Ceragon Networks Ltd (CRNT) 2020 Q1 法說會逐字稿

Good day, everyone. Welcome to the Ceragon Networks Limited First Quarter 2020 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 of disruption in our and our customers' business, related to the outbreak of the novel coronavirus COVID-19 pandemic, "Coronavirus"; the risk of macroeconomic downturn and slowdown of development and significant decline of business that can harm our and our customers' ability to conduct or further develop our/their business, including cancellation, suspension or reduction in investment in new equipment purchase, postponements or cancellation of rollout of wireless networks, postponement in the transition to 5G technologies and the introduction of new products and capabilities; inability to deliver and perform under our contracts; disruption to our supply chain and production capacity; adverse effects on our and our customers' finance performance, cash flow, revenue, and financial results, available cash and financing, and our ability to bill and collect amounts due from our customers.

The risks relating to the concentration of a significant portion of Ceragon's expected business in certain countries, and particularly in India where a small number of customers are expected to represent a significant portion of our revenue, including the risks of deviations from our expectations of timing and size of orders from these customers; the risks of delay in converting design wins into revenue as well as expected revenue growth; risks associated with any failure to meet our product development timetable and specifications to maintain our technological advantage over our competitors; risks associated with any failure to effectively compete with [our] wireless equipment provider; the risk that our rollout of 5G services could take longer or differently than expected. Other risks and uncertainties detailed from time to time in Ceragon's annual report on Form 20-F and Ceragon's other filings [and] Securities and Exchange Commission that represent our views only as of date they are made and should not be relied upon as representing our views as any other subsequent date.

Forward -- such forward-looking statements do not purport to be predictions of future events or results, and there can be no assurance that it will prove to be accurate. We do not assume any obligation to update any forward-looking statements.

Ceragon's public filings are available from the Securities and Exchange Commission 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 would now like to turn the call over to Mr. Ira Palti, President and CEO of Ceragon.

Please go ahead, sir.

Thank you. Good morning and good afternoon to everyone joining us on the call today. With me on the call today are Ran Vered, our Chief Financial Officer; and Osi Sessler, Head of Investor Relations.

I hope you and your family are staying healthy during this unprecedented times.

During this period, our top priority is ensuring the health and safety of all our employees around the globe, as we continue to serve our customers.

As you are well aware, COVID-19 has turned the world upside down since our last conference call. It has changed the way we work, shop, learn and stay entertained, literally overnight.

For telecom, the impact has been dramatic. Operators are experiencing unprecedented demand for bandwidth. According to The New York Times, operators like Comcast, Vodafone and Telefonica and many ISPs have never seen such a steep and sudden surge in demand.

T-Mobile's U.S. President of Technology, Neville Ray, says its mobile hotspot usage is up 60%. Meaning, that people frustrated by poor home broadband are moving to the cell phone as a hotspot device.

Use of collaboration tools like Zoom, Teams and Webex is up 87%, and use of online educational tools is up 135%. The change in telecom usage that we expected to see over the period of a few years has accelerated into just weeks. Although no one knows what the long-term outcome will be, one thing is clear: broadband connectivity with high capacity has become widely recognized as an essential utility, like electricity or water.

Consumers and businesses both expect a new level of speed to support the connectivity needed for HD quality streaming, better online gaming, remote office and virtual meeting experiences.

As a result, operators throughout the world now understand the need to ramp up their capabilities and we believe that they will compete to address the demand. This brings urgency to the need to increase the capacity of existing network and to extend coverage into areas where it is unavailable.

Wireless holding is an important enabler of the process, since it is the fastest and most flexible way for achieving these goals. In fact, many places in the world, mobile wireless is the only broadband connectivity that exists. All this urges for the acceleration of 5G, which supports 10x higher connectivity speeds, more reliable services and greatly increased capacity as compared with 4G.

We, therefore, believe that the current situation will serve as a catalyst for long-term 5G investment, resulting in increased demand for expanding and densifying wireless networks as well as for building greenfield networks. These are obviously trends that will work to Ceragon's advantage in the mid and long term.

