CRNT

Ceragon Networks Ltd. (CRNT)

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Ceragon Networks (CRNT)

Q1 2013 Earnings Call

April 08, 2013 9:00 am ET

Executives

Ira Palti - Chief Executive Officer and President

Aviram Steinhart - Chief Financial Officer and Executive Vice President

Analysts

Joseph Wolf - Barclays Capital, Research Division

T. Michael Walkley - Canaccord Genuity, Research Division

Matthew D. Ramsay - Canaccord Genuity, Research Division

Jason North - Jefferies & Company, Inc., Research Division

James E. Faucette - Pacific Crest Securities, Inc., Research Division

George M. Iwanyc - Oppenheimer & Co. Inc., Research Division

Presentation

Operator

Good day, everyone. Welcome to the Ceragon Networks Limited Preliminary First Quarter Update Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks; and Mr. 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 actual results could differ materially from forecasts and estimates that 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 or facilities, risks associated with unexpected changes in customer demand, risk 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 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.

Ira Palti

Thank you for joining us today. With me on the call is Aviram Steinhardt, our CFO. As you are aware from our announcement today, we expect our revenues for Q1 to be around $90 million, which is below the low end of our guidance. The fiscal explanation is it's taking longer than we expected to close deal and book orders. Our book-to-bill in Q1 was below 1 as the booking level was low which affected our trans business, book and ship in the quarter. The level was low even for a quarter that usually shows seasonal weakness. So what is going on? Here is what we know.

We are not losing deals that we expected to win. There are no major changes in any particular region. So far, carriers are not canceling or reducing the size of projects. And the total value of our pipeline of opportunities continues to grow. But it's taking longer for deals to close. The cautious environment we mentioned on our last call is very much what we are seeing in most regions of the world. As we have said before, the substantial decline in operator's revenue per unit of bandwidth delivered is causing them to be more cautious about releasing budget and is leading to broader reevaluation of various aspects of their business models.

Now other factors contributing to the cautious environment which are more local to specific regions like concerns over macroeconomic environment, evaluation of new technologies, network architectures and infrastructure sharing agreements, reduced pressure from aggressive competitors while also hesitating, ongoing regulatory uncertainty including pending rulings, increase in operator M&A activity with the associated uncertainty. Clearly, we underestimated the extent to which operators' caution would affect our Q1 bookings. What we can say now about Q1 shortfall is known to a bunch of individual customer-specific stories, more high-level sign off on contract required in 1 case, more technical evaluation in another, delays in budget being released in another one and so on.

Even though we know other companies are seeing the same thing, we are not happy about the situation. It is difficult for us to manage our business as effectively as we want, and we are in the process of digging deeper, account by account, to gain a better understanding of each specific obstacle we face in getting these deals closed. We hope to be able to offer more color on the situation when we announce final Q1 results on May 6, as well as discuss what action can be taken to remove obstacles and close deals more quickly. We will also discuss then the implications this has resulted during the balance of the year. Meanwhile, our working assumption is that this lengthy search [ph] process is likely to continue, causing a reduction in our revenue outlook for Q2 and the rest of the year as bookings and revenues are pushed out.

Now I'd like to turn the call over to Aviram, to make a few remarks before we open the call to your questions. Aviram?

Aviram Steinhart

Thank you, Ira. Booking during Q1 were below our expectations because we were not able to close specific deals. We do not see any change in the overall demand part by geography but it's taking longer to close deals which effectively lower the quarterly demand. The lower revenue expectations are simply a function of the low bookings level that we were planning to ship in [indiscernible] in Q1. We did not experience any further issues with acceptance procedures or other unexpected revenue-accumulation issues. We are not seeing any unusual pricing pressure.

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