Good day, everyone. Welcome to Ceragon Networks Limited Second Quarter 2019 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 the 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 press 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 the risks relating to the concentration of a significant portion of Ceragon's expected businesses in certain geographic regions, and in particularly, in India, where a small number of customers are expect to represent a significant portion of our revenues, including the risks of deviations from our expectations of timing and size of orders from these customers. The risk that the current slowdown in revenue from India could extend for a longer period than anticipated, risks associated with any failure to effectively compete with other wireless equipment providers, the risk that we roll out of 5G services could take longer than anticipated, and other risks and uncertainties detailed from time to time on Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission that represent 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 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 Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Thank you for joining us today. With me on the call is Ran Vered, our Chief Financial Officer. Our second quarter results were consistent with our revised expectations, as indicated in our July 2nd press release. Actual Q2 revenue was toward the upper-end of the range we gave at $73 million, with a small GAAP profit of $0.01 a share or $0.03 on a non-GAAP basis. Taking a broader look at the entire half of 2019, both the positive factors and the negative factors had more impact than we expected at the beginning of the year. Let's look at the good news first. Aside from India, revenue from all regions of the world showed improvement over the first half of 2018. The improvement was led by Africa, North America and Latin America, which were each up substantially year-over-year. Europe, North America, Latin America and APAC also grew in the first six months of 2019 compared to the second half of 2018, and Africa was quite similar. So aside for India, we had a very good first half, which puts us on track for a much stronger year in most regions in 2019 versus 2018. Also, in our discussion of each region, we will highlight some recent developments that we believe will support a continuation of these positive trends for next year as well. These developments mainly relate to multiple new design wins for 5G. Now I'll turn to the challenging region during the first half, India. At the beginning of this year, we expected some tapering off after the extremely strong pace of 2018, when India accounted for over $130 million of revenue for the year. Ordering patterns from India have always been lumpy. Therefore, when we saw bookings slowed down during the second half of 2018, it appeared to…

Thank you, Ira. Since you have all seen the press release, I'll just highlight some of the significant items in the report. Revenue increased sequentially to $73 million, which was considerably below our target quarterly run rate of $80 million to $85 million per quarter. This was a result of the potentially lower than expected revenue from India, partially offset by higher than expected revenue from several other regions. In Q2, India accounted for only $7.5 million or only about 10% of total revenue as a result of the ongoing delay in receiving a large group of orders, expecting since early Q1. In addition to the further sequential decrease in revenue from India, revenue from Europe decrease slightly from the strong Q1 in that region. Both India and Europe also decreased as a percent of total revenue in Q2. Meanwhile, revenue from both North America and Latin America increased sequentially and also increased as a percent of total revenue in Q2. Revenue in Q2 from other regions were similar to Q1. In Q2, we had one above 10% customer in Latin America. The low level of revenue from India in both Q1 and Q2 has certainly distorted the year-over-year revenue comparisons. Excluding India, revenue for the first half of 2019 increased over 36% compared to the first half of 2018 with all regions other than India contributing to the increase. Both, GAAP and non-GAAP gross margin was 36.1% in Q2, a slight sequential improvement reflecting the further shift in geographic mix with lower revenue from India. Gross margin for the first half of 2019 was 35.9% [ph] over the 300 basis points higher than the first half of 2018. Even assuming substantially more revenue from India during the second half, we expect gross margin for all of 2019 to be…

[Operator Instructions] Our first line will be to George Iwanyc with Oppenheimer. Please go ahead.

Thank you for taking my question. Either Ran or Ira, when you talked about the book-to-bill being less than 1, even excluding India, is that primarily related to the short-term uncertainty in North America or is that across multiple region?

It's across multiple regions. It's in small numbers in different regions. It's not large numbers. And when we look at the -- our outlook forward, as we said, we think it will -- it's picking up both in Q3 and in Q4.

Okay. And you know digging into India a little bit more, so it seems like consistently across all the carriers, you're seeing a slower pace of deployment. Is the $19 million that likely to be recognized in the third quarter and the mixed outlook that you have is primarily related to the type of spending you'd see in the fourth quarter?

I would say, for the $19 million, most of it will probably be recognized in -- not all of it, but most of it in Q3, and with depending on India on receiving additional orders, as we said, either early, which means end of this quarter Q3 or early Q4 and be able to recognize additional revenue in Q4, which gets the scenarios very complicated for the year with a very large swing between the different scenarios. But just as a comment on your question, we see that across the world, by the way, in many places, deployments look like a very long race and usually when they leads run there slows down, the whole pack behind them slows down as well. When they pick up, everyone picks up the pace with him in there, and that's partly of the phenomena we're seeing in India as well when the race itself slowed down for a while.

