CRNT

Ceragon Networks Ltd. (CRNT)

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Ceragon Networks Ltd. (CRNT)

Q2 2008 Earnings Call

July 21, 2008 9:00 am ET

Executives

 

Ira Palti - President, Chief Executive Officer

Naftali Idan - Chief Financial Officer, Executive Vice President

 

Analysts

Tim Long - Bank of America

Ittai Kidron - Oppenheimer (US)

Blaine Carroll - FTN Midwest

Amir Rozwadowski - Lehman Brothers

Irit Elrad-Jakoby - Susquehanna

Steve Ferranti - Stephens, Inc.

James Faucette - PacificCrest

Daniel Meron - RBC Capital Markets

Matt Robison - Pacific Growth Equities

Kevin Dede - Morgan Joseph

Lawrence Harris - CL King & Associates

William Choi - Jefferies & Company

Jeff Kvall - Lehman Brothers

Rich Valera - Needham & Company

Presentation

Operator

Welcome to Ceragon Networks Ltd. second quarter 2008 results conference call. (Operator Instructions) Today’s call will be hosted by Ira Palti, President and CEO of Ceragon Networks, and Naftali 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 could 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 Ceragon’s annual report on Form 20F and Ceragon’s report filed with the SEC. Web users can visit Ceragon at www.ceragon.com to read the complete forward-looking statement language.

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

Ira Palti

With me on the call is Tali Idan, CFO.

In the second quarter we flew past the top end of our target range reaching an all time record of $55 million in revenue. Bookings remained very strong and our book-to-bill was great than one even with a big jump in Q2 revenue. We continue to benefit from the growing worldwide demand for high capacity protocol. In addition to growing demand for extension and upgrades with our high capacity solutions for Ceragon Networks I’m pleased to say that we are seeing a migration to all IP cellular beginning earlier than we originally expected. Geographically most of the strength is coming from the APAC region. In addition to the well known wireless boom in India we are seeing excellent growth from other parts of the region.

For example, during Q2 we added an important new customer in Vietnam and we extended the scope of our relationship with Digital in the Philippines to include our IP solution for the first time. Digital is starting to use next generation cellular base stations which includes native IP interfaces in the parallel IP backhaul network using our IP map solution. Growth in Latin America in Q2 reflects total on business from a leading operator in Mexico which was a 10% customer for the quarter.

As we expected North America continues to be the only weak spot, a continuation of the pattern which began in Q1. We believe that North America will remain weak through the balance of 2008 for both carrier business and private networks. In 2009 we expect improvements led by the growth in mobile data networks resulting from the high data usage caused by the new iPhone launch and similar devices. In addition once the merger of Sprint Zoom and Clearwire receives the required regulatory approvals later this year and the new organization and its working methods are finalized, the new Clearwire could provide a boost to North American demand next year. EMEA made a smaller contribution to revenues in Q2 but this relates to timing rather than demand issues. Our bookings from EMEA continue to be strong and we do not see any slowdown in this region.

Our OEM revenues continue to grow rapidly and OEM business accounted for almost 37% of total revenue, the highest for any quarter so far. In addition, we recently announced the strategic partnership with ECI Telecom in which ECI will resell our backhaul solution. A few days ago we announced the major joint customer ELRO, a utilities company which is building a nationwide WiMAX network in Denmark. This three-year frame agreement is one example of the strength we see coming from outside Asia both in Europe and Australia. In Q2 we had a much higher proportion of business through OEM from Asia and of larger deal size which affected our margin. This shift also changes a little bit of P&L model going forward. Tali will discuss this in more detail. In addition to the shift in mix we face a weaker dollar. We were able to mitigate some of the impact and even managed to report a slight sequential increase in profits despite those challenges.

This quarter we introduced our next generation platform of radios which enable us to continue our product cost reduction trend. We started shipping the new platform to India during this quarter and are continuing to ramp up production rapidly. With a strong demand on a global basis execution remains the critical success factor and we continue to emphasize technological innovation in the IP backhaul space as well as continuous product cost reduction with stringent expense control. Looking ahead we expect to continue our growth in the second half of the year and we are revising our 2008 target to better than 35% growth and revenue on top of a very strong 2007.

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

Naftali Idan

In Q2 revenues grew 48% to a new record of $55.2 million compared to $37.3 million in Q2 of 2007. GAAP income was $15.5 million or $0.40 per diluted share which included an $11.2 million income tax benefit related to the creation of deferred tax assets. I will explain the tax situation in detail in a moment. Excluding stock-based compensation and tax benefits, non-GAAP net income in Q2 grew 50% to $4.9 million compared to $3.3 million in Q2 of 2007. Non-GAAP EPS was $0.30 compared to $0.11 in Q2 last year on a much higher share count.

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