Q4 2023 Ceragon Networks Ltd Earnings Call
Ladies and gentlemen, thank you presented by our conference will begin shortly.
Operator: Ladies and gentlemen, thank you for standing by. Our conference will begin shortly. Welcome to Ceragon Networks. Welcome to Ceragon Networks, fourth quarter, 2023. At this time, all participants are in a listen-only mode, following management instructions, and have prepared a remark. We will host a question and answer session. If you wish to participate and ask questions on today's call, you will need to click on the radio hand icon within the Zoom application on your desktop or mobile device.
Operator: As a reminder, this call is being recorded. It is now my pleasure to introduce you to your host, Rob Fink of FNK-IRB.
Rob Fink: Thank you, operator, and good morning, everyone. Hosting today's call is Daron Arazi, Ceragon's Chief Executive Officer, and Ronen Stein, Chief Financial Officer. Before we start, I would like to note that certain statements made on this call, including projected financial information and other results and the company's future initiatives, future events, business outlook, development efforts, and their potential outcome, anticipated progress and plans, results and timelines, and other financial and accounting-related matters constitute forward-looking statements within the meaning of the Securities Exchange Act of 1933 as amended, and the Securities Exchange Act of 1934 as amended, and the safe harbor provisions of the Securities Such statements reflect only the current beliefs, expectations, and assumptions of Ceragon's management.
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Welcome to the Ceragon networks.
Okay.
Welcome to the Ceragon network's fourth quarter 2023.
Earnings Conference call at this time, all participants are in a listen only mode following management.
Our prepared remarks, we will host a question and.
Access issue.
If you wish in L. A disadvantage in that question on today call.
Rob Fink: The actual results, performance, or achievements of Ceragon may differ materially, as they are subject to certain risks and uncertainties, which could cause the actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties are described in Ceragon's most recent annual report on Form 20-F and as may be supplemented from time to time in Ceragon's other filings with the SEC, including today's earlier filing of the earnings press release, all of which are expressly incorporated by reference. Forward-looking statements relate to the date initially made and do not purport to be predictions of future results. And there can be no assurances that they will prove accurate.
We'll need to click on the radio hand.
Leading absorbed vacation owners.
Desktop or mobile device.
As a reminder, this call is being recorded.
It is now my pleasure to introduce you.
Your host.
Walgreens.
F N K IR.
Thank you operator, and good morning, everyone.
Hosting todays call is drawn ROTC ceragon as Chief Executive Officer, and Ron <unk>, Chief Financial Officer.
Before we start I would like to note that certain statements made on this call, including projected financial information and other results and the companys future initiatives future events business outlook development efforts and their potential outcome anticipated progress and plans results in timelines and other financial accounting related matters.
Rob Fink: And Ceragon takes no obligation to update that. Ceragon's public filings are available on the Securities and Exchange Commission's website at scc.gov, and they may also be obtained from Ceragon's website at ceragon.com. Also, today's call will include non-GAAP financial measures. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier this morning, which is also posted in the investor relations section of Ceragon's website. With all that said, I can now turn the call over to Jerome. Jerome, the call is yours; order in the evolution of Ceragon.
Institute forward looking statements within the meaning of the Securities Act 1933, as amended and the Securities Exchange Act of 1934 as amended and the Safe Harbor provisions in the Securities Litigation Reform Act of 90 95.
Sure got intends forward looking terminology such as believes expects may will should anticipates plans or similar expressions to identify forward looking statements such statements reflect only current beliefs expectations and assumptions of Ceragon as management. The actual results performance or achievements of Ceragon may differ materially.
Daron Arazi: We are closed. Thank you, Rob, and good morning, everyone. This was a significant quarter in the evolution of Ceragon. We closed a strategic acquisition that we believe will accelerate our growth, especially in key markets. We exceeded our guidance for revenue and delivered record full-year non-gap operating income, giving us great momentum and confidence as evidenced by our guidance for significant growth and margin expansion in 2024. Major parts of our strategy are steadily coming together while we increase our footprint in North America and grow our business with private networks around the world. This might be the right moment to discuss some of the KPIs that are giving us confidence that we are making progress in the execution of our strategy. For example, our bookings from private networks this year were nearly $40 million. This is a very substantial number for us, but even more important.
Clearly as they are subject to certain risks and uncertainties, which could cause the actual results to differ materially from those projected in such forward looking statements.
Risks and uncertainties are described in Ceragon to most recent annual report on form 20-F, and as may be supplemented from time to time in <unk> other filings with the SEC.
Including today's earlier filing of the earnings press release, all of which are expressly incorporated year end by reference.
Forward looking statements relate to the date initially made do not report to be predictions of future results and there can be no assurances that they will prove accurate and ceragon takes no obligation to update them.
<unk> public filings are available on the Securities and exchange Commission's website at SEC Dot Gov and they may also be obtained from Ceragon website at Ceragon by Tom <unk>.
Daron Arazi: Well, this consists of slightly above 10% of our total booking. The total booking from your private network customers was above 30% of the company's total new booking from your customers, three times higher. In terms of the number of new customers, the progress is even more impressive. Approximately 50% of our total new customers this year were private network customers.
Also today's call will include non-GAAP financial measures for a reconciliation between GAAP and non-GAAP results. Please see the table attached to the press release that was issued earlier. This morning, which is also posted on the Investor Relations section of Ceragon website.
With all that said I can now turn the call over to Jerome to roam the call is yours.
Quarter in the evolution of Ceragon.
Daron Arazi: As part of our plans, we aspire to double the amount of private network bookings in 2024. In parallel, we continue to increase our business with tier 1 and tier 2 customers. This has been our bread and butter for many years, with existing as well as new customers, such as the most recently noted new customer in India. With a few of our longstanding customers, we are in advanced discussions of selling software-led managed services, and we hope for more business with them in 2024. According to analyst reports, the millimeter wave market segment had the highest growth rate within the wireless transport market, with a compound annual growth rate of 35% for the last four quarters and September 30, 2022.
We closed.
Thank you, Rob and good morning, everyone.
This was a significant quarter in the evolution of Ceragon.
We closed a strategic acquisition that we believe will accelerate our growth, especially in key markets.
