Ira Palti - President, Chief Executive Officer Doron Arazi - Chief Financial Officer.

Alex Henderson - Needham & Co. George Iwanyc - Oppenheimer Gunther Carter - Discovery Group.

Good day everyone and welcome to the Ceragon Network Limited Third Quarter 2017 Results conference call. Today’s call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of the Ceragon Networks.

Today’s call will include statements concerning Ceragon’s future prospects that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current beliefs, expectations and assumptions of Ceragon’s management.

For examples of the forward-looking statements, please refer to the Forward Looking Statements paragraph in our press release that was published earlier today.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including risks associated with the decline of revenues; the risks relating to the concentration of our business in India, Latin America and in developing nations and the political, economic and regulatory risks from doing business in these regions, including potential currency restrictions, the risks associated with the change in Ceragon’s gross margin as a result of changes in the geographic mix of revenues, the risk associated with the loss of a single customer or customer group which represents a significant portion of Ceragon’s revenues, the risk associated with Ceragon’s failure to effectively compete with other wireless equipment providers, 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. Ceragon’s public filings are available from the Securities and Exchange Commission’s website at www.sec.gov or may be obtained from Ceragon’s website at www.ceragon.com. Also, today’s call will include certain non-GAAP numbers.

For a reconciliation between GAAP and non-GAAP results, please see the table attached to this press release that was issued earlier today. 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 Doron Arazi, our CFO. We are pleased to report another solid quarter consistent with the parameters that we gave for the second half of the year. Revenue was toward the lower end of our run rate assumption of $75 million to $80 million, but we had very good gross margin over 35%.

There were several contributing factors to the high level this quarter, and we haven’t changed our view on what level of gross margin is sustainable going forward.

We also had strong bookings in Q3 with a book to bill ratio over 1, so the main takeaway from this quarter is that our profit-focused strategy continues to serve us well and the business is moving along nicely.

Timing issues such as order lumpiness and revenue recognition sometimes make it difficult to figure out how things are trending, and we will try to help with our views on what’s on that during our remarks. Looking at the different regions, India continues to be a very strong driver of our revenue.

As we know from the pattern earlier this year, orders from this region can e quite lumpy and the timing of revenue recognition depends on the different elements of each deal, which can make it quite difficult to discern the trend.

In general, we think that the aggressive build-out resulting from the competition between Bharti Airtel and Reliance Jio will continue for another one to two years. The consolidation between Vodafone and Idea will create a stronger third competitor at some point as well, which is a positive for us.

We’re expecting additional orders from this region during the near term, but we don’t know the exact timing, so it’s difficult to talk about trends when these orders could count towards this year or could be part of 2018.

What we can say is that we expect the spending to continue in India next year but at a lower pace than the very aggressive spending of this year, so the message on India is demand is strong and we continue to be very successful in this region, but trying to discuss quarter to quarter trends is problematic due to the lumpiness.

As you know, Africa has been weak and it shows signs of becoming a little weaker as one of the major operators in the region with business in other regions as well is allocating resources to other places, but it’s still an important region for us long term and demand should improve once the operators have access to hard currency and can pay in dollars.

The need for wireless backhaul in Africa is growing, whether the spending is or is not. Latin America remains a mixed bag with some regions, like Brazil and Argentina, continuing to show improvement while others, like Mexico, have slowed a bit. We don’t expect any dramatic changes going forward from what we see now.

Asia Pacific is always lumpy, so we measure our progress over a long period. What we can say now is that we are making good inroads there. As we announced during the quarter, we have two new customers in the region. We were selected based on the advantages of our IP-20 platform in terms of providing more coverage with better operational efficiency.

Our professional services team’s ability to assist with (indiscernible) design, planning and coordination of spectrum was also a contributing factor in our being selected. Meanwhile, demand in Europe seems kind of flat and we think it’s likely to remain flat at the current level for a while. Long term, it remains an important region for us.

It is one of the regions where we are engaged in 5G trial demos which once it starts to deploy will increase demand in this region. Turning to North America, you will recall that during the first half of the year, deployment issues in the field caused a North American customer’s orders to be lower than originally planned.

