Ceragon Networks (CRNT)
Q2 2012 Earnings Call
August 06, 2012 9:00 am ET
Ira Palti - Chief Executive Officer and President
Aviram Steinhart - Chief Financial Officer and Executive Vice President
George Iwanyc - Oppenheimer & Co. Inc., Research Division
Daniel Meron - RBC Capital Markets, LLC, Research Division
Peter Misek - Jefferies & Company, Inc., Research Division
Matt Ramsay - Canaccord Genuity, Research Division
Blaine R. Carroll - Avian Securities, LLC, Research Division
Joseph Wolf - Barclays Capital, Research Division
Aalok K. Shah - D.A. Davidson & Co.
Previous Statements by CRNT
» Ceragon Networks Ltd. Q4 2009 Earnings Call Transcript
» Ceragon Networks Ltd. Q2 2008 Earnings Call Transcript
» Ceragon Networks Q4 2007 Earnings Call Transcript
Good day, everyone. Welcome to the Ceragon Networks Ltd. Second Quarter 2012 Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks; and Mr. Aviram Steinhart, CFO of Ceragon.
Today's call will include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections that involve a number of risks and uncertainties. There can be no assurance that future results will be achieved, and actual results could differ materially from forecasts and estimates. These are important factors that could cause actual results to differ materially from forecasts and estimates.
Some of the factors that could significantly impact the forward-looking statements in this include the risk of the significant expenses in connection with potential contingent tax liability associated with Nera's prior operations and facilities. The risk that the combined Ceragon and Nera business may not perform as expected, risks associated with increased working capital needs and other risks and uncertainties, which are discussed in greater detail in Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date on which they are made, and Ceragon undertakes no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made. Ceragon's public filings are available from the Securities and Exchange Commission's website at www.sec.gov or may be obtained on Ceragon's website at www.ceragon.com.
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 Aviram Steinhart, our CFO. Even as the environment becomes more challenging, our results for Q2 are in line with our guidance and we continue to grow. Specifically, revenues reached a new all-time record. Gross margin continued to improve. We kept tight control of our operating expenses and we showed sequential improvement in profitability.
The improvement in orders that began in April has continued during Q2. Our book-to-bill was above 1, even with a record revenue quarter in an increasingly difficult market environment. We attribute this to our ability to penetrate into new accounts and gain more share in key growth regions, the breadth of our solution portfolio and the strength of our competitive position.
The 1 area which needs to be explained is our cash flow for the quarter. We used a lot of cash for working capital this quarter, mainly due to regional shifts and higher receivables from Q1 customers. Aviram will give you more details, but I wanted to emphasize that we have no concerns about collectibility. This was required in order to grow in certain regions and penetrate certain key customers. While this adds to the challenge of managing effectively, we believe that it's only a temporary timing issue and we expect to return to positive cash flow in Q4 and beyond.
Both our short the long-haul business are performing according to expectations, and we continue to be pleased with our execution. We are now then the clear #1 in the long-haul market, having been in that position for the second quarter in a row. According to our recent reports, based on Q1 figures, Ceragon had 26% market share in long-haul, up from 20% in Q4.
During Q2, we saw continued strength in Africa and even more growth in Latin America, reflecting growing demand for our solutions and the result of our Q1 customer wins in both region. This was combined with a very large order from an operator in India via long time OEM customer of ours. This more than offset continued weaknesses in Europe and North America.
As we look ahead, like everyone else, we see an overall environment that is quite challenging with pockets of strength in some specific opportunities. Taking this into account, the latest industry forecast indicate that the entire microwave backhaul market is likely to grow only a little next year. The 3% to 4% of growth is about half the previous growth forecast for the industry. If this is the case, and we continue to execute as we have been, we will continue to outperform the industry.
As we have noted before, wireless operators continue to struggle with how to meet the capacity challenges told by exploding data demand at a reasonable cost, both CapEx and OpEx, by conserving precious spectrum assets. Operators are under tremendous profitability pressure as data demand exceed that of voice. In this environment, combined with the overall macroeconomic concerns, most network upgrades in the developed economies are happening more slowly than once expected. As operators experiment with different subscriber data plans, the value-add network sharing agreements, check new network architectures and test next generation technologies such as LTE advanced.
LTE clearly represents a huge opportunity for us, but despite everything you heard about 4G, the reality is it is still in the very early days on a global basis. As 4G LTE drives additional demand, operator will expect a lot more capabilities for the same price.