Ira Palti - President & CEO Doron Arazi - CFO.

George Iwanyc - Oppenheimer Alex Henderson - Needham & Company Michael Stager - Odian Capital.

Good day, everyone. Welcome to the Ceragon Networks Limited Third Quarter Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of 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 forward-looking statements, please refer to the forward-looking statements paragraph in our 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 in revenues due to our focus on a single market segment; risks related to the concentration of Ceragon's business in certain geographic regions such as India, and in other developing nations, risks relating to certain guarantees granted by Ceragon on behalf of Orocom to FITEL, in the framework of the FITEL project; political, economic and regulatory risks from doing business in developing regions, including potential currency restrictions and fluctuations; risks related to our ability to meet the demand for our products due to shortages in raw materials, including certain passive components; risks associated with a change in Ceragon's gross margin as a result of changes in the geographic mix of revenues and/or as a result of increase in costs of raw materials, including certain passive components; risks associated with loss of single customer or customer group, which represents a significant portion of Ceragon's revenues; risks 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, that represents 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 reconciliation between GAAP and non-GAAP results please see the table attached to the 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 very pleased to report an excellent third quarter which was above the top end of our quarterly revenue run rate with net income growing both, sequentially and year-over-year. We also generated very strong cash flow during the quarter.

In addition, we are on-track to meet our goal of attaining an increase in non-GAAP net income in 2018 compared to 2017. Based on the current outlook, we believe we are able to extend our goal of net income growth to 2019 as well.

We are benefitting from the early stages of the migration of networks from 4G to 5G technology, and as noted on past calls, this is a long multi-year global process, not an event that happens everywhere at once. Operators around the world are planning their path to 5G but they are at different stages as a starting point.

Some are still building out 4G to bridge the digital divide and bring broadband access to more of their population, while others are expanding capacity and densifying 4G networks in preparation to launch 5G.

The common denominator for all of them is that they are looking for wireless backhaul solutions that combine the benefits of flexibility, enabling rapid site acquisition, quick roll out, and conserving resources such as spectrum and power.

As a result of offering full suite of solutions, and the trend from 4G to 5G, we are seeing many positive developments worldwide and our book-to-bill in Q3 was above 1 excluding India which tends to be lumpy. Furthermore, we saw an increase in bookings during Q3 in most regions around the world.

To discuss some details of the current situation of the outlook in each region we will begin with India. In this hyper competitive market, our IP-20 all-outdoor solution enables very rapid network rollout with the most efficient use of resources and maximum future flexibility.

These characteristics have enabled us to achieve a very strong market share in India already. We expect operators in the region to continue to spend on significant expansion and densification [ph] of their networks as the Indian broadband data boom continues.

For example, Vodafone India plans to make vendor selections soon, and we are working hard to get our share of that business. Therefore, we expect continued spending on wireless backhaul capacity in India for the next couple of years.

We know from past experience that spending decisions tend to be made at the last minute which makes order patterns lumpy and delivery expectations short; this means continued quarter-to-quarter fluctuations in bookings and revenue from India but with sustainable overall strength from this region. We are very pleased with what we see in Latin America.

In general, we see acceleration of the rollout of 4G networks in several countries in the region. To add capacity and densifying the networks already in place, with a growing demand for all-outdoor wireless backhaul solutions to enable simple expansion and densification of networks.

This is leading to growing demand for our IP-20 platform in Latin America and we expect this trend to continue. Another example of 4G/5G migration is happening in Africa, this region is continuing to grow from a low base since the beginning of the year. Until recently, migration to 4G was not happening because of spectrum availability.

That has changed and the largest Pan-African operator, as well as other large operators, have resumed investing with other smaller ones returning as well. In one project, we recently displaced a competitor, so we see continued gradual improvement both as a result of returning demand and from gaining market share in this region.

The picture in Asia continues to be a good one and we believe we will continue to gradually gain market share.

In Southeast Asia, we continue to rollout 4G networks expansion with our wireless backhaul solutions and services at scale using our unique all-outdoor solutions and allowing quick service expansion for our mobile operator customers in the region.

Currently, we see a funnel of interesting opportunities throughout the APAC region, and we are well-positioned to participate in 4G & 5G projects that are reaching the RFP stage in this region where we bring significant value in our technology and services.