For the short term, however, the outlook is more complex. In support of the optimistic scenario, some service providers are accelerating the investment in both 4G and 5G. For example, AT&T announced that it has canceled a $4 billion stock buyback to keep cash available for major network investments, including nationwide 5G rollouts. T-Mobile, having completed its merger with Sprint, announced that they are moving quickly to fill their nationwide 5G, and there are many other examples.

At the same time, there are significant challenges. All aspects of supply chain are working slower. And our industry has been affected on the operational level, along with the rest-of-the-world economy, as it faces the risk of a global recession. And no one knows how to predict the timing of the recovery.

While operators want to accelerate their investment, the cash they have available may be less than planned due to 2 major factors: the fact that they have had to consume a higher portion of the budgets early in the year, to cope with capacity shortages in networks in rush-mode, reducing the resources available for spending during the rest of the year on 5G network deployments, and the reduction of revenues from enterprise accounts whose employees are on leave or are closed, and the change in local currency versus U.S. dollars, which makes investments more expensive in some regions.

This could clearly have a negative impact on Ceragon for the short to midterm. For the long term, however, we believe the market is headed for accelerated 5G development, and we expect to emerge as leaders in the growing market. For now, I would like to make the following points: we are currently experiencing high demand for our products from certain operators, including both existing customers and new customers. Demand was especially strong toward the end of the first quarter. This demand has so far translated into very strong bookings.

During the first quarter, our book-to-bill ratio was well above 1, reflecting significant new orders from Tier 1 operators in India, Asia Pacific, the U.S. and Latin America.

Just last week, we announced a new order from Airtel, one of our large customers in India, indicating an end of last year's slowdown in this important region. We are seeing an acceleration of projects within our customer base, including North America, Europe and India, and we are reaching out to existing customers offering to help them increase capacity, to resolve capacity bottlenecks. This is giving them an increased appreciation for the flexibility that our technology provides.

Nonetheless, the situation has brought us up against significant challenges in the short-term. The pandemic may delay the placing of orders by our customers, in addition to impacting our ability to translate booking into revenues. Many of our suppliers are working at reduced capacity. And sourcing substitution is often slow and expensive, shipments are taking longer to complete, and installations are taking longer to perform. We have been working around the clock to resolve the challenges to ensure that our employees and customers are safe, and to keep the company resilient and agile.

We have remained fully operational, transitioning into a new mode of operation and support of our customers, our business continuity program. Even though most of our employees have been working partially or fully from home, it has been business as usual.

We recently completed, on time, a significant R&D release on full-remote, and we maintained a continuous PR and market presence and we are proud to have been able to have achieved a such strong quarter from a booking perspective, despite having no face-to-face meetings. But revenues can't be recognized until the equipment is delivered. And when we sell with installation services, we can't bill and recognize until the equipment is installed and operational. This was the main reason for our low revenues and gross margin for the first quarter, as Ran will explain in more detail. As it looks now, we expect the impact to continue in Q2, but to a lesser extent.

For the longer term, however, while still early to make detailed predictions, we currently believe that markets will return to a new normal in the third and fourth quarter. We expect to take our fair share and hopefully more of accelerated long-term network investments.

Turning to our recent business and financial performance, I'll just note that our first quarter results were in line with the update we provided on April 6. We are pleased we have progressed in almost all regions, demonstrating our continued progress in winning new 5G design wins and substantial projects for expanding and densifying 4G networks. This is another demonstration of our technology leadership and our global capabilities.

India. India has returned to activity after last year's slowdown. We just announced a major new contract with Airtel India -- a customer for more than a decade, and India's largest telecommunication company -- for a project to increase its 4G network capacity in urban areas, to expand its coverage in rural regions, and to prepare for its future evolution to 5G.

As the country's telecom market wakes up, we are taking market share, a testament to our strong network rollout capabilities, which allow us to deploy hundreds of sites every month.

North America. In the U.S., we have begun benefiting from the merger of T-Mobile and Sprint, both long-term customers, which was completed on April 1. As you recall, last year, they both cut back on the orders during the merger process. But right before the close of the merger, they expedited an order with us, and we expect to continue supplying them with 4G and 5G wireless backhaul equipment for the network rollouts.

