Welcome to Ceragon Networks Fourth Quarter 2023 Earnings Conference. At this time, all participants are in a listen-only mode. Following management prepared remarks, we will host a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce you your host Rob Fink of FNK IR.

Thank you, operator, and good morning, everyone. Hosting today's call is 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 accounting related matters constitute 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 and the 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, 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 herein by reference. Forward-looking statements relate to the date initially made do not purport to be predictions of future results, and there could be no assurances that they will prove accurate. And Ceragon takes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at sec.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 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's website. With all that said, I can now turn the call over to Doron. Doron, the call is yours.

Thank you, Rob, and good morning, everyone. This was a significant quarter in the evolution of Ceragon. We closed the 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 parts of our strategy are steadily coming together, while we increased 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 booking, the total bookings from new 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. Approximately 50% of our total new customers this year were private networks customers. As part of our plans, we aspire to double the amount of private network booking in 2024. In parallel, we continue to increase our business in Tier 1 and Tier 2 customers. This has been our bread and butter for many years in existing as well as new customers, such as the most recently noted new customer in India. With a few of our long-standing 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…

Thank you, Doron, and good morning, everyone. As Doron outlined, 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 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 and 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, including reconciliations of these measures, we refer you to today's press release. 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. We had two customers in the fourth quarter that contributed more than 10% of our revenues. Gross profit for the fourth quarter on a non-GAAP basis was $31.8 million, an increase of 27.1% compared to $25 million in Q4 2022 and up 4.4%…

[Operator Instructions] Our first question today comes from the line of Alex. You may speak.

Great. Am I up? Can you hear me?

Yes. If you can speak a little louder, Alex, it will be even better.

Good morning, Alex.

I can certainly do that. So start with congratulations on a great year and a great quarter. Really good job this year, and it looks like the Siklu acquisition was quite strong. So good news all around. So a couple of quick questions. What would be the organic growth rate, excluding Siklu and if you could give us any update on your estimation of the Siklu 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 million 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 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 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 lines, offering solutions. And I think it will be a bit of misleading if we separate that for the future. But the outset, as I said, you should deduct this revenue range, and this should be the relevant gross of modal [ph] growth we expect organically.

Yes. So no changes in the Siklu revenue guide. Great. 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 in '24? I assume that it's probably, what, 35% to 36%, something like that. Could you give some guidance there?

I think that we will be around 36%. Some quarters will be shy below, some quarters maybe 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 what we see as the annual one.

And then 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 and then trimming it as you bring that Siklu integration cost down. Is that a fair assessment?

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 the R&D and sales and marketing, I think that we will see a bit higher sales and marketing - a shift 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 it's modest - relatively modest, and we keep R&D more or less in the same level, trying not to exceed the R&D levels.

Okay. And back on the balance sheet. Obviously, there's an opportunity here to bring some inventory down as the supply chain normalizes and your ARRs still look pretty rich. So can you talk about what your expectations are for those two lines as we go through the year?

So 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 ARR, we expect to see more or less the same level, trying to reduce a bit. It will be a bit challenging, while India, big projects are coming and it might be a little bit challenging on that, but we still expect to be around the same numbers last year - the same DSO to keep the same DSO.

Last question, and then I'll 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 one hand, we had the $8 million, which we did not increase the - so much - only half of it went into our loans and which we could take the loans down, which will obviously will 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 as a global company and the effects on certain operational, but we don't see them as a big numbers. This is for the 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 structure as much as possible. And hopefully, we will even reduce tax expenses from this year.

So just to round that out, so tax line about the same or down a hair, and then interest line, what? $2 million a quarter kind of thing?

Something like that would be reasonable.

Thank you. I'll see the floor.

Thank you so much, Alex.

Our next question come of the line of Romel Joncio [ph] you may speak.

Good morning. I wonder if you could just discuss in a little more detail of the integration plans for Siklu, just in terms of combining marketing forces, management, some of the infrastructure that they're bringing in. And I realize there's significant cross-selling opportunities, obviously, with your existing sales force. So I wonder if you could just give us a little more granularity on that, please? Thank you.

Yes. Hi, Romel, so the plans, as I said, are basically - or the execution of our plans is underway. What we see at the outset is that there is a strong demand for Siklu products from the original markets they were at. 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 first of all, the high level, we expect to see the - so to speak, stand-alone Siklu business ramping up because, obviously, we released all the ropes of financial difficulties and so on and so forth. And this is primarily driven by the sales team of Siklu that is part of our region. In parallel, we are seeing opportunities for quick wins especially in customers that are seeking for both microwave and millimeter web solution. Up until recently, when Siklu was a stand-alone company that were not able to offer microwave solutions from their portfolio. And now we see this as an opportunity for us to also boost our microwave business sales in existing customers of Siklu. The other side of it is actually introducing Siklu 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 Terragraph solutions that can be used for fixed wireless access. 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 explain and to show 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. We have done a lot of training activities so that we boost also the sales of Siklu products within our sales team and by that, having a multiple or multiplying the sales force that is out there to sell Siklu product. This is for the short run. For the long run, there's much 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 I'm sure that with the Siklu's acquisition on the Ceragon side, our ease of use in terms of our product is going to improve very significantly because these guys did an amazing job in terms of GUI [ph] design, in terms of alignment when you are doing installation. So this is a part of the integration that we intend to endopt [ph] also on 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.

Great. That's very helpful. Thanks so much Doron.

Sure. Thank you, Romel.

You have no further question. Doron, please proceed.

Thank you. So this was an encouraging year for Ceragon. 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. Beyond 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 focus 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 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.