

Good morning, George. In the near-term, we do not see any significant change in as demand patterns. We do believe that demand patterns are staying about the same and that's why we based our focus for the year on our average booking from the last four quarters. We do not see neither deteriorating conditions nor significant improvement for the first half of the year.

And when we look at the guidance for year one we took into account revenue recognition, cycles and other parameters which are local to the quarter and not based on the demand trends.

Okay, and then looking at the larger Tier 1 customers that you're looking at, is that creating an opportunity for larger contracts and larger commitments at the same time? Or are the order flows kind of staying at the same levels that you've seen over the last four quarters?

With the Tier 1 customers, yes, it creates an opportunity for larger orders and larger flow with the customers we have one already and then we are there and with our new disruptive technology in there, it's opening up the doors for a lot of very interesting at this point discussions, but as people are looking very extensively at all sorts of HetNet architectures and looking at what we call holistic HetNet -- Hauling solutions for the new architectures I think it will open the door for us with a few more Tier 1 operators.

And looking at the ultrahigh capacity market, does that change the price point in any dramatic way? Or is this shift that helps to stabilize -- or keeps ASP stable?

The ultrahigh capacity at this point is a premium product with higher ASP's but as we said, during 2013 we don't expect this to be a very large part of the mix. It will contribute to revenues in 2014 we believe at the range of 10% to 20% of the revenues. Not everything on top, but will provide some part of that growth, but at this point, its position is a premium product, is a premium solution.

Okay, and then one last question. With the small step down in spending this quarter, is that the state level we should expect for the next few quarters unless there is a dramatic change with the top line?

We started the initiative in cost reduction as we mentioned in the last call. What you think is the gradual shift this quarter was somewhere in the mid-and growing to Q1 and beyond to be we believe the OpEx to be between $32 million to $33 million in the quarter.

Great. Thank you.

We'll go next to the line of Mike Walkley with Canaccord Genuity. Please go ahead.

Yes, thank you very much. This is Matt Ramsey on for Mike this morning over here. Thanks for taking our questions.

I guess the first one, just about the revenue deferrals and push outs at the leading customer there. It looks like the majority of the impact was roughly $7 million in the first two quarters of 2012. So it's kind of a two quarter push out timeline on that level of revenue. Is that the right way to think about it?

And number two, maybe you could give an update Iraq on the relationship with that customer if anything has changed since better or worse since the last time we spoke. Thanks.

I you will start with the relationship and then I will let Aviram answer the other half. Relationship is excellent with the customers. We are continuing to see significant order streams from that customer. It has to do with internal procedures and change in acceptance procedures.

The issue is more our accounting piece and not their dissatisfaction with the equipment. The equipment is online and running and delivering the service. It's mainly a procedural issue internally and relationship is excellent. We just keep expanding with the customer.

Regarding the adjustment, yes that's correct, $7 million -- a little bit more than $7 million in Q1, around $7 million in Q2, $1 million in Q3, overall $15 million.

$2 million actually were reversed in Q4. So overall, there is a shift between 2012 to 2013 of $13 million. If you recall on January 4 we said it will be between $11 million and $14 million shift. This is the $13 billion that will shift, $15 million between Q1 and Q2 and Q3. 2 million recognized in Q4 and the rest basically will move to 2014.

Great. Thank you for the additional color there. And I guess one more long term question for us. Ira, I thought it was very interesting that you talked about the new kind of front haul opportunity as the industry kind of moves to LTE advanced and heterogeneous networks.

I just wondered if you could give some overall commentary on your views of the timing and the growth of that market may be the TAM that it presents to Ceragon, maybe the applicability of the small cells to macro cells, may be what percentage of the global something around the global macro cell bases actually has small cell applicability and what that can mean for you guys going forward, because it sounds like some pretty exciting new products.

If we look forward, we expect and we can see the starting the trends of changes into the Heterogeneous networks types of solutions. What we see worldwide right now is all sorts of experimental deployment and experimental trials and with those types of Heterogeneous networks with different operators, my belief is that we will start seeing significant rollouts towards the end of this year or really beginning of next year.

Also from a geographical perspective, this is more applicable at this point to the US and Europe or last to US, Europe, Japan, Korea, less to the developing markets as the pressure for LTE and LTE advanced builds for delivering a lot more data and a lot more bandwidth in the US and Europe. We have a very interesting discussion around those with a lot of the Tier 1 operators in those markets.

Great. Thank you very much for taking our questions. We look forward to seeing you in Barcelona.

Thank you.

We'll go next to the line of Peter Misek with Jefferies.

Hi. This is [Jason Roth] for Peter. Can you talk a little bit more, it was hard to hear in terms of India. Did you say that was picking up now and what kind of prospects are there throughout the year?