In addition, following a new 5G design win, we have been working intensively with the lab of another Tier 1 U.S. service provider, to integrate our products into the network blueprint. Once completed, we expect this step to lead to IP-20 and IP-50 orders during the second half of the year.

Europe. In Europe, while we had a weak revenue, we had our highest Q1 booking in 6 years. This reflects the fact that service providers, operators and ISPs in a number of countries, including Italy and Spain, are turning to us to help provide bandwidth to the locked-down populations, and to enable emergency projects.

Africa. Africa was weak, both from revenue and booking perspective.

LatAm. In Latin America, we continued executing on 4G expansion projects for Tier 1 pan-LatAm operator across several countries, including Argentina, Brazil, Colombia and more.

Unfortunately, we have experienced delay with a large project in Peru and Colombia due to the region's very strict lockdown measures.

Asia Pacific. In Australia, we received a follow-on [order] from a Tier 1 service provider against the 5G design win that we secured last year. Other 4G-related projects with operators in the region have progressed during the quarter, and we expect Asia to continue to expand its 4G during 2020. And in Japan, we are working with a 5G mobile operator, with a goal of securing the future business.

So as you can see, despite the uncertainty, the crisis has brought us many new opportunities, while supporting our long-term strategy. This give us room for optimism.

I'd like to end with a discussion of our readiness as a company to take advantage of the opportunities. From a product and technology point of view, we are ideally positioned to address the 5G opportunity. Our existing platforms continue to stand out in the market for the technology leadership, flexibility and speed.

In parallel, we are on track with our development of our next-generation wireless hauling chipset for the more advanced stages of the 5G network transformation.

It will allow us to provide even higher 5G network capacity, driving to 100 gigabit speeds with a focus on smart, efficient spectrum asset management, with far more flexibility for deployment of 5G networks.

From a financial point of view, as Ran will explain, we believe we are in an excellent shape to ride out the current crisis and to take advantage of the opportunities that come with a recovery. Even though this was an extremely challenging quarter, we remain strong and cash positive. Our customers are primarily large where the top-tier operators whose broadband services are increasingly recognized as essential utilities; or large companies like utilities and public service organization, with significant basis of customers and subscribers. All are likely to continue investing in their infrastructure.

So although no one knows what the next few months will look like, we believe that momentum will continue to build for Ceragon.

Now I'd like to turn the call over to Ran to discuss our finances in more detail. Ran?

Thank you, Ira. Since we have all seen the press release, I'll focus on the highlights. As we indicated in the update we provided in April 6, our revenues for the quarter were lower than originally expected, approximately $56 million, in line with what we shared. This reflects the normal seasonality of the first quarter compounded by delays in the pace of network rollouts and shipments, as lockdowns and other COVID-19-related measures caused a slowdown in the ability of our customers to execute on the network expansion plans.

Regionally, India was our strongest market, accounting for about 25% of our revenues. This, together with strong bookings, demonstrates that India has returned as an important focus market, despite the fact that hundreds of installations become impossible to carry out due to the lockdown.

India was followed by APAC, which continued with the normal level of revenues despite COVID-19. The U.S., Europe, Latin America and Africa, all had weak revenues compared with previous quarters due to delays in our ongoing projects compounded by normal Q1 seasonality.

We had 3 above-10% customers in the first quarter. Our bookings for the quarter were very strong, with the book-to-bill ratio well above 1. This demonstrates the strong positive momentum that has been developing since the beginning of the year, including the return of India as a major source of business. Continued strong activities in Latin America, Europe and Asia Pacific and the steady quarter that we had in the U.S. countered somewhat by weak quarter in Africa. In general, many of our customers have accelerated the pace of existing projects to address the sudden increase in demand of capacity.

Our non-GAAP gross profit for the quarter was $14 million, giving us a gross margin of 25.1%. This is the lowest it has been in many years, reflecting the low revenues as compared to our fixed costs, compounded by a less favorable geographical and customer mix and increased sourcing and supply chain costs.

Our expectation is that once the volume of our revenue picks up, our gross margin will return to a normal range.

Our non-GAAP operating expenses for the first quarter was $19.6 million, which is below our plan. R&D continued at its normal level, as we continue to move forward with the development of our new chipset and IP-50 platform.

