Q4 2021 Ceragon Networks Ltd Earnings Call

Conference call at this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation, and which time if you wish to ask a question you will be able to raise your hand, using your zoom mobile or desktop application and week 300 him to be announced as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host <unk> head of Investor Relations for Ceragon. Thank you now may begin.

Thank you operator, and good morning, everyone.

I'm joined by Ron Rossi, Sara <unk>, Chief Executive Officer, and Ron <unk>, Chief Financial Officer before we start I would like to note that this call includes information that constitutes forward looking statements within the meaning of the Securities Act of 19.

33, as amended and the Securities Exchange Act of 1934 as amended and the Safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

We believe that the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviation there from will not be material.

Such statements involve risks and uncertainties that may cause future results to differ materially from those anticipated.

These risks and uncertainties include but are not limited to saturate risks uncertainties and other factors that could affect our results is detailed in our press release that was published earlier today and as further detailed in Ceragon. Its most recent annual report on form 20-F.

And in Silicones other filings with the Securities and Exchange Commission.

Such forward looking statements represent our views only as of today. There are made and should not be relied upon as representing our views as of any subsequent date such forward looking statements do not purport to be predictions of future events or results and there can be no issue.

And that they will prove to be accurate.

Ceragon may elect to update these forward looking statements at any point in the future, but it's specifically disclaims any obligation to do so.

Sarah guns public filings are available on the securities and exchange Commission's website.

At Www Dot S E C Dot golf and May also be obtained from <unk> website at Www Dot Ceragon Dot com.

Also today's call will include certain non-GAAP numbers for a reconciliation between GAAP and non-GAAP results. Please see the table attached to the press release that was issued earlier today I will now turn the call over to Ron. Please go ahead.

Thank you Maria and good morning, everyone.

Rather relatively good and we're highly challenging year.

I am pleased to share with you that we delivered at the high end of our projected annual revenue range.

$291 million.

But our best airports and success in delivering revenues were overshadowed by the many challenges the business world experience implementing for anymore.

As I mentioned in our previous calls the global component shortages.

<unk> disruptions and shipping bottlenecks have Russell.

Many industries, including ours.

They led to increased prices.

As such our financials has been materially impacted who are waiting for anymore.

Our gross margin for the fourth quarter was one 9%.

It is our belief that if it werent for such strong turbulence in these industries, our gross margin would have been around 3% either.

We maintain our strong position in the market, but the game.

Of course.

Looking ahead, we have an optimistic view.

We believe the prices will eventually come down and we will see improvements in the second half of 2020 two.

Until then we are looking to overcome component shortages and looking into new ways to improve the cost competitiveness of our products without compromising on quality and performance.

We're also working on optimizing our shipping costs.

This is all part of our delivery through margin expansion strategy.

Looking at our overall financial results for Q4, I am pleased to report that we have been on track with our expectations all the way down to the operating income on a non-GAAP basis.

In fact, we would have been at a breakeven born for the second half of 2021, if it werent for higher than expected financial expenses, Ron will elaborate on this further.

We in 2021 the majority of our business example for June that said <unk> is growing fast, especially in North America, Europe and to a certain degree in APAC I am very pleased with the fact that in these regions. Our five <unk> bookings made up for over one.

Third of all bookings.

In two to three years, we expect our business to mostly come from <unk>.

This last year, we continue to win in our domain by focusing on best in class, all outdoor microwave and millimeter wave market segments.

Recent product such as the IP 50 E and the IP 50 feet with our SDN <unk> made strides in the market.

We engaged with <unk> and orders with an increasing number of prominent market players and other tier ones.

We ended this year selling quite significant quantities of IP 50, and IP 50 sea equipment.

This is a great achievement, especially given the relatively short time since the launch and given the fact that we don't have all frequencies available yet.

Beyond our core domain.

To share with you that the <unk> provides us with many opportunities.

From open run to disaggregate that sensor routers and to this aggregated wireless transport the trend towards opening the network is strong.

Our broader strategy for this aggregated the wireless transport.

With their own software and layer three routing capabilities position us ahead of the curve.

In Q4, we bought them with IP in future.

So with this partnership we are delivering the industry's first ray deal aware this aggregated sales cycle.

