Good day, everyone. Welcome to the Ceragon Networks Limited Third Quarter Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks. Today's call will include statements concerning Ceragon's future prospects that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current beliefs, expectations and assumptions of Ceragon's management. For examples of forward-looking statements, please refer to the forward-looking statements paragraph in our release that was published earlier today. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including risks associated with the decline in revenues due to our focus on a single market segment; risks related to the concentration of Ceragon's business in certain geographic regions such as India, and in other developing nations, risks relating to certain guarantees granted by Ceragon on behalf of Orocom to FITEL, in the framework of the FITEL project; political, economic and regulatory risks from doing business in developing regions, including potential currency restrictions and fluctuations; risks related to our ability to meet the demand for our products due to shortages in raw materials, including certain passive components; risks associated with a change in Ceragon's gross margin as a result of changes in the geographic mix of revenues and/or as a result of increase in costs of raw materials, including certain passive components; risks associated with loss of single customer or customer group, which represents a significant portion of Ceragon's revenues; risks associated with Ceragon's failure to effectively compete with other wireless equipment providers; and other risks and uncertainties detailed from time to time in Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission, that represents our views only as of the date they are made and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward-looking statements. Ceragon's public filings are available from the Securities and Exchange Commission's website at www.sec.gov or may be obtained from Ceragon's website at www.ceragon.com. Also today's call will include certain non-GAAP numbers. For 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 Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Thank you for joining us today. With me on the call is Doron Arazi, our CFO. We are very pleased to report an excellent third quarter which was above the top end of our quarterly revenue run rate with net income growing both, sequentially and year-over-year. We also generated very strong cash flow during the quarter. In addition, we are on-track to meet our goal of attaining an increase in non-GAAP net income in 2018 compared to 2017. Based on the current outlook, we believe we are able to extend our goal of net income growth to 2019 as well. We are benefitting from the early stages of the migration of networks from 4G to 5G technology, and as noted on past calls, this is a long multi-year global process, not an event that happens everywhere at once. Operators around the world are planning their path to 5G but they are at different stages as a starting point. Some are still building out 4G to bridge the digital divide and bring broadband access to more of their population, while others are expanding capacity and densifying 4G networks in preparation to launch 5G. The common denominator for all of them is that they are looking for wireless backhaul solutions that combine the benefits of flexibility, enabling rapid site acquisition, quick roll out, and conserving resources such as spectrum and power. As a result of offering full suite of solutions, and the trend from 4G to 5G, we are seeing many positive developments worldwide and our book-to-bill in Q3 was above 1 excluding India which tends to be lumpy. Furthermore, we saw an increase in bookings during Q3 in most regions around the world. To discuss some details of the current situation of the outlook in each region we will begin with…

Thank you, Ira. Since you have all seen the press release, I'll just highlight some of the significant items. Our strong third quarter revenue continued to be driven by the high level of activity in India combined with higher sequential revenue from most other regions. As we've explained previously, orders from India tend to be lumpy and therefore, revenues can be as well, and there is no real significance to the change in revenue in Q3 versus Q2. Except for our seasonally affected first quarter, we've been around the high-end or above our expected quarterly run rate for several quarters now. Our third quarter revenue of $86.5 million represented a slight sequential decline from Q2, reflecting the lumpy order and delivery patterns in India. The 13.9% increase over the third quarter of 2017 indicates a generally higher run rate. We had two above 10% customers in the third quarter, both were large customers in India, reflecting a continuation of the intense competition among operators in that region. India continued to dominate the breakdown of revenues with the region accounting for a more moderate 34% of total revenue compared to around 46% to 47% percent during the past couple of quarters. This was a result of revenue from India moderating somewhat from the recent high levels, as well as from sequential increase in revenues from most other regions, most notably North America, APAC, Latin America, and Africa. Both GAAP and non-GAAP gross margin was 35% in Q3, driven by a more favorable geographic revenue mix with a higher proportion of high margin services as well as beginning to see some relief from the impact of component shortages. The high margin from services from services is not likely to be a factor going forward. However, based on the booking trends and our…

[Operator Instructions] Our first question will come from the line of George Iwanyc with Oppenheimer.

