Ceragon Networks Ltd (CRNT) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the Ceragon Networks Ltd. First Quarter 2017 Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks. Today's call will include statements concerning Ceragon's future prospects that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based on the current beliefs, expectations and assumptions of Ceragon's management. For examples of forward-looking statements, please refer to the forward-looking statements paragraph in our press release that was published earlier today. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the risk associated with a decline in revenues to risk of a decrease in the amount of business coming from a certain geographic region from which a significant portion of Ceragon's business is generated; the risk associated with a change in Ceragon's gross margin as a result of changes in the geographic mix of revenues; the risk associated with a loss of a single customer or customer group, which represents a significant portion of Ceragon's revenue; the risk associated with Ceragon's failure to effectively compete with other wireless equipment providers; the risk relating to a concentration of Ceragon's business in India, Latin America, Africa and in developing nations and the political, economic and regulatory risk from doing business in those regions, including potential currency restrictions and other risks and uncertainties detailed from time to time in Ceragon's annual report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission.

We represent our views only as of the date they are made and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward-looking statements. Ceragon's public filings are available from the Securities and Exchange Commission's website at www.sec.gov or may be obtained from Ceragon's website at www.ceragon.com.

Also, today's call will include certain non-GAAP numbers. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier today.

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

Thank you for joining us today. With me on the call is Doron Arazi, our CFO. The results we reported for Q1 today are in line with expectations. These results reflected the typical seasonal pattern for sequential decline in the revenue from Q4, which was mitigated a bit by the aggressive delivery we request of our major Indian customer.

Revenue for multiple customers in India was slightly higher on an absolute basis than Q4, but on a percentage basis, it represented a much higher proportion in Q1, accounting for 36% of total revenue.

In terms of bookings, our book-to-bill was substantially above 1 and came close to an all-time record. This is not a typical pattern for Q1, which tends to be a low booking quarter as operators finalize the budgets for the year. This high level of booking was a result of the large orders from our major customer in India, which we announced early in the quarter.

Non-GAAP gross margin for the quarter was 30%, as expected, a very good level considering the high proportion of equipment versus license revenues we recognized from India related to large orders in Q1. We expect to recognize more equipment and a higher proportion of license revenue from India in Q2, with the revenue from services mainly in Q3 and some in Q4. Overall, based on the expected geographic mix and other factors, we expect gross margin to improve in the current quarter and return to levels above 32% in the second half.

Doron will discuss the near-term outlook in more detail. Meanwhile, I want to remind everyone that our primary goal continues to be to improve net income as much as possible and we continue to target a substantial increase in net income on a constant-currency basis in 2017.

Now I'd like to focus for a moment on the big picture and look at longer-term trends. As we have said before, we operate in an industry environment that is relatively flat, up a little when measured in units and a slight decline when measured in dollars. In such an environment, we can't count on riding a long wave of growing demand to improve operating leverage and increase net income. So to keep improving that income, we must focus on winning the right deals, ones where customers are looking for solutions that offer the best value, are willing to devote time and resources to doing a thorough evaluation, and are willing to pay a premium for superior value.

To achieve even mid- to high single-digit annual growth, we have to become the primary wireless network vendor in these deals and then we have to earn the biggest share of the available orders. We aim to provide superior execution in all respects so that the customer will view us as the preferred vendor. To pursue this strategy, we must maintain global presence because it's necessary to cultivate the relationship with the operator long before the project goes out for bids.

As we have noted in the past, a wave of spending in a particular region usually begins with one operator making the first move, with the aim of disrupting the market and gaining a competitive advantage. That first mover forces the other operators in the region to move also. If no one in the region makes a bold move, then there are some modest upgrades and expansions here and there, but they're generally low level of activity.

Currently, the Sprint and T-Mobile in the U.S., AT&T and Telcel in Mexico and Reliance Jio and Bharati in India are situations where a first mover is forcing other players to move as well. Our technology leadership, superior product and global reach have enable us to be very successful in gaining the largest share of the available business in the most active, best-of-breed markets. This is important because once we have operators address a major challenge or handle a critical pain point, we become a valued partner with whom they share the long-range plans and requirements. This is very valuable as we plan our own product road map and decide where to invest our resources.