In parallel we just launched our IP 50 disaggregated.

This aggregated centralized gateway solution.

Is now generally available for sale and deployment.

This is progressive routing is an open wireless drives growth architecture that decoupled, the hardware and the software elements of routers.

The IP 50, FX uses best of breed software as well as best in class hardware.

Beyond that it also integrates to essentially Samsung elements into a single scalable product our cell site router.

And our radio indoor unit.

B provides mobile service providers and private networks and faster.

More cost effective way to deploy and upgrade Fuji and five cell sites.

I'm also proud to share with you that our new IP <unk> has been awarded.

The prestigious Telkom in for a project requirement compliant Caribbean and.

And is listed on deep exchange.

Deep is a diverse global community of communication solutions and service providers, whose goal is to advance high quality connectivity worldwide.

They do so by accelerating the deployment of open these aggregated and standards based solutions.

The IP 50, <unk> is the only wireless transport equipment that has received this award so fall.

The market dominance of IP <unk> and its debridement is a testament to our technological leadership, our passion for innovation as well as our understanding of the industry's direction and the adjustments we need to make to maintain our technological edge.

<unk> hundred 50 <unk> X.

Gives us first mover advantage, helping us to grow market share in the $4 billion wireless plus board and in the $2 billion of sensor processing markets.

<unk> brings more nimble more complexity more and more companies are turning to us to manage their wireless transport with our managed services offering.

While smaller carriers and private networks benefit the most from this large companies turn to us as well.

To provide them with either partial or full services for operating the transport network.

One example is our recent against <unk> with global <unk> on which I will elaborate later.

We have a presence in 140 plus countries 50 of them strongly so.

We have served more than 2000 customers throughout the years, so you'll see on top of our technological capabilities and software tools, we have the resources and the experience to become a one stop shop for our existing customers as well as new ones.

Our decision to focus on strengthen our managed services offering leveraging our software tools will strengthen our relationship with our customers increase our recurring revenue, giving us more visibility.

Reduce the lumpiness of our business results and improve our gross margins.

We have just fortified our mid and long term strategy with our board of directors.

This strategy, which is comprised of increasing our traditional business and expanding into managed services business as well as new markets such as defense side dropping market is designed to guide us to a new phase of growth through margin expansion.

With our now more optimistic view about the main challenges we faced in 2020 . One we expect our revenue for 2022 to range between 305 and $340 million.

Let me now give you an overview per region.

In North America, although bookings in Q4, albeit lower than in previous ones.

Overall 2021 was a record year for us our <unk> design win customers generated more than 50% of the booking for this region.

In Q4, I am pleased to report that our lab tests with our tier one operator customers continues.

And have been successful so far we expect the testing process to continue during the first half of the year.

Looking ahead in North America, we see significant federal investments to expand networks to run North America, we see the regions critical infrastructure markets growth. Our goal is to leverage these developments.

And to that end, we are restructuring our organization.

This region.

In India Q4 was a healthy quarter for us on an annual basis, we had a very strong year, surpassing our record since 2018.

This industry performed strongly as post Covid recovery continued.

So.

Sustained demand for network upgrades and expansions, we believe the future of <unk> right.

Add five G corridors are developed in the region, we will be there to participate in the Rfps.

In Europe , we had another strong quarter, we want two tenders with railway, Italy National television and radio network provider to renew and maintain their wireless transport network infrastructure.

We successfully finished <unk> with a leading tier one operator.

We will be undertaking SDN fries with another operator, and IP 50 F <unk> with a third operator.

The future of <unk> in Europe is strong and we feel confident about all of these drugs.

When we look at our activity in European continent on an annual basis 2021 was a record year, surpassing the last eight years in terms of bookings.

Our five G design win customers generated more than 30% of the annual bookings for this region.

In APAC, while there are signs of a new momentum 2021 was a difficult year.

Many business decisions were pushed to 2022 that said, we continued building a solid pipeline for potential future partnerships.

In Latin America, the macro environment remains challenging the south cone was adversely impacted by the economic crisis. The rest of Latin America to experience a variety of different challenges, including cotton.

All of that said, we have a new customer in Mexico, we have expected to evaluate our IP 50, <unk> in Q1 2022.