We exceeded our guidance for revenue and delivered record full year non-GAAP operating income.
Giving us great momentum and confidence as evidenced by our guidance for significant growth and margin expansion in 2024.
Major part of our strategy are steadily coming together, while we increase our footprint in North America and grow our business with private networks around the world.
This might be the right moment to discuss some of the kpis that are giving us confidence that we are making progress in the execution of our strategy.
For example, our bookings from private networks. This year were nearly $40 million.
This is a very substantial number for us, but even more importantly, while this consists of slightly above 10% of our total bookings.
The total booking from your private network customers was above 30% of the company's total new bookings from new customers three times higher.
In terms of the number of new customers. The progress is even more impressive.
Daron Arazi: This particular market segment is expected to continue outpacing the total wireless transport market growth in the coming years. I believe that some of the actions we took in 2023 are positioning Ceragon to monetize on this expected continued high growth. We continue deploying our IP50e in different regions. We have developed our optimized total cost of ownership driven IP50-EX that is expected to be launched in the coming weeks. And last but not least, we have started the design of the next generation millimeter wave product that will be based on our new system on a chip, enabling us to have up to 100 gigabits per second wireless transport links.
Approximately 50% of our total new customers. This year were brought it never works customers.
As part of our plans, we aspire to double the amount of private network booking in 'twenty 'twenty four.
In parallel we continue to increase our business in tier one and tier two customers can make them.
This has been our bread and butter of how many years the global unit growth.
<unk> as well as new customers.
Such as the most recently noted new customer in India.
With a few of our longstanding customers. We are in advanced discussion of selling software led managed services and we hope for more business with them in 'twenty 'twenty four.
According to analysts' reports the millimeter wave market segment had the highest growth rate within wireless transport market with a compound annual growth rate of 35%.
Daron Arazi: We acquired Ciclu, further expanding our millimeter wave offering to additional market segments and enhancing our end-to-end solution. With all these actions, we believe we will maintain the broadest and strongest millimeter wave products in our market with the richest price performance range. In early December, we completed the acquisition of Ciclo.
For the last four quarters ended September 32023.
This particular market segment is expected to continue outpacing the total wireless transport market growth in the coming years.
I believe that some of the actions we took in 2023 are positioning ceragon to monetize on this expected continued high growth.
Daron Arazi: The integration is well underway. CICLU contributed only a modest amount of revenue in the nearly one month they were part of Ceragon, and the majority of our growth was organic. However, after closing the acquisition, we received a significant purchase order from one of Ciclu's largest customers, an important vote of confidence for us. The financial key indicators of the acquisition have come in as expected. During 2023, Ceragon generated more than $30 million in cash from operations on a full year basis and $10 million in free cash flow for the full year, even including the cash impact related to the acquisition of six. In the fourth quarter, Ceragon grew revenue nearly 20% to $90.4 million, our highest quarterly revenue level of the year. Again, since the acquisition of Ciclu closed only in early December, Ciclu's contribution to this revenue was essentially insignificant.
We continue deploying our IP 50 in different regions.
We developed our optimize total cost of ownership driven IP 50 E X that is expected to be launched in the coming weeks and we have started the design of the next generation millimeter wave product that will be based on our new system on a chip enabling us.
Up to 100 gigabit per second wireless transport link.
Last but not least we acquired sequel further expanding our millimeter wave offering to additional market segments and enhancing our end to end solution.
With all these actions taken we believe we will maintain the broadest and strongest millimeter wave products in our market with the richest price performance range.
In early December we completed the acquisition of CECO.
The integration is well underway.
Cyclo contributed only a modest amount of revenue in the newly won one month. They were part of Ceragon and the majority of our growth was organic.
However, after closing the acquisition, we received a significant purchase order fall off from one of <unk> largest customer.
Daron Arazi: We delivered non-gap operating income of $7.8 million, the third consecutive quarter above $7 million. On a GAAP basis, our operating income was $4.2 million. Our non-GAAP net income was $3.7 million, the fourth consecutive quarter of non-GAAP net income exceeding $3 million.
And important vote of confidence for us.
The financial key indicators of the acquisition have come in as expected.
During 2023, Ceragon generated more than $30 million in cash from operations on a full year basis.
And $10 million in free cash flow for the full year, even including the cash impact related to the acquisition of secret.
Daron Arazi: This strong end to the year enabled us to grow revenue more than 18% for the full year to $347 million, exceeding our full year guidance of $338 million to $346 million. Even excluding the nearly one month of CICLU, we would have achieved our full year revenue guidance with revenue at the high end of the provided guidance. For the full year, we delivered operating income of $29 million on an on-gap basis, an all-time record for Ceragon. On a gap basis, operating income was $21.2 million. Net income on a non-gap basis was $16.7 million, and $6.2 million on a gap basis. Clearly, Ceragon has successfully navigated macroeconomic challenges impacting its industry.
In the fourth quarters, Ceragon grew revenue nearly 20% to $94 million.
Our highest quarterly revenue level of the year again since the acquisition of <unk> closed only in early December cigarettes contribution to this revenue was essentially insignificant.
We delivered non-GAAP operating income of 7.8 million.
The third consecutive quarter above 7 million dorms.
On a GAAP basis, our operating income was $4 $2 million.
Our non-GAAP net income was $3.7 million the fourth consecutive quarter of non-GAAP net income exceeding $3 million.
This strong end to the year enabled us to grow revenue more than 18% for the full year to 347 million.
Exceeding our full year guidance of $333 million, sorry, $338 million up to.
$346 million.
Daron Arazi: Continued strong demand for our solutions, especially in North America and India, has enabled us to continue robust growth as we take market share and deliver consistent profitability. In fact, we grew revenue in North America by 43% in 2023 compared to 2022. We continue to believe that our growth strategy, expanding our addressable market beyond tier one and tier two customers, is coming into clear focus. The acquisition of Ciclo is expected to accelerate this initiative.
Even excluding the nearly one month of cyclo, we would have achieved our full year revenue guidance with revenue at the high end of the provided range.
For the full year, we delivered operating income of $29 million.
On a non-GAAP basis, and all time record for Ceragon.
On a GAAP basis operating income was $21 2 million net income on a non-GAAP basis was $16 7 million.