For example, we were the first vendor to introduce a multicore radio in an all-outdoor configuration. The response was immediate and extremely positive because it resolved major backhaul challenges while using less resources such as spectrum, labor, real estate and power.

So we began making plans for multicore everywhere to provide multicore products for all deployment scenarios. At Mobile World Congress this year, we announced Multicore Everywhere just as several competitors announced their first all-outdoor multicore radio, which in some cases still lacked all the attributes of the multicore radio we introduced over 2 years ago. We have had an amazing response, and we believe Multicore Everywhere has again widened the technology gap between Ceragon and its competitors. In fact, we'd say it's a game changer. But in reality, the game changes pretty slowly in the world of telecom operators. We can expect this to help us continue to gradually gain market share in the best-of-breed segment, as we have been doing, but it's not going to catapult us into a high-growth situation.

As we look ahead to 5G and enter the gigabit era, we expect another new technology shift to benefit Ceragon. Since 5G networks will require much higher backhaul capacities and fiber-like capabilities, as we are seeing with 4G, the demand doesn't suddenly appear everywhere, all at once. We expect to see the early adopters, the first followers and laggers, and will depend on particular operator acting as a catalyst in one region to get the others to move.

We have been evaluating the changes that 5G will bring to the market. Based on our 5G vision, we've been working to identify new opportunities to leverage our strengths in adjacent areas of the market that we expect to have sustainable growth higher than our core business, with comparable or better margins. We have been heavily involved in this particular analysis effort for several quarters. And for our core strengths, we are continuing to investigate 2 potential offensive strategies in 5G fixed wireless areas for accelerating long-term growth. We are exploring a variety of internal development projects, as well as some external opportunities that might accelerate our time to market in one or both of these areas.

The third area we continue to explore could be considered both an offensive and defensive strategy. We continue to explore both internal and external opportunities within the scope of our current markets. Although these are not going to represent new high-growth situations, we could potentially gain additional market share, mitigate certain customer concentration risk and expand the breadth of our capabilities in key geographies and achieve greater scale. There's no denying that even for a best-of-breed specialist like Ceragon, scale is important.

One internal initiative that we've been pursuing is to place more focus on some of the vertical markets, such as oil and gas, maritime and public safety, that have different market dynamics than the mobile service provider market.

For example, in the short time since we introduced our IP-20 assured platform for the public safety and utilities market, a significant funnel of potential opportunities has developed and we believe we'll be able to make market -- to take market share in this area.

One of the reasons we think it's prudent to explore some diversification in terms of market segments within our core wireless vector market is a factor limitation of the geographic diversification. We are a global company with a strong presence in nearly every region in the world, and we are getting these huge orders from India because we decided to focus there, in addition to working extensively in other regions. It happened that a group in India decided to build the largest greenfield 4G network anywhere in the world, which prompted the incumbent vendors to react to their move. This created a big opportunity for us because we had a strong reputation, a great relationship in the region for a long time.

The current network opportunity still has quite a long way to go, but this is the time to be also identifying ways to gain exposure to new opportunities, such as some of the vertical markets.

So this is some of our strategic thinking. We see some very interesting possibilities, and we have more work to do. When and if we do identify a specific opportunity that meets all our criteria, we'll want to be able to move quickly, so we need to be sure we have access to a full set of strategic capabilities, including financial ones. And this is the reason we recently prepared ourselves as part of our strategic process by renewing the shelf filing that had expired.

With that, I'll bring the discussion back to the near term and say that we don't see any major change in global market conditions. We still feel a bit cautious regarding a few regions, notably Africa and certain parts of Latin America, due to macro economic factors. We are hoping for a little improvement in Europe during the balance of the year, but we don't see a clear trend at this point. So we don't see any major shift in trends or market conditions. We have 1 or 2 operator-specific situations that create some pluses and minuses during the year, and I'll ask Doron to address those in the context of the financial outlook. Doron?

Thank you, Ira. Since you've all seen the press release, I'll just highlight some of the significant items.