Within an overall positive trend toward taking market share in Asia, we retain a little bit of caution because we see a lot of potential competition and operators in this region tend to do a lot of bundled deals.

Meanwhile, in Europe we aren't seeing any major changes and recent bookings indicate that business is likely to remain steady in the near-term. Our pipeline of potential new business in Europe indicates some prospect for pick-up next year from the level of the past few quarters.

Turning to North America; in another recent announcement we reported improving traction because North America is the region where the migration from 4G to 5G is the most advanced.

Currently, most of pickup in orders is coming from one of our long-standing mobile operator customers using their low-band spectrum to expand 4G coverage in preparation to light up 5G.

We are also seeing a trend towards larger orders from one of our important customers in the Caribbean, and we are getting additional orders from Canada contributing to higher revenue from North America as well.

Looking a bit further out, the T-Mobile/Sprint [ph] combination, when approved, will certainly give a boost to our revenue in the region once their plan for 4G and 5G are refined and begin to be fully implemented.

Since we have no way of knowing the timeframe in which this will happen, we are not building large numbers into our forecasts and we think investors should view this as upside potential, but not something to bake into expectations at this point.

So to summarize the regional picture for mobile operators; we see signs of some pickup in regions such as North America, Latin America and Africa that can create a favorable shift in the geographic mix, improve our gross margin and help us show a strong bottom-line even in quarters when India business fluctuates significantly.

In addition, we continue to target an improvement in our market share in various vertical markets including public safety in the U.S., as well as oil and gas, utilities, maritime and digital divide projects around the world. For example, we recently won a very large deal in Peru aimed at bridging the digital divide in the rural parts of the country.

This was a bit different than our typical deal because it involved program selling in which we took on a much larger role than just a wireless backhaul equipment vendor.

We are working closely with a consortium that includes a fiber vendor, a telecommunication license holder to cover all the requirements of the transport and broadband access network for which we are the wireless network provider.

This consortium owns a new operator called Orocom, which is awarded three of the six regions by the Peruvian government, FITEL, in connection with an RFP in late 2017. As a result, we expect revenues from this project of at least $26 million over the next two years and that could eventually be as much as $36 million.

We expect we will begin recognizing significant revenue from this project in Q4 this year. We also played a major role in helping the consortium win the project by providing advisory service and the initial planning of the wireless network.

This project takes advantage of our extensive past experience in deploying high capacity wireless backbones in Peru and in other regions.

These government-sponsored digital divide project represent a key theme of broadband access deployments but the timing of this project is difficult to predict and we can't count on the revenue to be steady from quarter-to-quarter. This revenue can be somewhat lumpy as well.

Looking ahead in a strategic sense; what we do is becoming more vital to operators all the time.

As operators look towards a time when they must increase capacity in a densified scale in order to support new 5G service models in used cases that connect literally billions of individual sessions and endpoints, their [ph] concluding that backhaul is very strategic to their future.

There is no possibility that fiber will be available everywhere they need it, so wireless backhaul will be critical to the rollout of 5G at scale, more than it is already with 4G networks.

In a very competitive environment, with no guarantee of what their ARPU will be, operators will be keeping a tight rein on budgets and will only spend where they can increase network availability and capacity with rapid site acquisition, quick network rollout, flexibility in cost savings.

This is the value proposition we offer them through our IP-20 platform; and in particular, with our all-outdoor solution which requires no shelter, no air-conditioning, no security fence, no cameras. This simplifies site acquisition and speeds network deployment when the operator needs only to bring power to the site.

So translating this into a financial perspective, near-term, we feel confident that we can remain towards the upper end of our range for quarterly revenue run rate.

We also remind you that we are managing to the bottom-line, not the top-line; so we're encouraged to see some rotation towards a more favorable geographical mix which looks likely to continue with some additional positive impact on gross margin as some of the component shortages begin to abate.

Meanwhile, we continue to spend aggressively but carefully on our next-generation solutions in order to maintain our technological leadership. This means intentionally staying at the upper end of our target OpEx level, at least during the near-term.

With the positive trend I just mentioned, we believe we can continue to target gradual improvement in net income with the usual quarter-to-quarter fluctuations due to timing of orders and revenue mix. Now, I'll turn the call over to Doron for some detailed remarks on our financials.

