Ceragon Networks Reports Third Quarter 2015 Financial Results

Higher profit margins; lower revenues related primarily to strategy focusing on profitability; cash flow used to reduce debt

Nov 02, 2015, 07:30 ET from Ceragon Networks Ltd.

LITTLE FALLS, N.J., Nov. 2, 2015 /PRNewswire/ -- Ceragon Networks Ltd. (NASDAQ: CRNT), the #1 wireless backhaul specialist, today reported results for the third quarter which ended September 30, 2015.

Third Quarter 2015 Highlights:

Revenues - $85.4 million, compared to $99.0 million for the third quarter of 2014, and compared to $94.8 million in the second quarter of 2015.

Gross margin – 31.9% of revenues, compared to 25.6% of revenues in the third quarter of 2014, and compared to 28.2% of revenues in the second quarter of 2015.

Operating income (loss) – Operating income of $6.2 million, compared to an operating loss of $(0.8) million in the third quarter of 2014, and compared to an operating income of $5.9 million in the second quarter of 2015.

Net income (loss) – Net income of $1.4 million or $0.02 per basic share and diluted share for the third quarter of 2015. Net loss for the third quarter of 2014 was $(5.6) million, or $(0.08) per basic share and diluted share. Net income for the second quarter of 2015 was $1.3 million or $0.02 per basic share and diluted share.

Non-GAAP results – Gross margin was 32.4%, operating profit was $7.5 million, and net income was $3.7 million, or $0.05 per basic share and diluted share. For reconciliation of GAAP to non-GAAP results, see attached table.

Cash and cash equivalents - $39.2 million at September 30, 2015 compared to $39.5 million at June 30, 2015.

"We are continuing to make progress with our strategy to capitalize on the strengths of our IP-20 platform by focusing on high-value opportunities where the customer is seeking best-of-breed solutions," said Ira Palti, president and CEO of Ceragon. In the third quarter, we improved gross margin, continued to tightly control our operating expenses, and achieved an operating profit margin of 7.2%, compared to 6.2% in the second quarter. The lower level of revenue resulted primarily from our ongoing profit improvement initiatives such as more in-depth analysis and a more selective approach to business opportunities.

"We also generated over $7 million in positive cash flow during the third quarter, which we used to reduce debt," Palti added.

Supplemental geographical breakdown of revenue for the third quarter of 2015:

  • Europe: 12%
  • Africa: 12%
  • North America: 15%
  • Latin America: 20%
  • India: 30%
  • APAC: 11%

A conference call will follow beginning at 9:00 a.m. EST. Investors are invited to join the Company's teleconference by calling (USA) (888) 276-0010 or international +1 (612) 332-0630 from 8:50 a.m. EST. The call-in lines will be available on a first-come, first-serve basis.

Investors can also listen to the call live via the Internet by accessing Ceragon Networks' website at the investors' page: http://www.ceragon.com/about-us/ceragon/investor-relations selecting the webcast link, and following the registration instructions.

If you are unable to join us live, the replay numbers are: Telephone: USA: (800) 475-6701; International: +1 (320) 365-3844; Access Code: 371263. A replay of both the call and the webcast will be available through December 2, 2015.

About Ceragon Networks Ltd.

Ceragon Networks Ltd. (NASDAQ: CRNT) is the #1 wireless backhaul specialist. We provide innovative, flexible and cost-effective wireless backhaul solutions that enable mobile operators and other service providers to deliver 4G/LTE, 3G/2G, and other wireless broadband services to their subscribers with high quality of experience. Our solutions are deployed by public utilities, government and defense organizations for delivering mission critical multimedia and other applications at high reliability and speed. Ceragon's high-capacity solutions use microwave technology to transfer multimedia, voice and data traffic while maximizing bandwidth efficiency, to deliver more capacity over longer distances under any deployment scenario. Based on our extensive global experience, Ceragon delivers turnkey solutions that support service provider profitability at every stage of the network lifecycle enabling faster time to revenue, cost-effective operation and simple modernization to all-IP networks. As the demand for multimedia services pushes the need for ever-increasing capacity, Ceragon is committed to serve the market with unmatched technology and innovation, ensuring effective solutions for the evolving needs of the marketplace. Our solutions are deployed by more than 430 service providers in over 130 countries.