Our first-quarter revenue of $76 million represented a 10% sequential decrease from Q4, reflecting the typical seasonal pattern in most regions. Meanwhile, Q1 revenue was up 27% from the first Q of 2016. As expected, our book-to-bill ratio was substantially above 1% due to the large orders we received from our major customer in India during Q1. Typically, Q1 is a relatively weak booking quarter, but the seasonality was offset by the large orders from India we announced during Q1.

As shown in today's press release, the geographic breakdown shifted somewhat in Q1 compared to the past few quarters. As expected, India accounted for a higher percentage of revenues. Asia-Pacific, which tends to be lumpy, was also higher in Q1. And after several very strong quarters, revenue from Latin America was lower, mainly due to a temporary budget freeze at one large customer.

We had one above-10% customer in the quarter, our largest customer in India.

Non-GAAP gross margin was 30% in Q1, as expected, primarily due to the regional mix and the timing differences of recognizing various types of revenues such as equipment, software and services. When we negotiate a deal, we look at the contribution to the gross profit from the entire deal and make sure that the deal meets our expected gross margins. However, when the accounting rules are applied, the timing of recognizing the various types of revenue may not be proportionate in each quarter, which can cause gross margin to fluctuate from quarter-to-quarter on top of fluctuations caused by geographic mix.

In Q1, we recognized revenue for a higher proportion of equipment versus software related to the large orders in India. Conversely, in Q2, we expect a higher proportion of software from the large orders from India. So all else being equal, we expect higher gross margin in Q2 than we reported in Q1 and further improvement in the second half of the year.

Turning to expenses. In Q1, we continued to keep tight control in this area, with operating expenses at the low end of our expected range, at slightly over $20 million on a GAAP basis and slightly under $20 million on a non-GAAP basis. We continue to target the $20 million to $21 million level of operating expenses.

On a GAAP basis, we reported $2 million in operating income in Q1. In other financial and tax expense, we had a very small net loss of $128,000, which was less than $0.01 a share or GAAP breakeven on a per share basis.

Significantly higher revenue compared to the first quarter of 2016 compensated for substantially lower gross margin, and we reported higher operating income on a non-GAAP basis, $2.9 million in Q1 compared with $2.2 million in Q1 a year ago, and a small non-GAAP net profit of $864,000 or $0.01 per share compared to a small net loss and breakeven EPS in Q1 2015 on a non-GAAP basis.

Turning to the balance sheet. At March 31, 2017, receivables were $99.5 million, with DSOs of 117 days. At the end of Q1, we had cash and cash equivalents of $36.5 million, about the same level as year-end, using free cash flow to further reduce debt to only $11.5 million at March 31.

This gives us net cash of $25 million, as well as significant unused borrowing capacity. Collection in this quarter was higher than planned, and as a result, we expect lower collection than originally planned in Q2.

Our large Indian customer is pushing for a very aggressive delivery schedule, and we continue to expect Q2 revenue to be incrementally higher, with even higher software proportion.

Meanwhile, a couple of internal issues with 2 of our key operators are having a temporary effect on Q2 revenue. In Latin America, one of our key customers froze their budget in Q1, which meant our bookings were $1 million to $2 million lower than expected, and in turn, affect Q2 revenue. We're seeing now initial signs they will be returning and believe they will resume their investment during the second half, but the pace of their overall deployment may be slower going forward than during 2016.

In the U.S., one of our customers is moving more slowly than they expected on their project rollout, which is pushing a few million dollars of revenue primarily expected in Q2 out to the second half. We believe this customer would like to catch up in the second half, but it's not clear yet whether the second half will be proportionately higher than originally expected.

So excluding the revenue from the large incremental orders in India, Q2 would be below the normalized run rate of $75 million to $80 million per quarter we have been expecting to continue in 2017. It is important to emphasize two things. One, these are customers' own internal timing issues, and we are not losing any business. While 2 operators are moving at a slower pace than expected, our major customer in India shows signs of continuing to be aggressive with their deployment plan.

The second point is that we are managing our business to achieve our net income improvement goals, not top line targets. Issues related to the pace of customer projects that are outside our control can temporarily skew reported revenue and gross margin, but it does not affect the inherent profitability of the orders we have accepted, only the optics within a given quarter.