Sales and marketing were lower than their normal run rate, reflecting lower variable compensation and lower travel expenses due to travel limitations of the Corona environment.

G&A expenses remained at the normal level. Financial expenses and other expenses was lower than the normal expected level. We do expect them to return to the regular level in Q2.

Given the current environment, we expect OpEx to continue around this level for the second quarter, and then, probably, to rise gradually back to the normal rate of $21 million to $22 million, third quarter.

Tax expenses for the quarter was low at a bit less than $400,000. On a non-GAAP basis, net loss was $6.7 million or $0.08 per diluted share. Our GAAP net loss was $6.9 million or $0.09 per diluted share.

Turning to the balance sheet, we are pleased to remain cash flow positive, despite the low revenues. Our cash balance is up by $20 million, reflecting the combination of $1.9 million of free cash generated from our operating and investing activities, together with the $18 million draw from our revolving credit facility that we carry out as a precautionary measure. We aim to reduce our short-term loans in Q2.

Our receivables decreased to $104.2 million, giving us DSO of 140 days. This reflects our successful ongoing collection effort and we'll continue to put a major focus on it.

Similarly, our inventories decreased by another $2.5 million, reflecting our continuous efforts to reduce them to the levels we had in 2018. We are continuing with this effort to optimize our inventories in this challenging period.

Turning to the near-term outlook. Our current view is that our expected Q2 revenues will be lower than the $70 million to $75 million average quarterly run rate that we previously projected due to ongoing COVID-19 related difficulties in supply chain, installations, et cetera.

With the situation far from resolved, it is too early to make predictions about the rest of the year.

As Ira said, while we believe that long-term trends are working in our favor, there is lot of uncertainty in the short- to mid-term. We continue to invest in our major development programs to assure that our future roadmap supports our design wins effort, sustaining our position as the strongest company in wireless hauling, and the key to generating future revenues.

Now I would like to open the call for questions. Operator?

(Operator Instructions) Our first question comes from Alex Henderson from Needham.

So obviously, a lot of questions to run through here. The first one, obviously, is on the revenues for the second quarter. Clearly, $70 million to $75 million is -- nobody is expecting it to come anywhere near that. But do you expect a moderate recovery off of the $56 million you did in 1Q is -- should we be thinking something in the $60 million to $65 million range? Can you give us any more granularity on that? And relative to that same question, to what extent do you think your book-to-bill will be above 1, in other words, continuing supply constraints resulting in those lower numbers? Or do you think the demand will stabilize a little bit?

I will answer the demand side. I'll let Ran talk about the numbers. I think the big issue right now, and I think we emphasize it, very hard to predict right now Q2, even as we sit right now. I'm just trying to elaborate a little bit, but internal in the company, I've seen scenarios with a very large range, a much larger range than usual because of the constraints on the table. I think that from a demand perspective, might be our look right now, is that in between the higher demand and some constraints, which are starting to emerge on uncertainties or for example, that I mentioned, people investing early in this budget, the fluctuations in currencies and others probably, will be a normal quarter.

Ran, you want to handle -- talk a little bit about revenue forecast?

So what do you mean by normal quarter? I'm not sure I understand the term.

More in the range of probably, book-to-bill, around 1.

Just to add on that, Alex, when we running the scenarios that we are seeing, the -- we have very strong backlog, as Ira mentioned, and this is one item in the equation that is very clear. I think the issue with the scenarios is mainly around supply chain deliveries and installations. And things are changing like in a day. So it's really, really hard to predict. The positive side of that is because of this healthy backlog, if we could not convert some of this backlog in Q2, we'll see the upside in Q3, but at this point, the ranges of revenues are really, really wide, and it's really hard for us to predict that.

Is it reasonable to think that it could be at least up, sequentially?

Yes. We -- and we hope that it will be up versus the first quarter.

I see. If I could, the gross margins were probably the most surprising piece of the puzzle in the quarter. Now we haven't seen a 25% gross margin in a long time. Obviously, that reflects the strength in India as well as all the other issues that you outlined. To the extent that we're looking forward into the second quarter, can you talk a little bit about whether you think that mix will stay that way? Whether you'll start to see some improvements in that? Can we get back some of that gross margin? Or should we still be thinking, something in that vicinity?