We also built a solid pipeline of government funded projects in Mexico and Peru.

There are initiatives to close the digital divide between different communities.

We are doing our best to take part in such projects.

In Africa, we had a very strong second half.

We're still booking form a tier one operator worth $5 million.

We signed and received <unk>.

For a multimillion dollar deal with global <unk>, a tier one Nigerian telecom operator.

Will it be providing global <unk> with a customized solution that covers longhorn rural areas high capacity Metro as well as the access network, we will help them to not only enhance their existing subscribers quality of experience, but also to expand our reach to further grow their mark.

Sure. We will also be providing them with deployment services and managed services for monitoring the health of their network as well as first year support.

With that let me now turn the call over to Ron to discuss the financials for the quarter.

Thank you Ron and good morning, everyone.

To help you understand the results I will be referring mainly to non-GAAP numbers.

For more information regarding our use of non-GAAP financial measures.

Reconciliations of these measures.

We will send it to that press release.

Like Ron mentioned due in Q4 2021, we saw strong bookings coming from India and Europe .

When we look at the trailing 12 months, we see strong book to Bill ratio above one.

Let me now review the shared numbers with you.

Revenues for the quarter was $77 $8 million up five 1% compared with $74 million in Q4 last year.

This was achieved despite the highly challenging environment, we find ourselves in.

We are proud of this achievement and the fact that most of our customers demand was fulfilled.

Our strongest region in terms of revenue for the quarter was India.

Reflecting ongoing deliveries for our main customers in the region and in line with the strong demand we are seeing in this region.

Our second strongest region in terms of revenues for the quarter was Latin America, mainly thanks to the progress we made with the deliveries and deployment for Colombian tier one operator customers.

With the agreement, we announced back in March 2021.

With two above 10% customer in the first quarter.

<unk>, our revenues of almost $291 million up almost 11% from 2020.

This reflects our ability to keep up with the strong industry demand we are experiencing even during such challenging times.

Gross profit for the quarter for the first quarter on a non-GAAP basis was $22 6 million.

Given that our non-GAAP gross margin of 29%.

Similar to the first quarter of 2020.

As Don mentioned.

If it wasn't for the component shortages and 13 shipping costs.

Our gross margin would have been around 3% higher.

For the full year the non-GAAP gross margin was.

33% compared to 28, 7% in 2020.

We are pleased with this achievement, especially given the challenging macro environment, we are seeing.

Operating expenses on a non-GAAP basis for the fourth quarter was $21 million.

In line with our expectations.

Research and development expenses for the fourth quarter on a non-GAAP basis were $7 $7 million.

Similar to Q4 2020.

Selling and marketing expenses for the fourth quarter on a non-GAAP basis was $8 $7 million compared to $8 5 million in Q4 2020.

Reflecting the reduced travel and variable compensation that have come with COVID-19 .

General and administrative expenses for the Fox quarter on a non-GAAP basis.

$6 million.

Slightly lower than our expectation.

Financial and other expenses for the fourth quarter on a non-GAAP basis was $2 7 million.

In the fourth quarter, we incurred 600 gate in financial repatriation expenses as we repatriated a significant amount of cash collected ethylene <unk> been expecting the unexpected.

From a large customer in a development country to Israel.

In addition, the exchange rates was not in our favor in Q4, which is something we can't control or focus.

Our tax expenses for the first quarter on a non-GAAP basis was $9 million.

This is in line with our early expectations.

I would now like to spend a couple of minutes on our tax line in our GAAP numbers as this caused a big drop in our net income and EPS for Q4 and for the full year on a GAAP basis.

In Q4, we wrote off a tax asset of $8 5 million.

Let me explain why.

If you recall back in 2018, we recorded income on the tax line, primarily due to the need to record a tax asset of $7 2 million.

In our balance sheet. This reflected tax benefits, we anticipated as a result of utilizing our Nols against taxable income in Israel in the following years.

This also meant that we were expected to record higher tax expenses on a GAAP basis in the following years.

This was an indication of our strong performance vesting date as well as our expectations for continued strength.

However, since in the past three years, we recorded net losses on a GAAP basis. According to <unk> guidelines, we now had to write off the tax assets.