I think that the comments that we had about India is that at this point it's not picking up. I don't think the regulatory environment there has changed significantly over the last year. We did have and we continue to deploy very large quantities of [good one] customer in India but not all operators in India at this point are rolling out as quickly as that customer.

And the interesting part is it's a customer who is using LTE technologies, rolling them out extensively throughout India, probably the second largest LTE network worldwide mainly for delivering broadband services, data services in the mobile, half mobile world.

Okay and we can see that Accounts Receivable came down significantly. How do you see that proceeding? Is that going to stabilize around these levels or how is that going to look?

Yes, accounts receivable reached $149 million, a significant reduction from previous quarters. We had a very strong collection which put us to see DSO down at 122 days.

Going forward, we should I believe stabilize around this level. I can't -- there will be fluctuation between quarters, but I think this is the level we should look going forward, this is around the level we should look going forward, around the 120 to 130 days outstanding.

Sorry, you broke up there. Was it 120 to 130 you said?

Yes.

Okay, great. Thank you.

Thank you. We'll go next to the line of Joseph Wolf with Barclays.

Hi. Thanks. Just as a follow-up on the new product developments, you mentioned about the geographies and where will go, wondering if we think about the spending in that $120 million comment that if there is a pickup in demand at $120 million you will have to start rehiring. How does that layer into the development of new product in the discussions that you're having with your customers about what they're looking to do?

In this current environment are you seeing a delay with an interest toward new or is this just in ultimate delay? I'm wondering how they are balancing the plans going forward given the lack of real spending.

At this point, we have reduced expenses to the $32 million to $33 million level. We factored in the new products in the new requirements of the spending changes in there. We do not expect that level of expenditures including R&D to change in any -- from the current decrease levels anywhere significantly before you reach the $120 million limit of revenues.

I think the challenge is always and that is really keeping up the priorities and we do shift priorities internally to see as people mature in their understanding on how to deploy our realistic net holding solutions and the whole set of products.

We are shifting priorities in a way we will release additional products into the market.

Can you give us a percentage of that quarterly spend which has kind of been refocused to the new product development?

If you look at the R&D spendings, almost, at this point, 75% is new product development.

Okay, which would imply that all of the cost, you mentioned all of the cost reductions are out there. So most of your development is now future focused.

Yes, most of it is future focused, yes.

All right, great. And just any specifics in any geographies that we should be picking up on as you, commentaries you look out for 2013, it seems like you are pretty conservative about the whole sector, but is there anywhere specific we could focus on where you could be surprised on the upside at this point?

We believe that Latin America and Africa are still growth engines for us. Yes there's lumpiness between quarters on the revenue recognition, but if I'm looking at trends within those built in our increasing customer base and booking trends, I think those two will be over the year on an aggregate basis some of the growth engines that will have.

Just one final question. If that's the growth engine, you mentioned nowhere the prioritization is for the new products in the more developed markets, how does your product development handled the fact that these growth engines are the ones where the newer stuff will be deployed last?

I think we have in the current generation of the product very good competitive product out there which wins us of the business. Yes, we are still investing in the current generation of products in small improvements and meeting their requirements, but I think that I mentioned for example on the call that we gain significant position as the number one long-haul provider worldwide.

It's in those markets with our excellent evolution of long-haul product line and we will be keep investing in those products but I think it's the right percent of investment to keep on winning the business within the Latin America, and Africa. And my expectation is that further down the road they will also use the new technologies.

Great, thank you, Ira.

Thank you.

Will go next to the line of James Faucette with Pacific Crest.

Thank you very much. I just wanted to ask, Ira, I guess about your comments related to how carriers are being more careful with their investments. How are you seeing that impact the change or impact in change where you fit into and where Ceragon products fit into the priorities?

You mentioned you think there's some shift to Ceragon, but I'm just trying to understand that. I guess in the past we've seen carriers build out backhaul networks in advance of LTE builds, but I'm just trying to understand are they building that out entirely before (inaudible - background noise) or how you're seeing changes there? Thank you.

First, I have not seen carriers build back haul networks in advance of deploying LTE in most places around the world. I think what we are seeing is as they roll out new networks they adjust and build the capacities in the back hauling and in the future front hauling solutions as they rollout on new networks and new capacities.

So really riding almost hand-in-hand with deployments of the new base stations, new capacities with base stations, and new architectures in most places around the world.

As people shift into heterogeneous networks, some of it is less related to us like things like Wi-Fi offload coverage within buildings, but also if you look at them deploying they need to aggregate tons of small cells, pull them in from a lot of places into very high capacities and then also the situation where our new technologies will help them pull in the hauling requirements to those locations.

Great. And then when you talk about the shifting priorities then from carriers as it relates to back haul, can you expand a little bit on that and how you expect that to impact Ceragon particularly with the new products that you're launching?

