Ladies and gentlemen, thank you for standing by. Welcome to Ceragon Networks First Quarter 2023 Earnings Conference Call. Our presentation today will be followed by a question-and-answer session [Operator Instructions]. I'd like to hand over the call now to our first speaker today, Maya Lustig, Investor Relations. Please go ahead.

Thank you, operator. And good morning, everyone. I'm joined by Doron 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 Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Ceragon 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's management, but actual results, performance, or achievements of Ceragon may differ materially, as they are subject to certain risks and uncertainties, which could cause Ceragon's actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those that 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 herein by reference. Forward-looking statements relate to the date initially made, do not purport to be predictions of future events or results, and there can be no assurance that they will prove to be accurate, and Ceragon undertakes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at www.sec.gov, and may also 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, please see the table attached to the press release that was issued earlier today. I will now turn the call over to Doron. Please go ahead.

Thank you, Maya. And good morning, everyone. Ceragon Networks delivered double-digit revenue growth and solid profitability in the first quarter, with $83.4 million in revenue, $0.04 in non-GAAP earnings per share, and importantly a book-to-bill above 1. These results, our booking levels, and the demand we are seeing are encouraging data points for us. And the trends, especially when looking at trailing 12-month revenue and bookings, confirm the positive momentum we are experiencing. To be clear, we have not seen the slowdown in spending, softness or pressures that others across the telecom industry have reported. In fact, demand for our solutions has continued to be strong and our sales execution in key regions has improved all while our access to supply chain continues to normalize. The trends we are seeing are encouraging. We are cognizant of the macroenvironment and recognize that others in the telecom industry are speaking to softness – softness we have not experienced – and volatility in customer buying patterns. With that in mind, we want to validate the customer trends we have experienced to date before we consider raising our full year outlook. Doing so will give us more touchpoints to confirm that the demand we are experiencing is as it seems, and not being pulled forward from a future period. Beyond the revenue line, our results demonstrate the improving earnings power of our organization. Our gross margins continue to expand, reflecting our improved execution in key markets, higher revenues from North America, as well as reductions in supply chain costs. We delivered $3.6 million in non-GAAP net income in the first quarter. Barring any unexpected developments, we continue to believe that we will deliver positive non-GAAP net income during 2023. With a profitable business model, a solid backlog, a booking to revenue ratio that exceeds…

Thank you, Doron. And good morning, everyone. Before I review the quarterly results, I would like to call attention to a disclosure that was included in our annual report on a Form 20-F that was filed earlier this morning. This disclosure is specifically related to a debt from a single customer which was discussed on our Q4 earnings conference call that was held in February. Recently, there were changes in the circumstances which reduced the probability to collect the outstanding debt in the near term or in full, and, as a result, we found it appropriate to record a credit loss provision for this customer's outstanding debt in Q4 of 2022. As a result, our audited results for 2022 differ from the preliminary unaudited results previously announced and our operating loss on a GAAP basis is now $10.9 million, a decrease of $12.3 million from the preliminary unaudited results previously announced with a corresponding reduction in our accounts receivables. We would like to emphasize that we continue to take vigorous measures towards collecting the debt. Note this matter has no impact on our guidance for 2023. I'd like to note, on today's call, when discussing our quarterly results that, for the purpose of sequential comparisons, our Q4 2022 G&A, operating profit, net income and earnings per share will include the impact of the $12.3 million credit loss provision. With that said, I would like to shift to my review of the Q1 results. As Doron outlined, this was a strong quarter for Ceragon, though it's important to keep in mind that we are a project driven business and, as such, there is inherent variability in results from quarter to quarter. Because of this, we analyze our bookings, revenue, and gross margin, as well as other key performance indicators over a…

[Operator Instructions]. Our first question today comes from the line of Alex Henderson of Needham.

Nice print, guys. Certainly bucking the trend. It's really good to see you getting some benefit from that backlog you've built. Book-to-bill above 1. Got to love it in this environment, particularly in a first quarter when normally bookings are soft. I guess the question I'd ask you here is, one, the trajectory of the supply chain over the course of the quarter. How much is it improved? How do you see that playing out? When you're looking at the 2Q guide, are you assuming continued improvement or at the current pace? And to what extent, if there's upside to availability, would that drive upside to the top line in the guide?

I think that what we've seen in Q1 is, I would say, very close to getting back to normal. There's still a little gap. I don't think that this gap may create bigger swings in revenue. But generally speaking, if we did $83.4 million in a single quarter in terms of capacity, production capacity, we can do more if this is required in terms of demand and timeline required by our customers.

So that obviously raises the question, Are your customers changing their perception of availability, maybe saying, 'you know, I kind of like that another quarter out, ordered it six months ago, but I need it maybe another quarter out and pushing things?' Or alternatively, are they still clamoring for the delivery? So far, we have not encountered the first example that you mentioned, which is delays coming or being asked by our customers. Actually, in certain areas, they are even asking us to expedite and to even reach a level of pace that is beyond what we have known even in times where we generated $90 million per quarter. And, obviously, we need to adjust to that. But generally speaking, we don't see a slowdown so far in terms of customers ask to deliver.

The last question and then I'll cede the floor and come back into queue. If you're looking at an improvement in supply availability, and that generally means that orders can come in and be shipped out sooner, i.e. duration is coming in, would you expect that to cause somewhat of a reduction in orders? Or do you think that you're insulated because these are big projects driven and, therefore, it's really a derived demand on the timing more than it's something that's specific to the delivery timing?

Generally speaking, our plan for 2023 is to increase our booking numbers beyond the increase in the revenue, obviously compared to 2022. And would that mean that it will convert into higher pace of revenue? It could be. But at this point, we assume that the plan is where it is. And we assume a slight increase in our backlog at the end of 2023.

