Ceragon Networks Ltd. (CRNT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Ceragon's Second Quarter 2026 Earnings Call. [Operator Instructions] I must advise you that this call is being recorded today. I'd now like to hand over the call to our first speaker today, Rob Fink, Head of Investor Relations. Rob, please go ahead.

Thank you, operator, and good morning, everyone. Hosting today's call are Doron Arazi, Ceragon's Chief Executive Officer; and Ronen Stein, Chief Financial Officer. Before we start, please note that today's discussion includes forward-looking statements within the meaning of the Securities Act of 1933 as amended, the Securities Exchange Act of 1934 and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, financial -- projected financial performance, future initiatives, business outlook, development efforts and anticipated results, timelines and other matters. Forward-looking statements are based on expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, among others, global and regional economic conditions, conditions in Israel and the region, fluctuations in exchange rates, customer concentration, ordering patterns, supply chain challenges and other matters further detailed in Ceragon's most recent annual report on Form 20-F and other documents that are filed with the Securities and Exchange Commission. Forward-looking statements are accurate only as of the date they are made, and Ceragon undertakes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at sec.gov and on Ceragon's website at ceragon.com. Also, today's call will include certain non-GAAP measures. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier today, which is posted on the Investor Relations section of Ceragon's website. With that, I will now turn the call over to Doron. Doron, the call is yours.