Net loss on a GAAP basis for the quarter was $2 million.

<unk> per diluted share.

So our balance sheet, our inventory in the at the end of 2021 or 61 $4 million.

Up $456 million at the end of 2020.

The increase reflects our need to stock long lead items and strategic items as a result of increased customer of this.

As well as ongoing component shortages.

We'll try to keep our inventory levels at the lower level.

But given the current environment.

Sometimes they need to stock key and long lead item arises.

Our trade receivable is now at $118 3 million.

Up from $107 million at the end of 2020.

Although these zone now stands at 149 days same as in Q4 2020.

Net cash used in operating and investing activities for the fourth quarter was $17 $1 million.

Net cash provided in financing activities for the first quarter was $2 9 million.

Looking forward, we continue to expect strong operator of demand.

Alongside continued uncertainty.

Although the situation remains volatile.

We believe that we are maintaining good control and are well positioned to take full advantage of long term opportunities.

We are targeting revenue growth in 2022.

Assuming the global component shortages supply chain disruption in shipping issues will come down.

We expect <unk> revenue to be between $305 million to $220 million.

With improvement in our gross margin.

Our long term non-GAAP gross margins will remain in the range of 33% to 34%.

With that I'll now open the call for questions offer.

Operator.

Thank you as a reminder, if you wish to ask a question you were able to raise their hand, using zoom mobile or desktop application and wait for your name to the Enel.

Once your name has announced you'll be prompted to undo.

Our first call today comes from the line of Alex Henderson from Needham Alex.

Go ahead.

Yep.

Couple of questions. The first is on the book to Bill for 'twenty one.

You characterized it as strong.

Strong.

Most companies year end.

Because of the unusual circumstances are giving a little bit more granularity to what that their backlog looks like and I was hoping you could provide us a little bit more granularity as well.

I would just say that overall, our backlog has increased.

We compared our situation to the beginning of the year and obviously these days this gives us a higher level of confidence in delivering.

Delivering in 2022.

Alright.

The second question I would like to ask is relative to.

The outlook.

You gave a full year, but no commentary on the first quarter can you give us any sense of.

How you think the.

Growth over the course of the year will progress I assume it's.

The supply constrained in the first half of the year and therefore lower growth in the first half with higher growth in the back half and could you follow up.

Give us a better qualification of what you mean by.

The supply conditions.

Becoming more normalized what do you mean by that exactly.

Your language is a little bit and precise it's hard for us to understand are you, saying that you're now expecting.

<unk>.

The supply conditions by year end to be normal or are you, saying that you'll still be trained through year end in your expectations of 5% to 10% growth I will try to give you an answer about the supply chain and then our near term.

Answer to.

To us to be more specific about Q1 Q2.

The supply chain environment.

Is very durable.

And.

While we were able to resolve some of the component issues we had.

During Q4, there are still other component issues that were not able to resolve yet.

And that obviously creates some sort of vagueness or on clarity cloud over our projection.

For the year now based on.

The orders.

That we have booked.

To cover for the need of our components.

And the current messages coming from the different vendor, we believe that the supply of these components will become steadier.

During the second half of the year and that will enable us to deliver in I would say more.

A smooth and flawless way and the challenges we have faced so far said that.

Debt.

It's not that we are back to what we've seen prior to this crisis.

Crisis in terms of.

I'd say regular supply.

Prices and a commitment and reliability of timelines and therefore, we are taking a cautious approach saying that.

The level of severe illness.

That we've seen so far will probably.

Be with us for the upcoming quarter or two and we believe that it will start easing up during the second half of the year.

Just to be clear are you assuming that there is no supply constraints in the back half of the year or are you assuming that you'll get what parts you need and therefore, no backlog issues in the back half of the year, it's an important distinction.

We don't assume that there will be no supply concerns on the second part of the year.

We believe that based on the current demand we see for our products.

And the components that we have challenges with these items will probably be able to resolve.

Within the upcoming six months and beyond that it makes us feel more confident on the second part we are not back to normal situation on the second part of 2022, it's just going to come down a bit.

Okay. One last question and I'll cede the floor and then I'll get back in queue for additional questions later, but.

You didn't mention the IP 100 at all can you give us an update on.