Under certain geographic mix assumptions, that is based on our current backlog, the current funnel of opportunities and our assessment about when orders are going to turn into revenue, we expect gross margin to improve slightly in Q2, with gross margin in line with our target of about 32% during the second half of the year.

When thinking about the full year, we continue to target substantial improvement in net income. On our last call, we raised our 2017 net income target to a 50% improvement over the $11.5 million we reported in 2016 on a constant-currency basis. We continue to believe this goal is within our reach, and we want to emphasize that net income growth is our primary goal.

To summarize, we're seeing some short-term changes in the pace of some projects, but no changes in our ability to get the largest share of the available [best-of-breed] business.

So the most important message hasn't changed at all. We're looking forward to making 2017 the third consecutive year of significant improvement in our financial condition and result of operations. We remain confident that we can continue to improve next year as well. As Ira noted, even as we focus on execution to maximize our net income in the near term, we are also making headway in identifying strategic opportunities that will enhance our long-term value-creating potential.

Now we'd like to open the call to questions. Operator?

(Operator Instructions) And our first question will come from James Kisner with Jefferies.

Thanks for the very detailed information on the outlook, but I want to drill a little bit in the Q2 comments for a minute. So I believe, before, you thought you were going to hit maybe $20 million, $25 million orders from India hitting in Q2. And I guess, you're now saying you're going to be below $75 million for -- on sort of ex- those orders. I want to verify that first point, that you're still looking for another $20 million, $25 million and I want to make sure none of that really fell in Q1. Maybe that number should be much lower. And also, are we talking about a few million dollars here? It sounds like it's not -- not going to be huge below $75 million, but underlying business be something like $70 million? Just help us out so we can model Q2 revenue.

Yes. Sure. This is Doron, let me elaborate. We are still in the view that Q2 is going to be significantly higher than the range of $75 million to $80 million we were discussing the last couple of quarters, due to these orders that came from India. However, it's not they're going to be as higher because of the relative changes and deferral of some of the projects we discussed on the call.

Okay. Again, on that lower -- underlying business that's below $75 million that we verified, it's not going to be more than of $5 million lower on that sort of base business ex that larger order from India?

Can you repeat that question, please?

You're saying that you're going to be below $75 million to $80 million on sort of that base business excluding the large order. I'm just trying to verify that we're talking about a couple of million dollars below $75 million, not $7 million or $8 million? Just trying to really understand what that underlying business looks in Q2 more specifically, from your perspective?

We expect it to be -- if we carve out the additional revenue that we are getting or gaining on this large order that we received from India, we expect the numbers to be at the lower end of the $75 million to $80 million, and even slightly below the lower end. If we add up the extra revenue we will be generating from the large orders from India, the total revenue is expected to be significantly higher than the $75 million to $80 million range.

And those incremental orders are still in that $20 million range from India or are they maybe a little lower?

Hello, we lost you?

Can you hear me?

Now I can hear you. We lost you for a second.

Okay, so again, the incremental orders from India, they're still in that $20 million to $25 million range in Q2?

Yes. We expect an addition of approximately $20 million to $25 million range as a result of the orders coming from India to Q2.

Great. Thanks for clarifying all of that. Just only your Latin American customer had internal issues. What's the underlying cause there? Is there an obvious underlying cause? Is it civil turmoil, financial stress? Like, what's causing that? Do you have any idea?

We don't have a clear idea, but my guess is that having to do somewhat with currency fluctuations, some of it is reshifting some of the plans. And sometimes typical because they are a little bit -- reshifting some of their plans, they walked on the budget longer than expected. I don't think that it's a significant change in the way they are thinking or their deployment plans. It's how they allocate their budget and CapEx, and it took longer than even the team there expected.

I guess I can ask sort of a similar question on the U.S. customer that's pushing out. Are they are reconsidering their strategy or are they, again, just trying to control the budget? Any insights there?

No. The U.S. customer is mainly -- not as quick as they expected to ramp up their deployment scenarios. And they are on track and are moving nicely forward. But it's a little bit slower than they expected, which usually affects orders as well.

Okay, now to ask...

