Ceragon Networks Ltd.

Ladies and gentlemen, thank you for standing by and welcome to Saragon Network's earnings call. Our presentation today will be followed by a question answer session, at which time, if you wish to ask a question, you will need to raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be announced. I must advise you that this call is being recorded. I now like to hand over the call to our first speaker today, Rob Fink, head of investor relations. Please go ahead.

Thank you, operator, and good morning, everyone. Hosting the call today is Daron Arazi, Saragon's chief executive officer and Ronan Stein, chief financial officer. Before we start, I would like to remind everyone that statements made on this call may constitute forward-looking statements within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Safe Provision Arbors of the Private Securities Litigation Reform Act of 1995. Such statements reflect current expectations and assumptions of Saragon's management. Actual results may differ materially as they are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. These risks and uncertainties include, but are not limited to, companies' forward-looking forecasts with respect to which there is no assurance that such forecasts will materialize, companies' ability to future plan business, marketing, and product strategies on the forecast evolution of market developments such as market and territory trends, future use cases, business concept, technologies, future demand, and necessary inventory levels, the effects of evolving geopolitical situation in Israel, and the related evolving regional conflicts, the effects of global economic trends, risks associated with integration and deployment of acquired businesses, risks associated with the transition and rollout of 5G technologies, risks related to the concentration of our business on a limited number of large mobile operators, risks resulting from the volatility in our revenues, margins, and working capital needs, disagreements with taxes and authorities, the high volatility and supply chain needs of our customers, which from time to time lead to delivery issues and other such risks, uncertainties, and other factors that could affect results of operation as further detailed in Saragon's most recent annual report on Form 20F as published on March 25, 2025, as well as other documents that may be subsequently filed by Saragon from time to time with the Security and Exchange Commission. Forward-looking statements relate to the date initially made, and they are not predictions of future events or results, and there can be no assurance that they will prove to be accurate, and Saragon undertakes no obligation to update them. Saragon's public filings are available on the Security and Exchange Commission's website at scc.gov, and they may also be obtained on Saragon's website at saragon.com. Today's call will also include certain non-GAAP financial measures. Reconciliation between GAAP and non-GAAP results is included in a table attached to the release that was issued earlier this morning, which is posted on the investor relations section of Saragon'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. On the surface, Saragon's second quarter revenue was below expectations, but this is primarily tied to a single region, India, and is largely being driven by one key customer that is navigating well-publicized financial challenges. This has temporarily halted this customer's order activity and limited near-term visibility, as paths forward are not yet established. Based on what we know today, we expect that this will just be a timing issue, with market demand and our share of the market essentially unchanged. Beneath that headline, I believe the Saragon story is far more encouraging, reflecting the substantial improvements we have made in our business over the past two years, as well as the benefits of continued innovation in our solutions. We delivered three cents in non-GAAP earnings per share and maintained healthy operating margins, even in the face of the disruption in India, a clear demonstration of the operational strength, cost discipline, and resilience we have built into Saragon. At the same time, our broader momentum continues to build. In fact, the second quarter was an encouraging period for Saragon, with our differentiated technology demonstrating meaningful capabilities that we believe outpaces our competitors. These durable competitive advantages are actively positioning us for new opportunities and use cases that can drive incremental revenue and market share gains across multiple geographies. Customer needs and market trends are aligning with our technological roadmap. We are proving our value through field trials and -of-concept engagements, and this is beginning to fuel potential growth in our pipeline and bookings in real time. This dynamic is especially evident in North America, where our recent introduced technologies are proving applicable to both service providers, carriers, and private network operators