Ceragon Networks(CRNT) - 2024 Q2 - Quarterly Report

Interim Condensed Consolidated Balance Sheets Balance Sheet Overview The company's total assets slightly increased to $299,035 thousand at June 30, 2024, from $298,525 thousand at December 31, 2023, primarily driven by an increase in non-current assets, while current assets saw a minor decrease, and shareholders' equity also increased, reflecting improved financial position | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------------ | | Total Assets | 299,035 | 298,525 | | Total Current Assets | 216,289 | 217,940 | | Total Non-Current Assets | 82,746 | 80,585 | | Total Current Liabilities | 127,323 | 132,953 | | Total Long-Term Liabilities | 28,211 | 31,553 | | Total Shareholders' Equity | 143,501 | 134,019 | Interim Condensed Consolidated Statements of Operations Operations Performance For the six months ended June 30, 2024, the company reported a significant increase in net income to $8,236 thousand, more than double the $4,056 thousand from the prior year period, supported by higher revenues and gross profit, leading to a substantial rise in operating income, despite increased operating expenses including restructuring and acquisition-related charges | Metric | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :--------------------------- | :------------------------------------------- | :------------------------------------------- | | Revenues | 184,586 | 169,560 | | Gross Profit | 65,529 | 58,532 | | Operating Income | 14,577 | 10,369 | | Net Income | 8,236 | 4,056 | | Basic Net Income Per Share | 0.10 | 0.05 | | Diluted Net Income Per Share | 0.09 | 0.05 | Interim Condensed Consolidated Statements of Comprehensive Income Comprehensive Income Analysis Total comprehensive income for the six months ended June 30, 2024, increased to $6,470 thousand from $4,592 thousand in the prior year, primarily driven by the higher net income, although partially offset by negative foreign currency translation adjustments and increased net unrealized losses from cash flow hedges | Metric | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net Income | 8,236 | 4,056 | | Change in foreign currency translation adjustment | (933) | 908 | | Net change in cash flow hedges | (833) | (372) | | Total of Comprehensive Income | 6,470 | 4,592 | Interim Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' Equity Changes Shareholders' equity increased from $134,019 thousand at January 1, 2024, to $143,501 thousand at June 30, 2024, primarily attributable to net income of $8,236 thousand and share-based compensation of $2,470 thousand, partially offset by an accumulated other comprehensive loss of $(1,766) thousand | Metric | Six months ended June 30, 2024 ($ thousands) | | :---------------------------------------- | :------------------------------------------- | | Balance as of January 1, 2024 | 134,019 | | Net Income | 8,236 | | Share-based compensation | 2,470 | | Other comprehensive loss, net | (1,766) | | Balance as of June 30, 2024 (Unaudited) | 143,501 | Interim Condensed Consolidated Statements of Cash Flows Cash Flow Performance Net cash provided by operating activities significantly increased to $11,349 thousand for the six months ended June 30, 2024, up from $6,690 thousand in the prior year, driven by higher net income and a decrease in inventories, while cash used in investing activities increased, and financing activities shifted from providing cash to using cash, resulting in a net decrease in cash and cash equivalents | Metric | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :---------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net Cash Provided by Operating Activities | 11,349 | 6,690 | | Net Cash Used in Investing Activities | (8,944) | (7,309) | | Net Cash Provided by (Used in) Financing Activities | (3,608) | 2,080 | | Increase (Decrease) in Cash and Cash Equivalents | (1,934) | 1,581 | | Cash and Cash Equivalents at End of Period | 26,303 | 24,529 | Notes to Interim Condensed Consolidated Financial Statements NOTE 1: GENERAL Ceragon Networks Ltd. is a global provider of end-to-end wireless connectivity solutions, including AI-powered services, and completed the acquisition of Siklu Communication Ltd. in December 2023, expanding its multi-Gigabit wireless fiber connectivity offerings, which resulted in a $196 thousand adjustment to financial expenses related to holdback consideration - Ceragon Networks Ltd. is a global innovator and leading solutions provider of end-to-end wireless connectivity, specializing in transport, access, and AI-powered managed & professional services[16] - The Company completed the acquisition of Siklu Communication Ltd. on December 4, 2023, a provider of multi-Gigabit 'wireless fiber' connectivity[18] - An adjustment of $196 thousand to the fair value of Holdback Consideration related to the Siklu acquisition was recorded in financial expenses and others, net, during the six months ended June 30, 2024[18] NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial statements are prepared under U.S. GAAP, relying on management estimates, with no significant changes to accounting policies occurring in the first half of 2024, and the company is evaluating the impact of new accounting standards (ASU 2023-07 and ASU 2023-09) on future disclosures, while cost reduction and reorganization plans were approved in 2023 and 2024, leading to restructuring charges, with no additional costs expected - The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim financial reporting[18] - Management makes estimates, judgments, and assumptions, including those related to fair value of acquired intangible assets and goodwill, tax assets and liabilities, share-based awards, inventory write-offs, warranty provision, and allowance for credit loss[19] - No significant changes to accounting policies occurred during the six months ended June 30, 2024[20] - The company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its financial statement disclosures, with effective dates in 2024 and 2025 respectively[20][21] - Cost reduction and re-organization plans were approved in 2023 and 2024, involving employee downsizing, with related liabilities amounting to $763 thousand at June 30, 2024, and no additional costs expected[22] NOTE 3: CREDIT LOSSES The allowance for credit losses decreased to $20,427 thousand at June 30, 2024, from $24,602 thousand at December 31, 2023, primarily due to $4,503 thousand in recoveries collected, net of write-offs, which included a $4 million installment received from a South American customer as part of a $12 million settlement agreement | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :-------------------------------------- | :-------------------------- | :------------------------------ | | Balance, at beginning of period | 24,602 | 22,410 | | Provision for expected credit losses | 328 | 3,898 | | Recoveries collected, net of write-offs | (4,503) | (1,965) | | Balance, at end of period | 20,427 | 24,602 | - The Company expects to receive a total of $12 million in three equal installments from a South American customer, with the first $4 million received in Q2 2024 and the second $4 million received in early Q3 2024[25] NOTE 4: INVENTORIES Total inventories decreased to $59,490 thousand at June 30, 2024, from $68,811 thousand at December 31, 2023, with the company recording $2,311 thousand in inventory write-offs for excess and slow-moving inventory during the six months ended June 30, 2024, and outstanding inventory purchase orders amounting to $39,527 thousand, primarily due within one year | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :------------------- | :-------------------------- | :------------------------------ | | Raw materials | 27,385 | 33,790 | | Work in progress | 475 | 486 | | Finished products | 31,630 | 34,535 | | Total Inventories | 59,490 | 68,811 | - Inventory write-offs for excess and slow-moving inventory totaled $2,311 thousand for the six months ended June 30, 2024, compared to $3,528 thousand in the prior year[26] - Outstanding inventory purchase orders with suppliers amounted to $39,527 thousand as of June 30, 2024, primarily due within one year[27] NOTE 5: FAIR VALUE MEASUREMENT The fair value of derivative instruments, measured at Level 2, significantly decreased to $87 thousand at June 30, 2024, from $920 thousand at December 31, 2023, while other financial instruments carried at cost approximate their fair value due to their short-term maturities | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :------------------------ | :-------------------------- | :------------------------------ | | Derivatives instruments | 87 | 920 | | Total assets, net | 87 | 920 | NOTE 6: DERIVATIVE INSTRUMENTS The company utilizes foreign currency forward and option contracts to hedge against exchange rate fluctuations, with the fair value of these designated hedging instruments decreasing from $920 thousand at December 31, 2023, to $87 thousand at June 30, 2024, and the notional amount of outstanding derivative contracts increasing to $21,751 thousand, resulting in a net effect of cash flow hedges on the statements of operations for the six months ended June 30, 2024, of a loss of $(139) thousand | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :-------------------------------------- | :-------------------------- | :------------------------------ | | Fair value of Currency forward contracts (designated as hedging instruments) | 87 | 920 | - The notional amounts of outstanding derivative contracts increased to $21,751 thousand at June 30, 2024, from $19,482 thousand at December 31, 2023[32][34] | Effect on Statements of Operations (6 months ended June 30, 2024) | Amount ($ thousands) | | :------------------------------------------------ | :------------------- | | Cost of revenues | (32) | | Research and development, net | (62) | | Sales and marketing | (17) | | General and administrative | (28) | | Financial expenses | - | | Total Effect | (139) | NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES The company has commitments related to Israel Innovation Authority (IIA) grants, including assumed royalties from the Siklu Acquisition with a maximum future commitment of $10,573 thousand, while bank guarantees decreased to $20,864 thousand, and the company is involved in two significant legal proceedings: a class action lawsuit alleging misleading statements, now under U.S. law with an estimated claim of $45,430 thousand, and a lease agreement dispute, both in preliminary stages with unestimable losses - The Company received IIA grants of $765 thousand for the six months ended June 30, 2024, recorded as a reduction of research and development expenses[35] - The maximum possible future royalties commitment related to Siklu's IIA grants, including $3,035 thousand of unpaid accrued royalties, was $10,573 thousand as of June 30, 2024[37] - Bank guarantees provided decreased to $20,864 thousand