Doron?.

Thank you, Ira. Since you have all seen the press release, I'll just highlight some of the significant items. Our strong third quarter revenue continued to be driven by the high level of activity in India combined with higher sequential revenue from most other regions.

As we've explained previously, orders from India tend to be lumpy and therefore, revenues can be as well, and there is no real significance to the change in revenue in Q3 versus Q2. Except for our seasonally affected first quarter, we've been around the high-end or above our expected quarterly run rate for several quarters now.

Our third quarter revenue of $86.5 million represented a slight sequential decline from Q2, reflecting the lumpy order and delivery patterns in India. The 13.9% increase over the third quarter of 2017 indicates a generally higher run rate.

We had two above 10% customers in the third quarter, both were large customers in India, reflecting a continuation of the intense competition among operators in that region.

India continued to dominate the breakdown of revenues with the region accounting for a more moderate 34% of total revenue compared to around 46% to 47% percent during the past couple of quarters.

This was a result of revenue from India moderating somewhat from the recent high levels, as well as from sequential increase in revenues from most other regions, most notably North America, APAC, Latin America, and Africa.

Both GAAP and non-GAAP gross margin was 35% in Q3, driven by a more favorable geographic revenue mix with a higher proportion of high margin services as well as beginning to see some relief from the impact of component shortages. The high margin from services from services is not likely to be a factor going forward.

However, based on the booking trends and our pipeline of potential business, we believe the trend towards a more favorable geographic revenue mix will continue.

With this trend combined with continued improvement in the component shortage, we believe we can get closer to 34% gross margin in the near-term based on expected product mix, and perhaps do even better over the longer term but with the typical fluctuations from quarter-to-quarter.

Turning to operating expenses; non-GAAP OpEx of $21.9 million was towards the high-end of the expected range as we anticipated. In addition to variable expenses related to volume of business at the upper end of the expected range, we continue to invest in maintaining our technology leadership moving along the path to 5G.

We don't expect any significant change in OpEx near-term. As Ira, noted we expect to continue to spend aggressively, but carefully, on our next-generation 5G solutions.

As expected, our financial expenses moderated in Q3, declining from $2.6 million in Q2 to $1.8 million in Q3 on a non-GAAP basis due to less exchange rate differences and lower bank fees and factoring fees.

We continue to expect the trend toward lower financial expenses to continue; probably to between $1 to $1.5 million in Q4 assuming no further significant fluctuations in exchange rates. On a GAAP basis, we reported $6.2 million in net income and non-GAAP net income of $5.7 million; this is a very good result and better than our expectations.

It bears repeating that this is the metric we are managing towards when we make business decisions.

Although the likely timing and mix of revenues means we expect a slight sequential decline in non-GAAP net income in Q4, we are pleased to say we are on-track to report an increase in non-GAAP net income for 2018 compared to 2017 which was our goal throughout the year. We expect this to be the fourth consecutive year of net income growth.

Turning to the balance sheet; at September 30 receivables were $113.2 million, with DSOs of 120 days. We generated very strong positive cash flow in Q3 of $11.9 million as a result of strong collections during the quarter.

In fact, during Q3 we collected close to $1 million from a customer in Venezuela for a receivable that had been written-off several years ago due to the impact of the Venezuelan government foreign currency restrictions and the local currency devaluation. This shows up on the P&L as an income item within the overall financial expense category.

It is part of the GAAP numbers and illustrates something we think is important; that we continue to pursue collections even when the likelihood of success seems to be low. Our already strong balance sheet is getting even stronger.

At the end of September, we had cash and cash equivalents of $41.3 million with a $40 million unused line of credit which gives us ample financial flexibility to handle our working capital needs and to be in a position to use our strong balance sheet to good advantage when we compete for profitable deals that require bank guarantee, even a large one like the FITEL deal in Peru where we provided a $29 million bank guarantee in return for the advance payment from the government to Orocom.

Looking ahead, we continue to expect to be at the upper end of our quarter run rate of $80 million to $85 million for the next several quarters. We are targeting closer to 34% gross margin in the near-term with some prospect for further improvement as we move through next year.