alike. In fact, during the second quarter, we secured a multi-million dollar project as a preferred vendor for a new major tier one carrier in North America. This project leverages Ciclu technology to introduce a new product, demonstrating our ability to deliver differentiated value through capabilities that, in our opinion, our competitors are far from introducing. We are also expanding interest in such products across North America and other regions. While still early, we believe this new carrier engagement, as well as this new product, could unlock substantial new business and contribute to incremental share gains with other service providers in one of the world's most strategic communications markets. Second, we are cultivating significant increased interest in our -multi-point solution. This technology has been demonstrated and validated in multiple -of-concept projects, both in North America and Europe, serving a wide range of use cases across private networks and CSP domains. These successful evaluations have enabled us to advance into more detailed discussion with potential customers and discuss early-stage commercial engagements. The -multi-point platform acquired through our Ciclu transaction continues to prove its value, particularly in private network applications, but increasingly with other customers as well. Given Ciclu's financial position at the time of acquisition, we expected to address areas of underinvestment and we acted quickly to stabilize and strengthen the product. We are now beginning to see the returns from that effort with growing momentum and expanding business potential. Importantly, the -multi-point technology is particularly well suited for smart city applications. As a chosen partner, we are currently involved in a multi-year project in one of Latin America's largest cities under a -a-service model. Should this project mature to its full extent, it could represent recurring annual revenue of $7-8 million for a minimum of five years. In our traditional business, our IP50EXP solution is gaining significant traction as a leading traditional microwave solution alternative. The IP50EXP delivers -wave-like capacity over traditional microwave distances. This high-power product combined with an auto-aligned antenna enables customers to replace microwave deployments at a significantly lower total cost of ownership and in many cases, even higher bandwidth. We are also participating in multiple RFPs for traditional backhauling projects using our latest CX, EX, and IP50GP product families in EMEA and Latin America. These projects support network modernization efforts aimed at increasing capacity. Our new product's exceptional price-performance ratio is increasing our chances to win business from customers who we hadn't worked with in several years, demonstrating yet again our ability to capture and recapture market share with our industry-leading technology. We are driving demand globally, but in Q2, North America remained a standout. Excluding E2E contribution, both bookings and revenue in North America exceeded $20 million. Balancing these exciting developments are short-term headwinds we are experiencing in India, our largest market, and it's important to address those directly. Revenue from customers in India was $24.8 million, a decrease of 30% year over year. As I mentioned, our customers well-publicized financial challenges impacted the project we are involved in and this project stalled. At this point, it is hard to predict whether and when it will resume, although we believe the situation is a timing issue and expect a favorable resolution in the future. Additionally, some other projects with other Indian carriers are progressing at a slower pace than our original expectations. However, we are bidding on a new opportunity in India that could add significant incremental business for us in 2026 and beyond. We continue to pursue more opportunities with new products, including, without limitations, leveraging Ciclus technology. To summarize, our market share in India is expected to remain intact and we still see the region as long-term contributor to our business growth. Zooming out, the variety of opportunities in front of Saragon is the strongest I can recall. While new-term visibility remains limited, we are seeing positive and accelerating signals of success across our portfolio. Our strategy is resonating, our commercial traction is expanding, and our technology is opening doors to further penetrate markets, enter new segments, and reach new customers. Most importantly, the bottom-line results we reported today reflect the meaningful improvements we have made to our business over the past several years, enabling us to continue investments in our strategic initiatives even at times when revenue is low. As a result, we remain confident in our ability to translate future growth into stronger earnings and sustained value creation. I'd now like to turn the call over to Ronen Stein, our CFO, to discuss the financial results in more detail. Ronen, over to you.

