Ceragon Networks Ltd. (CRNT)
Q4 2012 Earnings Conference Call
February 14, 2013; 09:00 a.m. ET
Ira Palti - President & Chief Executive Officer
Aviram Steinhart - Chief Financial Officer
George Iwanyc - Oppenheimer
Matt Ramsay - Canaccord Genuity
Jason North - Jefferies & Co.
Joseph Wolf - Barclays Capital
James Faucette - Pacific Crest
Daniel Meron - RBC Capital Markets
Previous Statements by CRNT
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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 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 significant expenses in connection with potential contingent tax liability associated with Nera’s prior operations on 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 and 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 and 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 would 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.
Our revenues in Q4 were consistent with our guidance and our operating expenses declined, showing the effects of the initiatives we implemented in Q4. As expected our operating cash flow improved dramatically and we have 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 and geographic mix relate to typical customer ordering cycles and the revenue recognition patterns, rather than a change in demand trends.
Near term we still expect macro economic uncertainty and 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 end user business, especially in the current environment. But we are executing well and we have achieved a number of important goals. This achievement 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, this achievements are very real and they position us for much better profitability in 2013, followed by return to growth and improved operating leverage. Therefore I’d like to go through some of the strategic business accomplishments of the past year.
We increased our market share in the long-haul business and became the clear number one. We successfully converted all the former Nera short haul 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 reduced the product cost for the long haul product line.
These two initiatives combined with our continued designed to cost program, enable us to achieve and sustain gross margin in the mid-30. In terms of the deals we are booking, we are already at the mid-30 level, however the lack in revenue reorganization means that this is not yet apparent in our financial statement.
Another major achievement of 2012, which is yet to become fully reflected is the addition of several new tier 1 customers and the strengthening relationship with several others.
First, purchasing decisions are not always centralized. Our challenge will be to continue expanding with these large customers 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 even before, recognizing 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 could require operators to [quarter serve] (ph) the CapEx investment at the time when they are looking substantial revenue to over the top services.
The substance 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, the strategic partners will have the rake the linear relationship between cost and capacity.
Therefore operators are being forced to change the business model, increase the complexity and diversity of the networks and accelerate the adoption of new technology. This in turn creates a lot of buzz about network sharing, small sale, supermarket sales, cloud run, distributive architectures and WiFi offloading as fair grade solutions. Our view is that all this various technologies and business models will have a place. There is no single silver bullet solution to the wireless carriers dilemma.