This customer has been working through the deployment issue and continues to deploy. Investors are understandably concerned about how the on and off merger discussions between T-Mobile and Sprint might affect Ceragon. As you all are probably aware, they announced that the merger talks are off.

It could be some time before these operators can come to new resolutions how they proceed internally. It would work out in our favor in the long term either way since, together or apart, they will need to catch up and compete as effectively as possible with the number one and number two operators.

Since we are a preferred vendor to both, we are well positioned to benefit when they have their revised plans in place. We have had a low level of business with these customers recently for different reasons, so we see the impact of this issue as more of a delay in when the business will pick up.

We continue to make progress with our strategy of penetrating the vertical market, and our pipeline of potential business in public safety in North America continues to expand, therefore we don’t expect to see declining for North America because we continue to gradually gain share in the vertical markets via our channel partners.

Speaking of channel partners, we had a very successful three-day event in Tel Aviv recently. To remind you, we currently have about 80% of our business related to service providers, mostly Tier 1 and Tier 2 mobile operators, of which there are just over 400 worldwide. We work directly and very closely with decision makers in each of these operators.

On the other hand, for the 20% of our business that consists of vertical markets, our approach is to sell mainly through channels. At our event, we had representatives of more than 20 different value-added resellers from around the world, each representing dozens of end customers.

We know these channel partners found this event valuable, not only from the direct feedback but from the fact that several of them sent more than one person to attend at their own expense.

We have done several of these events and they offer a great return on investment because they afford us an opportunity to give our channel partners an in-depth understanding of our technology. We also learn from them as they discuss their problems, pain points and future needs.

These partners left Tel Aviv with a strong sense of our multicore strategy and our commitment to solving customer problems. This level of involvement creates a much larger impression that no amount of advertising or webinars could be expected to achieve, and it helps us keep our marketing budget tightly focused.

One of the things we did was share our vision for the vital role wireless backhaul will play as we continue to evolve from 4G to 5G networks. The theme at the event was The Future Is Closer Than We Think.

For investors who are interested in when they might see the revenue impact, we continue to believe that commercial deployment of 5G will begin only in 2020 and only in a few regions initially; however, from the perspective of planning a major technology evolution, the year 2020 is just around the corner, closer than we think.

These 5G networks will eventually enable business models and services that are completely different from what we have today.

I’m referring to the Internet of Things or, more accurately, Internet of Everything, machine-to-machine, vehicle-to-anything, smart cities, smart public transportation, next generation public safety and consumers online gaming, virtual reality, augmented reality, very data driven reality.

From the network perspective, this means a whole new reality in the form of much higher capacities, lower latency, more sites, denser sites. All this will put huge pressure on the backhaul networks. That will mean more fiber, of course, but it will be neither practical nor cost effective to use fiber everywhere.

This is one thing that won’t change - more wireless backhaul, but it will require major advances in wireless backhaul technology and will be even more important to solve these capacity and densification issues in the smartest way possible using the least amount of scarce spectrum and real estate, not to mention expensive power and labor.

As you know, we are leading the market with Multicore Everywhere. As our competitors stretch to offer some version of multicore technology on certain products, we will be shipping a multicore product for every deployment scenario across our entire platform with our many different multicore use cases and specific technologies to address them.

For example, in dense urban environments, a feature of multicore technology called Advanced Frequency Reviews allows operators to overcome constraints on densification by mitigating interference to allow more links that use the same frequency to coexist close to each other.

Another example is 4x4 MIMO technology which is particularly useful in suburban areas where there is a shortage of spectrum by using only a fraction of the spectrum for a given capacity, or Advanced Space Diversity is a feature of Multicore Everywhere that increases capacity with reduced expense for long haul applications by expanding network reach with tower space limitations by using 25% less real estate, equipment and power.

Multicore has already been a huge success with hundreds of thousands of nodes installed globally. Even though we are already using our vertically integrated technology to innovate ahead of the industry, we are pushing ahead aggressively towards the next milestone.

Two years ago, we began deploying some of our R&D resources to focus on the next leap forward. Today, we offer dual core and by the time 5G will require exponentially higher throughput, we’ll be offering eight core solutions.