Thank you, Doron, and good morning everyone. The second quarter was impacted by revenue headwinds in India, as Doron described, with improving strength in North America and continued progress against our strategy to create sustainable profitability. To help you understand the results, I will be referring primarily to non-GAP financials. For more information regarding our use of non-GAP financial measures, including reconciliations of these measures, we refer investors to today's press release. Let me now review the second quarter results. Revenue for the second quarter was $82.3 million, down .4% from $96.1 million in the second quarter of 2024. North America was the strongest region in terms of revenue and contributed $26.8 million. India contributed $24.8 million in Q2 2025 and was the second strongest region. We had two customers in the second quarter that contributed at least 10% of our revenue. Gross profit in the second quarter on a non-GAP basis was $29 million, which was down .2% from $33.8 million in Q2 2024. Our non-GAP gross margin was .2% unchanged from the prior year period. The sustained gross margin, even on lower revenue, was mainly attributable to our success in North America. Moving on to operating expenses, I'd note that we have now consolidated E2E into our results, impacting total operating expenses. Research and development expenses in Q2 2025 on a non-GAP basis were $7.2 million, down from $8.2 million in Q2 2024. As a percentage of revenue, R&D expenses on a non-GAP basis were .8% in the second quarter versus .5% in the prior year period. Sales and marketing expenses on a non-GAP basis in the second quarter were $11.1 million, up from $11 million in Q2 2024. As a percentage of revenue, sales and marketing expenses on a non-GAP basis were .5% in the second quarter, as compared to .5% in the second quarter of 2024. General and administrative expenses on a non-GAP basis for the second quarter were $5.9 million, as compared to $1.4 million in Q2 2024. Keep in mind that our G&A last year included the impact of a $4 million benefit related to an initial collection from a $12 million debt settlement agreement reached with a South American customer, for which we accounted the credit loss of $1.5 at the end of 2022. As a percentage of revenue, G&A expenses on a non-GAP basis were .2% in Q2 2025 versus .5% in the year-ago period. Operating income on a non-GAP basis for the second quarter was $4.7 million versus operating income of $13.1 million in Q2 2024. The absence of the $4 million credit loss recovery benefit I mentioned earlier, combined with lower gross profit, was the primary factor for the decline in operating income year over year. Financial and other expenses on a non-GAP basis in the second quarter were $1.7 million and improvement from $2.6 million in the prior year period. The change was positively impacted by exchange rate changes and lower interest expenses. Our tax expenses on a non-GAP basis for the second quarter were $0.6 million. Non-GAP net income for Q2 2025 was $2.5 million or $0.03 per diluted share versus non-GAP net income of $9.9 million or $0.11 per diluted share in Q2 2024. Moving over to our balance sheet. Our cash position at June 30, 2025 was $29.2 million, down from $35.3 million at the end of 2024, primarily due to cash payments made in Q1 in connection with the acquisition of E2E amounting to $6.6 million net of acquired cash. Short-term loans were $20.5 million at the end of the second quarter, down from $25.2 million at the end of 2024. Thus, our net cash position was approximately $8.7 million as opposed to $10.1 million at December 31, 2024, again largely due to the acquisition of E2E offset mainly by a free cash flow in Q2. We believe we have cash and facilities that are sufficient for operations and working capital needs. I'd note that we generated $6.1 million in free cash flow, enabling us to reduce our debt in Q2 despite significant short-term revenue headwinds. This speaks to the progress we have made in our business model. Inventory at the end of the second quarter was $59.9 million, essentially unchanged from $59.7 million at the end of 2024. Our trade receivables at the end of the second quarter were $124.1 million versus $149.6 million at the end of December 2024. Our DSO now stands at 119 days. Looking at our statements of cash flow, net cash flow used by operations and investing activities in Q2 2025 was $6.1 million. I'd like to now turn the call back over to Doron to provide a summary and review our outlook.