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Ceragon Networks® and FibeAir® are registered trademarks of Ceragon Networks Ltd. in the United States and other countries. CERAGON ® is a trademark of Ceragon Networks Ltd., registered in various countries. Other names mentioned are owned by their respective holders.

This press release contains statements concerning Ceragon's future prospects that are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include: projections of capital expenditures and liquidity, competitive pressures, revenues, growth prospects, product development, financial resources, restructuring costs, cost savings and other financial matters. You can identify these and other forward-looking statements by the use of words such as "may," "plans," "anticipates," "believes," "estimates," "predicts," "expects," "intends," "potential" or the negative of such terms, or other comparable terminology. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the risk that Ceragon will not achieve the benefits it expects from its expense reduction and profit enhancement programs; the risk that Ceragon's expectations regarding future revenues and profitability will not materialize; the risk that Ceragon will not comply with the financial or other covenants in its agreements with its lenders; risks associated with doing business in Latin America, including currency export controls and recent economic concerns; risks relating to the concentration of our business in the Asia Pacific region and in developing nations; the risk of significant expenses in connection with potential contingent tax liability associated with Nera's prior operations or facilities; and other risks and uncertainties detailed from time to time in Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission, and 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.

Investors: Doron Arazi or Claudia Gatlin +972 3 5431 660 +1 212 830-9080 dorona@ceragon.com claudiag@ceragon.com

Media: Tanya Solomon +972 3 5431163 tanyas@ceragon.com

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except share and per share data)

(Unaudited)

Three months ended September 30,

Nine months ended September 30,

2015

2014

2015

2014

Revenues

$ 85,367

$ 99,013

$ 273,792

$ 259,948

Cost of revenues

58,156

73,695

195,647

195,238

Gross profit

27,211

25,318

78,145

64,710

Operating expenses:

Research and development

5,493

7,999

17,662

26,892

Selling and marketing

10,045

12,842

30,834

42,917

General and administrative

5,501

5,267

15,762

16,893

Restructuring costs

-

-

1,225

936

Other income

-

-

-

16,800

Total operating expenses

$ 21,039

$ 26,108

$ 65,483

$ 70,838

Operating income (loss)

6,172

(790)

12,662

(6,128)

Financial expenses, net

2,966

3,311

12,473

13,650

Income (loss) before taxes

3,206

(4,101)

189

(19,778)

Taxes on income

1,763

1,457

4,410

4,745

Net income (loss)

$ 1,443

$ (5,558)

$ (4,221)

$ (24,523)

Basic net income (loss) per share

$ 0.02

$ (0.08)

$ (0.05)

$ (0.42)

Diluted net income (loss) per share

$ 0.02

$ (0.08)

$ (0.05)

$ (0.42)

Weighted average number of shares used in computing basic net income (loss) per share

77,221,170

68,047,913

77,179,760

57,711,192

Weighted average number of shares used in computing diluted net income (loss) per share

77,355,761

68,047,913

77,179,760

57,711,192

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

September 30, 2015

December 31, 2014

Unaudited

Audited

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$ 39,204

$ 41,423

Short-term bank deposits

368

413

Marketable securities

-

535

Trade receivables, net

122,245

162,626

Deferred taxes

1,349

3,522

Other accounts receivable and prepaid expenses

20,303

22,898

Inventories

48,634

61,830

Total current assets

232,103

293,247

NON-CURRENT ASSETS:

Deferred taxes

-

239

Severance pay and pension fund

4,912

5,669

Property and equipment, net

29,236

33,138

Intangible assets, net

3,650

5,070

Other non-current assets

1,599

4,510

Total long-term assets

39,397

48,626

Total assets

$ 271,500

$ 341,873

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Short term loan, including current maturities of long term bank loan

$ 43,930

$ 48,832

Trade payables

68,366

101,752

Deferred revenues

10,063

17,667

Other accounts payable and accrued expenses

29,769

37,248

Total current liabilities

152,128

205,499

LONG-TERM LIABILITIES:

Long term bank loan, net of current maturities

-

2,072

Accrued severance pay and pension

9,581

11,452

Other long term payables

13,530

18,298

Total long-term liabilities

23,111

31,822

SHAREHOLDERS' EQUITY:

Share capital:

Ordinary shares

212

212

Additional paid-in capital

407,698

406,413

Treasury shares at cost

(20,091)

(20,091)

Other comprehensive loss

(9,466)

(4,111)

Accumulated deficits

(282,092)

(277,871)

Total shareholders' equity

96,261

104,552

Total liabilities and shareholders' equity

$ 271,500

$ 341,873

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(U.S. dollars, in thousands)

(Unaudited)

Three months ended

September 30,

Nine months ended

September 30,

2015

2014

2015

2014

Cash flow from operating activities:

Net income (loss)

$1,443

$ (5,558)

$ (4,221)

$ (24,523)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

2,844

3,486

9,066

10,394

Stock-based compensation expense

600

568

1,172

2,691

Decrease (increase) in trade and other receivables, net

17,306

(14,918)

36,662

(28,824)

Decrease in inventory

1,563

1,046

11,211

4,075

Increase (decrease) in trade payables and accrued liabilities

(13,140)

7,131

(38,471)

(1,788)

Increase (decrease) in deferred revenues

(3,176)

(455)

(7,604)

592

Decrease in deferred tax asset, net

988

1,360

2,441

4,004

Other adjustments

(595)

(562)

(784)

(291)

Net cash provided by (used in) operating activities

$ 7,833

$ (7,902)

$ 9,472

$ (33,670)

Cash flow from investing activities:

Purchase of property and equipment

(847)

(2,286)

(4,320)

(8,464)

Investment in short-term bank deposits

(15)

-

(19)

-

Proceeds from short-term bank deposits

-

11

64

69

Proceeds from sale of available for sale marketable securities, net

-

-

122

5,161

Net cash used in investing activities

$ (862)

$ (2,275)

$ (4,153)

$ (3,234)

Cash flow from financing activities:

Proceeds from exercise of options

112

-

112

-

Proceeds from issuance of shares, net

-

45,150

-

45,150

Proceeds from bank loans

-

-

4,200

20,190

Repayment of bank loans

(7,058)

(22,838)

(11,174)

(26,954)

Net cash provided by (used in) financing activities

$ (6,946)

$ 22,312

$ (6,862)

$ 38,386

Translation adjustments on cash and cash equivalents

$ (356)

$ (66)

$ (676)

$ 55

Increase (decrease) in cash and cash equivalents

$ (331)

$ 12,069

$ (2,219)

$ 1,537

Cash and cash equivalents at the beginning of the period

39,535

31,875

41,423

42,407

Cash and cash equivalents at the end of the period

$ 39,204

$ 43,944

$ 39,204

$ 43,944

RECONCILIATION OF NON-GAAP FINANCIAL RESULTS

(U.S. dollars in thousands, except share and per share data)

(Unaudited)

Three months ended September 30,

2015

2014

GAAP (as reported)

Adjustments

Non-GAAP

Non-GAAP

Revenues

$ 85,367

$ 85,367

$ 99,013

Cost of revenues

58,156

(a) 473

57,683

73,579

Gross profit

27,211

27,684

25,434

Operating expenses:

Research and development

5,493

(b) 215

5,278

7,623

Selling and marketing

10,045

(c) 453

9,592

12,623

General and administrative

5,501

(d) 178

5,323

5,124

Total operating expenses

$ 21,039

$ 20,193

$ 25,370

Operating income

6,172

7,491

64

Financial expenses, net

2,966

2,966

3,311

Income (loss) before taxes

3,206

4,525

(3,247)

Taxes on income

1,763

(e) 945

818

307

Net income (loss)

1,443

$ 3,707

$ (3,554)

Basic net income (loss) per share

$ 0.02

$ 0.05

$ (0.05)

Diluted net income (loss) per share

$ 0.02

$ 0.05

$ (0.05)

Weighted average number of shares used in computing basic net income (loss) per share

77,221,170

77,221,170

68,047,913

Weighted average number of shares used in computing diluted net income (loss) per share

77,355,761

78,011, 917

68,047,913

Total adjustments

2,264

(a) Cost of revenues includes $0.3 million of amortization of intangible assets, $30 thousand of stock based compensation expenses and $0.1 million of changes in pre-acquisition indirect tax positions in the three months ended September 30, 2015.