Ira, when you look at 2019, can you give us some incremental color on the type of visibility you have to the regional trends and what mix you're anticipating for North America in that overall context?

We are mainly planning next year. Let's remember that visibility is in parallel to what we're doing, we're looking at different budgets and processes within our customers. We do believe that overall we will see a year where the geographical mix of our mix of revenues will shift towards places where the gross margin is a little bit better than India; and at this point I cannot point out exactly the numbers. I want to put a note on that, one of the things that is hard; for example, you asked about North America to plan, we do believe we have a very strong position with both T-Mobile/Sprint [ph] which are customers of ours, and as they emerge in the rollout of their 4G and 5G rollouts, it will probably be a part in that but timing both of when the deal will be approved -- and I'm using the term when because I believe the deal will be approved. And then, at -- how long it will take them to build their plans and start walking as one organization and rollout is still a big question mark on the timing from our perspective. So our planning for next year at this point with those two is probably low numbers, and are building on other activities and mainly the vertical and other operators within the North American region.

And building on that; it seems like you're gaining share kind of across the board 4G/5G in the vertical space. Can you give us an update on the competitive landscape and where are you taking share because of mixed transitions are you taking share because of some easing competitive headwinds?

Competitive headwinds are not easing, they are strong and -- but I think that our leadership with all-outdoor solutions in both, microwave and some of it also in the millimeter wave; and the millimeter wave, for example, multi-band which allows us to do multi-band with our equipment and other people equipment. And the ease of installation and the usage for that in approving site acquisitions allows us to take market share. Now it's part of the technology, it's part of the footprint, it's part of our success and proven success with a lot of projects in different places. To say the competition is easing up, and now it's tough and we sense [ph] the tough competition both from the beginning in some of the smaller guys as well although we see them weakening in different places around the world, mainly the smaller guys.

When you look at your gross margin trends, that's anticipating a 34% kind of average number; where do you see the high-end of the range being at -- you do get a favorable mix and you do have an easing on the supply chain environment?

I think this quarter is a relatively good example to where we can get; and yes, in that part of the upfront prepared comments we mentioned the fact that there is some high margin services contributing to this percent but even if I kind of take that into account and do some kind of adjustments, I do believe that we can cruise between 34% and 35% once again subject to the geographical mix that is critical. And as you mentioned, subject to continued gradual cost improvement or cost reduction in the passive components.

And our next question will come from the line of Alex Henderson with Needham & Company.

I just wanted to go back to that last answer for a second; so when you're talking about 34% to 35%, are you talking about CY19? Are you talking about the fourth quarter? And just going to be a little bit more granular; what you meant by that?

Based on what we see for the fourth quarter, I believe that the fourth quarter will end up with a gross margin of around 34% more or less. The outlook into 2019 looks slightly more promising, primarily because of the trend we have started seeing of the reduction in cost of these passive components that basically was a burden on our results for the last three quarters and started easing on -- actually in Q3.

Just to clarify on that; the burden from the passive components is hard to buy -- what magnitude was that, about a point of cost or half a point?

Originally when this thing started it was around 100 basis points, and more or less we see that getting slightly less impactful by probably 15 to 20 basis points, and we hope that this trend will continue. And hopefully, I'm not sure we'll get the full 100 basis point back but I hope that towards the end of -- or the second part of 2019 we'll see -- I would say the lion share of the loss of 100 basis points coming back to us.

One of the questions that I have is around the Peruvian business; obviously that's very different piece of business than what you typically see with a fair amount of services related in it. Should we thinking of the gross margins there because of your upfront commitments are better than equal to or because of the service may be less than historical overtime; how do we think about the mix impact of that business on margins?