And $6 $2 million on a GAAP basis.
Clearly.
Ceragon has successfully navigated macroeconomic challenges impacting our industry.
Daron Arazi: Our performance in 2023, combined with improving visibility and the expected synergies from CICLU, has given us the confidence to guide to continue double-digit revenue growth. We are also targeting significant margin expansion in 2024. Onen will speak to our guidance in more detail during his commentary.
Continued strong demand for our solutions, especially in North America, and India has enabled us to continue robust growth as we take market share and deliver consistent profitability in fact.
We grew revenue in North America by 43% in 'twenty, two 'twenty three compared to 2022.
We continue to believe that our growth strategy, expanding our addressable market beyond tier one and tier two customers.
Daron Arazi: In the next few weeks, two new products are expected to be introduced, providing our customers with a lower total cost of ownership and excellent performance attributes. We believe these new additional products will help us further expand our market presence and offer tangible benefits to our customers. In addition, they are expected to also help us with our long-term goal of improving gross margin. We continue with the testing of our new system on a chip named Neptune and expect to launch the first product using this chip by the end of 2024. As we have already announced, it is our intention to demonstrate some of the Neptune capabilities at the Mobile World Congress exhibition in Barcelona next week. In particular, we will have a live demonstration of our upcoming Neptune-based millimeter wave technology, which we believe far surpasses competitors' capabilities.
Is coming into clear focus.
The acquisition of Cyclo is expected to accelerate these initiatives.
Our performance in 2020, three combined with improving visibility and the expected synergies from <unk> has given us the confidence to guide to continued double digit revenue growth.
We are also targeting significant more margin expansion in 2024.
Dan will speak to our guidance in more detail during his comments.
In the next two few weeks two new products are expected to be introduced providing our customers with a lower total cost of ownership and excellent performance attributes.
We believe these new additional products will help us further expand our market presence and offered tangible benefits to our customers. In addition.
They are expected to also help us with our long term goal of improving gross margins.
We continue with the testing of our new system on a chip named Neptune and expecting to launch the first product using this chip by the end of 'twenty 'twenty four.
As we already announced it is our intention to demonstrate some of the Neptune capabilities at mobile World Congress exhibition in Barcelona next week.
In particular, we will have a live demonstration of our upcoming Neptune based millimeter wave technology, which we believe far surpasses competitors' capabilities.
Daron Arazi: We will also display our IP50CX microwave radio and IP50EX millimeter wave radios. Both radios demonstrate a dedication to delivering high performance in compact packages for an optimized total cost of ownership. As we have said, this system on a cheap platform represents a meaningful competitive advantage which should help us further take market share in the future. I'd now like to provide an overview of our Q4 highlights by region. Noting that on today's call, we will focus primarily on activities in North America and India, the two regions that have and we expect will continue to have the greatest impact on our results in the near term. In North America, we have continued to expand our business in the private network market. We pursue additional opportunities in the enterprise domain, large campuses, including universities, as well as municipalities. Importantly, these contracts typically have a greater component of services and specifically managed services, which is expected to improve the visibility of our backlog and reduce the lumpiness of our business.
We will also display our IP 50, CX microwave radio and IP 50 E X millimeter wave radios, both radios demonstrate a dedication to delivering high performance in complex packages for an optimize total cost of ownership.
As we have said this system on a chip platform represents a meaningful competitive advantage, which should help us further take market share in the future.
I'd now like to provide an overview of our Q4 highlights by region.
Noting that on today's call, we will focus primarily on activities in North America, and India. The two regions that have and we expect we'll continue to have the greatest impact on our results in the near term.
In North America will continue to expand our business and the private network market.
We pursue additional opportunities in the enterprise domain.
Large campuses, including universities as well as municipalities importantly, these contracts typically have a greater component of services and specifically managed services, which is expected to improve the visibility of our backlog and reduce the lumpiness of our business.
Daron Arazi: North America revenue was $24.5 million. Our solutions are in demand even as service providers are more cautious about their capital expenditure. Bookings in North America were in line with expectations in this quarter, adding to our backlog and reflecting several private network wins and strong demand from our largest service provider customers. Ciclo North America benefited from a strong finish to the year, reflecting solid demand for Ciclo millimeter wave solutions in India.
North America revenue was $24 $5 million.
Our solutions are in demand, even as service providers more cautiously.
In their capital expenditures.
Bookings in North America were in line with expectations in this quarter, adding to our backlog and reflecting several private network wins and strong demand from our largest service provider customer.
Daron Arazi: We have continued to see strong demand for our solutions, even as others report. Revenue from India was $30.5 million, and bookings were strong, increasing our backlog. We signed a deal in India valued at approximately $150 million with a potential for additional revenue over time. Ceragon collaborated with a large global integrator on this project, which will support a network modernization project for a tier one operator in India.
Cyclo North America benefited from a strong finish to the year, reflecting solid demand for <unk> millimeter wave solutions.
In India.
We have continued to see strong demand for our solutions, even as others report softness rhem.
Revenue from India was $35 million.
And bookings were strong increasing our backlog.
We signed a deal in India valued at approximately $150 million.
With the potential for additional revenue overtime.
Ceragon collaborated with a large global integrator on this project, which will support our network modernization project for a tier one operator in India.
Daron Arazi: This is a brand new customer for Ceragon, and this customer will be the first to deploy our newest solution. The agreement involves planning, product delivery, and deployment services, as well as a multi-year contract for Ceragon's managed services that covers day-to-day monitoring, management, and maintenance oversight of the microwave and millimeter wave network. We expect to begin the delivery and deployment of the new sites in the second quarter, and deployment is expected to be completed within approximately two years.
This is a brand new customer for Ceragon and this customer will be the first to deploy our new solutions.
The agreement involves planning product delivery and deployment services as well as a multi year contract for Ceragon managed services that covers day to day monitoring management and maintenance oversight of the microwave and millimeter wave network.
We expect to begin the delivery and deployment of the new sites in the second quarter.
And deployment is expected to complete within approximately two years.
Approximately 75% of the project value expected to be recognized during this timeframe.