Okay. And can you give us a bit of color on the competitive environment right now? It sounds like 5G is a catalyst for share gains, but if you look at it -- kind of overall picture from a 4G and 5G perspective; what gives you the confidence that your win rates are not changing across the globe?

Okay. So first, I'll go the opposite of what you said. We are confident our win rates across the globe are increasing, not slowing down. And that's because, I've seen over the last two quarters, I think I've discussed on the call, 5G preparation in the APAC region, which is a customer who we haven't seen. I've discussed on this call an operator in Africa. We talked about increasing sales in Europe. We talked about the US, of winning an additional Tier 1 operator. So my belief is that technology-wise we are very well positioned in the 5G world, although it's not tomorrow morning, and we'll see the results for its starting at the beginning of 2020, but more at the second half of going there. And I think that from discussions with operators that we are having between the technology and the value that technology brings to the customers, we see share gains in a lot of places.

And one last question for me. From an OpEx standpoint, how much control do you have? Like right now, what level of confidence do you have that your current spending levels and what would it take for you to either start pulling back or be a little bit more careful on how you budget your spending for next year?

One of the things we will do, like we always do every year is when we plan and we are starting right now, the plan cycle for next year, is to look very carefully at the spending levels that we have across all the different areas. I wouldn't say that -- I'll say this way, we have 100% control on the OpEx or almost 100% control on the OpEx, but we don't have 100% flexibility and the flexibility piece has to do with decision making, which we will be doing over the next few months as we plan the budget for next two year at where we are spending, investing following the 5G wins both technically and commercially on the ground and where we are a little bit decreasing the spending as we wait for next cycles. Too early to tell on the results of that type of an exercise, but if you look at us over the last few years, we were quite consistent in maintaining almost a flat OpEx.

Thank you very much.

Next, we'll go to Alex Henderson with Needham, please go ahead.

Thank you very much for that granular explanation on what's going on. It's very helpful. I was hoping you could talk about a couple of issues. The first one is, you've made a very aggressive strategic decision not to give in on pricing. I assumed that given the sluggish conditions in India that you're sticking with that strategy. Can you confirm that you're not changing that policy at all?

We haven't changed the policy.

Perfect, thank you. The outlook for the back half of the year in India, it sounds like you're talking about roughly $19 million in 3Q. And then, best case, a similar amount in 4Q. You did $50 million in the back half of last year. Is that decline in the back half of the year a reasonable kind of calculus, assuming the best case? And then in which case, if you split the $19 million secondary order, is it more like $30 million in the back half, is that the right mechanics?

As I said on the call, one of the things that is hard is exactly those mechanics, okay? And I think I mentioned that on the call, three different scenarios. The most likely in a way is what you mentioned, $19 million and $19 million and assuming it gets in place at the right time from the operators in India. It's not a single operator; it's from a mix of operators. Then the most likely is like $19 million and $19 million. We can't see $19 million and very low, as -- for example, the orders come in late December or coming January or February next year, or even delayed into Q2 next year because of budgeting or -- and I think I mentioned on the call there are different scenarios where we see where orders towards -- will come early in end of Q3, in September or October and then might even be above the $19 million, then with some scenario significantly towards the third one. And that's where I think we said, okay, I have a very large range on those with some other uncertainties in some of the other regions as well, it's not only India, which I mentioned on the call, one of them, for example, is T-Mobile merger in the US, which is a very strong customer, what that will do. It can accelerate very rapidly or it can come to a stop for a while, while they merge. And longer-term, all of those are positive scenarios. Short-term, it's very hard for us to put in a good scenario at this point.

So it sounds like the mechanics around India alone are, most likely, down $10 million to $12 million year-over-year. It sounds like the outside India kind of offset that. So are we looking at kind of flattish year-over-year revenues for the back half at this point?

Hi Alex, it's Ran. Last year India revenue was, overall, $131 million [ph].

No, he was asking about second half.

Yes. And overall -- and in the second half it was $51 million. So assuming the -- and as Ira said, there are three different scenarios, assuming the $19 million we have now plus let's say the $19 million will have -- assuming we will get in orders by the end of Q3 or early in Q4, it means India for the second half will be anywhere between $40 million to $45 million, assuming we will get the orders by beginning of Q4.

I can do the math on India. I guess my assumption is that the most likely case is around $40 million. If we assume $40 million, then you're down $10 million year-over-year in India, do you have enough growth in other geographies to offset that or should we be assuming flat revenues for the year or for the back half of the year, trying to calibrate the rest of the year here? And I understand that there's three different cases, obviously it could be $30 million, it could be $45 million or $50 million, but assuming the baseline case of $38 million and $40 million in the back half, should we assume that you have $10 million worth of growth in the rest of the world to offset that and therefore, the revenues in the back half should be fairly flat year-over-year? I'm trying to get a gauge of the full Company revenues for 3Q-4Q.