We are already involved in testing and trials for 5G or planning to begin them very soon with various operators around the world, and we will be ready with wireless solutions that will help realize the promise of 5G.

One thing to bear in mind is that we don’t expect (indiscernible) 5G to be completely incremental; in other words, there will be a shift towards the need for these higher capacity solutions. We have seen this shift begin already.

We continue to believe that we will benefit from the implementation of 5G because we are determined to remain the strongest specialist and we are pursuing strategies to become even stronger over the next couple of years so that we will be positioned to further increase our market share at the expense of the weaker players.

Part of a comprehensive strategy for growth connected with 5G will be seeking opportunities to move into adjacent spaces, as we have mentioned in the past, and this is something we continue to work on.

It is also worth noting that by being the strongest wireless backhaul specialist with the most advanced technology, we have also positioned ourselves to be attractive on the radar for large generalists that have fallen behind the technology curves.

As things stand today, we see this scenario as challenging because of internal cultures of the generalists. Our mission is to create the value and use it to capture more of the market one way or another.

Fortunately, we see more than one viable path to long-term profit growth and we are in a strong position to grow in whatever direction offers the best risk-adjusted potential. Now I’ll turn the call over to Doron for some detailed remarks on our financials.

Doron?.

Thank you, Ira. Since you’ve all seen the press release, I’ll just highlight some of the significant items. Our third quarter revenue of $76 million represented an 18.6% sequential decrease from Q2 in which we recognized over $20 million of extra revenue from additional orders from India received in Q1 that were not part of our plan.

As shown in today’s press release, after a big spike in India during Q2, the geographic breakdown of revenue shifted in Q3 to a low percentage from India as expected. It’s worth adding that it’s difficult to define what is a normal level of business from India because of the tendency to be lumpy from quarter to quarter.

Revenues from Latin America, Europe and North America all increased sequentially in both absolute dollars and as a percentage of revenue. Asia Pacific and Africa remained about the same. In any case, this one quarter change is not necessarily an indication for longer term trends, which are as Ira described them.

We had two above-10% customers in the quarter, a large customer in India and one in Latin America. Non-GAAP gross margin was 35.2% in Q3, which improved sequentially primarily due to the shift in geographic mix of revenue and to a lesser extent due to low shipping costs.

While we are encouraged by the trend down of the shipping costs, we do not expect them to be lower in the same magnitude, so we want to be clear that the 35% gross margin we reported for Q3 is not the new normal.

However, based on the geographic mix of our orders and the pipeline of potential business, we continue to believe we can sustain gross margins above 32% in Q4. Turning to expenses, in Q3 we continued to keep tight control with operating expenses remaining within our target range of $20 million to $21 million on a non-GAAP basis.

We believe our operating expenses may trend up slightly to the high end of the range in the coming quarter. On a GAAP basis, we reported $5.7 million in operating income in Q3 and after financial and tax expense we had $3.5 million of GAAP net income, or $0.04 per diluted share.

On a non-GAAP basis, we reported operating income of $6.2 million and $4.4 million in non-GAAP net income, or $0.05 per diluted share.

We generally don’t go into details about year-to-date figures since we have discussed each quarter individually and you can see the cumulative numbers in our press release; but one figure that we want to highlight is our non-GAAP net income for the nine months of this year. It was $11.2 million.

This is very close to our non-GAAP net income for all of 2016; therefore, we expect to report a significant improvement for all of 2017 versus last year. Given our current visibility on the timing of orders, shipments and revenue recognition during Q4, it would be a stretch to make a goal of 50% increase in net income over 2016.

How close we finally come to this goal will depend a lot on the timing of some of the orders from India that Ira referred to, but we want to point out that the exact percentage increase in 2017 over 2016 is an arbitrary figure and is not nearly as important as the fact that our strategy continues to achieve the desired results.

If these orders are not finalized in time to recognize the revenue in Q4, we expect them in Q1 of 2018 instead, which means there is no real significance to the timing from the business perspective. It’s only a matter of which accounting period they are counted in as bookings and revenue.

Turning to the balance sheet, at September 30, 2017 receivables were $127 million with DSO of 141 days. We had an unusual situation during the quarter which caused some of the balance sheet and cash flow optics at the end of the quarter to look strange. It was due to a timing issue that has been largely resolved already.

