UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31
,
2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report __________
Commission file number
0-30862
(Exact Name of Registrant as Specified in Its Charter)
(Jurisdiction of Incorporation or Organization)
(Address of Principal Executive Offices)
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
88,392,925
Ordinary Shares, NIS 0.01 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
No
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Non-accelerated filer ☐
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Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
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TABLE OF CONTENTS
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Page
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PART I
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3
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3
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3
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31
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49
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49
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60
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79
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PART II
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PART III
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97
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98
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i
INTRODUCTION
Definitions
In this annual report, unless the context otherwise requires:
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references to “Ceragon,” the “Company,” “us,” “we,” “our” and the “registrant”
refer to Ceragon Networks Ltd., an Israeli company, and its consolidated subsidiaries;
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references to “ordinary shares,” “our shares” and similar expressions refer to our Ordinary Shares, NIS 0.01
nominal (par) value per share;
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references to “dollars,” “U.S. dollars”, “USD” and “$” are to United States Dollars;
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references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
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references to the “Companies Law” are to Israel’s Companies Law, 5759-1999;
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references to the “SEC” are to the United States Securities and Exchange Commission; and
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references to the “Nasdaq Rules” are to the rules of the Nasdaq Global Select Market.
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Cautionary Statement Regarding Forward-Looking Statements
This annual report on Form 20-F includes “forward-looking
statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) and the safe-harbor provisions of the Private Securities Litigation Reform Act
of 1995. We have based these forward-looking statements on our current expectations and projections about future events.
Forward-looking statements can be identified by the use of terminology
such as “may,” “will,” “assume,” “expect,” “anticipate,” “estimate,”
“continue,” “believe,” “potential,” “possible,” “intend” and similar expressions
that are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These
forward-looking statements discuss future expectations, plans and events, contain projections of results of operations or of financial
condition or state other “forward-looking” information. They involve known and unknown risks and uncertainties that may
cause the actual results, performance or achievements of Ceragon to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that could cause our actual results to differ materially from those
projected in the forward-looking statements include, without limitation, the risk factors set forth under “Item 3. Key Information
Risk Factors,” the information about us set forth under Item 4. “INFORMATION ON THE COMPANY”, the information related
to our financial condition under Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS”, and information included in this
annual report generally. Any forward-looking statements represent Ceragon’s views only as of the date hereof and should not be relied
upon as representing its views as of any subsequent date. Ceragon does not assume any obligation to update any forward-looking statements
unless required by applicable law.
2
PART I
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable.
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OFFER STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
ITEM 3.
KEY
INFORMATION
A. [Reserved]
B.
Capitalization
and indebtedness
Not applicable.
C.
Reasons
for the offer and use of proceeds
Not applicable.
D.
Risk Factors
The following risk factors, among others, could affect our business,
results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking
statements made by us. These forward-looking statements are based on current expectations and we assume no obligation to update this information.
You should carefully consider the risks described below, in addition to the other information contained elsewhere in this annual report.
The following risk factors are not the only risk factors that the Company faces, and as such, additional unknown risks and uncertainties
that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously
harmed if any of the events underlying any of these risks or uncertainties actually occur. In such an event, the market price for our
ordinary shares could decline.
Below are some, but not all, of the main risks factors and challenges
that we have been facing and may further face, which could have an adverse effect on our business, results of operations and financial
condition (the list below is not exhaustive, and investors should read this “Risk factors” section in full):
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the effects of global economic trends, including recession, rising inflation, rising interest rates, commodity price increases and
fluctuations, commodity shortages and exposure to economic slowdown, on our and our customers’ business, financial condition and
results of operations;
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the impact of delays in the transition to 5G technologies and in the 5G rollout on our revenues if such transition is developed differently
than we anticipated, either in terms of technology, use-case, timeline or otherwise;
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the effect of the concentration of a major portion of our business on large mobile operators around the world from which we derive
a significant portion of our ordering, that due to their significant weight compared to the overall ordering by other customers during
the same time period, coupled with inconsistent ordering patterns and volume of business directed to us (which may deviate as a result
of parameters such as buying decisions, price lists, roll-out strategy, local market conditions and regulatory environment), creates high
volatility with respect to our financial results and results of operations, including our revenues, gross margin and cash flow;
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our business is subject to significant volatility primarily due to fluctuations in market demand. Should trends of volatility, losses,
or negative cash flows persist, our results of operations and cash flow
may
be significantly and adversely impacted;
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competition from other wireless transport equipment providers and from other communication solutions that compete with our wireless
solutions;
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merger and acquisition activities expose us to risks and liabilities, potential adverse reactions or changes to business relationships,
including those resulting from the completion of the transaction with End 2 End Technologies LLC. (“E2E”) and our revenues,
net income and operating cash flow attributed to the E2E business might deviate significantly from anticipated levels;
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risks related to our forward-looking forecasts, with respect to which there is no assurance that such forecasts will materialize
as we predicted;
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increased breaches of network or information technology security along with an increase in cyber-attack activities, either on our
or our customers’ networks, could have an adverse effect on our business;
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we rely on third-party manufacturers, suppliers and service providers and such reliance may disrupt the proper and timely management
of deliveries of our products, a risk that is intensified in the case of a single source supplier;
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the global supply of electronic components, including integrated circuits has experienced a sharp increase in demand in the past
several years, coupled with a lack of sufficient production capacity, which has effected and may still effect the lead-time for our components
and their prices;
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if we fail to effectively cope with the high volatility in the supply needs of our customers, we may be unable to timely fulfill
our customer commitments (for example, delivery issues due to long lead time and availability of components and manufacturing power),
and may be obligated to pay expediting fees to our contract manufacturers, penalties to our customers for delays, and may be subject to
order cancelation, all of which would adversely affect our business and results of operations;
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we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased
expenses should unexpected production ramp up be required due to inaccurate forecasts or business changes. In addition, part of our inventory
may be written off, which would increase our cost of revenues;
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risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
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the expansion of our service offering to new areas, including managed services, software-based services (SaaS) and solutions for
wireless communication networks design, might pose product development, marketing, sales, operation, implementation and support challenges
that might result in significant losses and may adversely affect our financial results and achievement of projected revenues levels;
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risks related to expansion into new market segments, such as the private networks market, the development and commercialization of
new products, and the rapid change in the markets for our products and in related technologies and operational concepts development;
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risks relating to the failure to attract or retain qualified and skilled “talents” and personnel and the intense competition
for such “talents” and personnel;
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difficulties in predicting our gross margin as it is exposed to significant fluctuations as a result of potential changes in the
various geographical locations where we generate revenues as well as product mix and software and services portions;
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our engagement in providing installation or rollout projects for our customers and end users whether directly or via third party
prime contractor, which are long-term projects that are subject to inherent risks, including early delivery of our products with delayed
payment terms, delays or failures in acceptance testing procedures, and potential significant collection risk from our customers
all of which may result in substantial period-to-period fluctuations in our results of operations, cash flow and financial condition;
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We are exposed to risks associated with integrating artificial intelligence tools into our operations;
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changes in privacy and data protection laws and regulations could have an adverse effect on our business prospects, results of operations,
and financial condition;
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the impact of complex and evolving regulatory requirements in which we operate, on our business, results of operations and financial
condition;
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We have significant operations globally, including in countries that may be adversely affected by political or economic instability,
major hostilities or acts of terrorism, which expose us to risks and challenges associated with conducting business internationally;
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risks relating to macro and micro adverse effects on the global and European markets in which we operate due to the invasion of Ukraine
by Russia, such as, among others, cancellation or suspension of orders placed by Russian customers or for Russian end-users, disruption
of delivery of raw materials, oil and gas, goods, and supplies’ price increases, disruption to deliveries, shipping and transportation,
imposition of sanctions, export control restrictions and embargoes, loss of business, cyber-attacks, commodity shortages and other effects
that could have an adverse effect on us, our business, suppliers and customers;
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the occurrence of international, political, regulatory or economic events in emerging markets, where the majority of our sales are
made;
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risks relating to disagreements with tax authorities regarding tax positions that we have taken which may result in increased tax
liabilities;
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the impact of industry downturn, reduction in our customers’ profitability due to increased regulation or new mobile services
requirements;
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the impact of the latest Israel-Hamas war, as well as the conditions in the Middle East, could impede our ability to sell, operate
and develop, manufacture and deliver products and components and harm our business and financial results; and
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risks relating to attempts for a hostile takeover, or shareholder activism, which may, divert our management’s and Board’s
attention and resources from our business and could give rise to perceived uncertainties as to our future direction, could result in the
loss of potential business opportunities, limit our ability to raise funds and make it more difficult for us to attract and retain qualified
personnel for positions in both management and Board levels.
