Ceragon Networks Ltd. (CRNT)

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Ceragon Networks Limited (CRNT)

Q4 2007 Earnings Call

January 29, 2008 9:00 am ET


Ira Palti, President and Chief Executive Officer

Tali Idan, Executive Vice President and Chief Financial Officer


Tim Long - Banc of America

Blaine Carroll - FTN Midwest Securities

Bill Choi - Jefferies

Rich Church - Collins Stewart

Amir Rozwadowski - Lehman Brothers

Jeff Kvaal - Lehman Brothers

James Faucette - PacificCrest

Matt Robison - Ferris Baker Watts

Kevin Dede - Morgan Joseph

Daniel Meron - RBC Capital Markets

George Iwanyc - Oppenheimer

[Larry Harrod] - CL King

Irit Elrad-Jakoby – Susquehanna

Steve Ferranti - Stephens Inc.

Kevin Wenck - Polynous Capital Management

Rich Valera - Needham & Co.

Tony Rao - East Shore Partners



Good day everyone. Welcome to the Ceragon Networks Ltd. fourth quarter and year end 2007 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. Tali Idan, CFO of Ceragon Networks.

Today’s presentation will include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that would cause Ceragon’s actual results to be materially different from those expressed or implied by such statements. For additional information regarding the risks associated with Ceragon’s business, please refer to the Ceragon’s annual report on Form 20-F and Ceragon’s reports filed with the SEC. Web users can visit Ceragon at to read the complete forward-looking statement language.

I will now turn the call over to Mr. Ira Palti, President and CEO of Ceragon.

Ira Palti

Thank you. Thank you for joining us today. With me on the call is Tali Idan, our CFO. We are pleased to report record results and another excellent year. For 2007, our revenues grew 49% and non-GAAP net income grew 129%. This was our sixth straight year of strong revenue growth, averaging 55% a year.

We believe the primary growth drivers for high-capacity wireless backhaul remain in place and we continue to expect revenue growth of 25% to 30% in 2008 with additional operating leverage, leading to operating and net income growth at a higher rate.

We are continuing to enjoy strong demand for high capacity SDH solutions from wireless service providers with a majority being cellular operators. We expect the trend driving growth in this segment to continue. This includes rapid wireless subscriber growth will continue, especially in emerging markets; increased demand for data services will continue, ranging from text messaging to internet browsing to newer data services.

Even in a tight capital spending environment, we expect wireless backhaul projects to be funded due to the attractive economics and the operators’ need to reduce operating expenses.

In addition, we are in the very early stages of a major migration to IP backhaul. We believe we are extremely well positioned to capture a high share of this market due to our track record and experience in IP and also due to our differentiated product offerings like our native serve technology which enables cellular operators to migrate seamlessly to IP. Early adaptors are beginning to deploy this solution and we are seeing substantial interest from cellular operators.

Also, new WiMAX networks are being deployed using our native IP solution. In 2007, 32% of our revenues came from IP solutions, still mainly for private networks. As we enter 2008, we also have multiple opportunities with service providers in the pipeline.

In 2007, our OEM revenue grew 14% to $31 million, but declined as a percentage of revenue because our direct business grew even faster. In Q4, OEM business dipped a little, but we do not see this as a trend. We expect OEM business to continue growing during 2008 and we are currently bidding for new opportunities with all our OEM partners. We believe our relations, leading technology, continuous cost reduction and excellent delivery capabilities position us to make the most of this channel.

In order to continue grow profit faster than revenue, we will continue to work on our execution capabilities. As you remember, one of our major objectives has been to reduce delivery time to 30 days or less, which we achieved in Q4. We believe achieving this objective gives us a competitive advantage and contributes to increased sales while also reducing our backlog.

With more churns business, book and bill same quarter in the mix, we are checking frequently and carefully for changes in the market, now even more so due to growing concerns about tight credit and the possibility of a slowing global economy. And up to now, we have not detected any change in market conditions.

So to summarize, the feedback from the field is positive. We have a strong pipeline of business and the outlook for 2008 remains the same.

Now I would like to turn the call over to Tali.

Tali Idan

Thank you, Ira. Q4 was again a record quarter, a strong finish to an excellent year. The results and breakout for the full year of 2007 are as follows. Revenues increased 49% to $161.9 million and GAAP net income increased to $13.1 million or $0.41 per diluted share. Excluding stock-based compensation and a one-time charge, non-GAAP net income for the year increased 129% to $15.3 million or $0.48 per diluted share. For the full year, service provider category accounted for 77% of total revenues and the private network segment for 23%.

The geographical breakdown of the full year revenues is as follows: EMEA 32%, North America 21%, Asia-Pacific 42% and Latin America, 5%. Revenues from the Asia-Pacific region more than doubled during 2007, growing much faster than the other regions and therefore accounting for a larger proportion of the total. OEM revenues in 2007 grew on an absolute basis but declined to 19% of the total revenues from 25% in 2006 as direct business grew much faster.

On non-GAAP basis, gross margin in 2007 increased to 36.2% from 35.3% in 2006. Operating margin increased to 8.7% from 5% a year ago and net margin increased to 9.5% from 6.2% in 2006, reflecting our success in improving the operating leverage.

Turning to the details of Q4, revenues grew 40% to $46.1 million compared to $32.9 million in Q4 of 2006. We continue to grow profits faster than revenues and GAAP net income grew to a new record of $4.4 million or $0.12 per diluted share on a significantly higher share count due to the following offering. Following the 7 million share offering, we expect our weighted average share count to be close to 40 million shares in Q1 2008 and to increase gradually after that. Excluding stock-based compensation, non-GAAP net income in Q4 grew 83% to $4.9 million or $0.14 per share.

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