Alex, it's Ran. So the main reason of this low gross margin is the low revenue that we had compared to our fixed cost components. We have some fixed costs in our cost of revenues to maintain our production lines, the cost of the people to operate. These are fixed cost items that, when the revenue are low are causing the gross margin to be lower than normal. While we -- we'll return to our average quarterly run rate of $70 million to $75 million, we are planning to get back to our regular gross margin. This is our expectation.

All right. So if it's consistent revenue with the same amount of revenue in the March quarter, then we should think the gross margins are going to have that same level of pressure. If it rebounds modestly, it's a little less pressure; if it rebounds fully, obviously, it goes back to normal. That's -- basically the slant then.

That's basically it. Yes.

No change in the mix. I mean wouldn't you be slanting towards higher-margin product, if you're constrained?

The change of the mix depends on the customers and the geographies where we serve the customers to be totally fair to the game almost, on a first come, first serve basis, under constrained type of locations. We do not see a significant or any change in pricing pressures within the market, except the normal ones. On every day of the year, there's pressure, but it's not something which is not normal. And we try for business as usual, to try to serve best all our customers worldwide, with varying needs.

Certainly, India has shut down more aggressively than it was in the first quarter. In other countries, particularly, in APAC have seen improvements. My sense is that, North America and Europe are more normalized in 2Q. Wouldn't that suggest a shift away from India to other geographies? Hence, even at the similar level of revenue, some improvement?

Somewhat. But although, remember that, lockdown is a very complex -- regulatory in different places. Take India, for example, we still can't deliver equipment. Yes, it goes to the warehouse. We do expect at some point during the quarter for our ability to resume installation services. Depending on the geographies, sometimes, it becomes an issue of supply, sometimes it's an issue of the ability to do installations, locally.

So it's -- one of the things, to give an example, one of the quarters we had in one of the regions of -- antennas, for example, we supply locally, almost locally in different places around the world because it's very heavy shipment. Depending on where the antenna manufacturers are open or closed and moving them around the world makes total -- totally unreasonable sense, because you pay more for shipping costs, especially, that now the shipping costs are up than the antenna cost itself. So has those dynamics on the table.

All right. I get the general...

But in general, going back to your overall assumptions, as the revenue starts to climb back into the normal range, gross margins will climb together with it.

Our next question comes from George Iwanyc from Oppenheimer.

Ran, can you give us a sense of how much flexibility you have from an OpEx level? When you look at the June quarter and then, adjusting in the second half of the year.

George, so when we look on the OpEx, and I said it also in my prepared remarks, in Q2, we do expect to be on the same range that we had in the first quarter, roughly the range of $20 million. Going to Q3 and Q4, we do expect it to go to its normal level of $22 million to $22 million for few reasons. First, we are continuing to invest in our R&D, and for us, it's a major key factor for our success, and we do not expect to lower it down. The thing which is probably going to go up is our sales and marketing. There was some major reductions due to some travel restrictions. And we do think that in Q3 and Q4, we're probably going to see that up.

Keep in mind that we do -- on the OpEx side, we do have some slowing down on the hiring and investment in CapEx, IT and travel. But on the other hand, we do operate normally. The company is fully functional. So at this point, we do think that we will resume the OpEx to be at a normal level in Q3 and Q4.

Okay. And without the travel that you're seeing and the type of sales engagement you have right now, are decisions that the carrier is taking longer, even though there is an increased need for demand or bandwidth?

So as we said, we are fully operational. And I think the big challenge, one of the challenges is, as we work from home, there's less travel, we need to do the business via a lot of video conferencing. And we worked very extensively with our sales teams to both train them to this mode, build the methodologies for that to work with the customers. In some places, I do see a slowdown; in some places I see even acceleration, because people need, at least, on the ongoing projects, the process has become sometimes even shorter. It's obvious where it takes longer. I'll give an example when some of the things takes a little bit shorter.