In brief, India made some major changes to its indirect tax system that took effect in July. One of our customers had some technical issues with the implementation which delayed its internal processes and caused our collection from this customer to be lower than expected.

Meanwhile, this caused us to have negative cash flow in the quarter of about $13.4 million, and with ample borrowing capacity we funded this by temporarily increasing our borrowings by $15.8 million to $23.8 million at September 30.

We have already received close to 90% of the delayed amounts and expect to receive the balance within Q4, therefore we expect the borrowings under our revolving credit agreement to decline significantly by the end of the quarter.

At the end of Q3, we had cash and cash equivalents of $36.5 million, giving us net cash of $12.7 million with significant unused borrowing capacity. Looking ahead into next year, we don’t expect dramatic changes in overall demand, so we don’t see any reason at this point to change our quarterly run rate assumptions.

Since we don’t yet have enough visibility to give more than order of magnitude assumptions about 2018 as a whole, a quarterly run rate of $75 million to $80 million would put us somewhere in the $300 million to $320 million revenue range for the full year.

We think it’s realistic to target some additional improvement in our cost structure in 2018 which gives us the confidence to say that we expect the gross margin to remain above 32% in 2018, assuming no major negative impact from geographic mix of revenue.

On the opex side, taking into account current exchange rates of the main currencies we use for our operations against the U.S. dollar, primarily the shekel, we’re likely to experience more pressure on our operating expense levels. To be more specific, in the beginning of 2017, we were able to hedge the shekel against the U.S.

dollar at higher rates than the current ones, which mitigated some of the currency impact in 2017, but we will benefit less from our hedging starting in 2018.

However, we are working on a plan that will enable us to stay within the same $20 million to $21 million per quarter range we have targeted during the recent quarters, or just slightly above, while continuing our investment in technology as planned. We also expect lower financial expense next year.

Obviously at this time of the year, we are still involved in the internal bottom-up planning process for next year focused on controlling the things that we can control, but the primary point that is directing our planning is we believe our ability to remain solidly profitable and invest in future technology will position us to capture a higher market share as 5G starts to ramp and as competitors without global presence and/or the benefit of vertical integration continue to weaken.

As you know, we are exploring various strategic options that would enable us to increase our market share as well as better capitalize on the opportunities created by the evolution to 5G. Meanwhile, our most important priority is to remain operationally and financially strong between now and when 5G begins to ramp.

We are not afraid to make a bold move when we find the right one, but we intend to compete in the world of 5G requirements from a position of strength. We are optimistic, but we also recognize that the process may require some patience while staying with our profit-focused strategy. Now we would like to open the call to questions.

Operator?.

[Operator instructions] First we have the line of Alex Henderson of Needham & Co. Your line is open..

Hi guys. So a lot of content with indications of direction but not a lot of granularity around it, so I was hoping to pin down a little bit of what you’re trying to say. It sounds like you expect some fairly significant orders from India, but you don’t know whether it’s going to land in 4Q or whether it will roll into 1Q.

If we don’t assume those land in 4Q, would we be then assuming a fairly weak condition in India again in the fourth quarter, implying a number similar to what we just reported and then towards the upper end of that 2018 number that you just provided a moment ago as that rolls into the first quarter, or how should we be thinking about it? Can you give us a little bit more kind of push and shove on that?.

Yes, hi Alex. So if the orders we expect from India will not come on time in which we’ll be able to recognize them as revenue, we expect the same order of magnitude of revenue from India or slightly lower than what you have seen in Q3, probably slightly lower. Yes, if that happens, this will give us a good start most probably to 2018.

Whether this will bring us to the higher end of the range of the $320 million in 2018, that’s, I would say, early to envision because as you know, the $320 million is not just comprised of India, although India has a significant portion in it..

Okay, I think I get the gist of that. So again, assuming the India business pushes into ’18, then we would probably sustain margins closer to the 35, maybe a hair lower, but well above your norm because of the lack of India in the mix, so kind of a consistent quarter sequentially on an earnings basis, it sounds like.

Is that the right way to think about it?.