Thanks, Ronen. Before we open the call for questions, I want to briefly summarize the takeaways and update our outlook. Q2 highlighted the strength of the foundation we have built as we delivered non-GAAP profitability and generated free cash flow despite the revenue headwinds while advancing our strategic roadmap. Traction across regions is growing and our technology is opening new doors across both service provider and private network segments. Our strategy has not changed and challenges primarily in India do not necessitate changes. We are on the right path, positioned to navigate these timing issues while expanding our strategic position globally. Turning now to our outlook, our visibility this quarter has been adversely impacted primarily by dynamics in India as discussed. As a result, we are not currently in a position to reaffirm our prior guidance or provide an updated range. That said, we believe this is a matter of timing. In the meantime, this has placed greater weight on individual projects in other regions, some of which were expected to contribute meaningfully to our revenue and are currently delayed. Importantly, we strongly believe we have not lost market share in India or globally. In fact, we are expanding our opportunity set, particularly in North America, primarily due to technological leadership delivering stronger radio performance at a lower total cost of ownership. Looking ahead, we assume second half revenue to be roughly in line with the first half. Based on the current situation, we are now in a position to continue to invest in our strategic pillars, advanced wireless connectivity solutions, private networks, and managed services. With that, I'll now open the call for questions.

To ask a question, please raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be announced. Our first question will be from Scott Searle from Roth Capital. Scott, please go ahead. Oh,

my apologies. Good morning, good afternoon, guys. Thanks for taking the questions. Dharan, maybe just to dive in on India, the obvious region talked about what gives you the confidence that this isn't a share loss, that this isn't some sort of permanent impairment in terms of some of the customer relationships there. Could you extrapolate a little bit in terms of your visibility into the second half as it relates to India? You did about 25 million in the current quarter. Is that a sustainable level accounting for customers that are, I think, doing a little bit better from an economic standpoint now? And this 26 opportunity, I'm wondering if you could maybe gauge the size and timing of when we should see that really starting to play into the P&L.

OK, so thank you for this question, Scott. So let's start with the competitive landscape and our our stake in this market. We have very strong inroads into this market and we have a constant dialogue with all of our customers, both existing and potential. And Ceragon, generally speaking, is perceived as one of the strongest vendor to this industry. And we are aware of the main drivers for the changes in the pace or in the cases where projects are stalled. And talking to our customers constantly. And it's clear to us based on these discussions that it's not that they are now preferring other vendors over us. It's just a matter of the rollout a pace that is driven by other factors that are totally nor associated with our strength in this market. So that's the main, so to speak, indications we have for not losing market share. I would even dare saying that in some new opportunities with new technology, we already finished the technical phase. And we're now talking about commercials. And that can also fuel our business in twenty twenty six. I was referring more explicitly to a new opportunity that is not that one, but it's another one more on the traditional microwave business. And that opportunity is in terms of tens of millions of dollars to be, I would say, delivered during twenty twenty six. Or I would majority of this opportunity will be delivered during twenty twenty six. Obviously, the RFP is still out there and we don't know the results. Of course, we don't know the results yet, but we believe that we are in a very good position to win at least a big portion of this opportunity. So all in all, when I look at the trends, I would say the following. I would say the interim loss of the business from this specific a provider or service provider that stopped the investment due to its financial issues is something that we cannot predict the resumption yet. And we are not baking or hardly baking any potential revenue from this one into our second half of the year. With the others, each and every one has its own, so to speak, pace that is driven by different factors. And I would say that twenty five million dollars that we've seen in Q2 might even be the high end in our most likely scenario. But still, there's so many unknowns that this number could fluctuate easily up and down. And if it fluctuates up, I can assure you that we have a very good, so to speak, operational preparation and readiness to capture and capitalize on any trend up that will happen if indeed this happens during the second half of the year. For 2026, I'm by far much more optimistic.

Great, very helpful. Thank you, Jerome. And if I could maybe shifting to a healthier region, North America was a great quarter. I think it's the best quarter you've had in five or six quarters. How sustainable is that as we're looking into the second half of this year? And maybe give us an idea. I think you've referenced private networks being strong, but maybe a little bit more color on that front versus the work with the tier one operator. And it sounds like you've got a second tier one that's now starting to play into the mix. Thank you.

Sure. Thank you, so thank you for this question. So, look, obviously the business in Saragon is still based on relatively imminent orders. And based on what we see today and the pattern and the pace of the business, we believe that the second part of the year can be more or less at the same level of the first part of the year. It is based on, first of all, the backlog we have accumulated as of the end of this quarter. And obviously some forecasts that we have for Q3 and for Q4 from different customers. In terms of private networks, generally speaking, we're very excited about some new opportunities. And we just finished a few POCs that we see a very clear path that these will return into significant orders. And I hope that this will happen shortly. I don't want to kind of be ahead of my skis, but it looks very promising. I would say that we hardly build on these opportunities for the second part of the year. Obviously, if this happens, it will definitely fuel our business in North America further. But if not, I think it could be a very strong baseline for increased business from private networks in North America in 2026.

Great. Thanks so much. I'll get back in the queue.

Thank you.

Our next question is from Ryan Koons from Needham. Ryan, please go ahead.

Can

you hear me?

Yes, Ryan. Hi, Ryan. Good morning.

Good morning. In terms of your 10% customers, maybe some housekeeping up front, were those both from India region, your 10% customers? Or different regions?