Sometimes because we are a global company, to schedule a meeting with an operator, it takes time because they need to bring 4 people from 4 different locations who are different and scheduling those 4 people, and we need to fly in 4 people from other locations. And it takes time. And then the meeting start to spread out. When we do things, we are video conferencing, much easier to schedule. Everyone gets on the table, sometimes the meeting's duration and things become much quicker for achieving the results. But I see both sides of the coin on that.

My belief is that, by the way, as a part of the habits, social change, that COVID brought on all of us, I'm starting to hear from my salespeople and a little bit from the customers, they might even prefer longer-term to have some of the meetings also, non face-to-face, moving them forward because of the rapidly everything is happening. I think that's part of the things that you're seeing on some -- and I said both sides of the coin is some of the -- it's less of the interaction, it's less of the internal decision processes in some of the customers.

Okay. And Ira, when you talk about...

And at least up to this point, this has been, in the first quarter has been on the positive side. I think in the second quarter will return to a normal level from that perspective.

So Ira, when you talked about the new normal for the second half of the year, is that primarily related to, like your manufacturing ability in the supply chain or do you believe that also is a deployment in the spending environment?

Both. Both the supply chain activities, shipping supply chains -- which we'll have to adjust for that -- and also on the demand environment. One other thing that we need to keep in mind, that's on the demand, on the revenue side, walking in with a big backlog with some point during -- if the supply chain constraints start lifting up, both in installation stuff, we'll have to deliver that backlog as quickly as possible.

And just from a kind of technology perspective, are you seeing a lift in market share currently, because of the IP-50 and the ability to kind of be prepared for 5G? And how do you feel from a competitive basis, as we get to that new normal?

Very strong. First, I see a significant lift on the IP-20. The ability to deploy non-complex, all other solutions which are quick and easy -- both from a connectivity, high capacity -- in some cases, if then, it's not useful to first day, almost double capacity by click -- meaning, activating the second carrier -- gives us a huge advantage, and I see a lot of demand for those solutions. And I see it mostly in the labs at this point around the IP-50, but also some of the E band IP-50 products, which are out already also, a very interesting discussions and dialogues with operators. And quite a few operators, which we haven't worked in the past, are willing to discuss with us. We even brought up capabilities like doing demos, remotely. We set up a whole set of cameras in lab, so if people want to do demos with us and testing, we can do that remotely with them, within our labs, to push that. And it's opening doors. And it's opening doors -- a lot of doors, which we haven't been there before.

We have a follow-up question from Alex Henderson from Needham.

Alex?

Yes. Can you hear me?

Yes.

Couple of questions, if I could. Can you give us an update on what's going on with NEC? I have heard mixed signals on whether they're committed to your chipset or whether they are still working with MaxLinear on a next-generation product. What's your thoughts there?

Daily video call with them -- not me, the technical teams -- working on details on the joint development. If that gives -- if that doesn't give you an answer then, okay.

So any sense of whether they are still working in tandem with MaxLinear or whether they're down...

I don't know. I don't know, at least from what we hear in the market. I don't think MaxLinear is on verge of developing anything which is close to our next level of chipset. And let's remember, we're doing something which is wider with NEC, which is a joint development activity.

Any other OEM relationships brewing in the background that we should be anticipating benefit from?

There's things brewing in the background. I'm not sure what they're anticipating at this point, because those are [0, 1] deals, and until they happen, they don't happen. So at this point, there's a lot of hard work. If we'll be getting close to something, I'll probably give a heads up. At this point, it's not close.

I see. Okay. Going back to the exchange rate, the shekel has been all over the map over the last couple of months. It's plummeted to surprisingly low levels, but then, not surprisingly, it rebounded quite sharply. Can you talk a little bit about whether you were able to take advantage of that particularly low level when it got down to it, or whether it just happened too fast to benefit from it? And to what extent you're expecting some benefit from the current level?

Alex, it's Ran. So just to remind you that we are hedged on the shekel on an annual basis. So actually, when we set up the budget at December 2019, the shekel is fixed. This year it's fixed at a rate of 3.45. So actually, we're not benefiting or we're not losing on the devaluation. One thing that I would like to mention is that we did utilize the benefit of the low shekel to pay some of our vendors here locally. So we benefited part of it on the cash flow. But from P&L perspective, we are almost 100% hedged on the shekel.