(b) Research and development expenses include $0.2 million of stock based compensation expenses in the three months ended September 30, 2015.

(c) Selling and marketing expenses include $0.3 million of amortization of intangible assets and $0.2 million of stock based compensation expenses in the three months ended September 30, 2015.

(d) General and administrative expenses include $0.2 million of stock based compensation expenses in the three months ended September 30, 2015.

(e) Taxes on income include $0.9 million of non-cash tax adjustments in the three months ended September 30, 2015.

RECONCILIATION OF NON-GAAP FINANCIAL RESULTS

(U.S. dollars in thousands, except share and per share data)

(Unaudited)

Nine months ended September 30,

2015

2014

GAAP (as reported)

Adjustments

Non-GAAP

Non-GAAP

Revenues

$ 273,792

$ 273,792

$ 259,948

Cost of revenues

195,647

(a) 1,240

194,407

193,694

Gross profit

78,145

79,385

66,254

Operating expenses:

Research and development

17,662

(b) 556

17,106

23,165

Selling and marketing

30,834

(c) 875

29,959

41,017

General and administrative

15,762

(d) 186

15,576

15,429

Restructuring costs

1,225

1,225

-

-

Total operating expenses

$ 65,483

$ 62,641

$ 79,611

Operating income (loss)

12,662

16,744

(13,357)

Financial expenses, net

12,473

(e) 2,973

9,500

7,340

Income (loss) before taxes

189

7,244

(20,697)

Taxes on income

4,410

(f) 2,535

1,875

754

Net income (loss)

$ (4,221)

$ 5,369

$ (21,451)

Basic net income (loss) per share

$ (0.05)

$ 0.07

$ (0.37)

Diluted net income (loss) per share

$ (0.05)

$ 0.07

$ (0.37)

Weighted average number of shares used in computing basic net income (loss) per share

77,179,760

77,179,760

57,711,192

Weighted average number of shares used in computing diluted net income (loss) per share

77,179,760

77,868,331

57,711,192

Total adjustments

9,590

(a) Cost of revenues includes $0.9 million of amortization of intangible assets, $40 thousands of stock based compensation expenses, and $0.3 million of changes in pre-acquisition indirect tax positions in the nine months ended September 30, 2015.

(b) Research and development expenses include $0.6 million of stock based compensation expenses in the nine months ended September 30, 2015.

(c) Selling and marketing expenses include $0.5 million of amortization of intangible assets, and $0.4 million of stock based compensation expenses in the nine months ended September 30, 2015.

(d) General and administrative expenses include $0.2 million of stock based compensation expenses in the nine months ended September 30, 2015.

(e) Financial expenses include the effect of re-measurement of certain assets denominated in or linked to the U.S. dollar in Venezuela, due to restrictive government policies on payments in foreign currency in the nine months ended September 30, 2015.

(f) Taxes on income include non-cash tax adjustments in the nine months ended September 30, 2015.

RECONCILIATION BETWEEN REPORTED AND NON-GAAP NET INCOME (LOSS)

(U.S. dollars in thousands)

(Unaudited)

Three months ended

Nine months ended

September 30, 2015

Reported GAAP net income (loss)

1,443

(4,221)

Stock based compensation expenses

600

1,172

Amortization of intangible assets

590

1,408

Restructuring plan related costs

-

1,225

Changes in pre-acquisition indirect tax positions

129

277

Currency devaluation in Venezuela

-

2,973

Non-cash tax adjustments

945

2,535

Non-GAAP net income

3,707

5,369

SOURCE Ceragon Networks Ltd.