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These and other risk factors are further described and elaborated
herein below. You should carefully read and consider the full description of the risk factors as described below, in addition to the other
information contained elsewhere in this annual report:
Risks Relating to Our Business
Our global operation exposes us to the effects
of global economic trends, including recession, rising inflation, rising interest rates, commodity price increases and fluctuations, commodity
shortages and exposure to economic slowdown.
The global nature of our activity and our
global presence and operation in different countries, regulatory, legal and financial regimes, exposes us to a wide spread of customers,
suppliers, subcontractors and contractors, and, in turn, to global and local macro and micro developments. In response to rising inflation
in recent years, central banks in the markets in which we operate, including the United States Federal Reserve, have tightened their monetary
policies and raised interest rates, and such measures may continue. While interest rates have begun to decline and inflation is lower
than in past quarters in the U.S., costs of labor, capital, employee compensation, and other similar effects have increased in the recent
past. Our suppliers may raise their prices, and in the competitive markets in which we operate, we may not be able to make corresponding
price increases to preserve our gross margins and profitability due to market conditions and competitive dynamics. Additionally, any such
increase in prices, even if possible, may not be accepted by our customers, and there is no assurance that we will be able to increase
our pricing to offset our increased costs, or that our operations will not be materially impacted by rising inflation and its broader
effects on the markets in which we operate in the future. Further, increases in interest rates, lead us, and our customers, to experience
higher financing costs, which may, in turn, negatively affect our business, financial condition and results of operations. The global
economy has also been impacted by fluctuating foreign exchange rates and geopolitical tensions, which could result in supply chain disruptions.
As we have substantial international operations, fluctuations in exchange rates between the currencies in which we operate and the U.S.
dollar could decrease our revenues or increase our operating costs and financial expenses and adversely affect our results of operations,
profits and cash flows. The duration, extent and volatility of inflation, interest rates, foreign exchange rate fluctuations, geopolitical
tensions and other macroeconomic headwinds are uncertain and we cannot accurately predict whether we will be able to effectively mitigate
their impact on our business. Such developments might have direct or indirect impacts on our business and results of operations, which
are hard to predict, monitor or assess, causing uncertainties and high volatility with respect to our estimated or expected results of
operations, and, could have an adverse effect on our business, results of operations and financial condition. Our business, and our customers’
businesses, are sensitive to macroeconomic conditions.
5
Economic factors, such as interest rates,
inflation, currency exchange rates, changes in monetary and related policies, market volatility, customer confidence, recession or recessionary
indicators, supply chain issues, unemployment rates and real wages, are among the most significant factors that impact customer spending
behavior. Specifically, due to the complexity of our supply chain, we have experienced and may continue to experience increase in shipment
costs, due to macroeconomic and geopolitical issues (such as the recent hostilities effecting maritime shipment in the Red Sea, causing
increases in shipment costs and delays in lead-time, as well as increase in related insurance policies’ premiums), regulatory actions,
including sanctions and trade restrictions, labor disturbances and approval delays, which impacted our ability to timely meet demand in
certain instances. These adverse market forces have a direct impact on our overall performance. Any such disruptions could have a material
adverse impact on our business and our results of operation and financial condition.
Delays in the transition to 5G technologies
and in the 5G rollout may negatively impact our revenues, financial condition and results of operation.
We consider the wireless market transition from 4G to 5G technologies
to be one of our main growth engines in the foreseeable future. Thus, the development roadmap of our products is designed to introduce
5G-based products to the market. Nonetheless, the pace of the transition to 5G technologies and 5G rollout is hard to predict, as it depends
on numerous factors which are uncertain and beyond our control including, economic factors, financial conditions of operators and the
development of 5G use cases. Further delays in 5G technologies deployment and rollout, could have an adverse effect on our future revenues,
profitability and cash flow and cause our results to materially differ from our expectations.
In addition, the expected transition from 4G to 5G technologies
could lead to an overall slowdown in procurement and capital investments in 4G infrastructure and equipment by our customers.
A major portion of our business concentrates
on a limited number of large mobile operators. The significant weight of their ordering, compared to the overall ordering by other customers,
coupled with inconsistent ordering patterns, could negatively affect our business, financial condition and results of operations.
A significant portion of our business is concentrated with certain
customers. In 2024, approximately 47.7% of our total revenues were attributed to three customers, in 2023, approximately 44.8% of our
total revenues were attributed to two customers and in 2022, approximately 31.3% of our total revenues were attributed to two customers. The
loss of significant customers or any material reduction in orders from them, in the absence of gaining new significant customers to replace
such lost business, has adversely affected, and in the future could adversely affect, various aspects of our results of operations and
our financial condition.
In addition, we have difficulty in projecting future revenues from
these customers, since (i) our sales are mostly generated from case-by-case purchase orders rather than long-term contracts, our customers
are not obligated to purchase from us a fixed amount of products or services over any period of time, and may terminate or reduce their
purchases from us at any time without prior notice or penalty; (ii) customers might not be bound by any minimum quota; (iii) the ordering
pattern and volume of business directed to us by such customers may fluctuate as a result of numerous parameters, including changing spending
policies, changes in prices, rollout strategy and local market conditions and (iv) the delivery schedule to such customers may be changed
by them and adversely affect our revenue working capital and cash flow. Any credit crunch, distressed financial situation or insolvency
on the part of such customers, may adversely affect our ability to collect the balance due from them and further expend the variation
in our revenues and operating results. This risk is heightened in India, in which government actions relating to the rollout of cellular
networks affect the demand for our products from customers and increase the difficulty to project future revenues.
Furthermore, since a significant portion of our business is derived
from specific countries, our business could be negatively impacted should certain events occur in these countries, such as a slowdown
in investments and expansion of communication networks due to the cyclical characteristic of the investment in this industry, as well
as changes in local legislation, governmental controls and regulations (including those specifically related to the communication industry)
and tariffs and taxes, as well as trade restrictions, a downturn in economic or financial conditions, or an outbreak of natural calamities.
Also, an outbreak of hostilities, political or economic instability, as well as any other extraordinary events having an adverse effect
on the economy or business environment in these countries, may harm the operations of our customers in these countries, and result in
a significant decline of business coming from those countries.