Our next question comes from the line of Rommel Dionislo from AEGIS Capital.

You've talked in the last several quarters about the progress you've made with private networks, particularly in North America. I wonder if you could just chat about the opportunities that you're seeing in Asia, Africa, a little more detail and perhaps potential in Europe as well.

In terms of private network, we are seeing also opportunities other than in North America, as you started with. I would say that we see that in a couple of segments. One of the segments is the defense segment. Another segment that is very strong is the energy segment. And obviously, there are other segments, such as health, public safety, and so forth. So, we see that in different places in different continents. And obviously, it's our intention based on our strategy to pursue these opportunities vigorously because we believe that they will give us more stability and higher margins down the road.

Our next question comes from the line of Alex Henderson.

Going back into the mechanics of ordering, when you look at your pipeline, do you think it's evenly spread over the next three quarters? Or do you think that, given the very large orders you had unseasonably in the first quarter, suggests that the order rate is more back half loaded? How would you characterize the pipeline at this point?

Alex, you know our business and you know that why we usually can see the opportunities ahead, the timeline and the exact timing in which orders will come is always more difficult for us to envision. At this point, we expect to continue with the level of bookings we've seen in Q1, at least for the upcoming quarter, or even two quarters. But this is always subject to decisions that are being made, in many cases, on the last minute. So what we've seen in the first quarter is what, at this point, we assume we will continue to see, on average, in the quarters to come with one caveat that, as we experienced in the last couple of years, some seasonality in terms of booking in Q4, it might come as well. And by the way, this is one of the reasons that we decided not to raise our guidance yet because we do want to make sure that what we've seen in Q1 and what we expect to see in Q2 and on are indeed the trend and it's not suddenly a kind of a reduction or weakness that comes on account of the fact that we had stronger bookings in the first part of the year.

Yeah, well said and well expressed. Looking at the outlook here, clearly, there is differences in geographies. Can you talk about the pipeline relative to the expansion in the US, how much of it's being driven by margin arena and the expansion in EMEA, which is pretty similar? And conversely, how much of it is more slanted towards the lower margin India end markets?

I would say, generally speaking, that our plan and the current forecast is that eventually North America in 2023, obviously, in terms of revenue, but also in booking, will have a bigger portion of our business, of our as opposed to 2022 and that also keep us more optimistic about improvement in our gross margins. In Europe, it really depends on how things will move forward with the new leadership. If we're able to increase our market share in Europe, this could also help us slightly with improving our gross margins. I do not expect any major change in Asia or rest of Asia other than India. And in in Latin America and Africa, the current assumption is that it's going to continue to be a relatively smaller portion of our business.

Going back to the India market, are you seeing a shift to higher margin products there as a result of the move towards 5G finally starting to kick in a little bit, which obviously drives the higher capacity, higher software functionality? Can you talk a little bit about that?

The dynamics of this market has always been, on the one hand, looking for the latest and greatest technology, but at the same token, they're leveraging their buying power to reduce prices significantly. Recently, we've seen more competitors trying to penetrate into India because of the huge opportunity. And that, although we're coming with new technology, is continuing to put a lot of pressure on prices. So the bottom line, I don't expect a significant improvement in gross margins in India, at least not in the near term.

So increased competition offsetting a mix shift to higher functionality product, which otherwise would have carried higher margin. I understand. The last question I have for you, the sales and marketing was a little bit stiffer than we had modeled. Overall, you obviously beat us on top line and bottom line, but sales and marketing was a little stiffer. Is that a function of the timing of realization of orders, realization of revenues, accruals for the success? Or is that the continuation of the investment in North America? And where are you on driving the productivity on the North American sales and marketing investments?

So it was a mix of two things, one the MWC and other sales and marketing events that we had in the quarter, coupled with the fact that we've built the CRO organization and realigned with some of our investments within the regions, and that increased the cost. We have provided also a range of percentages from revenues. So I think that we will monitor that as well.

Can you talk a little bit about the 100 gig product, the progression on the chips there? And when do you expect to be – time to market? What are you hearing from the customers? How important is the 100 gig product in terms of the decision making process and the customers putting themselves in queue for it? What's the impact? And how's the progress?

First of all, the progress, as I said on the prepared comments, the progress is in line with our plan. And I would say that we're in the last 10 miles of testing and making sure that the chip is indeed functional in terms of our expectations and the functionality. This is a lengthy process of testing because eventually it's a very robust chip. So, you need to do a lot of tests, but so far we're moving in the right direction. In terms of interest, we see different use cases, new use cases, coming from operators around the world in which we believe that our chip will have a great advantage in terms of the products we can deliver or the solutions we can deliver to these use cases. It's early to quantify when and what would be the pace of traction in terms of commercial orders. But so far, operators are quite intrigued by the capacity. And there are also some new use cases we did not even think of that this chip would put us ahead of the competition with the right design of the next generation of our products.

Going back into the broader question, what exactly do you think you'll actually have orders in hand for it? And when do you actually think you'll be shipping revenue from it even if it's a small amount of revenue?

Alex, you're pulling me by my tongue. It's very difficult to kind of assess. I would say that I would not expect getting orders before the end of 2024. That would be my guess at this point.

You have no further questions. Please proceed.

So to close, this was a strong start to the year for us. We delivered strong revenue and significantly improved profitability. We are well-positioned to achieve self-sustaining cash flows as we execute our growth and diversification strategies. We expect that the new system-on-a-chip based product line to launch in 2024 will give us a durable competitive advantage. We are increasingly excited about Ceragon's opportunities. I look forward to updating you further on our next call. Goodbye.