By the way, not untypical most large deployments we see around the world. Plans are sometimes a little bit more, I would say, more aggressive front and sometimes, you have ramp-up issues. Usually, people do catch up a little bit later on their own target.

Great and just a last one and I'll pass. I was just hoping -- I liked your commentary on multicore. Can you just briefly just tell us -- the advantage to the customer of multicore? I'm just kind of wondering if you started to see any incremental interest with new customers really...

I'll give you one advantage, okay. There's the obvious one which is the capacity and simpler deployment and the capabilities to do my more stuff we announced with the outdoor. But I'll give one which we have been talking with customers lately is what we call that technically advanced frequency reuse.

From a customer, I'll say this way. You are in a dense urban area where you ran out of frequencies. You ran out of the capability to put in more links and because you really need not to densify the network and add more base stations because you have a lot of traffic, you have a lot of limitations on what you can do. Standard thinking is that if you reuse the frequency, you need about 90 degrees difference between 2 base stations if you look from the tower you are connected to. So you have a very limited capability of where you can place your base stations.

With multicore, and because we're doing very special processing on the multicore, we can narrow that gap between -- instead of 90 degrees to 15, which in a customer's terms, means they can put their base stations wherever they want and reuse the frequency again and again and again. This is a significant advantage for the deployment capabilities of the customer, which simplifies planning, allows a lot more flexibility from their perspective and allows them to much more rapidly deploy in dense, congested urban areas.

That's one example. I probably can go on for another 15 of those, which are in different conditions with different customers, and that's what we were referring to as working with the customer on their challenges because they are different in different environments, there's things around the deployment scenarios, the inventories, there is a lot of stuff that's the multicore simplifies.

There our next question will come from Alex Henderson with Needham and Company.

So, just very clear and concise here, just to make sure I have the comments correct. You're saying that the June quarter revenue will be slightly below the $75 million target band on average for the year. Is that correct?

No. What we are saying is that we still expect the June quarter to be significantly higher than the $75 million to $80 million we were discussing as our ballpark numbers for 2017, still because of the India large order we have received. The only caveat is that because the $75 million to $80 million, the regular stuff is coming shorter because of the delay in some of the projects, the overall amount that was anticipated originally when we got the orders from India is now going down slightly. That's what we are saying.

So to paraphrase, the revenue should be above the $75 million to $80 million range with the baseline product sales down a little bit because of some softness in Latin America and some delays in the timing of the U.S. stuff. But it's above the $75 million to $80 million range, is that correct?

Yes. I would even add the word "significantly" above.

Okay, great. Because it wasn't clear when you gave your presentation. And then on the gross margin side, because of the shift to India despite the better revenues, the gross margins are only improving a little bit in the June quarter. So in the 30 the 31 range, sounds like the kind of ballpark you're talking about.

Then I was a bit confused about the comment about 32%. Was that you're saying that you expect to be at 32% range for the year, or you're saying that you expect it to be in the 32% range in the back half? It wasn't clear what you meant.

What I said that I expect our gross margins to be above 32% on the second half of the year.

So, kind of on track to hit the 32% plus range for the year?

Yes. Basically, this is -- this is what we target. And because of that, we are not making any change to our target of improving the net profit.

Okay, great. And then you made a comment about OpEx being a little lower. I'm actually very impressed with your OpEx number in the March quarter, given, I think, the shekel actually strengthened during the March period. Have you been more aggressive on the cost-cutting side and cost-containment side in 1Q? And how much of a pop-up -- should we be looking at a little bit above the $20 million quarterly run rate going forward, and maybe approaching up in the $21 million range? Or can we keep it down below -- closer to the $20 million range as we go out over the next 3 quarters?

So first -- let me answer you in 2 pieces. First of all, the impact of the shekel is basically already embedded in our numbers. It's -- the impact is, I would say, to some extent, diminished because we are doing hedging and we have a hedging policy where main expense is in shekel. So while the impact is already included, it's not that major that would make our range of OpEx change.

Now going forward, I think you should expect a slightly higher OpEx. Still, within the range of $20 million to $21 million. But it will be slightly higher because of different reasons. Some of them are obviously, different commissions to sales and to agent and other salespeople that are involved in the selling of our business. And the fact that Q1 is usually a Q when we plan our budget, we plan it to be at the lower end of the range because we know that this Q is usually slightly weaker in terms of revenue than the others.