Thank you, Rob, and good morning, everyone. Ceragon delivered a strong second quarter as recently introduced technologies and solutions are creating a clear competitive advantage and driving demand in key markets with particularly strong execution in India. Revenue for the second quarter was $93.9 million, up 14% year-over-year, and non-GAAP EPS was $0.02. Booking in the second quarter reached their highest level since the first quarter of 2024. Bookings and the book-to-bill ratio in the first half of 2026 represent the highest in the last 10 years for any first half period. This demonstrates the strong competitive position Ceragon has established, especially in the faster-growing segments of our market. Additionally, the recent changes in the competitive landscape are opening more opportunities for us. We believe that 2 significant competitors are without visible technological continuity and may be observed as effectively out of the market. And the third competitor's future commitment to the market is uncertain. Subsequently, customers are looking for an established technology leader like Ceragon to fill the gap. Given these dynamics, we are capturing more opportunities, engaging in RFPs with potential new customers and being asked to bid on projects involving new use cases. Driving our results were demand in India, the continued adoption of our E-Band products and private network wins as customers continue to invest in capacity, network modernization and new connectivity applications. Our portfolio is increasingly well aligned with those investments. At the same time, we continue to expand the ways in which we serve customers beyond our traditional wireless transport business, including end-to-end private network solutions and managed services. Customer interest and demand in our newest products and solutions is encouraging. Positive results from proof-of-concept projects are helping to drive the interest from both existing customers and many potentially new customers in both proven and many new use cases. I'll start with India, a region with continued strong demand. As we recently announced, we have booked approximately $120 million in orders from operators in India through late July. These orders are primarily driven by 2 of the country's leading mobile operators and support both the expansion and modernization of nationwide 4G and 5G transport networks. Fixed wireless access remains an important driver for this activity. As operators expand broadband coverage and address rapidly increasing data consumption, they require higher capacity transport that can be deployed quickly and economically. Our new IP-50EX platform and multi-band solution are winning this business for us as they are well suited to the requirements of the Indian market. In general, demand for our innovative E-Band wide portfolio is very strong very strong. This is consistent with the trend we discussed last quarter as customers increasingly recognize E-Band as an attractive way to deliver fiber-like capacity while accelerating deployment and lowering total cost of ownership. Given the exceptionally strong bookings in India during the first half and based on our visibility for the remainder of the year, 2026 has the potential to be one of the strongest bookings years in India in quite some time. Turning to North America. This market also remains strong and active for Ceragon. Revenue from our existing key Tier-1 carrier customer was slightly higher than what we had anticipated during the quarter. We overcame some of the supply chain timing issues we discussed on our last call, but some of their revenue has shifted from the second quarter to the third quarter as expected. More importantly, the underlying demand environment with this customer remains healthy. Across North America, more broadly, engagement is strong from both CSPs and ISPs around many of the themes we have discussed previously, including higher capacity network architectures even for fiber redundancy, even as the new microwave and next-generation wireless transport solutions that can provide additional capacity with attractive deployment economics. These are areas where we believe Ceragon's technology and expanding product portfolio position us very well. We were successful in our proof-of-concept field trials with our 5G FR2 solution for a new Tier-1 carrier in North America. And now we are in commercialization discussions with this potential new customer. We also recognize the increased interest in LEO connectivity technology, which has grown even further following the IPO of SpaceX. We believe that such satellite-based technologies are very important for global connectivity and the digitization trend. However, we view these technologies as complementary to terrestrial technology, not as a substitute. We believe wireless backhaul such as what Ceragon provides will remain the dominant solution for high-capacity connectivity. Anecdotally, we would also remind investors of the recent announcement by SpaceX, highlighting its intent to build a terrestrial network in the U.S. If this happens, it may become another opportunity for us. Private network business in North America was particularly encouraging with record bookings. In general, private network opportunities are accelerating globally, and our recently introduced capabilities are aligned with the needs of this market segment. The recently announced deals are evidence of our ability to serve various use cases within private networks. We are encouraged that our continued investment in this segment is bearing fruit. What is particularly encouraging is the diversity of these opportunities. We are increasingly competing for broader end-to-end projects that combine advanced wireless transport with technologies like private 5G and LTE, enabling IoT connectivity, automation and other mission-critical applications. These opportunities are reflective of industry estimates that predict private network growth will exceed 30% CAGR over the next 4 years. We believe we are well positioned for significant growth in this segment despite inherently longer sales cycle when compared to our traditional carrier business. Growth is not expected to be in a straight line, but our pipeline is expanding. The range of use cases is broadening, and we are seeing greater conversion of opportunities into bookings. We believe this can become an increasingly meaningful contributor to Ceragon over time. Our momentum also extends beyond the business and geographies that drove the majority of second quarter revenue. In Managed Services, we recently secured a 2-year $3.5 million contract with our major mobile -- with a major mobile operator in Mexico. This is an important win because it demonstrates the opportunity to expand Ceragon's relationship with customers beyond equipment and into broader long-term or long-duration service engagements. Managed and professional services remain an important part of our strategy to increase the value we provide to customers while building a more diversified revenue base. We also recently secured an additional 5-year agreement worth up to $70 million with a Tier-1 mobile operator in APAC. We believe the duration and scale of this engagement validate our ability to build long-term strategic relationships with major operators and expand our role as their networks evolve. In EMEA, we have begun to see the payoff from our recent leadership changes and investments. Bookings in the second quarter in this region were the highest in almost 3 years, and we continue to pursue new opportunities that could help us continue this momentum. In Latin America and the remainder of APAC, I already mentioned the notable success from a recently announced new managed services deal and the renewal of a 5-year contract with a Tier-1 operator, respectively. In general, we continue to take a selective approach in these regions. When I step back and look at the first half of 2026, I am pleased by the breadth of the momentum across Ceragon. India is performing exceptionally well. North America remains a strong market for our traditional carrier business, while private networks continue to gain traction. We are establishing larger and longer duration managed services relationships, and we see emerging opportunities in EMEA as the competitive landscape evolves. Together, these developments reinforce our view that the underlying demand environment for Ceragon solutions remains strong. At the same time, as discussed last quarter, the supply chain environment continues to be challenging from both cost and lead times. These trends are not unique to Ceragon as our observations are consistent with commentary across the broader telecom and technology industries. However, we continue to implement mitigation initiatives across procurement, product design and our supply chain to minimize the impact on our business conversion, revenue and profitability. The strong bookings in the first half of 2026 and increasing interest from existing and new customers in both the CSP and ISP domain as well as private networks are strong signals for our superior technology and solutions. With our new CTO on board and our internal plans for introducing new technologies and products in the mid to long term, our confidence in Ceragon's long-term success is only increasing. With that, I'll turn the call over to Ronen to review our financial results in greater detail.