We see operating expenses continuing to be at the high-end of the $21 million to $22 million per quarter range, commensurate with our expected volumes and our ongoing focus on investing in our next-generation platform.

So, in spite of maintaining our aggressive spending on R&D we continue to target an increase in net income in 2018 making it the fourth consecutive year of net income growth. Looking out beyond the end of this year, we are extending our goal of net income growth to 2019 as well.

Our preliminary view continues to be that we can achieve further net income growth through better gross margin, due mainly to a more favorable revenue mix with continued focus on tight control of OpEx while maintaining an aggressive investment posture.

We continue to have confidence in our strategy and our ability to execute within the bounds of what we can control. We believe that wireless backhaul is becoming more strategic and operators' budget priorities will favor what we do best as they add capacity and densify in preparation for a 5G world.

Now, we will open the call for questions, operator?.

[Operator Instructions] Our first question will come from the line of George Iwanyc with Oppenheimer..

Ira, when you look at 2019, can you give us some incremental color on the type of visibility you have to the regional trends and what mix you're anticipating for North America in that overall context?.

We are mainly planning next year. Let's remember that visibility is in parallel to what we're doing, we're looking at different budgets and processes within our customers.

We do believe that overall we will see a year where the geographical mix of our mix of revenues will shift towards places where the gross margin is a little bit better than India; and at this point I cannot point out exactly the numbers.

I want to put a note on that, one of the things that is hard; for example, you asked about North America to plan, we do believe we have a very strong position with both T-Mobile/Sprint [ph] which are customers of ours, and as they emerge in the rollout of their 4G and 5G rollouts, it will probably be a part in that but timing both of when the deal will be approved -- and I'm using the term when because I believe the deal will be approved.

And then, at -- how long it will take them to build their plans and start walking as one organization and rollout is still a big question mark on the timing from our perspective.

So our planning for next year at this point with those two is probably low numbers, and are building on other activities and mainly the vertical and other operators within the North American region..

And building on that; it seems like you're gaining share kind of across the board 4G/5G in the vertical space.

Can you give us an update on the competitive landscape and where are you taking share because of mixed transitions are you taking share because of some easing competitive headwinds?.

Competitive headwinds are not easing, they are strong and -- but I think that our leadership with all-outdoor solutions in both, microwave and some of it also in the millimeter wave; and the millimeter wave, for example, multi-band which allows us to do multi-band with our equipment and other people equipment.

And the ease of installation and the usage for that in approving site acquisitions allows us to take market share. Now it's part of the technology, it's part of the footprint, it's part of our success and proven success with a lot of projects in different places.

To say the competition is easing up, and now it's tough and we sense [ph] the tough competition both from the beginning in some of the smaller guys as well although we see them weakening in different places around the world, mainly the smaller guys..

When you look at your gross margin trends, that's anticipating a 34% kind of average number; where do you see the high-end of the range being at -- you do get a favorable mix and you do have an easing on the supply chain environment?.

I think this quarter is a relatively good example to where we can get; and yes, in that part of the upfront prepared comments we mentioned the fact that there is some high margin services contributing to this percent but even if I kind of take that into account and do some kind of adjustments, I do believe that we can cruise between 34% and 35% once again subject to the geographical mix that is critical.

And as you mentioned, subject to continued gradual cost improvement or cost reduction in the passive components..

And our next question will come from the line of Alex Henderson with Needham & Company..

I just wanted to go back to that last answer for a second; so when you're talking about 34% to 35%, are you talking about CY19? Are you talking about the fourth quarter? And just going to be a little bit more granular; what you meant by that?.

Based on what we see for the fourth quarter, I believe that the fourth quarter will end up with a gross margin of around 34% more or less.

The outlook into 2019 looks slightly more promising, primarily because of the trend we have started seeing of the reduction in cost of these passive components that basically was a burden on our results for the last three quarters and started easing on -- actually in Q3..

Just to clarify on that; the burden from the passive components is hard to buy -- what magnitude was that, about a point of cost or half a point?.

Originally when this thing started it was around 100 basis points, and more or less we see that getting slightly less impactful by probably 15 to 20 basis points, and we hope that this trend will continue.