Where you are on your 100 gig product.

Yes, we didn't mention it because there's no.

Significant change relative to our.

Our discussions in Q3.

We are moving forward with product sizing the chip itself.

And as said, we said assuming timelines are kept by the supply chain industry.

Of the <unk>.

We believe that we'll have the cheap.

Randy.

Product by the end of 2022 in parallel we will start developing the product that will be based on this cheap and we hope to start please.

<unk> or launching these products to the market towards the end of 2023 or beginning of 2024 that has not changed relative to my previous discussions and pneumonia announcements.

I'll cede the floor and get back in queue. Thanks.

Thank you Alex.

Our next question today comes from the line of George I want it from Oppenheimer. George go ahead.

Okay.

Hello, John and Ron can you hear me now.

George Hi, thank.

Thank you.

So just maybe following up a little bit about the supply chain in the backlog. When you look at your guidance for the full year are you anticipating actually starting to burn down your backlog or do you expect it to be relatively flat in that.

The inventory you have on hand gives you some confidence in being able to grow in that if things change either positively or negatively if thats, where youll move within the range.

First of all.

The nature of the backlog is that you can frame it but it is actually filled up by new orders a new booking.

We believe that our booking for next year.

It is going is going to be at least as strong if not even stronger.

Then the booking this year. So obviously, we are going to consume this backlog, but because our customers are expecting us to deliver but all in all we.

We expect to see a growth.

In our business and in our bookings so if you look.

At the end of 2022, we believe that our brought our backlog will be at the same value or even higher.

With the <unk> activity that Youre seeing it looks like you added two new design wins are you starting to deliver on the base that you have there either in North America, Europe , and like what type of momentum do you have on actually starting to deliver and IP.

So it depends.

On the more traditional.

Mailable product such as the 50 50 feet. We are seeing we are seeing as I said on the script.

<unk> demand and actually four.

At least 50 see less than a year since launch and the and the <unk> slightly.

Longer than that.

The amounts that were.

Basically ordered and obviously delivered.

Are quite significant but obviously just to start we believe that this amount will increase further as we move into 2022 for two reasons first of all.

We see more demand coming for more.

Our customers or potential customers that are now starting the rollout.

And secondly, because.

Obviously, there are some regions that have not started yet.

The final.

Rollout.

So the combination of these two elements gives us optimism about increased demand for our <unk> and <unk>.

Said that obviously the trials.

Especially when you are talking about a very prominent tier one operators of the world.

Is not there is something that you can kind of underestimate it takes time.

It takes.

At least six months, sometimes even nine months until the product is being trialed.

In the labs and in the field before we get the.

Final approval to start working with the procurement and with the different <unk>.

Circles of markets. So.

So that's a lengthy process.

I believe that at least for the North America.

<unk>, we will start seeing orders in the second part of 2022 in Europe . They have just dried.

Our IP 50, FX, which is actually a brand new product and we just initiated and launched the first version.

And they are looking into.

A second version that will come within a couple of months and that will even be more robust.

And it's.

It's a lengthy process.

But from my perspective is a very good sign for the longer future.

And John one more question for you.

On the managed services and the disaggregated routing yet the new efforts that you're putting in how quickly do you think that becomes a meaningful part of your overall revenue mix.

And does this operator offer an opportunity to re engage with some customers that you may not happen.

Either selling to recently or maybe driving that incremental amount of business with them.

I think that generally speaking all opportunities are open for us in this domain.

I will refer to the sensor rotor in the managed services separately in this essay throughout the domain.

I can tell you that we're.

We're getting a lot of interest.

Some of this interest is coming from existing customers. Some of it is coming from.

New prospects and we have a very nice list of.

A potential prospects.

We have started discussions.

Some of them are in more advanced stages. Some of them are in less advanced stages.

Some of them are in trials. Some of them are finished drives that they want to move to the next.

And to the next.

Stages.

Will take us some time I don't think that 2022.

Will we will have a very very significant amount.

<unk> revenue coming from this business, but I do expect us to have a nice ramp up.

In booking.

To the managed services.

I think that a.

The more.

We talk with our existing customers.

The more we see their needs for more sophisticated tools.

To basically run and operate the transport with network after deployment.