We are seeing different shifts which all of them have to do with higher capacities and really breaking the barrier between capacity and bandwidth.

I think that the operators are looking for all sorts of solutions which will help them deliver a lot more bandwidth to where the different types of cellular base stations are and aggregate those and the solutions we are coming out with in the IP-20C is just the beginning.

There are all sorts of solutions where it will enable them to do exactly that or a little bit of a different CapEx spend and a gradual CapEx spend and also simplifying a lot of the installation issues. It's really trying to allow them to bring in more bandwidth to more base stations.

Great. Thank you very much.

Thank you, James.

Thank you. (Operator Instructions).

And we will go to the line of [Bob Sales] with [Inc Capital Management]. Please go ahead.

Hi. First of all, good luck to you in 2013. Second of all, can you give a sense -- 2012 is already a tough year for the industry and can you give a sense of relative to 2012 whether or not you expect the overall industry to see or at least your customer base to see growth?

Overall for 2013, I think that indicated both for us and the customer base that we are basing our guidance for 2013 as $420 million to $440 million on the same average running rate that we saw in the bookings within 2012 which really says we expect the market not to grow in 2013 and we expect the are factors which can leave it as the second half or beginning of 2014 for additional growth.

Second half of 2013 or 2014?

No, second half -- towards the end of 2013, beginning of 2014.

Got you, okay, and then on the competitive landscape, are you seeing any changes and could you just stack up again both the larger players at that are selling microwave backhaul within their overall solution and the independent players? Maybe just talk about what you are seeing with respect to the changes in any of the top two or three competitors at that existed a year ago?

I think we are maintaining our number one specialist position out there where we have three generalists ahead of us between (inaudible) Erickson and NEC on being the larger players within the market. I think we are maintaining that overall number for but number one specialist position in the number of shipments in the way we deliver worldwide within the market.

If you ask me about changes within the mix, not really. The only place where we are seeing some weakening the from the reports is NSN a little bit weakening within the market and we're always gaining a little bit in the mix between the top three.

We do not see a shift between which is underlying your question about there between the generalist selling and end to end solutions versus the specialist where we sell best of breed. The market over the last two years and also this year and the expectation forward stays about 50-50 between the two modes of selling.

Will go next to the line of Daniel Meron with RBC Capital Markets.

Thank you. Hi, Ira. Hi, Aviram. So I might have missed it earlier, but I want to know you guys are referred to as the ultrahigh capacity, is there a way to quantify the additional growth that we should be seeing in your business? Is that going to materially accelerate your growth rates?

As I said on the call, we do not expect the new offering specialty products or some of those solutions to affect significantly our 2013 both growth and mix. We do expect those products to be at the range of 10% to 20% of our revenue in 2014, about half of that is probably will be growth on top of the 2013 run rate.

Okay. And as far as the impact on the gross margin, basically what I'm trying to look at is how should we think about Ceragon with the new product. Does that change the margin profile, the growth profile, et cetera?

It sounds like it's going to be incrementally positive but we shouldn't expect a whole new Ceragon with much higher margins were much higher growth rates.

As Ira mentioned, when we are building the model for 2013, the assumption regarding the new product in terms of contribution to the revenue is not significant 2014. It will be more significant, the profile margins of this product is higher but the impact is not significant in 2013 and the revenue is not significant.

I understand that, but what I'm asking is 2014. I understand that this is not going to be a 2013. I'm trying to get a read on 2014 and what we should expect that beyond this current year. Thank you.

I think that as I said, we expect to keep on going into 2014 and resume growth in 2014. And as we resume growth, as also the inherent numbers where we believe will reach our targets within 2014 someplace increasing the operating margin from the average of this year 5% to be higher. You're asking also on the gross margin profile of the new products.

We do believe that they will affect the gross margin but at this point, I don't know how much exactly. A little bit up on the gross margins we think towards the 2014 timeframe.

There will not be a whole new Ceragon with 50% gross margins. I don't think that the market of the telecom equipment in the business we are in is that type of a market.

Okay. That's very helpful, Ira.

Maybe if you can refer to the cash generation that you expect in 2013. You guys did a great job in the fourth quarter and lowering your receivables. How should we think about some of these metrics as we go into the New Year? Thanks.

We look at 2013 to be a profitable year with relatively flex revenue. The only way to look at it if DSO stays at the same level and not profit is around 5%, this is the level of cash we should generate during the year.

Okay. That's very helpful. Thank you, good luck.

Thank you, gentlemen, that does conclude your Q&A portion of the call. I will turn back to the speakers.

I'd like to thank you all for joining us today. I would like also to invite all of you who will be in Barcelona for the Mobile World Congress to join us at our booth. We will be demoing some of the new products at the booth and we would love to continue more detailed discussions with each and every one of you. Thank you very much for joining us.

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