In addition, the telecommunications industry has experienced certain
consolidation among its participants, and we expect this trend to continue. Some operators in this industry have experienced financial
difficulty and have filed, or may file, for bankruptcy protection. Other operators may merge and one or more of our competitors may supply
products to the customers of the combined company following those mergers. This consolidation could result in purchasing decision delays
and decreased opportunities for us to supply products to companies following any consolidation. This consolidation may also result in
lost opportunities for cost reduction and economies of scale and could generally reduce our opportunities to win new customers to the
extent that the number of potential customers decreases. Furthermore, as our customers become larger, they may have more leverage to negotiate
better pricing which could adversely affect our revenues and gross margins.
Realization of any of these risks could result in a material reduction
in orders and could adversely affect our results of operations, including gross margin and cash flow, and our financial condition. Although
some of these risks derive inherently from the concentration of our business, certain risks may be attributed also to the geographical
territories in which we operate as detailed under the risk “
Due to the volume of our sales in emerging
markets, we are susceptible to a number of political, economic and regulatory risks that could have a material adverse effect
on our business, reputation, financial condition and results of operations
”
.
6
Our business is subject
to significant volatility, primarily due to fluctuations in market demand. Consequently, during periods of low demand, we may experience
a reduction in bookings and a slower conversion to revenue in accordance with our customers' requirements. This volatility can result
in incurred losses and negative cash flows. Our guidance for revenue and profitability are based on certain assumptions regarding market
behavior. However, there is no assurance that the market will behave as anticipated, which could adversely affect our revenue, results
of operations, and cash flow. Additionally, we cannot guarantee that we will be able to convert our current or future backlog into profitability
and positive operating cash flows. Should trends of volatility, losses, or negative cash flows persist, our results of operations and
cash flow may be significantly and adversely impacted.
We are exposed to high volatility in our revenue that is driven
by different risks as described and detailed separately in this chapter. In 2024, we incurred a net income of $24.1 million, in
2023 we incurred a net income of $6.2 million and in 2022 we incurred a net loss of $19.7 million. We have generated positive cash flow
from operations of $26.2 million in 2024 and $30.9 million in 2023. Our loss in 2022 resulted from, among other things, decreases in revenues,
credit loss, decreased gross margins, decline in procurement and capital expenses related to 4G products by our customers, slow ramp-up
of 5G rollout and new ordering, health and economic implications of the COVID-19 pandemic, the significant expenses, costs and charges
associated with the global semiconductors and electric components shortage and increase in price of such components, increase in logistical
supply chains’, shipment and delivery costs and an extension of delivery timelines, expediting fees and increased inventory expenditures,
all as further detailed in this Annual Report on Form 20-F and in our Annual Reports on Form 20-F for the years ended December 31, 2023
and 2022. The business volatility described above may adversely impact our profitability cash flow and working capital needs. Although
in 2023 and 2024 we have had increased revenues we cannot assure you that this two years trend will continue.
Additionally, while in 2024 and 2023 we have taken measures to
improve our gross profit, reduce our operating expenses, ratio, improve our working capital management and secure more booking, the implementation
of such measures is lengthy, may be delayed as a result of the other risks and uncertainties detailed in this Annual Report on Form 20-F
and there is no assurance that such measures will be sufficient or successful or that we will be able to preserve the increase in our
revenues, and not return to experiencing a decline in our revenues, incur substantial losses and generate negative cash flows or that
a decline, losses and negative cash flow will not occur. Any adverse change in our revenue levels may result in an adverse impact on our
businesses, and in the event that our revenues decline and we experience losses and negative cash flow, our results of operations will
be significantly adversely impacted. We may need to consider taking additional measures such as reducing costs, which may impact our ability
to compete in the market and serve our working capital needs as planned. Furthermore, our working capital needs may require additional
or alternate cash resources. If we are unable to obtain such resources nor generate positive cash flow from our operations, our liquidity
and ability to fund operations could be impaired.
We face intense competition from
other wireless equipment providers and from other communication solutions that compete with our wireless solutions. If we fail
to
compete effectively, we may experience a decline in the demand for our products and our business, financial condition and results of
operations
could be materially adversely affected.
The market for wireless transport equipment is rapidly evolving,
highly competitive and subject to rapid changes.
Our main competitors include companies such as Huawei Technologies
Co., Ltd., L.M. Ericsson Telephone Company, Nokia Corporation and ZTE Corporation, commonly referred to as “generalists”,
each providing a vast wireless solutions portfolio, which includes a wireless transport solution within their portfolio. These generalists
may also compete with us on “best-of-breed” projects, in which operators invest resources and efforts to select the best wireless
transport solution. In addition to these primary competitors, a number of smaller wireless transport specialists, mainly including Aviat
Networks Inc. (“Aviat”) and SIAE Microelectronica S.P.A., offer, or are developing, competing products. We also face competition
in the private networks segment from mobile operators, system integrators and hardware vendors.
In addition, the industry generalists are substantially larger
than us, have longer operating histories and possess greater financial, sales, service, marketing, distribution, technical, manufacturing
and other resources. These generalists have greater name recognition, a larger customer base and may be able to respond more quickly
to changes in customer requirements and evolving industry standards.
To our knowledge, many of these generalists also have well-established
relationships with our current and potential customers and may have extensive knowledge of our target markets, which may give them additional
competitive advantages. In addition, to our knowledge, these generalists focus more on selling services and bundling the entire network
as a full-package service offering, and therefore some of our customers, which seek “best-of-breed” solutions like ours, may
prefer to purchase “bundled” solutions from the generalists. Moreover, as these generalists are usually financially stronger
than us, they may be able to offer customers more attractive pricing and payment terms, as well as customer credit programs, which may
increase the appeal of their products in comparison to ours.
In addition, our products compete with other high-speed communications
solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installed infrastructure
and have achieved significantly greater market acceptance and penetration than wireless technologies. Moreover, as more and more data
demands are imposed on existing network frameworks coupled with growing demand for additional bandwidth as a result of massive use of
remote services and work from home modes of operation, and due to consolidation of fixed and mobile operators, operators may be more motivated
to invest in more expensive high-speed fiber optic networks to meet current needs and remain competitive. Some of the principal disadvantages
of and point-to-multipoint wireless technologies that may make other technologies more appealing include suboptimal operations in extreme
weather conditions and limitations in connection with the need to establish line of sight between antennas and limitations in site acquisition
for multiple links, or the perception that fiber-optic solutions are more “environmentally-friendly” predominantly in populated
areas, favoring other technologies.
The development and expansion of Low Earth Orbit (LEO) satellite
networks represent a competitive risk to our business. As these networks become more capable of providing backhaul connectivity for cellular
networks, there is a potential for network operators to favor satellite-based solutions over our microwave transmission products. This
shift could be driven by the broader coverage and the improving cost efficiencies associated with LEO satellite networks. If cellular
network providers increasingly adopt LEO satellite solutions for backhaul purposes, the demand for our microwave products may decrease,
adversely affecting our sales and market position.
7
The rise of LEO satellite systems as a contender in providing direct-to-consumer
broadband connectivity presents an additional risk to our business. These satellite networks could sidestep the necessity for widespread
terrestrial cellular infrastructure by offering an alternate mode of connectivity directly to consumers. Consequently, mobile operators
might assess their infrastructure strategies and opt to scale back investments in terrestrial networks. Such a strategic shift could result
in decreased demand for microwave backhaul solutions, thereby interrupting traditional growth and upgrade patterns for microwave backhaul
infrastructure. This reevaluation by mobile operators could lead to a contraction in the market for our products, negatively impacting
our revenue and growth prospects.
To the extent that these competing communications solutions reduce
demand for our wireless transmission products, there may be a material adverse effect on our business and results of operations.
Moreover, some of our competitors can benefit from currency fluctuations
as their costs and expenses are primarily denominated in currencies other than the U.S. dollar. In case the U.S. dollar strengthens against
these currencies these competitors might offer their products and services for a lower price and capture market share from us, which might
adversely affect our business and negatively influence our results of operation and financial condition.
