CRNT

Ceragon Networks Ltd. (CRNT)

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Ceragon Networks (CRNT)

Q1 2013 Earnings Call

May 06, 2013 9:00 am ET

Executives

Ira Palti - Chief Executive Officer and President

Aviram Steinhart - Chief Financial Officer and Executive Vice President

Analysts

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

Aalok K. Shah - D.A. Davidson & Co., Research Division

Presentation

Operator

Good day, everyone. Welcome to the Ceragon Network Ltd. First Quarter 2013 Results 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 the 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; 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 or circumstances after the date any such statement is made.

Ceragon's public filings are made 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, our CFO. Today, we reported our final Q1 results, which were consistent with the preliminary figures we announced on April 8.

At that time, we explained that it has been taking longer to close deals and our Q1 bookings were low even on a seasonally adjusted basis. We also indicated that several factors are causing operators to hesitate and delay projects as long as possible, mainly, very difficult economics of adding capacity combined with a need to consider how and when to invest in implementing and extend architecture. Plus, there are issues that vary from one operator to the other.

The picture remains the same as it was a month ago, nothing has changed. Except, we are in the position to share more specific details and we have more information from the field to support what we explained during the April call.

There are a number of positive aspects to the current situations. Carriers are not canceling or reducing the scope of their planned projects. Our detailed analysis during the last month indicates that our customers will go forward with this projects, but they will do so very cautiously with a longer process and more layers of approval than in the past.

We saw something similar in the 2008, 2009 period when there was a high level of uncertainty. We believe we are not losing business and market share. In the last months, we have become aware that more of our competitors have been making similar comments and industry analysts are revising the figures downward.

There is a continual excellent response to our new product enrollment. We are currently involved in about 15 lab and field trials with various operators who are early adopters around the world. The most common reaction is, "Wow!" But the length of time from the wow reaction to issuing a purchase order is still going to be longer than we originally thought because of the factors we have talked about.

An additional part of the design is that our bookings so far in Q2 are better than the same period in Q1, as we expected they would be, but not enough of an improvement to prevent small sequential decline in the revenues in Q2.

Again, this is what we indicated on the call in April. So the near-term outlook is exactly the same. Assuming the improvement in booking is a trend that continues, we expect gradual improvement as we move through the year.

After a careful analysis to see what action we might be able to take to remove some of the obstacles, a conclusion that there are several factors and -- that are for the short-term and for the long-term broken into several reasons.

We enjoy a high market share. We are the #1 long-haul and we are the top specialist vendor in short-haul. Currently, close to 90% of our business comes from existing customers. During times of uncertainty, perhaps, the easiest for a carrier decision is to do nothing or to turn to your existing vendor relationship for things that can be postponed. In the short-term, this will hamper our ability to displace competitors and increase booking significantly, but neither are we likely to be displaced. We will use this period to continue cultivating key carrier relationship for the long-term. We have worked very hard, over more than a decade, to achieve and maintain our position as the lowest-cost vendor in the industry. Unfortunately, in the near-term, this will not help us increase our bookings because existing customer reasons for hesitating will not be overcome by price alone. Longer-term, our cost position would be a critical advantage in our ability to penetrate new customers, gain share and increase gross margin to our target level.

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