And hopefully, I'm not sure we'll get the full 100 basis point back but I hope that towards the end of -- or the second part of 2019 we'll see -- I would say the lion share of the loss of 100 basis points coming back to us..

One of the questions that I have is around the Peruvian business; obviously that's very different piece of business than what you typically see with a fair amount of services related in it.

Should we thinking of the gross margins there because of your upfront commitments are better than equal to or because of the service may be less than historical overtime; how do we think about the mix impact of that business on margins?.

The short answer is that we believe that the margins we can generate there are probably quite similar although we believe we can do slightly better than the average but the difference is not going to be significant; this is the short answer.

I think one thing to note, since you asked this question, is that in this kind of projects if you just go with the -- I would say, traditional regular approach, the margins would have been much, much, much lower. And this is why we went for this kind of structure that we believe will be very successful for us..

I wanted to go back to your commentary about the revenue numbers being at the upper-end of your target line of $80 million to $85 million.

And I get it for the December quarter but you've implied that it's for the next several quarters which takes us also into the seasonally softer first quarter; did you mean to imply that we're at the upper end of that $80 million to $85 million in that first quarter because I don't think that's historically in the norm..

I think it's a good question that you raised. I think we've put in our prepared remarks the caveat of the first quarter. Usually the first quarter is seasonally slightly weaker, we believe that this will be probably the case in 2019 as well.

But as a general quarterly run rate, for 2019 at this point, when we are trying to average out the full 2019 we will be at the high-end of the $80 million to $85 million range..

So it sounds like it's reasonable to think that if we exclude the first -- seasonally weak first quarter, that you're pretty much at or even above the $85 million mark in the prior -- in the following three quarters.

Is that what we should be thinking?.

I think it would be close to our high-end of the range. In some quarters we might be slightly lower, in some quarters we might be slightly higher, and you know, that the lumpiness in the business is actually or day-to-day nature; so I cannot -- I would say comment more than that.

And I truly believe that we need to take the lumpiness into account as well..

But we should be looking for top-line growth in '19.

It sounds like maybe low single-digit kind of growth for '19?.

At this point I think that the assumption should be very low single-digit growth..

Just one more question on this Venezuelan stuff; did you manage to take out every single cent of last cash that they have in Venezuela? How the hell did you guys manage to pull that off? I am staggered that you managed to get money back out of Venezuela..

To cut through the chase; on the one hand there is a lot of pressure coming from operators in Venezuela to find solutions to their very -- I would say unfavorable situation.

Some of these Venezuelans operators are part of our corporates that are global, and in such cases sometimes the corporate comes along and tries to help the situation of these specific operators.

Luckily enough there was a situation like that in the most recent quarter, and as a result of that we were able to get the shy of $1 million from this specific operator..

Two last quick questions; one, any thoughts on looking out into the M&A opportunities? And second, can you update us or remind us what your hedging policy is; obviously with the shekel hitting a 52-week low or very close to it here that should be a positive going forward but I just can't remember what your hedging policy is? Thanks..

I will start with answering the second question and then let Ira answer your first one. So regarding our hedging policy, nothing has changed. Especially when talking about the shekel, what we do is do some kind of rolling hedging that is not covering the full fledge of our exposure in [indiscernible] shekel expenses.

But when the budget is approved, we go back to the market and hedge the balance of the portion of the expenses that was not covered or hedged yet.

So currently, we're looking into 2019, we've already started hedging a portion of our new value [ph] shekel expenses at rates that are more around $3.6 but the end result will only be defined after we approve the budget and go back to the foreign exchange markets and finalize the hedging..

And you asked Alex on M&A and others; let's remember that although we didn't refer in the remarks, a lot of our activities or a lot of the time I spend on stuff is what I call strategic initiatives moving forward which have to do also with internal technologies, other technologies, adjacent technologies, adjacent markets and certain steps we can take within our market in enabling consolidation, not necessarily by the way of acquisitions, it's sometimes partnering and sometimes building all sorts of relationships in such a way we share -- sometimes technology, sometimes other means in there.

So I would take your question and broaden it; the very narrow sense is that we think that with the strong position we have within the market and within the operator, we can slowly start leveraging that into increasing the business in addition to the normal day-to-day activities where we think we're also gaining market share..