We expect to face continuing competitive pressures in the future.
If we are unable to compete effectively, our business, financial condition and results of operations would be materially adversely affected.
For more information on the “best-of-breed” market, please refer to Item 4. INFORMATION ON THE COMPANY; B. Business Overview
– “Wireless Transport; Short-haul, Long-haul and Small Cells Transport”.
Merger and acquisition activities expose us
to risks and liabilities, which could also result in integration problems and adversely affect our business.
We continue to explore potential merger and acquisition opportunities
within our wireless transport market or as a diversification effort in order to create a growth engine and implement a growth strategy.
In addition, we also explore merger and acquisition opportunities aimed at obtaining technological improvement of our products, adding
new technologies to our products and to diversify our business. During January 2025, we completed the acquisition by merger of E2E, a
systems integration and software development company.
We are unable to predict whether or when any prospective deals
will be completed.
In addition, these strategic transactions involve numerous risks,
which can jeopardize or even eliminate the benefits entailed in such transactions, such as:
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we may not be able to discover, or the target company may fail to provide us with, all relevant information and documents in relation
to the transaction, which could lead to a failure to achieve the objectives of acquisition and to a substantial loss;
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we may fail to reveal that the due diligence materials and documents provided contain untrue statements of material facts or omit
to state a material fact necessary to make the statements therein not misleading, hence fail to achieve the objectives of acquisition
and suffer a substantial loss;
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we may fail to correctly assess the due diligence investigation findings, establish a correct investment thesis or establish a correct
post-merger integration plan;
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the process of integrating an acquired business including, for example, the operations, systems, technologies, products, and personnel
of the combined companies, particularly companies with large and widespread operations and/or complex products, may be prolonged due to
unforeseen difficulties;
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the implementation of the transaction may distract and divert management’s attention from the normal daily operations of our
business;
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we may sustain and record significant expenditure and costs associated with outstanding transactions that either did not or will
not materialize or would fail to achieve its objectives;
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there will be increased expenses associated with the transaction, and we may need to use a substantial portion of our cash resources
or incur debt in order to cover such expenses; expenses which the combined merged companies may not be sufficient to offset;
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we may generate negative cash flow as a result of such transaction, which may require fund raising that may not be available for
us;
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we may incur unexpected accounting and other expenses associated with the transaction, such as tax expenses, write offs, amortization
expenses related to intangible assets, restructuring costs, litigation costs or such other costs derived from the acquisition;
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the transaction may harm our business as currently conducted (for example, there may be a temporary loss of revenues, we may experience
loss of current key employees, customers, resellers, vendors and other business partners or companies with whom we engage today or which
relate to any acquired company);
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we may be required to issue ordinary shares as part of the transaction, which would dilute our current shareholders;
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we may need to assume material liabilities of the merged entity;
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in certain cases, mergers and acquisitions require special approvals, or are subject to scrutiny by the local authorities, and failing
to comply with such requirements or to receive such approvals, may prevent or limit our ability to complete the acquisitions as well as
expose us to legal proceedings prior or following the consummation of such acquisitions. In some cases, such proceedings, if initiated,
may conclude in a requirement to divest portions of the acquired business;
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the failure to successfully complete the integration associated with the transaction (including integrating any acquired technology
into our products), which may cause new markets we were aiming for not to materialize or in which competitors may have a stronger market
position; or
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we may fail to effectively obtain the technological improvement.
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Specifically, if we are unable to successfully or effectively integrate our current acquisition by merger of E2E, our ability to grow
our business or to operate our business effectively could be reduced, and our business, financial condition and operating results could
suffer. Even after we have completed the transaction, we cannot assure that we will be able to integrate the operations of the acquired
business without encountering difficulty regarding different business strategies with respect to marketing and integration of personnel
with disparate business backgrounds and corporate cultures. The integration of E2E is still in progress and, as of the date of this Annual
Report, we cannot assure that such process will be completed without encountering difficulties. Failure to manage and successfully complete
a strategic transaction could materially harm our business operating results and cash flow. As a result, the anticipated benefits or cost
savings of such mergers and acquisitions or other restructuring activities may not be fully realized, or at all, or may take longer to
realize than expected. Acquisitions involve numerous risks, any of which could harm our business, results of operations, cash flow
and financial condition as well as the price of our ordinary shares.
Our future operations are based
on forward-looking forecasts, among other things, on market trends, future business concepts and use cases, and customers
’
needs and requirements, while there is no assurance that such forecasts will materialize as we predicted. If we fail
to
rightfully identify those needs and trends, we may experience a decline in the demand for our products and our business, financial condition
and results of
operations could be materially adversely affected.
We have based the future planning of our corporate, business, marketing
and product strategies on the forecasted evolution of the market developments, such as market trends, future use cases, business concepts,
technologies and future demand, and accordingly shape the development of our networks’ architecture design, technological and operational
solutions and service offering, so as to adapt to such estimated needs and changes. As an example, part of our solutions are focused on
Open RAN and on disaggregated architecture model. We cannot assure you that the concept of our future planning and service offering (for
example, Open RAN and disaggregation) will be accepted, or that we have successfully forecasted or will continue to successfully forecast
such trends, that the markets will shape as we anticipated or that our service offering will indeed satisfy the future demand. A failure
in any of the above, may result in significant losses and a decline in the demand for our products, and may adversely affect our financial
results and reputation.
It is difficult to predict our gross margin
as it is exposed to significant fluctuations as a result of potential changes in the geographical mix of our revenues as well as product
mix and software and services portions.
Our revenues are derived from multiple regions, each of which may
consist of a number of countries. Gross margin percentages, product mix, and software and services consummation volume, may vary significantly
between different regions and even among different countries within the same region and even within different customers in the same country,
dependent on the size and characteristic of specific deal terms. A significant change in the actual ratio of our revenues among the different
regions/countries, whereby the actual ratio of revenues from a higher gross margin region/country exceeds our expectations, may cause
our gross margin to significantly increase, while in case the actual ratio of revenues from a lower gross-margin region/country exceeds
our expectations, our gross-margin may significantly decrease.
9
Increased breaches of network or information
technology security could have an adverse effect on our business.
Cyber-attacks or other breaches of network or IT security may cause
equipment failures or disrupt our systems and operations, expose us to ransom demands or sensitive data leaks. We might be subject to
attempts to breach the security of our networks and IT infrastructure through cyber-attacks, malware, computer viruses and other means
of unauthorized access. While we maintain insurance coverage for some of these events, we cannot be certain that our coverage will be
adequate for liabilities actually incurred. While we take cybersecurity measures and maintain redundancy and disaster recovery practices
for our critical services, we cannot assure you that our cybersecurity measures and technology will adequately protect us from these and
other risks. Furthermore, our inability to operate our facilities as a result of such events, even for a limited period of time, may result
in significant expenses or the loss of market share to our competitors. We may expend significant resources or modify our products to
try to protect against security incidents. The integration of E2E’s information systems poses cybersecurity risks that, if not properly
managed, could result in unauthorized access to sensitive data, operational disruptions, and potential financial liabilities.
Maintaining the security of our products, computers and networks
is a critical issue for us and our customers. Therefore, each year we invest additional resources and technologies to better protect
our assets. However, security researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer
and network security measures. In addition, hackers also develop and deploy viruses, worms, Trojan horses and other malicious software
programs, some of which may be specifically designed to attack our products, systems, computers or networks. Moreover, due to current
labor market trends, a significant number of our employees or employees of our vendors, suppliers and service providers, have moved to
work from their homes and remotely access our or such vendors’, suppliers’ or service providers’ IT networks. Such remote
working mode creates the risk of attacking the end-point user stations, connection channels and gateways. We have seen a significant increase
of cyberattacks on enterprises and individuals in recent years and we assume that we shall further be exposed to such threats going forward.