Okay. And then just if I could, the tax line is always difficult for us to forecast. I was a little surprised it was quite a bit lower than we were expecting in 1Q. Is that going to stay a little lower? I mean, are we going to be able to sustain tax rate at or below the $2.4 million that they did in '16, is that kind of the right ballpark? Or should I be expecting a little bit of a pop-up in the back half of the year as your profitability improves sequentially?

I think that the latter assumption is more coherent and reasonable. We do expect the level of tax expenses to go up. And I don't think we will stay at the $2.4 million you've seen in 2016. I think it will start going up and we will probably be closer to a $3 million, maybe shy of $3 million. But I think that the trend is going to be trend up.

One more question. Can you tell me what your headcount was at the end of the quarter?

It was a slightly above 1,000 employees.

Okay. And so all right, I'd like to just shift the gear from mechanics to what I think is the biggest question mark in front of the company and get your view on it, because I think it's critical.

5G is looming. Clearly, it's going to be a different world. It's one where there's a lot of virtualization. They're talking about putting the base stations a little further out and virtualizing them. They're talking about densification, there's a lot of discussion about fiber to the tower in many instances. On the other hand they're talking about putting 5G in light towers instead of putting fiber into the home and using that to give you a gig into your house. A lot of variables here that significantly alter an environment for wireless.

Is it a net positive for your growth rate? Or is it something that we should look at with trepidation because the capacities go up substantially? And then second, as the shift to 5G happens, doesn't that put a huge premium on your value proposition around multicore and shouldn't that result in significant share gains as well as less price sensitivity, as a result of the fact that you're one of the few people that can actually deal with that higher capacity environment? So a lot of material in there, but I really need to get my arms around why I should be bullish on you around 5G as opposed to nervous about it.

So I would be in ways we think 5G is an opportunity, I think I alluded it in my remarks but we're looking at different opportunities. I think you touched the right levers on 5G, a lot more capacity, a lot more densification and base stations, some of them virtualized, some of them small cells trying to do fixed wireless access.

With that said, on the table, I'll touch 2 points on that spectrum to give you some insights. One, there is a big question we're getting, okay, then everything will be fiber. Or, I heard that I think in 3G and 4G and everywhere, yes, we'll see more fiber because the big -- the market core stations, so central points, will be a lot more heavily capacity constrained and we'll get there -- as people will get there with fiber. But at the same time, you will see a lot more base station large, small cells' locations which will not be served by fiber. So I think the net will be probably slight increase in the usage of microwave backhaul of all sorts to reach those locations. By the way, sometimes in different frequencies, sometimes in different configurations, but, for example, all outdoor solution and others. So we believe that 5G in general in our core market, which is backhaul, is a net positive.

The second point about this is a cautious is, it will take time. It's not something we will see next year, although I see all the hype in the U.S. around 5G. But if you dig a little bit in there, people talking on maybe starting 2018 and anywhere where we talk with the experts, people do forecast the significant waves of 5G worldwide to happen is probably 2020 and not before that. That's what we hear from the Europeans, that's what we hear from other markets. And it will happen like in 4G. It will be a catalyst for a wave probably a little bit down the other road, so on that side, I'm a little bit more cautious. I don't expect that to be a spike next year, although we see a lot of the hype around it in the U.S. market.

In addition to that, and that's what I alluded into my comments, it opens for us all sorts of opportunities which are in adjacent markets to where we are, having to do with different ways of designing backhaul because of the densification in some frequencies, and maybe even in some places touching the total access piece in there, especially at the very high capacities, maybe not to the home but above that in some places. And this is part of the strategic initiatives we are looking at internally at this point and evaluating our options. Does that give you a better picture, Alex?

Yes, the last question piece on that was the impact of the shift. Does it accelerate your advantage as a result of your multicore capabilities is being the most advanced and, therefore, change your market share and a lot of people pay a premium?

I think that people will pay a premium for the multicore.

So is that something that happens quickly, or is that something that takes -- going back to your point in time?