Daron Arazi: Approximately 75% of the project value is expected to be recognized during this time frame. The remaining approximately 25% of the contract value is for managed services and maintenance and is expected to start being recognized all the time from the agreement beginning a year post-deployment. This project will certainly benefit our presence in India.
The remaining approximately 25% of the contract value is four minutes services and maintenance and is expected to start.
Being recognized over the time.
The agreement beginning a year post deployment.
This project will certainly benefit our presence in India and while this win includes margins typical to India. We do not expect this win to be a drag on plans to continue improving our consolidated gross margins clearly we continue to be successful.
Ronen Stein: And while this win includes margins typical to India, we do not expect this win to be a drag on plans to continue improving our consolidated gross margin. Clearly, we continue to be successful in India and North America, and we anticipate this trend to continue in 2024. With that, I'll turn the call over to Ronen Stein, our CFO, to discuss the results in more detail. Ronen, over to you.
Really in India, and North America, and we anticipate this trend to continue in 2020 pool.
With that I'll turn the call over to Ronen Stein, our CFO to discuss the results in more detail Ron and over to you.
Thank you the wrong and good morning, everyone.
Ronen Stein: Thank you, Daron, and good morning, everyone. As their own outline, the fourth quarter represented a solid end to a strong year for Ceragon. For the year, we grew revenue by 18% to $347.2 million, expanded our gross and operating profit margins, and delivered positive gap and non-gap net income along with positive free cashflow. This demonstrates the progress we have made in unlocking the earnings power of Ceragon. 2023 was a very strong year for Ceragon, and we enter 2024 with accelerating momentum.
Is the wrong outlined the fourth quarter represented a solid end to a strong year for so long.
For the year, we grew revenue by 18% to $347 2 million.
Expanded our gross and operating profit margins and delivered positive GAAP and non-GAAP net income along with positive free cash flow.
This demonstrates the progress we have made in unlocking the earnings power of Ceragon.
2023 was a very strong year for Ceragon, and we enter 2024 with accelerating momentum.
We remain a project driven business with inherent variability in results from quarter to quarter, but we delivered four strong quarters, each with revenue over $80 million.
Ronen Stein: We remain a project-driven business, with inherent variability in results from quarter to quarter. We delivered four strong quarters, each with revenue over $80 million and each with a non-gap net income of above $3 million. On an annual basis, we were profitable on a GAAP basis for 2023, the first time since 2018. To help you understand the results, I will be referring primarily to non-GAAP financials. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's press release.
And to each with a non-GAAP.
Net income of above $3 million.
On an annual basis, we were profitable on a GAAP basis for 2023, the first time since 2018.
To help you understand the results I will be referring primarily to non-GAAP financials.
For more information regarding our use of non-GAAP financial measures.
Excluding reconciliations of these measures we refer you to today's press release.
Ronen Stein: Let me now review the actual results; revenues were $90.4 million, up 20% from $75.5 million in the fourth quarter of 2022. Sequentially, revenue increased approximately 3.6% from $87.3 million in the third quarter of 2023. Our strongest regions in terms of revenues for the quarter were India and North America, with $30.5 million and $24.5 million, respectively, in line with the continuous strong demand we see in these regions. Our third strongest region in terms of revenues was Latin America, with $11.8 million.
Let me now review the actual results.
Revenues were $19 $4 million up 20% from $75 5 million in the fourth quarter of 2022.
Sequentially revenue increased approximately three 6% from $87 3 million.
In the third quarter of 2023.
Our strongest regions in terms of revenues for the quarter were India, and North America with $35 million.
And $24 $5 million, respectively in line with the continued strong demand we see in these regions.
Our strongest region in terms of revenues was Latin America with 11 8 million.
We had two customers in the fourth quarter that contributed more than 10% of our revenues.
Ronen Stein: We had two customers in the fourth quarter that contributed more than 10% of our revenue. Gross profit for the fourth quarter, on an ongoing basis, was $31.8 million, an increase of 27.1% compared to $25 million in Q4 2022 and up 4.4% compared to $30.4 million in Q4 2023. Our non-gap gross margin was 35.1% compared to a gross margin of 33.1% in Q4 2022 and 34.9% in Q3 2023. We continue to achieve high gross margins, mainly as revenues from North America continue to maintain their high levels and product mix continues to be favorable while we keep costs under control. Our gross margins continue to fluctuate from quarter to quarter due to changes in product and regional mix, as well as other operational factors.
Gross profit for the fourth quarter on a non-GAAP basis.
$31 8 million.
An increase of 27, 1%.
<unk> to $25 million in Q4, 2022, and up four 4% compared to $30 4 million.
In Q4 2023.
Our non-GAAP gross margin was 35, 1% compared to a gross margin of 33.1% in Q4, 2022, and 34, 9% in Q3 2023.
We continue to achieve high gross margins, mainly as revenues from North America continued to maintain its high level and product mix continued to be fair favorable while we keep costs under control.
Our gross margins continue to fluctuate from quarter to quarter due to changes in product and regional mix as well as other other operational factors.
Ronen Stein: However, we continue to see a positive trajectory as for operating expenses. Research and development expenses for the fourth quarter on a non-gap basis were $7.7 million, down from $7.9 million in Q4 2022 and up from $7.3 million in Q3 2023. As a percentage of revenue, our R&D expenses were 8.5% in the fourth quarter, compared to 10.4% in the fourth quarter last year. Sales and marketing expenses for the fourth quarter on an on-grab basis were $10.2 million, up from $8.6 million in Q4 2022 and from $9.7 million in Q3 2023. As a percent of revenue, sales and marketing expenses were 11.3% in the fourth quarter compared to 11.4% in the fourth quarter last year. General and administrative expenses for the fourth quarter on an on-gap basis were $6.1 million, down from $17.6 million in Q4 2022, which included $12.3 million credit loss provision for a specific customer and up from $5.5 million in Q3 2022.
However, we continue to see.
Positive trajectory.
As for operating expenses.
Research and development expenses for the fourth quarter on a non-GAAP basis was $7 $7 million down from $7 9 million.
In Q4, 2022 and up from $7 3 million.
In Q3 2023.
As a percentage of revenue our R&D expenses were eight 5% in the fourth quarter compared to 10, 4% in the fourth quarter of last year.