The short answer is that we believe that the margins we can generate there are probably quite similar although we believe we can do slightly better than the average but the difference is not going to be significant; this is the short answer. I think one thing to note, since you asked this question, is that in this kind of projects if you just go with the -- I would say, traditional regular approach, the margins would have been much, much, much lower. And this is why we went for this kind of structure that we believe will be very successful for us.

I wanted to go back to your commentary about the revenue numbers being at the upper-end of your target line of $80 million to $85 million. And I get it for the December quarter but you've implied that it's for the next several quarters which takes us also into the seasonally softer first quarter; did you mean to imply that we're at the upper end of that $80 million to $85 million in that first quarter because I don't think that's historically in the norm.

I think it's a good question that you raised. I think we've put in our prepared remarks the caveat of the first quarter. Usually the first quarter is seasonally slightly weaker, we believe that this will be probably the case in 2019 as well. But as a general quarterly run rate, for 2019 at this point, when we are trying to average out the full 2019 we will be at the high-end of the $80 million to $85 million range.

So it sounds like it's reasonable to think that if we exclude the first -- seasonally weak first quarter, that you're pretty much at or even above the $85 million mark in the prior -- in the following three quarters. Is that what we should be thinking?

I think it would be close to our high-end of the range. In some quarters we might be slightly lower, in some quarters we might be slightly higher, and you know, that the lumpiness in the business is actually or day-to-day nature; so I cannot -- I would say comment more than that. And I truly believe that we need to take the lumpiness into account as well.

But we should be looking for top-line growth in '19. It sounds like maybe low single-digit kind of growth for '19?

At this point I think that the assumption should be very low single-digit growth.

Just one more question on this Venezuelan stuff; did you manage to take out every single cent of last cash that they have in Venezuela? How the hell did you guys manage to pull that off? I am staggered that you managed to get money back out of Venezuela.

To cut through the chase; on the one hand there is a lot of pressure coming from operators in Venezuela to find solutions to their very -- I would say unfavorable situation. Some of these Venezuelans operators are part of our corporates that are global, and in such cases sometimes the corporate comes along and tries to help the situation of these specific operators. Luckily enough there was a situation like that in the most recent quarter, and as a result of that we were able to get the shy of $1 million from this specific operator.

Two last quick questions; one, any thoughts on looking out into the M&A opportunities? And second, can you update us or remind us what your hedging policy is; obviously with the shekel hitting a 52-week low or very close to it here that should be a positive going forward but I just can't remember what your hedging policy is? Thanks.

I will start with answering the second question and then let Ira answer your first one. So regarding our hedging policy, nothing has changed. Especially when talking about the shekel, what we do is do some kind of rolling hedging that is not covering the full fledge of our exposure in [indiscernible] shekel expenses. But when the budget is approved, we go back to the market and hedge the balance of the portion of the expenses that was not covered or hedged yet. So currently, we're looking into 2019, we've already started hedging a portion of our new value [ph] shekel expenses at rates that are more around $3.6 but the end result will only be defined after we approve the budget and go back to the foreign exchange markets and finalize the hedging.

And you asked Alex on M&A and others; let's remember that although we didn't refer in the remarks, a lot of our activities or a lot of the time I spend on stuff is what I call strategic initiatives moving forward which have to do also with internal technologies, other technologies, adjacent technologies, adjacent markets and certain steps we can take within our market in enabling consolidation, not necessarily by the way of acquisitions, it's sometimes partnering and sometimes building all sorts of relationships in such a way we share -- sometimes technology, sometimes other means in there. So I would take your question and broaden it; the very narrow sense is that we think that with the strong position we have within the market and within the operator, we can slowly start leveraging that into increasing the business in addition to the normal day-to-day activities where we think we're also gaining market share.

Can you just update us on what you think the tax rate will look like in the fourth quarter in '19? I apologize for throwing one more in there.

I think that in terms of percentage out of the operating profit that I think is the best, so to speak a rule of thumb calculation; we should be at a level that is quiet similar to what you have seen in Q3, maybe slightly lower.