I think I said in my comments, our market never -- telecom operators never make big changes quickly. It does really allow us to slowly continue to gain I think market share.

Our next question is from George Iwanyc with Oppenheimer.

Just following up on the revenue outlook for the year. If you took India out of the picture in the second quarter, are you comfortable with a normal first half, second half seasonal pattern, with the fourth quarter being the strongest part of the year?

At this point, based on what we know, the answer is positive.

Okay. So a decent lift, could you be -- do you still look at that $75 million to $80 million type of band for the second half? Or could you be at the higher end of that at end of the year?

Due to the delays within for the first half of the year, which we discussed as part of our comments, we tend to believe that there will be some catch-up. And this is why we tend to believe that the numbers will be towards the higher end of the range.

Okay. And as you look at the spending patterns, flat to down this year on a dollar basis, do you see either early 5G or some other impact next year that could potentially start to lift carrier spending on backhaul overall?

I think that's what I indicated in the prior question on that -- is no, not next year. We believe next year will be very, from a spending perspective, probably either flat to slightly down. Slightly down means lower single digits probably. And I think we -- in our target is to try and mitigate that by gaining market share within the market of the markets that we are in and target slight increase for Ceragon as a whole. But very slight increase, so we can continue our trend of improving the net profitability on the bottom line.

But at this point, it's still, I would say, a little bit on the faraway. This is our targets; this is our thinking as we look into the markets. 5G will start accelerating and increasing in significant number, probably somewhere at the back half of 2019, probably not before 2020. Because when you talk to a lot of operators worldwide, they say in some ways, "5G, what?" Yes, they are looking at the value in technology, let's remember. Like any of the big waves. We are in the -- especially for mobile and the hype space, so I think we'll see pockets will 5G fixed wireless access coming a little bit earlier. But again, not in all markets worldwide.

And when you look at the market share opportunities, are you looking at mainly gaining in the public safety, the oil and gas, maritime type of opportunities that you mentioned? Do you feel the competitive front has eased up a little bit because of the product leadership that you have? Can you add a little bit of color there?

We are targeting 2 things. One is market share in the mobile space using the Multicore Everywhere. Now again, as I said, gaining new customers within the mobile space is a slow progress. You need the geographical spread, the relationship with the customers and it's a slow process.

And the other is, yes, we are targeting the vertical markets. They're a little bit more aggressively, but the deals there are also long-term. They're because we [can] provide in the oil and gas and maritime very unique products and in the public safety also, taking the Multicore Everywhere and mainly the multicore all outdoor and making it built specifically for that market, we think we can gain market share in those. This is more short term, probably back half of this year and early next year.

But again, if I look at those markets, so this is about, in general, 20% of our business. So even gaining a little bit market share there within all the verticals we are, will have a small impact on the total numbers, although it's important for us because those markets are usually a little bit more profitable than the mobile space.

(Operator Instructions) And we do have a follow-up from Alex Henderson from Needham & Company.

So I wanted to go back to the discussion about the U.S. environment. There's, obviously, a lot of press around potential M&A at both Sprint and T-Mobile. If there was an event there, does that alter your thinking about the outlook for the year? And would that negatively impact the trajectory of business at those accounts?

I'll say it this way, both are very good customer of ours. So gives us a very good position if, and a big if, because I know I've seen all the rumors, they merge. There is always the question, prior to the merge, how aggressive each one of them is jockeying for a position gaining market share and customers in between them that might have an acceleration effect before. If they do merge, to be realistic, and we've seen it worldwide, there's usually the period of probably 6 months, sometimes less, sometimes goes all the way to 9 months, where people now are trying to evaluate where is their share versus building the network and then when they found their share, what does a merged network look like? And then they go back into spending mode, then growing the network type of a mode. And in that point, if something happens there, and it's a big if, then I think we had an excellent position.

We have no further questions in queue. So please go ahead with any closing remarks.

I'd like to thank you, all, for joining us on this call today. We are open to any of further follow-on questions on one-on-ones. Please feel free to call us and contact us and schedule one-on-one discussions where we can give a little bit more color on the topics that we discussed, both the near term, the midterm and our strategic goals to keep on driving and improving our profitability and growing the company. Thank you.

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