Sales and marketing expenses for the fourth quarter on a non-GAAP basis were $10 2 million up from $8 6 million in Q4, 2022 and from $9 7 million in Q3 2023.
As a percent of revenue.
Sales and marketing expenses were 11, 3% in the fourth quarter compared to 11, 4% in fourth quarter last year.
General and administrative expenses for the fourth quarter on a non-GAAP basis were $6 1 million.
Down from $17 6 million.
In Q4, 2022, which included a $12 3 million.
Credit loss provision for a specific customer and up from $5 5 million in Q3 2023.
As a percent of revenues G&A expenses were six 7% in the fourth quarter compared to 23, 4% in the fourth quarter last year.
Ronen Stein: As a percent of revenues, G&A expenses were 6.7% in the fourth quarter compared to 23.4% in the fourth quarter last year. Our non-GAP operating expenses are expected to increase in 2024 due to the full consolidation of CICLU. However, as we have already said, with our growth plan and the added business from CQ, we are targeting operating margin expansion. We will continue to be disciplined in regards to our operating expenses to drive increased operating leverage. Our goal is to achieve at least 10% non-gap operating margin for 2024 at the midpoint of our revenue guidance. We expect to utilize our strong cash flow to invest in our strategic initiatives to expand our addressable market and target private network customers. We continue to believe that such investments can better position us to see further growth in these segments in 2024.
Our non-GAAP operating expenses are expected to increase in 2024 due to the full consolidation of cyclo <unk>.
However, as we have already said with our growth plan and the added business from sequel, we're targeting operating margin expansion.
We will continue to be disciplined in regards to our operating expenses to drive increased operating leverage.
Our goal is to achieve at least 10% non-GAAP operating margin for 2024 at the midpoint of our revenue guidance.
We expect to utilize our strong cash flow to invest in our strategic initiatives to expand our addressable market and target private network customers.
We continue to believe that such investments and better position us to see further growth in these segments in 2024.
Operating profit for the fourth quarter on a non-GAAP basis was $7 8 million.
Ronen Stein: Operating profit for the fourth quarter on a non-gap basis was $7.8 million, compared with an operating loss of $9.1 million for Q4 2022 and a profit of $8 million for Q3 2022. Financial and other expenses for the fourth quarter on an on-gap basis were $2.5 million, slightly higher than we expected due to currency losses from our operations in Africa. Our tax expenses for the fourth quarter on an on-the-job basis increased to $1.5 million, mainly due to an update in our Film 48 provisions following tax assessments in one of the territories in which we operate.
Compared with operating loss of $9 1 million.
For Q4, 2022, and the profit of $8 million.
For Q3 2023.
Financial and other expenses for the fourth quarter on a non-GAAP basis were $2 5 million.
Slightly higher than we expected due to currency losses from our operations in Africa.
Yes.
Our tax expenses for the fourth quarter on a non-GAAP basis increased to $1 5 million.
Mainly due to an update you know fin 48 provisions following tax assessments in one of the territories in which we operate.
Net income on a non-GAAP basis for the quarter was $3 7 million.
Ronen Stein: Net income on a non-gap basis for the quarter was $3.7 million or $0.04 per diluted share, compared to a net loss of $12.5 million or $0.15 per diluted share for Q4 2022 and net income of $5 million or $0.06 per diluted share for Q3 2022. Gap net loss for the fourth quarter was $1.2 million, negatively impacted mainly by $1.6 million charges related to the acquisition of Ciclu and the $1.2 million one-time charge related to a termination of a long-term agreement with a third party for a joint development of 5G technology. In accordance with the terms of this termination, we remain the sole owner of the developed technologies in return for waiving $1.2 million in future payments by the third party. The termination of the agreement also had a significant balance sheet effect on our non-current assets and deferred revenues. It is important to note that this does not have any impact on our future revenue projections. Turning to the Fourier result, revenues were $347.2 million, up 17.6% from $295.2 million in 2022. The growth is mainly attributable to substantial growth in North America and in Asia.
Or four cents per diluted share compared to a net loss of 12 $45 million.
Oh 15 cents per diluted share for Q4 2022.
And net income of 5 million or <unk> <unk> per diluted share for Q3 2023.
GAAP net loss for the fourth quarter was $1 2 million.
Negatively impacted mainly by 1.6 million charges related with the acquisition of cyclo and the $1 2 million.
One time charge related to a termination of long term agreement with a third party for joint development of five G technologies.
In accordance with the terms of this termination.
We remain the sole owner of the developed technologies in return for waiving $1 2 million.
Future payments by the third party <unk>.
This agreement termination also had a significant balance sheet effect on our non current assets and deferred revenues.
It is important noting that he does not have any impact on our future revenue projections.
Turning to the full year results.
Revenues were $347 $2 million.
Up 17, 6% from $295 2 million in 2022.
The growth is mainly attributable to a substantial growth in North America and India.
Gross profit on a non-GAAP basis was $129 million.
Ronen Stein: Gross profit on an on-gap basis was $120.9 million, up $27 million from $93.9 million in 2022, giving us a gross margin of 34.8%, compared with a gross margin of 31.8% in 2022. This substantial improvement in gross profits as compared with 2022 is mainly attributable to the substantial increase in revenues while maintaining the same or higher margins in most regions, keeping general operational costs under tight control, improved supply chain costs partially offset by higher inventory write-off. Operating income on a longer basis was an all-time record at $29 million, compared with operating loss of $3 million for 2022. Once again, this demonstrates the progress we have made in unlocking the earnings power of Ceragon and our ability to increase operating leverage. Net income on a non-gap basis was $16.7 million, or $0.20 per diluted share, compared with a net loss of $12.7 million, or $0.15 per diluted share, for 2022. Espo Barán.
Up $27 million.
From $93 9 million in 2022, giving us a gross margin of 34, 8% compared with a gross margin of 31, 8% in 2022.
This substantial improvement in gross profit as compared with 2022 is mainly attributable to the substantial increase in revenues, while maintaining same ohio margins in most regions keeping general operational costs under tight control improves.
Supply chain costs, partially offset by higher inventory write offs.
Operating income on a non-GAAP basis.