Generally speaking, yes, with a slight correction, and I think I emphasized that on the script. The 35% is too high, but we do believe that we can be significantly higher than 32%..

I see, but--so maybe a hair lower earnings on an EPS basis, but in the general ballpark, call it $0.03 to $0.04 kind of number. So as we go into 2018, Sprint and T-Mob have been really critical pieces of your puzzle in North America.

Do you have any sense as to how long it might take for them to come back in, and what kind of sizing that might be if those companies come back in? I know that there was a fairly large program that was outstanding before the merger talk started to happen. I assume that that would probably come back to the forefront..

Okay Alex, so let’s make some sense of that. Timing, I don’t have better knowledge than I had 48 hours ago, okay, which means we’ll have to work with them and see what the timing is and when they continue in moving and expanding the programs.

Let’s remember that on the other hand that at least in the first half and mostly most of the third quarter from our perspective, some of the slow-down by the way in both were not related as much to the merger but were related to all sorts of deployment issues that they had around different strategies and different geographies.

We have seen them working out most of those slowly, which I guess that if - and that’s an if - and when they decide to really start moving much faster than they are moving right now, we’ll probably see that towards probably second quarter of next year, but that’s too early to say.

You know, I’m at this point guessing from interpolating knowledge from other operators around the world and the way they behave, not from things that we know on the ground at this point..

So with DragonWave having been--having imploded and then getting an asset purchase, I guess is the way I would describe that, by a third party, what’s happening with that install base and competition for that footprint?.

We are aggressively going after that footprint and the competition, by the way worldwide, not only in the U.S. We had significant successes in the U.S. and Canada market lately with some of their customers and some of their channel partners which have migrated to use our products, and we are continuing that push worldwide with aggressive programs.

But remember, the total number that they had around their products, not the stuff that they did with Nokia, was somewhere below the $10 million a quarter in general lately, so it’s there and we’re going after the install base.

Customers are very worried and coming in many ways to us and asking how we can help them move forward, and I’ve seen it in different geographies..

One last question and then I’ll cede the floor.

The comment, quote, exploring options, can you talk a little bit about what you mean by that? What is the range of options that you are looking at? Does it range from buying a comparable sized company to buying small assets to possibly selling the company? Is it--what range of options are we talking about here?.

All of them. I’ll say it this way - we’re looking at all the options and don’t [indiscernible] one way or the other what’s more probable or less probable, but we have to be diligent in what we do. We look at all the options. Some of them are viable, some of them are less.

We look at technology options, market share options, asset options, all sorts of stuff on the table..

So there’s at least one major player that is independent. Is that somebody who’s of interest, or--.

By the way, independents out there, there are at least two. There is Aviat and there is Sia [ph], and there are some smaller ones. We look at different options with some of them.

I think I indicated on the call in Q2 we are making all sorts of moves with some of the smaller players which are still in business and haven’t gone under like DragonWave, for them to OEM our products in some situations.

There’s all sorts of things that you can do strategically to gain the market share and really build on our strengths as the leader technologically and geographical spread to increase market share at this point..

Great, thanks. I appreciate that commentary..

Thank you..

Next we have the line of George Iwanyc of Oppenheimer. Your line is open..

Thank you for taking my question.

So Ira, if you remove India from the mix, do you expect growth in the other regions in the fourth quarter, and what type of seasonality are the other regions delivering at this point?.

So George, this is Doron. Generally speaking, we hope to replicate more or less the level of revenue we have seen from the other regions in Q4, although the composition between these regions might be slightly different.

What was your next--the second question, please?.

When you look at, say, a full year, 1Q through 4Q, what type of seasonality does the industry support at this point? Is it still a decline in the first quarter and a stronger second half that we used to see a couple of years ago, or does the lumpiness at this point just remove any normal seasonal patterns?.

Yes, I will start with the last sentence. I think that the lumpiness in India is actually scrambling the seasonality.

If we take out the lumpiness situation in India, one could assume that the trends that we have seen in the past will continue, which means probably Q1 is weaker and sometimes also Q4 is weaker to [indiscernible] degree, especially due to the holidays towards the end of the year.