If I could go back to your comment around interest income and expense, 758 in the quarter, it averaged a little over $2 million; actually, $1.5 million per quarter before. When you said it was going to rebound to normal, did you mean that $1.5 million range or what did you think...

Yes. $1.5 million, -- yes. So we should think about $1.5 million, $1.6 million, $1.7 million. It's going to rebound in second quarter.

Okay. That's helpful. And then just talking through the geographic stuff for a second. I mean it really sounds like your higher-end countries are really seeing strength. Your U.S. commentary, I think, is the most robust I've heard in -- geez, as long as I can remember. EMEA being extremely strong and APAC being strong. So it sounds like you're seeing a pretty good mix shift to -- some are higher area products. And particularly given the turn up of the soft [key] capacity, that also sounds like it's a positive for margins, as we go back.

If we, in fact, get back to more normalized revenue levels in the back half of the year -- or, for that matter, '21 -- given those dynamics, should we be expecting some positive trajectory to margins, even with India being a little stronger? Or is India the bigger factor here?

I don't think India is the bigger factor, and I think that all the trends that you indicated are right on the point. But again, as you know, a little bit shifting on the mix, a little bit with a new supply chain, new normal, costing a little bit more, shipments costing a little bit more and it's too early for me to predict that we'll see an uplift on the numbers. They will probably be in what we call the normal range of the -- somewhere where it was averaging like last year, around the numbers. And it's -- and I think that the trends you're mentioning are right on the point, but some other things in the background, which I'm not sure exactly what will be the effects. Given an example, shipment cost just in the year went up 150%. So some of it, we moved to customers, some of it is -- we have to bear this. It's causing issues on the table.

Ran, I don't mean to put you on the spot, but what's the fully diluted share count, if you're profitable? For valuation purposes?

Good question. Yes. It's a good question. Probably, I will say, roughly 1.5 million to 2 million more shares than we have it right now.

So you were at 82,250 in the June quarter.

Yes.

Which was the last kind of meaningful [profitable quarter].

Yes. Something like that. Yes. We'll probably go -- we'll go back to this share count.

I see. Okay. Going back to your comment on Japan for a second, if I could. Rakuten, I believe, is your primary customer there at this point. And obviously, they've launched now. What kind of experience are you seeing at that particular customer? It's a rather unique situation, relative to your customer base. Can you give us any insight into what we should be thinking there?

In point to Rakuten, we are working with a customer in Japan on 5G, which might be -- I didn't put, on purpose, a name next to it. Remember that Japan, in general, is a very intensive fiber country. And wireless holding is a second step on top of the networks. Both, by the way, for classical architectures and for OpenRAN architectures like Rakuten is using.

Okay. I got it. And one last question on the 5G. Should we be thinking of you as not just a backhaul company but also a fronthaul company? And to what extent do you think fronthaul starts to become a meaningful contribution to...

Hauling -- you should be thinking for us -- of us as a hauling company, fronthaul, midhaul, backhaul, and we have all those solutions. My expectation that fronthauling will take a larger and larger place as OpenRAN, 5G types of architecture, remote radio heads take place. We do assume that sometime, it will become a significant part of the business. And that's a part, by the way, of the new chip design and some of the things we do. Because if you look at, for example, 40 and 100-gig in the year are more targeted to a fronthauling versus backhauling applications.

Our next question comes from Gunther Karger from Discovery Group.

On the virus problem, has there been any increase in interest or possibilities in the M&A area?

As we said in the past, we keep on looking all the time, but usually, in situations of this kind, most companies hunker down for a while, figuring out where they are. Probably, when things emerge from the pandemic, we'll probably see increased interest out there.

So as a closing remarks, as we don't have additional questions. So we believe that we are well positioned to weather this challenging period, that industry trends will support long-term growth for our company.

And one final [note]. I'd like to draw your attention to our newly designed website, blog and LinkedIn page. We have tried to make them as informative as possible, relevant to the trends we mentioned. So I encourage all of you and invite you to have a look at them and to check back in frequently. Thank you, and have a good day.

That does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.