It was an all time record at 90 at $29 million.
Compared with operating loss of $3 million.
For 2022.
Once again this demonstrates the progress we have made in unlocking the earnings power of Ceragon and our ability to increase operating leverage.
Net income on a non-GAAP basis was $16 7 million or 20 cents per diluted share.
Compared with a net loss of $12 7 million or 15 cents per diluted share for 2022.
As for our balance sheet.
Ronen Stein: Our cash position at the end of the fourth quarter was $28.2 million, compared to $22.9 million at the end of 2022. Short-term loans were $32.6 million, compared to $37.5 million as of December 31, 2022. We believe we have cash and facilities that are sufficient for our operations and working capital needs. Our inventory at the end of Q4 2023 was $68.8 million, down from $72 million at the end of December 2022. We continue to monitor inventory levels, taking into consideration improvements in the availability of components and expected changes in demand. Our trade receivables are at $104.3 million, as compared to $100 million at the end of December 2022. Our DSO now stands at 110 days. The main impacts of consolidating CICLU into our balance sheet include an increase in intangible assets and goodwill, the increase of other long-term payables, the impact on our cash position, and additional inventory. As for cash flow, net cash flow generated by operations and investing activities, excluding the $8 million impact of the Ciclo business combination, net of cash acquired in Q4 2023 was $7.8 million. We generated nearly $11 million in cash from operations in the fourth quarter and nearly $31 million for the full year.
Our cash position at the end of the fourth quarter was $28 2 million.
Compared to $22 $9 million at the end of 2022.
Short term loans were $32 6 million.
Compared to $37 5 million.
As of December 31st 2022.
We believe we have cash and facilities that are sufficient for operations and working capital needs.
Our inventory at the end of Q4 2023 was $68 8 million.
Down from seven from the 70 to 70.
72 million at.
At the end of December 'twenty, two 2022.
We continue to monitor inventory levels, taking into consideration the improvements in availability of components and expected changes in demand.
Our trade receivables are at $104 3 million as.
As compared to $100 million at the end of December 2022.
Our DSO now stands at 110 days.
The main impacts of consolidated <unk> into our balance sheet include the increase of intangible assets and goodwill the increase of other long term payables the impact on our cash position and additional inventory.
As for cash flow.
Net cash flow generated by operations and investing activities, excluding the $8 million impact of signal business combination net of cash acquired in Q4, 2023 was $7 8 million.
We generated nearly $11 million in cash from operations in the fourth quarter.
And nearly 31 million.
For the full year.
Ronen Stein: As Doron indicated at the top of this call, we believe that demand in our business will continue to be strong. For 2024, with a caveat of lumpiness between quarters, we expect revenue of $385 million to $405 million, representing growth of 11% to 17% compared to 2023. This guidance includes the contribution from CICRA. Non-GAAP operating margins are targeted to be at least 10% at the midpoint of the revenue guidance.
As Don indicated at the top of this call. We believe that the demand in our business will continue to be strong.
For 2024 with a caveat of Lumpiness between quarters, we expect revenue of $385 million.
Two $405 million.
Representing growth of 11% to 17% compared to 2023.
This guidance includes the contribution from Citigroup.
non-GAAP operating margins are targeted to be at least 10% at the midpoint of the revenue guidance.
Ronen Stein: As a result, we expect increased non-gap profit and positive cash flow for the full year of 2024. With that, I now open the call to your questions, operator. In order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question today comes from the line of Alex. You might be.
As a result, we expect increased non-GAAP profit and positive cash flow for the full year of 2024.
With that I now open the call for your questions operator.
And I wanted to ask a question.
Radio has resumed on mobile or desktop obligate one wafer.
For the name <unk>.
Our first question today comes from the line of Ali.
Nice to hear.
Okay.
Operator: Great, am I up? Can you hear me? Yes, if you can speak a little louder, Alex, it will be even better. Perfect. Good morning, Alex.
Grain map.
Can you hear me.
Yes, if you can speak a little louder eyelids, it will be even better.
Good morning, Alex I can certainly do that.
Alex Henderson: I can certainly do that. To start with, congratulations on a great year and a great quarter. You did a really good job this year, and it looks like the C-Clue acquisition was quite strong. So, good news all around. So, a couple of quick questions. What would be the organic growth rate, excluding C-Clue?
To start with congratulations on a great year and great quarter us really good job this year and it looks like the <unk> acquisition was quite strong.
Good news all around so a couple of quick questions.
What would be the organic growth rate, excluding seek Lou and if you.
Daron Arazi: And if you could, give us any update on your estimation of C-Clue revenues for the full year. So, first of all, we were talking about this when we announced the deal. We're talking about an amount of $25 to $29 million of revenue that we believe we'll be able to generate in 2024. I think for the sake of the assessment of organic growth, this is still a good number if we kind of carve it out from the revenue range that we projected. In general, it's not in our intention to start splitting the numbers every quarter because the idea is to really have a very, I would say, tight integration where we go to the market with both products and lines offering solutions, and I think it would be a bit misleading if we separated that for the future.
Could give us any update on your estimation of the sequel revenues.
For the full year.
So so first of all we were talking about this.
When we announced the deal we're talking about an amount of $25 million to $29 million of revenue that we believe we will be able to generate in 2024.
I think for the sake of a DSS man of the organic growth. This is still a good number if we kind of carve it out from the revenue range that we projected.
In general it's not in our intention to start splitting and the numbers every quarter because the idea is to really have.
A very a I would say tight integration when we go to the market with both their product.
Lines offering solutions and I think it would be a bit misleading if we separate that for the future, but the outset as I said you should deduct this revenue range and this would be are there relevant grosso modo growth, we expect organically.
Daron Arazi: But at the outset, as I said, you should deduct this revenue range, and this should be the relevant grosso modo growth we expect organically. Yeah, so no changes to the CECLU revenue guide. Great. Second question, if I could, you've obviously got a bias for higher margins. Can you give us any sense of what kind of margin range we're looking at in terms of gross margins at 24? I assume that it's probably, what, 35 to 36, something like that.
Yeah, So no changes to the sequel revenue guidance right.
Second question, if I could.
You've obviously got a bias to higher margins.