The 10% customers are coming from both India and North America.

Great. Thank you for that. And you discussed some emerging tier one North American opportunities here. Can maybe you kind of outline what kind of shape and timing you think those opportunities might present you and how you're investing in terms of those emerging opportunities?

Yeah, actually, I'm very excited with this particular win and some other opportunities that I see. Just to generalize the trend that we see, and I would even dare saying that I see that as almost a global trend. One of the big observations I had is that the FR2 as part of the 5G rollout is being looked at from various angles, and operators are looking in different ways to use and to utilize these frequencies other than just mobility. And that opens up many new use cases in North America, but also outside North America, starting from a very simple model of frequency preservation, just to make sure that they have the license and they can use it later on, and all the way into fixed wireless access, multi-dwelling units. And as I said, this is a phenomenon that we see not only in North America. I referred to our success in India in a previous question. It's more or less the same story there. And there we are also in a great position since we have passed all the technical barriers, so to speak. And now we're starting to discuss commercials. So I'm obviously very optimistic. Specifically, the one we won is expected to add to our revenue quite significantly in North America in 2026. And as we speak, we see more operators looking for very similar solutions in this region.

That's a great update. Appreciate that. Maybe one last one, if I can squeeze it in on your acquisition of End to End recently. How is that business trending in terms of private networks? And I think you are penetrating the energy sector with that. Can maybe you give us a few updates on how that business is performing?

Yeah. So so far, it's in accordance with our plan. I would even say that in terms of booking, we are ahead of our plan. And that's even, I would say, despite some slowdown that we have seen in the private networks in different segments in North America due to the tariffs and many other things that have different implications on different segments in the private network. So the bottom line is that we are in accordance, we're progressing in accordance with the plan. And in terms of booking, we're even exceeding

it. Right. So you're saying the tariffs, not necessarily on your product, but tariffs on

their core

business.

Yeah. Exactly. It's not necessarily associated with communication, infrastructure, and with our product. Particularly, sometimes there are other factors that are impacting these industries, and that may create certain delays in the decision to move forward on the connectivity part.

Got it. Super. That's all I've got. Thanks. Thanks for the questions.

Thank you.

Our next question is from Christian Swobb from Craig Hallam. Christian, please go ahead.

Hey, it's Christian here. Thanks for letting me ask a question. Given the year to appreciate the fact that we'll still be profitable and generate cash this year, but given the revenue headwinds this year, at what point would it take for you to address OPEX, which looks heavy for these revenue levels?

So I would start by giving a general comment, and maybe Ronen can complement. Look, we are investing in our new strategy, and we intend to continue investing in our new strategy, especially after we have seen so many strong signals that this strategy is probably the right strategy for Saragon. So I would dare saying that as long as we are profitable and generating cash, it is our intention to continue investing in these strategic initiatives. Obviously, if at a certain point we see a situation that the relevant parameters for us deteriorate significantly, we'll reconsider. But at this point, it's our intention to keep our investments intact because of the momentum and because of our belief that this is the right path for this company. And as we already said, we believe that the situation is a temporary situation, and we can resume growth as early as 2026.

Let me just add that in the last two years, I would say, we have been restructuring our operating models and operating expenses, and we were very disciplined. So we shifted budgets, we opened new centers of excellence, both in Paraguay and in India. And we have been able now to reduce our OPEC while still continue to, as Doron mentioned, still continue to spend and invest on growth initiatives. So I think that with assumptions on our revenues for the second half and the fact that we expect North America to more or less continue in the same level, we think that gross margins should be okay and to cover and enable us the profitability that we just mentioned.

Great. Thank you for that answer. No other questions. Thank you.

Our next question is from Theodore O'Neill from Hills Research. Theodore, please go ahead.

Yes, thank you very much. First question about the sickle point to multipoint solution. I think you've given us, I think, in your previously talked about use case examples, but can you give us some use case examples and what the potential market size is for those, for that product line?

