CRNT

Ceragon Networks Ltd. (CRNT)

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Ceragon Networks (CRNT)

Q2 2013 Earnings Call

August 12, 2013 9:00 am ET

Executives

Ira Palti - Chief Executive Officer and President

Aviram Steinhart - Chief Financial Officer and Executive Vice President

Analysts

T. Michael Walkley - Canaccord Genuity, Research Division

Joseph Wolf - Barclays Capital, Research Division

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

Presentation

Operator

Good day, everyone. Welcome to the Ceragon Networks Ltd. Second 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 future and -- 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 liabilities associated with NERA's private operations and facilities; risks associated with unexpected changes in customer demands; 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 the date on which they are made, and Ceragon undertakes no commitment to revise or update any forward-looking statements 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 website at www.sec.gov or may be obtained on Ceragon's website at www.ceragon.com.

I would now like to turn the conference over to 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 Steinhart, our CFO. We are pleased to report that we are beginning to see signs of improvement in the business environment. Revenues in Q2 were towards the upper end of our guidance.

After a weak booking quarter in Q1, we were very pleased to see Q2 bookings return to levels near the average, with the book-to-bill well above 1. Operators are still proceeding cautiously due to ongoing macroeconomic uncertainty, revenue per share and the challenge of planning a smooth transition to next generation LTE networks.

Within the context of a generally cautious environment, our pipeline of potential business continues to increase. We are beginning to see some encouraging signs in the form of more LTE-related projects, notably in Latin America and Asia.

As we announced recently, we're partnering with the largest mobile operator in Brazil to expand and upgrade its network capacity to accommodate full LTE coverage before the Mundial -- the soccer World Cup next year.

In India, while 3G deployments have been mired in regulative issues, one of the largest LTE networks has been rolled out, deploying over 10,000 links of microwave backhaul over the past 1.5 years. By addressing the needs of this operator in India, we've acquired a very strong reputation, which positions us very well for the new, highly prized greenfield LTE project in India that everyone is talking about.

The new one is extremely large, several times larger than the first rollout. We are on the short list, and we believe we are well positioned to benefit from our strong reputation and long-standing presence in India to gain a significant share of this project.

During the second quarter, Latin America and Africa continued to be the main drivers for our business. The impact of our strong Q1 relationship is becoming more apparent, as these operators extended deployments and we extend to additional geographic regions served by these customers.

As you may recall, in Q1, Latin America was quite strong, led by a key customer group, which accounted for over 10% of revenues. We expect Latin America to remain one of our strongest regions. In addition to the 10% customer group from Q1, we are extending our relationship with Telefónica, a global Tier-1 telco with operations throughout 10 countries in Latin America. It's likely they will become a 10% customer in the future quarters.

In Q2, Africa was quite strong, and we had a 10% customer from this region. Sub-Saharan Africa is considered the fastest growing mobile subscriber market in the world and Nigeria is the most populous country in Africa. We have a long-standing relationship with Globacom, one of the largest operators in Nigeria and Africa's fastest-growing telecommunication company. Through this type of relationship, we expect to be able to take advantage of this subscriber growth.

While mobile subscriber grows in emerging countries to be a source of growth for us, the main driver of microwave hauling growth over the next several years is likely to be the implementation of next generation LTE-based networks. Most of the major LTE launches to date have been in the U.S., Japan and Korea in urban areas with high availability of fiber. As the LTE development extends to suburban and more rural areas and to other parts of the word, microwave will play a greater role. Industry analysts estimate that microwave could account for over 35% of the LTE backhaul market outside North America within 5 years and could even serve 50% or more of the LTE cell sites in many developing countries.

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