In addition, our and our vendors’, suppliers’ and service providers’ networks and IT systems are increasingly being
moved to cloud-based platforms such as IaaS (Infrastructure as a Service) and SaaS (Software as a Service) IT solutions. These cloud-based
arena poses risks of attack on and from the end-point user stations, connection channels and gateways as well as the IaaS and SaaS infrastructures
of our service providers. Additionally, external parties may attempt to fraudulently induce our employees or users of our products to
disclose sensitive information in order to gain access to our data or our customers’ data. These potential breaches of our security
measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal
or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data
as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals
affected, to a risk of loss or misuse of this information, result in litigation and potential liability or fines for us, damage to our
brand and reputation or otherwise harm our business. Furthermore, the increasingly growing capabilities of artificial intelligence (“AI”)
and its availability for public use and adoption, may be used to identify vulnerabilities in our systems craft sophisticated cyberattacks.
The rising adoption of AI and Generative AI in daily operations, research and development activities, and products poses additional and
new risks, including, without limitation, data privacy and security risks, intellectual property infringement or leakage, ownership issues
and/or confidentiality issues. Threats include potential data leaks, social engineering attacks, and decision-making based on manipulated
information. Growing regulatory requirements for information security and data protection add to the challenge. Furthermore, cyberattacks
and security incidents are expected to accelerate in both frequency and impact as the use of AI increases and attackers become increasingly
sophisticated and utilize tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic
evidence.
Unauthorized use or behavior on part of our vendors’, suppliers’
and service providers’ employees or taking insufficient cybersecurity measures by them, could result with data leaks and penetration
to our databases that are located or installed in their network. In addition, the shift to software solutions coupled with requirement
to move data to cloud-based and open-source environments impose enhanced cybersecurity challenges that can make our vendors, suppliers
and service providers more vulnerable to cyber-attacks.
In addition, since the beginning of the war between Israel and
Hamas which began on October 7, 2023, and other hostilities with Hezbollah, Iran and other Iranian proxies, Israeli and Israeli associated
companies have become more frequently the target of cyberattacks. As such, the risk of a cyberattack against our information technology
systems and data security may become heightened.
Cyber-attacks on our customers’ networks
involving our products could have an adverse effect on our business.
Maintaining the security of our products (including newly introduced
software products) which are installed with our customers is a critical issue for us, therefore each year we invest additional resources
and technologies to better protect our assets. However, security researchers, criminal hackers and other third parties regularly develop
new techniques to penetrate computer and network security measures. Cyber-attacks, or other breaches of security on our customers’
networks, may be initiated at any network location or device including initiation through our products. Although we maintain high levels
of cyber-security aware development processes, we cannot assure that such attacks, or other breaches of security through our products,
will fail and therefore may negatively affect our customers’ business. Moreover, criminal hackers or hackers associated with national
governments, may target a customer of ours or even try to get access to a wider group of the communication network users while devoting
immense resources for long-term access to industry, economy or critical infrastructure users, gather intelligence and develop the means
to disable their systems, which attacks are hard to detect, prevent and illuminate. Such attacks could be highly sophisticated, such as
slipping malware and Trojan horses and warms into software updates or systematically search for vulnerabilities in our products or in
the components we use even before it supplies to us, or using the Company’s networks as a vector to spread malware, might lead to
widespread damage and compromised security to the customers. While we maintain insurance coverage for some of these events, we cannot
be certain that our coverage will be adequate for liabilities actually incurred. In addition, these events could also result in damage
to our reputation which will further negatively impact on our business.
Unauthorized use or behavior on part of our customers’ employees
or taking insufficient cybersecurity measures by certain customers, could result in data leaks and penetration to our systems that are
located or installed in its network. In addition, the shift to software solutions coupled with the requirement to move data to cloud-based
and open-source environments impose enhanced cybersecurity challenges that can make our products and services more vulnerable to cyber-attacks.
The rising adoption of AI and Generative AI in daily operations and products among our customers, as well as among cyber-attackers, as
described above, poses additional and new risks, including, without limitation, data privacy and security risks, intellectual property
infringement or leakage, ownership issues and/or confidentiality issues.
These potential breaches of our security measures could expose
our customers to network failures or other related risks, result in litigation and potential liability or fines for us, damage to our
brand and reputation or otherwise harm our business.
10
Relying on third-party manufacturers, suppliers
and service providers may disrupt the proper and timely management of deliveries of our products, a risk that is intensified in the case
of a single source supplier.
We outsource our manufacturing and the majority of our logistics
operations and purchase ancillary equipment for our products from contract and other independent manufacturers. Although during 2024,
we have invested efforts in diversifying our manufacturers and suppliers base, and despite our policy to maintain at least a second source
for all of our products’ components, disruption in deliveries or in operations of these and other third-party suppliers or service
providers, as a result of, for example, capacity constraints, production disruptions, price increases, regulatory restrictions, force
majeure events, as well as quality control problems related to components, may all cause such third parties not to comply with their contractual
obligations to us. This could have an adverse effect on our ability to meet our commitments to customers and could increase our operating
costs. For additional information see “
The global supply of electronic components has experienced,
and may continue to experience, a sharp increase in demand, while production capacity remains limited, which had, and may continue to
have, an adverse effect on the lead-time for our components and increased their prices”
.
Although we believe that our contract manufacturers and logistics
service providers have sufficient economic incentive to perform our manufacturing and logistics services requirements, the resources devoted
to these activities are not within our control. We cannot assure you that manufacturing, or logistics problems will not occur in the future
due to insufficient resources devoted to our requirements by such manufacturers and logistics service providers, or due to insolvency
or other circumstances that could have a material adverse effect on those manufacturers and logistics service providers’ operations.
In addition, we cannot assure that we will have the ability or be in the position to demand from our contract manufacturers to assume
our obligations to our customers, apply the same terms back-to-back to our contract manufacturers and suppliers, a risk that is intensified
in the case of a single source supplier.
In addition, some of our contract manufacturers currently obtain
key components from a limited number of suppliers. Our contract manufacturers’ dependence on a single or sole source supplier, or
on a limited number of suppliers, subjects us to the following risks:
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The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers.
Consequently, these shortages could delay the manufacture of our products and shipments to our customers.
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The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, we or our
contract manufacturers may be unable to develop alternative sources for the components necessary to manufacture our products, which could
force us to redesign our products or buy a large stock of the component into inventory before it is discontinued. Any such redesign of
our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant
modification in our product design may increase our manufacturing costs and bring about lower gross margins. In addition, we may be exposed
to excess inventory of such component, which we will have to write-down in case the demand is not as high as we anticipated at the time
of buying these components.
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The component suppliers may significantly increase component prices at any time and particularly if demand for certain components
increases dramatically in the global market which would have an adverse effect on the Company’s business.
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The component suppliers may significantly increase the time to produce and deliver their components at any time resulting in an immediate
effect. These lead time increases would delay our products’ delivery timetable and could expose us to shortage in supply or late
supplies that may trigger penalties, orders cancellation and losing some of our customers.
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The component suppliers may refuse or be unable to further supply such component for various reasons, including, among other things,
their prioritization, focus, regulations, force majeure events or financial situation.