So on the one hand, we have a very nice list of.

Existing customers, whom we have already engaged with <unk>.

Partially or fully at the same token it.

There is a very nice list of new customers. Some of them. We have just finished.

<unk> for a few months and they are very happy with us and I expect us to to get the business.

In a multi million dollars in the upcoming.

A quarter or two quarters.

Some of them are in the private network domain and there. We also are in a position to.

When the first win but the potential is huge.

So generally speaking its a combination obviously when we will be able to announce these wins and more I would say details.

We will be announcing them, but generally speaking.

Feel that the stock is obviously coming from existing customers, but there is a.

Many opportunities that we see with some new prospects.

And Graham just a couple of questions to finish up with you on the gross margin side.

Are you seeing any success with maybe raising your own prices to offset some of the pressure there and you talked about having confidence in returning to the 33 to 34, 35% type of area long term do you expect much relief this year on the gross margin side <unk> low 30%.

So.

Let me first touch on the first question about increasing prices to customers, yes, we have succeeded.

Increase our prices to some of our customers were actually low.

Launch a very detailed and specific plan.

Region.

In some of the cases, we've been quite successful in some of the cases I would say, it's more challenging but this is going to contribute.

For the gross margin for 2022.

And coupled with the I would say some relief in the supply chain and.

And the component shortages.

<unk> bin.

A tone for us in the past few quarters as I mentioned in my prepared remarks.

We have been.

With these constraints on gross margin would have been better by 3%. So I don't expect that to all of this.

Will ease in 2022 I do expect.

Some is in the gross margin to have better gross margin I would say.

<unk> is about 1% compared to 2021 and 2022.

Great and my last question is on the Opex side with the FX impact that youre seeing in the tight.

Hiring market as well.

How attractive engineers arm and all of that do you anticipate having your opex level go up to $22 million a quarter.

Do you see it on a quarterly basis through the year.

So I think that the actually.

Actually Q4 represent.

Relatively.

What we expect of a little bit higher in 2022, because of the I would say two factors.

If they indeed.

The salary pressure all engineers.

In Israel and the second one is there.

The foreign exchange here in Israel, the fault zone.

A rebound.

A little bit in the past months.

According to our.

A forecast, we do expect a negative impact on it in 2022, so all in all.

We do expect the Opex.

To be a higher.

And then in two.

2021 on the average and to be more close to.

What we have in Q4 of a little bit more than that.

Thank you very much.

Thanks George.

Thank you. Our next question today comes from the line of Raimo <unk>.

Please go ahead.

Good morning, John and Brian .

Hi, good morning morning.

You mentioned <unk>, you talked about reengineering or maybe it was yearend talked about reengineering some of the products to help improve gross margins going forward is that something is that a factor that could impact 2022 or will that take a little bit longer.

To see the benefit of those initiatives. Thanks.

It depends because this initiative is a widespread of.

Therefore, some of them are are relatively small in terms of time.

That need to be invested.

And immediately after that enjoining.

Joining via the new design so.

In this regard a portion of it will also impact positively.

Our gross margins in 2022.

Some of them are much bigger initiatives.

And obviously, we'll have a very nice impact on 2023 and beyond that but the short answer.

Partially we expect this.

<unk> so to speak redesign.

To have a partial contribution into the gross profit and gross margin obviously of 2022 as well.

Okay.

During your prepared comments as youre going through the geographies you talked about I think a restructuring in North America I.

I Wonder if you could just.

Could you just give us a little more granularity on the.

Rationale and the plans for that please.

Then in North America, our traditional business was focused on the tier one operators.

And yes, we had a very fruitful partnership with.

With some partners in the in this particular region to basically sell.

Our products for two smaller Isps and to a certain degree private networks.

But.

The focus.

Sure.

Was primarily on the tier one operators know what we want to do is to increase our focus.

<unk>.

The tier three tier four Isps and private networks by coming with.

A slightly different strategy in places where they are seeking.

For a one stop shop.

We want to provide them with the full.

The network solution using the great ecosystem that we have.

The access vendors.

With core vendor and the fact that.

We have been doing that for a long for a while in other regions. Obviously, we are going to handle this.