Yeah, sure. Look, the most common use cases we've seen so far are around smart cities and public safety. This product is very suitable for a situation where you need to carry data from video cameras, either in relatively short distances or using a mesh technology that can help very nicely in building a network or an access network that on the one hand is very strong in terms of capacity, very high capacity, and at the same token is very cheap at street level connectivity. So we see that in projects of smart cities. One of them is in North America. There's another one, the biggest one I was talking about in Latin America, and we see more of that coming from other regions. So this is a very common use case, and it can also develop to other ideas such as managing traffic lights and other things that are associated with improved, so to speak, quality of managing city public services elements. The other piece that we see as an opportunity, and we have trialed for a relatively long time by now with huge success, is actually in the CSP domain. And while I tend to give this opportunity slightly less emphasis in terms of volumes, we are talking about street level connectivity as a solution for small sales backhauling. We have seen that predominantly in Europe, in countries where, generally speaking, it's very difficult to bring the fiber to the last point, and it's also even very difficult to put a microwave and millimeter wave, the traditional one, over the roofs. And that could also become a very common alternative in such cases. Based on the opportunities we are engaged at, this could become tens of millions of dollars a year. Obviously, it depends on the size of the project, but at this point, I would say that it's between a few single million dollars to tens of millions of dollars a year.

Okay, thank you. And you mentioned your participation in multiple RFPs. How do you see the probability for winning these, and what's the competitive landscape look like?

Yes, so I mentioned that, particularly referring to EMEA and Latin America. I think the audience is aware that these are two regions where the Chinese are not, I would say, totally banned. And therefore, the competition continues to be a relatively fierce competition, especially when the Chinese decide to go for a dumping price strategy, which happens quite frequently. Why I'm more enthusiastic about these opportunities is basically because of two reasons. One, we start seeing a phenomenon where just using the Chinese as a single vendor is not working that well to many of the operators, both in Latin America and in EMEA. And therefore, these RFPs could create an opportunity for us to chime in and to take the second seat, which is also quite significant. The other reason is that with our new product families, the EX, the CX, and the IP50GP, these products are much more, I would say, price performance effective than our older generations. And that gives us, I would say, a good starting point to win in an environment where the prices are relatively low. I would just generalize and say that for a few years, we have not invested that much in split mount. And still, when you look at market, split mount still consists of around 60% of this market. Now, after we finished to develop the Neptune chip, and obviously we're working on the first product that will be publicized or launched based on this chip, we have basically directed resources from R&D to work on our next generation split mount. The IP50GP is the first, the early bird in what I believe is a strong roadmap that if we execute on, will also help us gaining a bigger market share in the split mount business.

Okay. Thanks very much.

Thank you.

Our next question is from Rommel Dionso from Aegis. Rommel, please go ahead.

Thank you. Can you hear me okay, Tor? Yes. Hi, Rommel. So two questions, if I could. First, you've obviously made significant progress in North America on management services, business, and private networks. And I wonder if you could talk about private networks, the opportunity in Europe and just the progress you've made there. And second, I appreciate your comments earlier about continuing to invest in the core business. What about acquisitions? There's a temporary delay in orders from India. Slow down your acquisition pace in upcoming periods. Thanks.

So let me start with the acquisition question, and then I will move to a discussion about the private network in Europe. In terms of acquisition, we have not slowed down. And actually, the positive cash flow and the reduction in the loans or the credit line that is utilized is just creating for us a better, so to speak, funding opportunities to do more acquisitions. I think it's more of finding the suitable acquisitions rather than slowing down or accelerating the pace. We have a funnel. I think the funnel looks good. It will take time to make obviously decisions. And I can tell you that during the last couple of months, we looked at a few potential acquisitions and we reached the conclusion that they are not suitable to us. So it is our strong intention to continue pursuing acquisitions. It's just a matter of suitability. As to the private networks in Europe, we see also many opportunities there. I think that we are quite successful actually in Europe and by the way, in Africa, in utilities and to a certain degree in defense and in energy. So generally speaking, we see there many opportunities as well. And obviously, this gives us even stronger signals that we are on the right, so to speak, strategic path.

Great. Thanks very much, Karam.

There are no further questions.

So thank you so much, everyone, for participating in our conference call and looking forward to talk to you again in the conference call for Q3 results.