Can you give us any sense of what kind of margin range. We're looking at in terms of gross margins.
And 'twenty four I assume that's probably what 35% to 36 something like that.
Ronen Stein: Could you give us some guidance there? I think that we will be around 36%. Some quarters will be shy below, and some quarters may be shy above. Of course, there could be lumpiness between quarters.
Can you give some guidance there.
I think that we will be around 36%.
Some quarters will be shy below some quarters might be shy above.
Of course, there could be lumpiness between quarters. So this is in general but in a specific quarter it could jump or be a little bit lower but this is more or less around the 36%, which is the what we see as the annual one.
Ronen Stein: So this is in general. But in a specific quarter, it could jump or be a little bit lower. But this is more or less around 36 percent, which is what we see as the annual one.
And then.
Ronen Stein: And then, can you give us some sense of what the growth rate is between R&D and sales and marketing and general and administrative expenses? I assume it's double-digit in both sales and marketing and R&D but probably low single digits in G&A with more expense up front and then trimming it as you bring that CECLU integration cost down. Is that a fair assessment?
Can you give us some sense of what the growth rate is in between R&D and sales and marketing G&A I assume it's double digit in both sales and marketing and R&D, but.
Probably low single digits in G&A.
With more expense upfront than trimming it as you bring a sequel.
Sequel call integration costs down is that a fair assessment.
Ronen Stein: So I would say the following. In general, we target, as we said, the total operating profit to be on the midpoint above 10%. The split between R&D and sales and marketing, I think that we will see a bit higher sales and marketing shifts to higher sales and marketing, mainly due to the fact that our strategy shift into the lower tiers requires more sales and marketing, while in R&D, there will be some increase, but it's modest, relatively modest, and we keep R&D more or less at the same level, trying not to exceed the R&D level. OK Obviously, there's an opportunity here to bring some inventory down as the live chain normalizes, and your ARRs still look good, pretty rich.
So I would say the following in general.
With target as we said the total operating profit to be on the midpoint above 10%.
The split between the R&D and sales and marketing I think that we will see a bit.
Harris as our market shifts to higher sales and marketing mainly due to the fact that the.
Our strategy shift.
Into the lower tiers requires more sales and marketing while in the R&D there will be some increase but its modest relatively relatively modest and we keep R&D.
More or less in the same level trying not to exceed the R&D levels.
Okay.
Back on the balance sheet obviously.
There is an opportunity here to bring some inventory down as the <unk>.
Supply chain normalizes.
And you're a ours still look.
Yeah pretty rich so can you talk about what your expectations are for those two lines as we go through the year.
Ronen Stein: So can you talk about what your expectations are for those two lines as we go through the year? Regarding inventory, we continue to try to achieve a reduction in inventory. For sure, inventory as a percentage of revenues will decrease even if we have only a slight reduction in inventory because, at the end, we expect to increase revenues. On the AR, we expect to see more or less the same level, trying to reduce it a bit.
So regarding inventory, we continue to try to achieve a reduction in inventory.
For sure inventory as a percentage of our revenues will decrease even if we have only slight.
And a reduction in inventory.
Because at the end, we expect to increase their revenues.
On the on the a are we expect to see more or less the same level trying to reduce a bit it will be a bit challenging one.
Ronen Stein: It will be a bit challenging while India's big projects are coming and the, It might be a little bit challenging on that, but we still expect to be around the same numbers last year, of the same DSO, to keep the same DSO. Last question, then I see the floor. Can you give us any guidance on the tax line and on the interest line? What are we expecting for the full year on those two items? Well, on the one hand, we had $8 million, which we did not increase so much. Only half of it went into our loans, so we could take the loans down, which will obviously benefit us in terms of interest rates.
India, a big projects are coming in is.
It might be a little bit.
Yeah.
Challenging on that but we still expect to be around the same numbers.
So last year, albeit the same DSO, who keeps us on this last question then I'll cede the floor.
Can you give us any guidance on the tax line.
On the interest line what is what are we expecting for the full year on those those two items.
On one hand, we had the $8 million, which we are and did not increase so much the only half of it went into our loans.
Loans.
And in which we could the take take the loans down which will obviously win.
The benefit us on the interest rates also we see some interest rate relief. So it's a little bit going down. So we expect the interest expenses to go down it's very difficult as you know to expect the exchange rate differences.
Ronen Stein: Also, we see some interest rate relief, so it's a little bit going down. So, we expect the interest expenses to go down as well. It's very difficult, as you know, to expect exchange rate differences as a global company and the effects on certain operations, but we don't see them as a big number. This is for financial expenses. With respect to the tax expenses, I think that this year was a bit higher than usual, and we are working to align our tax structure as much as possible, and hopefully, we will even reduce tax expenses from this year. So just to round that out, so the tax line is about the same or down a hair, and then the interest line, what, $2 million a quarter kind of thing?
As a global company and the effects on certain operational, but we don't see them as a big numbers. This is for their financial expenses with respect to the tax expenses.
I think that this year was a bit higher than the regular and we are working to align our tax.
As posture as much as possible and hopefully we will even reduce.
Tax expenses from this year.
Sure. So just to round that out so tax line about the.
The same or down a hair and then interest line brought $2 million a quarter kind of thing something like that would be a would be a reasonable number.
Alex Henderson: Something like that would be reasonable. Perfect. Thank you. I'll see you on the floor.
Thank you I'll cede the floor.
Alex Henderson: Thank you so much, Alex. Our next question... comes on the line from Momer Yankiev. We don't mind the people.
Thank you so much Alex.
Our next question.
Carloads in Idaho.
Nokia.
Okay.
Yeah.
Good morning, I Wonder if you could just discuss a little more detailed integration plans for <unk>.
Operator: Good morning. I wonder if you could just discuss a little more detail of the integration plans for CICLU just in terms of combining, you know, marketing forces, management, some of the infrastructures they're bringing in. And I realize there are significant cross-selling opportunities, obviously, with your existing sales force. I wonder if you could just give us a little more granularity on that, please. Thank you.
In terms of combining marketing forces management's so many infrastructures that are bringing in.
And I realize there's significant.
Cross selling opportunities, obviously with your existing Salesforce I Wonder if you could just give us a little more granularity on that please thank you.