I think that when you're calibrating I think at least in some of the cases, I think you're doing the right assumption which is flat second half '18 versus '19 with India a little bit down and compensated by other regions. That's one of the scenarios probably sitting in the -- I would say more of the center area of probabilities on the table. But again, with a wide variety swings, of course, but it's one of the most likely scenarios.

Yes, that's very helpful. Thank you very much. I appreciate that.

Thank you.

So if I set up the rest of this discussion now till to 2020, it sounds like you're expecting growth in virtually every other region other than India. If we make the assumption of we know, what it was in the first half and we assume kind of the base case scenario where it's in the $38 million range for the back half, is India likely flattish in 2020 or is it going to grow off of that depressed state? I realize it's getting a little bit off the visibility charts, but it's obviously a very important piece of the puzzle.

We understand the important piece of the puzzle. We do believe the rest of the world will grow next year. And it's very hard to predict how much of the slowdown in India will be there probably. And again, if I need to approximate right now with very -- relatively little level of knowledge, I would keep India at about the same as this year overall.

Okay. So that suggests a recovery?

May be split differently, may be there, because we do believe and I think one of the things I mentioned is the operators need to continue deploying 4G towards 5G run rates as they move forward.

I see. So that suggests that you to make up a good chunk of the decline from '19 -- '18 to '19 in '20, is it possible these things to get back to the '18 levels from '20?

Probably, yes.

Perfect, thank you very much. One more question, if I could. The shekel has been hitting 18-month highs recently. As we look at the numbers, can you remind us what your hedging policy is?

Hi, Alex, it's Ran. So actually we are hedging trailing 12 months looking forward on which we hedge the budget. We have to cure [Phonetic] in the budget for December across the years across -- sorry, the next year, and it means that a -- on the end of this year, we're going to hedge the activity for the next year. At 2019, the average hedging of the shekel was roughly 3.6 to dollar and it's probably for next year it will -- when we're looking at the cost hedging, it's little bit early to say but at this level of shekels it's probably going to impact us. I cannot tell at this stage, how much.

So if I use today's rates; it is what, about a 10% impact?

5%.

5%? Okay, thank you very much.

Thanks, Alex.

Our next question is from Gunther Karger with Discovery Group. Please go ahead.

Yes, thank you for taking the question. Could you elaborate just a little more regarding the Sprint, T-Mobile USA merger and impact, if any, that will have on your business?

Mr. Karger, this is the operator. We're having a hard time hearing you, if you could repeat your question?

Hello.

Yes, Gunther Karger this is the operator, do you have a question?

Yes. I thought I asked it, let me restate it. Regarding the T-Mobile, Sprint merger in the USA, you made a brief reference to it, could you elaborate a little bit more on that, regarding the potential impact, if any, on your business? Did anyone hear my question? Hello, hello?

Yes, we hear you question Mr. Karger.

Sorry, I was on mute. This is Ira. I heard your question, regarding T-Mobile, Sprint merger, I think I indicated on the call both are very strong customers of ours and I expect that in the longer term, as they deploy 4G or mainly 5G, as they rollout we will be a significant player in that rollout as we're a significant player with both of them and the one who is very active in preparing for 5G today and continue that deployment with them. The issue that I raised where there is a slight risk is any time a merger like this goes through; there are corporate initiatives that might put some of the ordering patterns on hold for sometimes up to six or eight months in between, as they reorganize, re-understand, re-plan the networks. So longer term, independent of if the merger occurs or not. It's a good opportunity, because either both of them will go for 5G on their own or they'll go to 5G even more aggressively together. In the shorter term, we need to look at the behavior of when the merger closes and what's their patterns of corporate initiatives will be in between the two. Again, it's one of the parameters, I think, I indicated that is increasing a little bit or decreasing our ability to forecast in the short term because it might swing both ways in the very short term.

Thank you. A follow on that, going into the Dish Network acquisition of a major part of the Sprint business since the Dish Company would have to initiate from scratch its cellular operations, would this eventually portend to any new business for you?

It's potentially a new business for us, and we follow developments there as we follow any changes in new operators across the world in there. And yes, they will have to build a network. Timing, how much, how quickly, what technologies and when is -- at this point unknown yet.

Thanks, Ira.

And Mr. Palti, we have no further questions. I'll turn it back to you for any closing comments.

So, I'd like to thank you everyone that joined the call today. If you have follow on questions and you want to speak with us, you are more than welcome to call us directly and have that conversation. And let me summarize, again, despite the shift in the near term outlook, the longer term picture remains the same, very strong. So thank you very much and thank you for joining us today.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation, you may now disconnect.