And for '19?

I think that is a rule of thumb; this should be the numbers more or less, let's not forget. In Israel where we are trying to bring the majority of our profits because the IP is in here. We have a bunch -- a big pile of accumulated losses [indiscernible], and as a result, although a profitable year, we are not literally paying our taxes. So the taxes -- the tax line in our P&L is primarily driven by provisions for taxes in the satellite companies around the world where we need to leave some profit based on transfer pricing studies. And I would say that this is the major element that is driving our tax expenses, there are some additional elements but I would probably count that as one of the majors. So if we increase our profits, I expected the same pattern of seeing more profits left in the satellite companies, and this will drive the tax expenses up. But I think in terms of overall percentage, I don't expect any major change from what we have seen so far.

Our next question comes from the line of Michael Stager with Odian Capital.

Given the nature of your order patterns, should we expect your geographical mix to settle into the current levels you just reported? Let me throw something else at you…

Go ahead, Michael.

As you said on the last call, you mentioned there were some carrier M&A and it was going to bait [ph] in a quarter or two. And so it seems like the other regions are coming up, so I just kind of wondering where you were going to settle in on a geographical mix into 2019?

The short answer is that it's very difficult to predict because of the fact that in India the orders pattern is -- I would say almost totally unpredictable; so we could see a situation where one quarter the Indian portion could get as close as to even 30% which is lower than the percentage or the proportion we reported for this quarter, and suddenly we get an order and we need to basically deliver more or less yesterday, and suddenly this becomes as high as 50% of our revenue in that quarter. I can comment on -- I would say more or less a full year or I would say trailing 12-months; we believe that a reasonable proportion is probably that India will stay within the range of 34%, 35% and 40% of our business going forward.

And let me just follow-up; in APAC are you willing to do the bundled deals given that you have a little bit of component gross margin help and sacrifice the gross margins on those bundled deals in APAC?

The bundled deals are deals which we cannot participate in because bundled deal usually means both, the radio access -- the backhaul and the radio access which is the base stations; and those deals are usually done only by the three or four very large telecom equipment vendor which is Huawei, Ericsson Nokia and mainly ZTE within those spaces. And when they do those deals, they basically block-off our market share in those. Let's remember that over the years, the proportions worldwide stayed about the same whereabout 50% of the overall market is bundled deals and about 50% is best-of-breed, and we are competing because of the technology and our capabilities, mainly in the best-of-breed segments where the operators make the decisions to pick the best-of-breed and separate out those, and we see some of the part of bundled patterns more strongly in APAC than in other regions.

[Operator Instructions] Our next question comes from the line of Gunther Arguer [ph] with Discovery Group.

The question I have is, what percentage of your total revenues is represented by the vertical markets?

Vertical markets worldwide vary quite differently between the different regions. If I look at an overall from worldwide perspective it's about 20%, although we do see regions like -- that it's about 50% and some regions it's almost negligible depending on the local practices and the way -- the way communication is built within those areas. And within the vertical markets, again, it's not one kind because we do see vertical markets of certain nature in different places, in some places it's more maritime in oil and gas, in some places it's more public safety, in other places we see broadcasting; also it varies based on the geography of what we do within the vertical markets.

As a follow-up question on that is, the vertical markets on balance are somewhat higher margins about the same on somewhat lower?

Vertical markets are usually higher margins, they do behave a little bit differently than the big operator deals where we provide different set of services or we go through different channels. For example, through the operators worldwide we sell direct, in the vertical markets a lot of our business go through system integrators and channels that work with us to provide a complete solution to the end customer.

And speakers, at this time we have no further questions in queue.

So I'd like to thank all of you for joining us today on this call. As always, we're here to help you and so any further and follow-on questions, please feel free to contact us directly. We will be at the -- showing at conferences and you are welcome to join us as well.

Ladies and gentlemen, that does conclude today's conference. I want to thank you for your participation, and you may now disconnect.