This is our strategy in a very high I would say sensitivity.

So that we will continue also their strengths.

The strong partnerships that we have.

We see this.

And I would call it unserved market of smaller players, who do not have one fraud.

The joke in terms of one stop.

Stop shop that can serve them and either they don't have the knowledge, if it's coming from the private networks or they don't have the capacity to have the expertise in house and we believe that this target market also ever good.

Opportunity for managed services.

And for that we are.

Actually changed our.

Sales organization and obviously also the technical people.

So that we can really focus on this on served part of the market and.

In our business there.

Great. Thanks very much.

Short term moment.

Thank you. Our next question comes from comes from Alex Henderson line from Needham. Please go ahead.

Great. Thanks.

A couple of questions.

Since we start you just were talking about the U S.

Private networks in tier two through four.

Can you update us on your relationship with Cambrian and whether Thats <unk>.

Borrowing habits.

This is Don.

We have great relationship with cambium.

And we are.

Having I would say our recurring calls and discussions about.

Continuing our partnership and strategizing.

Or actually fine tuning our strategy in light of what we see in the market.

I am speaking with the tool almost every month at least every at least once a month and we intend to continue this collaboration because.

Basically they are augmenting.

The needs of their customers with our products and in some cases by the way not only in North America, but also in other regions.

We are augmenting our offering was their product. So this partnership is fruitful and will continue for sure.

Do you expect them to benefit from art off and therefore see a.

A meaningful acceleration in that business.

As well as potential for your strategy here to capture some of the <unk> business.

The short answer is yes, the longer answer is that.

The nice thing about our partnership between the partnership between US and <unk> is that they decided that they don't belong.

To be involved in providing <unk> services, they just want to sell.

We have a different strategy and we believe that with our experience in software tools.

We can provide a very robust services.

And therefore in many cases, where they come across opportunities for their funding where the value added reseller cannot provide with the services.

That the customer the end customer is expecting them to provide as it happens.

We are getting into the picture and Theyre, taking responsibility and we have seen a couple of such opportunities just recently and I hope that this stream of opportunities will continue and I'm sure that we'll be able to collaborate with them further.

Certainly R&R stuff should drive Cambrian business.

Excluding that services piece that I would assume that that would also drive acceleration in demand for your products through that channel, yes, yes, that's true but for me that's natural and it's part of my anticipation for further growth in North America. When one of these days that I don't think so.

Sorry, when do you think that will kick in as a driver.

I believe that.

We can see more business coming.

Probably towards the second part of the year, because let's not forget that.

The processes filing applications asking for granted it's not a process where you adjust make.

Youll decision and go to the next value added reseller and asked for this amount of equipment of Michael Wang and this amount of equipment of.

The unlicensed.

As a process and I've seen a lot of activities of different.

The Isps.

Filling for grants.

It takes time, it's not something that happens within a second but I do believe that we have a good chance to start seeing an increase towards the second part of 2022.

You mentioned service a number of times is it additive to the growth rate in 'twenty two.

Meaningful fashion tenant at a percentage point to the growth rate or is it more of a 'twenty three 'twenty four contribution to growth.

I don't think that the huge increase in our services beyond their traditional business is baked into our projections.

And since we are aiming to managed services the ramp up is usually reflected in the revenue.

Kind of a later on so I think it's a buildup for our further growth in 2023 and beyond.

And with a gross margin benefit or be hurt by services growth.

Our.

Assumptions and the our use cases are showing that eventually this could help our gross margins remember the idea behind managed services is not just to replace it.

Human beings by human beings, it's also to come with sophisticated software tools that can be used remotely.

To really bring value.

To the customers and for software and for software that provides value.

Customers, primarily in North America Europe developed countries are willing to pay so all in all we do believe that it will contribute positively to our gross margins, but Jeff just to add on that Alex I see the same view into all that it will be positively contribute to the gross margin.

Although usually in the first.

Six months nine months.

We do require us to add some more I would say incremental investment that will pay off over time, we actually has been <unk> seen it in the managed services agreement.

We announce.

I think a year ago.

All nine months ago, with the U S and <unk>.

<unk>, so we see actually an improvement and we saw some opportunities in this engagement for upsell, which also contributes positively to the gross margin.