Yeah Harlan.
Daron Arazi: So the plans, as I said, are basically, or the execution of our plans is on the way. Um, what we see at the outset is that there is strong demand for Ciclu products from the original markets they were in. You may understand from the deal structure that they were in some, I would say, financial distress before we bought them, and that actually inhibited their ability to supply the demand.
So.
The the plans as I said are are basically or the execution of our plans is underway.
What we see ethane you know at the outset is that there is a strong demand.
Or a sequel products from the original and Maryland markets they were at.
You may understand from the deal structure that they were in some may I would say financial distress.
Before we bought them and that they're actually inhibitor their ability.
Daron Arazi: So first of all, at the high level, we expect to see the, so to speak, standalone CICLU business ramping up because, obviously, we have released all the ropes of financial difficulties and so on and so forth. And this is primarily driven by the sales team of CICLU that is part of our region nowadays. In parallel, we are seeing opportunities for quick wins, especially in customers that are seeking both microwave and millimeter wave solutions. Up until recently, when Siklu was a standalone company, they were not able to offer microwave solutions from their portfolio.
To supply the demand so first of all at the level or the high you know high level, we expect to see the so to speak Standalone cyclo business ramping up because obviously, we released all.
The roles of.
Financial difficulties and so on and so forth and this is primarily driven by the sales team of cyclo that is part of our region. Nowadays in parallel we are seeing a opportunities for for quick wins.
Especially in customers that are seeking for both the microwave and millimeter wave solution up until recently when CCAR was a standalone company that were not able to offer.
<unk> microwave solutions from their portfolio.
Daron Arazi: And now we see this as an opportunity for us to also boost our microwave businesses in existing customers of SICK. The other side of it is actually introducing SICLU solutions and products to some of our customers. So far, the initial feedback from the market is very positive, especially looking into the point-to-multipoint-teragraph solution that can be used for fixed wireless access.
Our we see this as a as an opportunity for us to to also boost.
Our microwave business sells in the existing customers of synchrony.
The other side of it is actually introducing seek new solutions and products.
To some of our customers.
So far as the initial.
Our feedback from.
The market is very positive.
Especially looking into the point to multi plant multi point paragraph.
Solutions that can be used for fixed wireless access.
Daron Arazi: And all in all, we see a lot of interest in Mobile World Congress. We intend to dedicate a big portion of our booth to explaining and showing what these products and solutions can do and how they can help. So, all in all, we are very optimistic. Our sales team is also learning. And we've done a lot of training activities so that we boost the sales of Ciclu products within our sales team. And by that, we have a multiplier or a multiplier effect on the sales force that is out there to sell Ciclu products. This is for the short run.
And all in all.
We see a lot of interest.
In a mobile World Congress, we intend to dedicate.
A big portion of our booth.
To explain and to show what these products and solutions.
It can do and how they can help so all in all we are very optimistic our our sales team is also learning.
We've done a lot of training activities. So that we boost also are the sales of sequel products within our.
The sales team and by that having a multi peril.
Ah.
Or multiplying the sales force that is out there and to sell to.
To sell a cyclo product this is for the short run.
For the long run there's a much more.
Daron Arazi: For the long run, there are many more strategic thoughts that I don't think it's the right time to start discussing them. The only thing I would say is that with the sequence acquisition, on the Ceragon side, our..., usability, in terms of our product, is going to improve very significantly because these guys did an amazing job in terms of GUI design, in terms of alignment when you're doing installation. So this is a part of the integration that we intend to adopt also on a Ceragon product, which means faster deployment by far and also better configuration or easier configuration of our products as well. I think I will stop here.
The strategic thoughts that I don't think it's the right time to start discussing them. The only thing I would say is that and I'm sure that with the secret acquisition.
And on the Ceragon side.
Our.
Is of use.
In terms of our product.
Is going to improve very significantly because these guys did an amazing job in terms of.
Good design in terms of alignment when Youre doing installation.
So this is a part of.
The integration that we intend to indulge also oney ceragon product, which means.
Oster deployment by far and also better configuration or easier configuration of.
Daron Arazi: Great. That's very helpful. Thanks so much, Daron. Sure. Thank you, Robert. If you have no further questions, go on, please proceed. Thank you.
Our products as well I think I will stop here.
Great. That's very helpful. Thanks, so much John.
Sure. Thank you Roland.
You have no further question Johan.
Thank you.
So this was an encouraging year for Ceragon.
Daron Arazi: We are increasing our footprint in multiple domains and expect to continue delivering significant revenue growth. The overall wireless transport market continues to grow, based on projections from independent industry analysts. And the expectation is that growth will continue in the coming years. We believe we can grow much faster than the market growth by focusing on the parts of the market that are expected to grow faster and expanding into new domains. Beyond delivering strong radio products to this market and primarily focusing on millimeter wave, which is expected to outpace market growth, we're expanding our business in other focus domains, which are private networks, as well as software-led managed services. This growth profile serves as the basis for our expectations for double-digit growth going forward. We are solidly profitable and expect to further expand our margins in 2024. We believe that we are well positioned to continue to achieve self-sustaining cash flows as we execute our growth strategy. I look forward to updating you further on our next quarterly call. Have a good day, everyone, www.mytrendyphone.co.uk www.globalonenessproject.org and others. Thank you. Thank you.
We're increasing our footprint in multiple domains and expect to continue delivering significant revenue growth.
The overall wireless transport market continues to grow based on projections from independent industry analysts and the expectation is that growth will continue in coming years.
We believe we can grow much faster than the market growth by focusing on the parts of the market that are expected to grow faster and expanding into new domains.
Delivering strong radio products to this market and primarily focusing on millimeter wave that is expected to outpace the market growth, we're expanding our business in other focused domains, which are private networks as well as the software led managed services.
This growth profile serves as the basis for our expectations for double digit growth going forward.
We are solidly profitable and expect to further expand our margins in 'twenty 'twenty four we believe that we are well positioned to continue to achieve self sustaining cash flows as we execute our growth strategy.
I look forward to updating you further.
On our next quarterly call have a good day everyone.
Yeah.
Okay.
Mhm.
Mr Mcdaniel.
[noise].