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The materialization of the risks detailed above could result in
delays in deliveries of our products to our customers, which could subject us to penalties payable to our customers or cancellation of
orders, increased warranty costs as well as increases in manufacturing and shipment expenses in the case of expedited deliveries, and
damage to our reputation. If any of these problems occur, we may be required to seek alternate manufacturers or logistics service providers
and we may not be able to secure such alternate manufacturers or logistics service providers that meet our needs and standards in a timely
and cost-effective manner. Consequently, such occurrences, extra costs and penalties could significantly reduce our gross margins and
profitability. The above-mentioned risks are exacerbated in the case of raw materials or component parts that are purchased from a single-source
supplier.
11
The global supply of electronic components,
including integrated circles, has experienced, and may continue to experience an increase in demand, while production capacity remains
limited, which had, and may continue to have, an adverse effect on the lead-time for our components and increase in their prices.
The global demand for electronic components, including digital
components, chipsets and semiconductors, has experienced an increase in the past several years, with a growing number of industries increasing
their demand and consumption. This, together with the effect of trade embargos (and other factors effecting global shipment detailed under
“
Our global operation exposes us to the effects of global economic trends, including recession,
rising inflation, rising interest rates, commodity price increases and fluctuations, commodity shortages and exposure to economic slowdown”
),
have led to longer lead-time of electronic components, with many cases of a lead time longer than a year. The lack of sufficient production
facilities and capacity of the semiconductor foundry industry to meet such demand, which created a shortage in chipsets, electronic equipment
and components, has already caused, and may to continue to cause, price increases and extensions of delivery time. As a result of this
situation, we may be unable to obtain essential components in a timely manner and at a reasonable cost that is necessary for us to remain
competitive. During such times, supplier-specific or industry-wide lead times for delivery can be as long as twelve months or more. If
we are unable to obtain components in a timely manner to fulfill our customers’ demand, or at a reasonable cost, we may be unable
to meet commitments under our contracts with customers, which could expose us to substantial liquidated damages and other claims and could
materially and adversely affect our results of operations, financial condition, business and prospects. Additionally, an increase in lead
time and the shortage in chipsets may result in delays in the delivery of our products and in meeting the timetables for the execution
of our projects, which may trigger penalties, cancellation of orders and loss of some of our customers or market share. This has adversely
affected, and may continue to adversely affect, our costs (including a significant increase in production costs) and to erode our gross
margin. Furthermore, as our new Systems-on-Chip (SoC) commercialization and commencement of mass production is highly dependent on the
timely delivery of the chipsets, these delays may also adversely affect the commercialization and mass production timetable, causing a
delay in our ability to introduce and commercialize our new SoC-based products and safeguard and maintain our position and market share
as leaders in the introduction of advanced 5G solution.
We experience high volatility in the supply
needs of our customers, which from time to time lead to delivery issues due to long lead time and availability of components and manufacturing
power. If we fail to effectively cope with such volatility and short-noticed supply demands of our customers, we may be unable to timely
fulfill our customer commitments which would adversely affect our business and results of operations.
The delivery requirements of our customers are unevenly spread
throughout the year. We may receive very large orders that were not forecasted, or that were expected with a different timing requirement.
In addition, we offer our products to our customers in a wide variety of product variations and configurations, and our inability to forecast
the quantities or mix of the delivery demands for our products may result in underestimating our material purchasing needs, as well as
production capacity requirements. If we fail to effectively manage our deliveries to the customers in a timely manner, or otherwise
fulfill our contractual obligations to them - for example if we are unable to synchronize our supply chain and production process in cases
of rapidly increasing production needs - the cost of our material purchasing, manufacturing and logistics may increase and we may also
be obligated to pay expediting fees to our contract manufacturers or penalties to our customers for delays, and may be subject to order
cancelation, all of which would adversely affect our business, financial results and our relationship with our customers. This risk is
heightened with the expansion of our service offering, which allows us to access new customers, whose business practices and supply needs
we are not familiar with yet.
Due to inaccurate forecasts or business changes,
we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased
expenses should unexpected production ramp up be required. In addition, part of our inventory may be written off, which would increase
our cost of revenues.
Our contract manufacturers and other suppliers are required to
purchase inventory based on manufacturing projections we provide to them. If the actual orders from our customers are lower than projected,
or the mix of products ordered changes, or if we decide to change our product line and/or our product support strategy, our contract manufacturers
or other suppliers will have excess inventory of raw materials or finished products, which we would typically be required to purchase,
thus incurring additional costs and our gross profit and results of operations could be adversely affected.
Further, we require our contract manufacturers and other suppliers
from time to time, to purchase more inventory than is immediately required and with respect to our contract manufacturers, to partially
assemble components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increased
demand, we may need to make advance payments, compensate our contract manufacturers or other suppliers, or even buy the redundant inventory,
as needed. We also may purchase components or raw materials from time to time for use by our contract manufacturers in the manufacturing
of our products. This may cause additional write offs and may have a negative impact on our results of operations and cash flow.
Alternatively, if we underestimate our requirements and our actual
orders from customers are significantly larger than our planned forecast, we may be required to accelerate the production and purchase
of supplies, which may result in additional costs of buying components at less attractive prices, paying expediting fees and excess shipment
costs, overtime and other manufacturing expenses. As a result, our gross margins and results of operations could be adversely affected.
12
Inventory of raw materials, work in-process or finished products
located either at our warehouses or our customers’ sites as part of the network build-up may accumulate in the future, and we may
encounter losses due to a variety of factors, including:
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new generations of products replacing older ones, including changes in products because of technological advances and cost reduction
measures; and
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the need of our contract manufacturers to order raw materials that have long lead times, our need to order a Last Time Buy of end
of life components and our inability to estimate exact amounts and types of items thus needed.
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Further, our inventory of finished products located either at our
warehouse or our customers’ sites as part of a network build-up may accumulate if a customer were to cancel an order or refuse to
physically accept delivery of our products, or in rollout projects, which include acceptance tests, refuse to accept the network. The
rate of accumulation may increase in a period of economic downturn.
Our international
operations expose us to the risk of fluctuations in currency
exchange
rates and restrictions related to foreign currency exchange controls.
We are a global company that operates in a multi-currency environment.
Although we derive a significant portion of our revenues in U.S. dollars, a portion of our revenues are derived from customers operating
in local currencies other than the U.S. dollar. Therefore, devaluation in the local currencies of our customers relative to the U.S. dollar
could cause our customers to cancel or decrease orders or to delay payment, which could have a negative impact on our revenues and results
of operations. We are also subject to other foreign currency risks including repatriation restrictions in certain countries, particularly
in Latin America, Asia Pacific and in Africa or significant costs in converting local currencies to U.S. dollars. See the risk of “
Due
to the volume of our sales in emerging markets, we are
susceptible to a number of political,
economic and regulatory risks that could have a
material adverse effect on our business,
reputation, financial condition and results of
operations”.
A substantial portion of our operating expenses are denominated
in NIS, and to a lesser extent, other non-U.S. dollar currencies. Our NIS-denominated expenses consist principally of salaries and related
costs as well as other related personnel expenses. In addition, our lease and Israeli facility-related expenses and certain engagements
with other Israeli vendors are denominated in NIS as well. We anticipate that a portion of our expenses will continue to be denominated
in NIS. Devaluation of the U.S. dollar against the NIS, could have a negative impact on our results of operations.