Could you talk about mix as we go forward.

One of the.

Biggest swings in the mix of your gross margins is the geography that youre selling into.

He has been strong in 2021.

<unk> had very strong wins in both Europe , and the U S, which I think very much higher margins.

Take every feature.

<unk> available.

Will we see a mix shift from Geographics perspective to higher margin geographies in 'twenty, one assuming in 'twenty, two and into 'twenty three.

We believe that in North America, and Europe , the trends up.

Of a stronger business and higher business than in the past will continue.

Just for you too.

To remember actually the strong year, we had in Europe , and North America. Unfortunately, due to the component issues was not converted into our fully converted into our revenues yet and obviously this is a very nice part of our better.

<unk> two.

To be consumed next year.

Generally speaking it.

The issues of the supply chain.

<unk> gone down.

Partially as we expect we do expect the revenue of Europe , and the revenue of North America.

To become a bigger portion as proposed.

To Indiana are less.

The growth, we are seeing or planning for in India will be even bigger in that case, we'll see absolute numbers go in both.

Or in the three regions.

Which will obviously make us very very satisfied because maybe it will be even.

Build to exceed the guidance, we just gave.

Just a couple of quick ones, the Peru build out does that now completed.

Not yet.

There were some challenges due to the Covid that basically had held this broad project progress.

And also due to some changes in the government.

There are some some delays.

I would say that at least one of the regions.

<unk> is about to be finished very shortly.

And the other two regions will follow and obviously pending the.

<unk>.

With the government and how they want us to continue with this project given the situation of the Covid and the impact.

One on the economy there.

So it is not ended yet.

But we believe that.

Probably it will end up towards the end of 2022 may be.

I will sleep.

So into the first half of 2023, okay.

Okay last question and then I'll cede the floor the IP 50 FX.

Did you say three trials in Europe , one trial in Latin America.

<unk> said that you expect trials in the U S. In the second half of 'twenty two.

Is that all of the trials or other.

If could you aggregate them and give us a totality of.

Youre trial expectations, so that we have a little bit better feel for it it's a little bit to shrink.

Talking all in all we are talking about the lease of the tens of trials.

Across the globe.

North America is.

Yeah.

Not there yet because they are focused in what we call <unk> plus.

Which is actually expanding the capacity.

And by the way.

The tier one operators.

In the region.

Alrighty introduced to this product.

In the past so they know that needs to exist.

But in terms of priorities at this point there are approaches are slightly different.

But we are seeing numerous.

The trials or stages of trials.

Europe Asia.

Latin America.

I don't think I missed any significant one I think that even in Africa. There is another there is a trial starting up some tens of tens of.

<unk> trials implies.

20, plus trials kind of thing, yes, yes were released of 20, plus while some of them were not even able to start because we didn't have so much equipment available for trials, we're going we're speeding up and we intend to catch up in this quarter in Q1.

Last two points on that question.

One what's the gross margin impact of these this product once it ramps is it a.

Assume it's a lot of software and therefore, it's accretive to gross margins and does it pull your other products in your line as well.

Yes.

So yes.

We expect gross margins to be higher.

Obviously, a region by region when analyzing region by region and generally speaking the.

Is that this product can also connect with our all outdoor solutions is it an indoor unit and serve the market that is still seeking for split mode solutions and not only that in one of the.

Future versions.

This software of the radio aware would be able also.

Two to contact a third party radios and that will hopefully give even much higher flexibility to potentially.

Shall live customers too.

Bye.

Something that is much more cost efficient.

Perfect. Thanks.

We have no further questions. Please proceed.

In closing allow me to reiterate that in 2020 . One we enjoyed strong bookings and healthy revenues, we were able to contain the impact of the crisis around us I sincerely. Thank our employees for the enormous endurance and creativity. They showed in these extra ordinary.

<unk>.

Way in the short run we expect to be dealing with the same issues continued strong demand by our customers brings us optimism, we expect market share growth and margin expansion in the mid and long run.

Our goal is to create equal digital opportunities for all people around the world whether they are in an urban setting or in a rural area, we work to bring reliable communication capabilities everywhere.

I look forward to updating you further on our next call have a good day, everyone and thank you.

Okay.