Can you just update us on what you think the tax rate will look like in the fourth quarter in '19? I apologize for throwing one more in there..

I think that in terms of percentage out of the operating profit that I think is the best, so to speak a rule of thumb calculation; we should be at a level that is quiet similar to what you have seen in Q3, maybe slightly lower..

And for '19?.

I think that is a rule of thumb; this should be the numbers more or less, let's not forget. In Israel where we are trying to bring the majority of our profits because the IP is in here. We have a bunch -- a big pile of accumulated losses [indiscernible], and as a result, although a profitable year, we are not literally paying our taxes.

So the taxes -- the tax line in our P&L is primarily driven by provisions for taxes in the satellite companies around the world where we need to leave some profit based on transfer pricing studies.

And I would say that this is the major element that is driving our tax expenses, there are some additional elements but I would probably count that as one of the majors. So if we increase our profits, I expected the same pattern of seeing more profits left in the satellite companies, and this will drive the tax expenses up.

But I think in terms of overall percentage, I don't expect any major change from what we have seen so far..

Our next question comes from the line of Michael Stager with Odian Capital..

Given the nature of your order patterns, should we expect your geographical mix to settle into the current levels you just reported? Let me throw something else at you….

Go ahead, Michael..

As you said on the last call, you mentioned there were some carrier M&A and it was going to bait [ph] in a quarter or two.

And so it seems like the other regions are coming up, so I just kind of wondering where you were going to settle in on a geographical mix into 2019?.

The short answer is that it's very difficult to predict because of the fact that in India the orders pattern is -- I would say almost totally unpredictable; so we could see a situation where one quarter the Indian portion could get as close as to even 30% which is lower than the percentage or the proportion we reported for this quarter, and suddenly we get an order and we need to basically deliver more or less yesterday, and suddenly this becomes as high as 50% of our revenue in that quarter.

I can comment on -- I would say more or less a full year or I would say trailing 12-months; we believe that a reasonable proportion is probably that India will stay within the range of 34%, 35% and 40% of our business going forward..

And let me just follow-up; in APAC are you willing to do the bundled deals given that you have a little bit of component gross margin help and sacrifice the gross margins on those bundled deals in APAC?.

The bundled deals are deals which we cannot participate in because bundled deal usually means both, the radio access -- the backhaul and the radio access which is the base stations; and those deals are usually done only by the three or four very large telecom equipment vendor which is Huawei, Ericsson Nokia and mainly ZTE within those spaces.

And when they do those deals, they basically block-off our market share in those.

Let's remember that over the years, the proportions worldwide stayed about the same whereabout 50% of the overall market is bundled deals and about 50% is best-of-breed, and we are competing because of the technology and our capabilities, mainly in the best-of-breed segments where the operators make the decisions to pick the best-of-breed and separate out those, and we see some of the part of bundled patterns more strongly in APAC than in other regions..

[Operator Instructions] Our next question comes from the line of Gunther Arguer [ph] with Discovery Group..

The question I have is, what percentage of your total revenues is represented by the vertical markets?.

Vertical markets worldwide vary quite differently between the different regions. If I look at an overall from worldwide perspective it's about 20%, although we do see regions like -- that it's about 50% and some regions it's almost negligible depending on the local practices and the way -- the way communication is built within those areas.

And within the vertical markets, again, it's not one kind because we do see vertical markets of certain nature in different places, in some places it's more maritime in oil and gas, in some places it's more public safety, in other places we see broadcasting; also it varies based on the geography of what we do within the vertical markets..

As a follow-up question on that is, the vertical markets on balance are somewhat higher margins about the same on somewhat lower?.

Vertical markets are usually higher margins, they do behave a little bit differently than the big operator deals where we provide different set of services or we go through different channels.

For example, through the operators worldwide we sell direct, in the vertical markets a lot of our business go through system integrators and channels that work with us to provide a complete solution to the end customer..

And speakers, at this time we have no further questions in queue..

So I'd like to thank all of you for joining us today on this call. As always, we're here to help you and so any further and follow-on questions, please feel free to contact us directly. We will be at the -- showing at conferences and you are welcome to join us as well..

Ladies and gentlemen, that does conclude today's conference. I want to thank you for your participation, and you may now disconnect..