We used, and may use in the future, derivative financial instruments,
such as foreign exchange forward contracts, to mitigate the risk of changes in foreign exchange rates on our balance sheet accounts in
various currencies and also to hedge our forecasted NIS denominated cash flows. Each type of derivative instrument may have different
effect on our financial statements as explained in Note 2.q to our Consolidated Financial Statements. We do not use derivative financial
instruments or other “hedging” techniques to cover all our potential exposure and may not purchase derivative instruments
that adequately insulate us from foreign currency exchange risks. In some countries, we are unable to use “hedging” techniques
to mitigate our risks because hedging options are not available for certain government restricted currencies. Moreover, derivative instruments
are usually limited in time and as a result, cannot mitigate currency risks for the longer term. During 2024, we incurred losses in the
amount of $3.5 million as a result of exchange rate fluctuations that have not been fully offset by our hedging policy. The volatility
in the foreign currency markets may make it challenging to hedge our foreign currency exposures effectively.
In some cases, we may face regulatory, tax, accounting or corporate
restrictions on money transfer from the country from which consideration should have been paid to us (or to our respective selling subsidiary)
or revenues could have accumulated and allocated to us, or could face general restriction on foreign currency transfer outside of such
country. Inability to collect and receive amounts that are already due and payable, could have a negative impact on our results of operations.
We are expanding our service and software offerings
to new areas, including managed services, Software-led services, software-as-a-service (SaaS) and solutions for wireless communication
networks design, implementation, operation, monitoring and maintenance, either remotely or on premise, which pose product development,
marketing, sales, operation, implementation and support challenges that might result in significant losses and may adversely affect our
financial results and achievement of projected revenues levels.
We are expanding the services we offer to new areas including the
introduction of managed services and software-based tools and services to support design, implementation, operation, monitoring and maintenance
of wireless communication networks, either remotely or on-premise. The complexity of such solutions, the lack of customer-experience in
such SaaS and similar solutions and us having to operate and support such activities vis-à-vis multiple third parties if demand increases
rapidly without us having sufficient time to accommodate accordingly, all increase the risk of not meeting our performance obligations.
Furthermore, the selling of software solutions includes inherent risks common for such type of activities, such as, among other things,
cybersecurity vulnerability, unexpected integration challenges, debugging, upgrading and increased need for version releases and underpricing.
In addition, new products and new versions of existing products or tools, are more prone to bugs, software failure and other problems
which may, among other things, adversely affect our ability to ramp up this activity or meet our commitments to our customers, and may
cause us to incur additional development, debugging and implementation costs. Moreover, the outcome following such projects’ implementation
may not be to the full satisfaction of the customer or aligned with their expectations (whether or not justified), who may in turn, impose
penalties against us or exercise any other remedy available to it under agreement or law. Any of these risks, among others, may also cause
the NRE (Non-Recurring Engineering) and cost of such projects to be higher than planned.
13
Our planning, shaping and development of these software-based solutions
is based on our experience and understanding of the market needs and challenges, and forecasted evolution of market developments, such
as market trends, future use cases, business concepts, technologies and future demand. However, there is no assurance that we have successfully
forecasted or will continue to successfully forecast such trends and needs, that the markets will accept our solutions as we anticipate
or that our service offering will satisfy future demand, or that we will be able to achieve our revenue targets in this field. A failure
in any of the above, may result in significant losses and may adversely affect our financial results and reputation.
Expansion into new market segments,
such as the private networks market, may not be successful and could adversely affect our business, financial condition, and operating
results. Until such new service offering ramp-up, we continue selling mostly in a single market domain, which may result in sensitivity
to the changes in demand for this market segment. If this segment should experience a decline in demand which is not replaced by our new
offerings, or we fail to adequately forecast our growth and revenues in these segments, we will likely experience a negative effect on
our business, financial condition and results of
operations.
We are currently in the process of expanding our business into
a new market segment, private networks, of which E2E acquisition by merger is part of, and may expand our business into additional market
segments in the future, as we seek to diversify our operations and customers’ base. Such business strategy involves numerous risks
and uncertainties, including but not limited to:
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Market Acceptance: There is no guarantee that our products, solutions or services will gain acceptance in the new market segment,
which may be significantly different from our existing markets in terms of customer preferences, culture, regulations, and competition.
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Brand Development Risks: Establishing and building our brand in a new market segment, could require significant time and resources,
potentially delaying our planned growth trajectory. A prolonged brand-building process may also reduce the speed at which we can realize
revenues from new segments.
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Customer Service and Support: As we acquire new customers, our customer service and support operations will need to expand and adapt
to meet their needs. If we are unable to provide high-quality customer service and support, our reputation and brand value could suffer,
which may adversely affect our customer retention rates and our company's overall performance.
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Regulatory Compliance: Each new market segment is subject to specific regulations and compliance requirements that we must adhere
to. Non-compliance or changes in these regulations could result in fines, sanctions, or other legal consequences that may have a material
adverse effect on our business and operations.
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Increased Competition: New market segments often come with established competitors who have a better understanding of the local market
dynamics and customer base. We may face significant competition, which can hinder our market penetration efforts and negatively impact
our profitability.
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Sales and Marketing Challenges: Successfully entering a new market segment typically requires substantial sales and marketing efforts.
There can be no assurance that our marketing strategies will be effective in attracting new customers or that we can do so cost-effectively.
Ineffective sales and marketing efforts may lead to lower than expected sales and adversely affect our revenue and profitability.
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The above factors, among others, could prevent us from successfully
entering new market segments and could result in significant additional costs or a diversion of management’s attention and resources
from other areas of our business. Furthermore, if we invest substantial time and resources into such expansion and are unable to achieve
the desired results, our business, financial condition, and operating results could be adversely affected.
Our planning, shaping and development of new market segments is
based on our experience and understanding of the market needs and challenges, and forecasted evolution of market developments, such as
market trends, future use cases, business concepts, technologies, and future demand. However, there is no assurance that we have successfully
forecasted or will continue to successfully forecast our growth and revenues from these segments, such trends and needs, that such market
segments will accept our solutions as we anticipate or that our service offering will satisfy future demand. Failure in any of the above,
may result in significant losses and may adversely affect our financial results and reputation.
Although we have revisited and updated our strategy to include,
among other things, focus on private networks market segments, as well as focus on offering of software based solutions and managed services,
which we believe will cause our Annual Recurring Revenues (ARR) portion to become more meaningful, it will take time for our new offering
and our focused market segments to materialize and mature.
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Until recently, we mainly attributed our leadership position in
our target market to the focus on the “best-of-breed” market segment of the wireless transport market. Investment cycles in
this market depend on technology cycles of mobile networks services (e.g., 4G to 5G technologies) and the network requirements for wireless
transport of each technology. Hence, if this segment of the market or the service providers enter into a negative cycle, or our market
share in the market shrinks, while we have yet to implement our new business strategy, our sales and revenues may decline, and our results
of operations and cash flow may be significantly and adversely affected. In such case, we may need to take cost reduction and other measures,
which may adversely impact on our research and development, operations, marketing and sales activities and our ability to effectively
compete in the market.
Moreover, we used to develop and sell products mainly to one market
domain of the wireless communication market, characterized as point-to-point licensed wireless connectivity - often referred to as “backhaul”
or simply wireless “transport” - into this “best-of-breed” market segment. As a result, we were, and still
are, more likely to be adversely affected by a reduction in demand for point-to-point wireless transport products in comparison to companies
that also sell multiple and diversified product lines and solutions in different market domains. If technologies or market conditions
change, resulting in a decreased demand for our specific technology, and our new offering will not be mature or material enough to compensate
for it, it could have a material adverse effect on our business, financial results and financial condition as we attempt to address these
issues.
Developing and commercializing new products
may not be successful and could adversely affect our business, financial condition, and operating results and if we are unable to introduce
our new products, we will likely experience a negative effect on our business, financial condition, and results of operations
Our business performance may be dependent on our ability to develop
and successfully commercialize new products. The development of new products, such as our new SoC-based products, is a highly speculative
endeavor and may not be adequately forecasted. There can be no assurance that we will be successful in bringing any new products to market.