Thank you, Doron, and good morning, everyone. Q2 2026 was another profitable quarter on a non-GAAP basis with positive free cash flow generated by operating and investing activities. 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 investors to today's press release. Let me now review the second quarter results. Revenues for the second quarter were $93.9 million, up 14.2% from $82.3 million in Q2 2025. Our strongest regions in terms of revenue for the quarter were India and North America at $45 million and $21 million, respectively. We had 2 customers in the second quarter that contributed more than 10% of our revenues. Gross profit for the second quarter on a non-GAAP basis was $30.3 million, an increase of 4.4% compared to $29 million in Q2 2025. Our non-GAAP gross margin was 32.2% compared to 35.2% in Q2 2025. Gross margin was negatively impacted by geographical and product mixtures, along with some cost pressures, as mentioned previously by Doron. Given the magnitude and breadth of the cost pressures, we do not currently expect our mitigation initiatives to appreciably offset the pressure in the near term. As a result, we anticipate that these component costs and supply chain challenges will continue to pressure gross margins over the remainder of 2026. As another mitigation plan for our current challenges, we are also focusing on increased software sales. Turning to operating expenses. Research and development expenses for the second quarter on a non-GAAP basis were $8.2 million, up from $7.2 million in Q2 2025. As a percentage of revenue, our non-GAAP R&D expenses were 8.7% in the second quarter as compared to 8.8% in the second quarter last year. Sales and marketing expenses for the second quarter on a non-GAAP basis were $12.3 million, up from $11.1 million in Q2 2025. As a percentage of revenue, sales and marketing expenses on a non-GAAP basis were 13.1% in the second quarter compared to 13.5% in the second quarter last year. General and administrative expenses for the second quarter on a non-GAAP basis were $5.7 million compared to $5.9 million in Q2 2025. As a percentage of revenues, non-GAAP G&A expenses were 6.1% in the second quarter compared to 7.2% in the second quarter last year. Operating income for the second quarter on a non-GAAP basis was $4 million compared to $4.7 million for Q2 2025. As a percentage of revenues, non-GAAP operating income was 4.2% in the second quarter compared to 5.7% in the second quarter last year. As a reminder, operating income was also negatively impacted versus 2025 due to adverse foreign currency movement in the Israeli shekel. Financial and other expenses for the second quarter on a non-GAAP basis were $1.6 million compared to $1.7 million in the second quarter last year. Foreign exchange conditions stabilized during the quarter. Our tax expenses for the second quarter on a non-GAAP basis were $0.7 million. Net income for the second quarter on a non-GAAP basis was $1.7 million or $0.02 per diluted share compared to $2.5 million or $0.03 per diluted share for Q2 2025. As for our balance sheet, our cash position at the end of the second quarter was $34.8 million compared to $38.4 million at the end of 2025. Short-term loans at the end of Q2 2026 were $12 million compared to $19 million at the end of 2025. Thus, at the end of the second quarter, we had a net positive cash position of approximately $22.8 million compared to a net cash position of approximately $19.4 million at the end of 2025. We believe we have cash and facilities that are sufficient for our operations and working capital needs. Our inventory at the end of the second quarter was $59.5 million, down from $61.6 million at the end of 2025. Our trade receivables at the end of the second quarter were $101.3 million, up from $99.7 million at the end of 2025. Our DSO now stands at 107 days. With respect to our cash flow, net cash generated by operations and investing activities was $0.3 million in the second quarter compared to approximately $5.6 million in Q2 2025. Net cash provided by operating activities was $5.1 million, while net cash used in investing activities was $4.8 million compared to $10.8 million and $5.1 million, respectively, in Q2 2025. Turning to our 2026 guidance. We reiterate our 2026 revenue guidance of $355 million to $385 million. Given the underlying business strength and the anticipated cost challenges in the second half of 2026, we now expect our full year 2026 gross margin to be between 33.5% to 34.5% versus 35.5% previously and operating margin to be between 5% to 6% versus 6.5% to 7.5% previously, both at the midpoint of our provided revenue range for 2026. The reduction in non-GAAP gross margin reflects our current view of the full year impact of the anticipated cost pressures. That concludes my prepared remarks, and I'd like to now turn the call back over to Doron for any remaining comments. Doron?

Thanks, Ronen. There will always be moving pieces in our business from quarter-to-quarter. And today, those include component costs, supply availability and geographic mix. But the underlying fundamentals that matter most to our long-term outlook remain encouraging. Demand for our technology and solutions is increasing. Our addressable market is expanding, and we are converting more of these opportunities into meaningful bookings and long-term customer relationships. With that, I now open the call for questions.

[Operator Instructions] Our first question will be from Scott Searle from ROTH Capital. Okay. We will move to Ryan Koontz from Needham.