at June 30, 2024, from $26,686 thousand at December 31, 2023[37] - A class action lawsuit, initially claiming $78,768 thousand, was amended to $45,430 thousand and is now being adjudicated under U.S. law. Mediation attempts are ongoing, but the amount of loss cannot be reasonably estimated due to the preliminary stage[38][42][49][50] - A dispute with Station Enterprises Ltd. regarding a lease agreement involves claims of breach of contract, set-off of rent, and exercised bank guarantees. The company filed a claim for a declarative order, reimbursement, and damages of NIS 1.2 million, while Station Enterprises Ltd. filed for eviction. Mediation has been unsuccessful, and the loss cannot be reasonably estimated[50][51][53][54][55] NOTE 8: SHAREHOLDERS' EQUITY The company's ordinary shares grant voting and distribution rights, with the existing share option and RSU plan extended and a new 2024 Equity Incentive Plan adopted, making 1,631,599 ordinary shares available for future grants, while total share-based compensation expense for the six months ended June 30, 2024, increased to $2,470 thousand from $1,977 thousand in the prior year, with $3,564 thousand in unrecognized compensation cost remaining - Ordinary shares entitle holders to receive notice, participate and vote in general meetings, and share in distributions upon liquidation and dividends[55] - The Amended and Restated Share Option and RSU Plan was extended to December 31, 2024, and a new 2024 Equity Incentive Plan was adopted[55] - As of June 30, 2024, 1,631,599 ordinary shares were available for future grants under the plans[57] | Metric | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | | Stock options outstanding | 5,216,439 | | Weighted average exercise price | $2.68 | | RSUs unvested | 2,772,101 | | Weighted average fair value of unvested RSUs | $2.47 | - Total unrecognized estimated compensation cost related to non-vested stock options and RSUs was $3,564 thousand as of June 30, 2024, expected to be recognized over approximately one year[58] | Share-based Compensation Expense | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :------------------------------- | :------------------------------------------- | :------------------------------------------- | | Cost of revenues | 265 | 226 | | Research and development | 336 | 477 | | Sales and Marketing | 683 | 738 | | General and administrative | 1,186 | 536 | | Total | 2,470 | 1,977 | NOTE 9: REVENUES Deferred revenues decreased to $3,231 thousand at June 30, 2024, from $6,177 thousand at the beginning of the period, primarily due to the reclassification of $4,666 thousand to revenue as performance obligations were satisfied, with remaining performance obligations expected to be recognized in 2026 and thereafter amounting to $670 thousand | Metric | Six months ended June 30, 2024 ($ thousands) | | :------------------------------------------------------------------ | :------------------------------------------- | | Balance, beginning of the period | 6,177 | | New unsatisfied performance obligations | 1,720 | | Reclassification to revenue as a result of satisfying performance obligations | (4,666) | | Balance, end of the period | 3,231 | | Less: long-term portion of deferred revenue | 670 | | Current portion, end of period | 2,561 | - Remaining performance obligations expected to be satisfied and recognized in 2026 and thereafter amount to $670 thousand[61] NOTE 10: CUSTOMERS AND GEOGRAPHIC INFORMATION Total revenues for the six months ended June 30, 2024, increased to $184,586 thousand from $169,560 thousand in the prior year, with India showing the highest growth, as revenues increased from $46,933 thousand to $61,566 thousand, while North America also saw an increase, and Asia-Pacific and Latin America experienced decreases | Region | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :-------------- | :------------------------------------------- | :------------------------------------------- | | North America | 52,180 | 48,572 | | EMEA | 33,913 | 31,944 | | Asia-Pacific | 16,978 | 19,575 | | India | 61,566 | 46,933 | | Latin America | 19,949 | 22,536 | | Total | 184,586 | 169,560 | - Revenues in North America primarily represent sales in the United States, accounting for 98% in 2024 and 93% in 2023[66] NOTE 11: EARNINGS PER SHARE Basic net income per share increased to $0.10 for the six months ended June 30, 2024, from $0.05 in the prior year, and diluted net income per share increased to $0.09 from $0.05, with the weighted average number of shares used in computing diluted EPS increasing, while the number of anti-dilutive options and RSUs significantly decreased | Metric | Six months ended June 30, 2024 ($ thousands) | Six months ended June 30, 2023 ($ thousands) | | :------------------------------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net income available to holders of ordinary shares (Numerator) | 8,236 | 4,056 | | Metric | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------------------------ | :----------------------------- | :----------------------------- | | Weighted average number of shares for basic EPS | 85,632,241 | 84,359,762 | | Weighted average number of shares for diluted EPS (adjusted) | 87,753,163 | 85,152,634 | - The total weighted average number of shares related to anti-dilutive options and RSUs excluded from diluted net earnings per share significantly decreased to 1,928,259 for the six months ended June 30, 2024, from 5,132,809 in the prior year[66]