Usually Q2 and Q3 tend to be stronger, but going back to the caveat with India, you can never know..

Okay. When you look at the overall industry at this point, I think your prior commentary suggested that 2018 could be flattish.

How does the market outlook look at this point for the next year?.

The market outlook, if I look at some of the analyst reports and if you look at the big guys, I think everyone is indicating a flat year for the next year in general. .

Okay, and then with the opportunities for market share gains and potentially gains in public safety or other markets, are you still comfortable that you can do quite a bit better than the overall market?.

That’s a question which I’ll answer a little bit differently, because I don’t look at much on doing better than the market at the top line because there’s where the big lumpiness is.

I think the focus, and that’s where we are still in planning, and the target of planning is making sure that we do and we are in a position to try and increase the profitability next year with different shifts.

Part of it is exactly what you’re saying, with us gaining market share in public safety and the vertical helps us, because it means that we’re getting better dollars, if you can say it this way, in places where the margins are a little bit better.

So it’s also focusing on where the mix is and making sure that we gain the market share that we want in the places that are more profitable. .

Two final areas of questions for me.

One, on the complementary areas, what areas do you see a good and natural symmetry that you could focus on, either internally with your own R&D or through a partnering or acquisition type of strategy?.

I think we have talked about it in the past.

We look at two vectors on those, and they are--and the way, making sure that we stay within the or close to the customer base that we are, which are mobile operators and where they operate, because that’s their big investment from our strategy which is geographical spread, and as I said on the call, a very close relationship with a lot of the decision makers in that space.

So we’re looking at additional product into the mobile operators, mainly into their backhauling network and different technologies, and in some cases extending that network all the way to special cases around the access, where the access is less on the mobile side but [indiscernible] support, for example smart cities, support public safety, support fixed wireless access to the home.

We are looking at different adjacent markets in there where the technologies are sometimes smaller, more unique, maybe sometimes more dense in the deployments..

Okay, and the final area, 5G - between now and 2020 when 5G starts to ramp, do you see any other market catalysts that could come into play, either from cyclicality and spending or another event, and when you talk about a 5G ramp, how much would be incremental at this point when you look at how spending has gone with past transitions?.

I think that the drivers right now is exactly what we’re seeing and where we are winning, is look at different markets where for one reason or another, a competitive situation comes up with people trying to capture significant market share, usually around real deployment of 4%, LTE or LTE+.

I think we refer to that in our success with those operators in the U.S. slowdown and their again competitive situation, India, at some point in Mexico which we believe will return as a competitive state, and I expect that same type of situation to arise in different places around the world.

Those are usually the drivers which generate for a period of somewhere between two to three years very aggressive market behavior and expansions of networks, and that’s where we excel and we can capture on those the same way that we are capturing right now. This will drive, as you say, expansion in different places.

If we go to 5G, and again as I said on my notes, we don’t expect all of it and only a very small part of it to be incremental.

At this point, I don’t have--we have our estimations but if I look at the market estimations from some of the analysts, they do see growth in the market but not in double digit numbers, usually in low single digit numbers around the 5G deployments, and also we have shifts in the types of technologies and a lot of the stuff that we are doing technically right now so we can take our multicore technologies one step further, both in capacities, density, spectrum usage and others to make that available..

Right, thank you very much..

Thank you very much, George. .

Next we have the line of Gunther Carter of Discovery Group. Your line is open..

Yes, thank you.

Are you still planning to leave the Tel Aviv Stock Exchange in December?.

Again, please repeat?.

Are you still planning to leave the Tel Aviv Stock Exchange?.

Yes, the answer is yes. It’s not planning. I think we had announced and will be effective on--.

I think it’s starting November 9..

Thank you..

At this time, we have no further questions in queue. I’ll be happy to turn it back to our hosts for any closing remarks..

Thank you very much for joining us on the call today. I would be glad and we would be glad as a team to further clarification and having one-on-one calls with a lot of you out there, both on the phone and if you approach us and face-to-face over the next few weeks. Thank you and have a good day..

Ladies and gentlemen, that does conclude the presentation for this morning. We thank you very much for your participation and for using our AT&T Executive teleconference service. You may now disconnect..