I apologize for my confusion there. Doron, just maybe to dive in. I'm not sure if I heard a book-to-bill number, but I'd be curious if you had it. And then given the reiterated guidance for 2026, given the performance in the second quarter, at the lower end, it would imply you're kind of flattish the second half versus the first half, given the strength that you're seeing in India, given the bookings that you're seeing in India. And it sounds like even the recovering strength in the third quarter for North America would imply a number higher than, I think, flattish versus the first half. So I'm kind of wondering what your thought process is there and the swing factors to get you from the low end of the range to the high end of the range.

Yes. So thank you for this question, Scott. The issue is not the demand. The issue is not the visibility. The issue is the disruption in the supply chain and time line of getting components. Let's not forget, the AI explosion has created a perfect storm in the domain of chips and active components for many industries. And while time line for delivery of these components are lingering and the level of confidence in meeting time lines is also being kind of reduced a little bit, we prefer to take the approach in which we keep this revenue guidance within this frame because this is the main, so to speak, visibility problem that we have. So to summarize, it's not about the demand. It's about the ability to get the components in time to deliver and to convert these great orders into revenue.

And if I could follow up, as my follow-up question. Just specifically in North America was a little weaker this quarter. It sounds like your Tier-1 slipped shipments from the second quarter into the third quarter. But I'm wondering on the private networks front, how did that progress sequentially from March to June? And it sounds like you've got a good backlog of business. So the visibility from North America may be into the second half of the year. And since you touched on it, Starlink, I'm wondering if you're actually seeing any opportunities created from there, if there are any discussions ongoing on that front? Or if at this point, it's basically just kind of speculating if they start to build out a terrestrial network. So thanks.

I'll start with the second question. Look, we probably all heard the same messages coming on the conference calls they had a while ago. they did not indicate anything that is more specific, such as what is the architecture or more details about the architecture of this new terrestrial network and so on and so forth. So I think that it's still early to assess how this is going to play out. But if I'm trying to kind of get the messages from that call, they would definitely want to build a very -- a network that is -- can be built very fast and at the same token can be quite competitive to the existing legacy networks. In such case, especially when they will start aggregating much more data in their existing antennas, the backhaul will become a very important element in the architecture. I don't think that at this point, their technology can carry such amount of data. I'm not sure that it will be able to carry such amount of data even in the long term, but that's something that we can leave out. So based on all these assumptions, I think that there can be an opportunity for players in the millimeter wave and microwave domain to help them build their network very fast with a level of service that can compete with the incumbents. And now to your first question. Look, North America looks good. We anticipated that the second part and predominantly Q3 will look better for us because of all the reasons that we described already in the call of the first quarter results. So basically, we are a bit positively surprised in Q2, but the general trajectory is what we discussed already, which indicates that we believe that the second half will be much better. With regard to private networks, yes, the business is growing and is growing nicely. I just want to remind you that the conversion of private network projects into revenue is much slower than just sending our equipment to a Tier-1 operator and recognizing it within the same quarter. So I don't think that the impact of the strength in terms of booking and backlog of private networks will be that significant in the short term. But all in all, the bottom line for North America is positive. We believe that the second part of the year could be stronger than the first one.

Our next question is from Ryan Koontz from Needham.

Can you hear me?

Yes.

Sorry about that. Super. With regards to India, what are you seeing there in terms of changes in mix and the use case? It's great to hear the strength coming from India. Is this mostly for rural coverage? Are you looking at FWA and urban areas at all? Or what kind of use cases are you seeing in India that are giving you the confidence and the bookings here? And how is that affecting your product mix?

Yes. So I think that the business in India is driven by 2 main, so to speak, phenomenon. One, there are still operators who have not completed the upgrade of the network even to 4G. And this is one part of the business strength. The other part, and that's for the more advanced operators. In the 5G era, the operators in India are looking to expand the business predominantly bringing connectivity to residential areas and to enterprise, which means more fixed wireless access use cases. There, you are talking about much higher capacity that is needed for the backhaul -- and in those cases, they are using either our ICSA product or multiband that can ensure minimum level of connectivity with much bigger capacity on average. These are the 2 main phenomena that are driving the demand.

And then maybe on the U.S. side, it sounds like your new Tier-1, you're trying to ramp with, you're really just working through the operational processes and maybe commercial processes. And you think you have still a good shot of seeing some share gains in '27 there?

Yes. I would say that -- this strengthening relationship with this new Tier-1 operator will start driving meaningful revenue for us in 2027. I do believe that we -- and I think I also mentioned that in the previous call, I do believe that we'll start getting the orders quite soon, maybe even in Q3. But in terms of impact on revenue, it's going to become meaningful in 2027.