These risks include the following:
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Innovation Uncertainty: The process of developing new products is lengthy, complex and uncertain. It requires significant research,
development, and testing, all of which may fail to result in viable products. Our RD efforts may not yield new products that can
be commercialized.
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Market Acceptance: There is a risk that new products may not achieve market acceptance, as our target markets may not be receptive
to our new products, or competitors may offer superior or more cost-effective products.
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Intellectual Property Risks: There is the risk associated with protecting new intellectual property and potential infringement upon
the intellectual property rights of others. If we cannot adequately protect our intellectual property or if we infringe upon the rights
of others, our competitive position may suffer.
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Manufacturing and Supply Chain Risks: We may encounter difficulties in scaling up production to meet demand, including problems involving
production yields, quality control and assurance, and shortages of essential components.
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Pricing and Reimbursement: There could be pricing pressure from competitors and difficulty in obtaining adequate reimbursement for
new products, which could affect their profitability.
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Product Liability: New products are susceptible to defects, which could lead to liability and harm our reputation.
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The failure to successfully develop, produce, market, and sell
new products could have a material adverse effect on our business, financial condition, and results of operations. Even if our new products
are successful, they may not generate revenues sufficient to justify our investments, and we may not achieve the desired profitability
in selling these products.
In addition, new products and new versions of existing products
are more prone to technical problems which may, among other things, adversely affect our ability to ramp up and to meet delivery commitments
to our customers in a timely manner, and may cause us to incur additional manufacturing, development and repair costs. This may have a
material adverse effect on our business and results of operation.
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The markets for our products change
rapidly. If we fail to timely develop, commercialize and market new products and solutions, such as our SoC
based-products,
that
keep pace
with technological developments, the changing industry standards
and our customers’
needs, or if our competitors or new market entrants
introduce their products before us, we may not be able to grow, may lose market share or may not be able to sustain our business.
The wireless transport equipment industry is characterized by rapid
technological developments, changing customer needs that expect increase in product performance and evolving industry standards, as well
as increasing pressure to produce more cost-effective products. These rapid technological developments could either render our products
obsolete or require us to modify our products, necessitating significant investment, both in time and cost, in new technologies, products
and solutions. Our success depends, among other things, on our ability to maintain an agile infrastructure that is capable of adapting
to such changes in a timely manner, developing and marketing new products or enhancing our existing products in a timely manner in order
to keep pace with developments in technology, customer requirements and competitive solutions offered by third parties, but we cannot
assure you that any such development or production ramp-up will be completed in a timely or cost-effective manner, or how the market will
receive or adopt our products compared to our competitors’ products.
We are continuously seeking to develop new products and enhance
our existing products. In 2020 we released our IP-50 products family, which joined our line of point-to-point wireless transport products,
designed to deliver premium wireless transport capabilities. In 2024, we expanded our product portfolio of the IP50 family with the new
IP-50CX and IP-50EX. In addition, we penetrated and improved the Siklu by Ceragon product line (Etherhaul and Multihaul family) which
intended to deliver solutions to various use cases in the private networks domain. Furthermore, we recently launched our new SoC-based
IP-100E platform, the 25Gbps E-band radio. However, the mass production and productization
of
the IP-100E platform is planned for 2026, and therefore, we do not expect significant commercialization of the IP-100E platform in 2025.
Also, any delays in the launch of new SoC-based products may cause us to lose our competitive advantage. Moreover, we cannot provide any
assurance that our new products will be accepted in the market or will result in profitable sales or that such products will not require
additional quality assurance and defect-fixing processes.
Furthermore, as noted above, we consider the wireless market transition
from 4G to 5G technologies to be one of our main growth engines in the foreseeable future. If our competitors or new market entrants will
develop products for this market that are, or are perceived to be, more advantageous to our customers from a technological and/or financial
(i.e., cost-benefit) perspective, or if they introduce and market their products prior to us doing so, they may be able to better position
themselves in the market and we may lose potential or existing market share, which could have a material adverse effect on our business,
financial results and financial condition.
Our market is also characterized by a growing demand for more sophisticated
and rich software-based capabilities within the network IP layer (layer 3 routing/MPLS), some of which may require us to utilize and embed
additional components, either in hardware or software (including third-party software), in the solutions we provide. We cannot assure
you that we will continue to be successful in providing these necessary software-based capabilities in a cost-effective manner, which
could affect our business performance. Additionally, we have established technological cooperation with third parties to address some
of these capabilities, but we cannot assure that such technological cooperation will be successful or achieve the expected results. If
indeed such cooperation will not be successful, we shall have to consider other alternatives, and such investigation and entering into
new cooperation in lieu of the failed ones, might cause a delay in the introduction of such capabilities.
In addition, new products and new versions of existing products
are more prone to technical problems which may, among other things, adversely affect our ability to ramp up and to meet delivery commitments
to our customers in a timely manner, and may cause us to incur additional manufacturing, development and repair costs. This may have a
material adverse effect on our business and results of operation.
Lastly, we cannot assure that we will successfully forecast technology
trends or that we will anticipate innovations made by other companies and respond with our own innovation in a timely manner, which could
affect our competitiveness in the market.
If we fail to attract or retain qualified and
skilled “talents” and personnel, our business, operations and product development efforts may be materially adversely
affected.
Our products require sophisticated research and development, marketing
and sales, and technical customer support. Our success depends on our ability to attract, train and retain qualified personnel in all
these professional areas while also taking into consideration varying geographical needs and cultures. We compete with other companies
for personnel in all of these areas, both in terms of profession and geography, and we may not be able to hire sufficient personnel to
achieve our goals or support the anticipated growth in our business. The market for the highly trained personnel we require globally is
competitive, due to the limited number of people available with the necessary technical skills and understanding of our products and technology.
We experience competition on talent, predominantly among RD and technological personnel, or employees having experience or expertise
in high-tech and traded companies.
As the demand for qualified and highly skilled personnel is in
constant demand, our ability to retain existing “talents” and recruit new ones is becoming more challenging. Consequently,
we may have to face with increasing employment costs for existing and new personnel in professions characterized with high demand, and
might have to increase our equity-based long-term incentive programs, which in turn could result in the dilution of our shareholders due
to the exercise of such rights. Loss of senior level “talents”, including as a result of recent organizational changes conducted
in 2024 and further changes in 2025, may cause delays in our development efforts and operational challenges as well as shortage in, and
loss of, knowhow, knowledge, domain expertise and capabilities which cannot always be immediately mitigated.
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These risks are heightened in light of the recently initiated restructuring
of our human resources and employee structure, including the establishment of new research and development centers in additional countries
and management personnel shifting and organizational changes. Integrating new employees and establishing new research and development
centers, particularly in countries where we have limited operating experience, poses substantial management and operational challenges.
Furthermore, our ability to realize the benefits of our new research and development centers hinges on recruiting a substantial number
of qualified employees in countries where these facilities are being established. We may face competition for talent in these markets,
and there is no guarantee we will be successful in attracting and retaining the necessary skilled workforce. The restructuring process
and the assimilation of a new workforce may cause disruptions to our existing operations and human resources management. Failure to manage
these factors and disruptions could lead to higher attrition rates, decrease in employee morale, and a loss of productivity.
If we fail to attract and retain qualified personnel due to compensation
or other factors, or to manage or successfully perform in the above human resources related projects and disruptions, our business, operations
and product development and cost reduction efforts would suffer.
Our revenue and operating results are hard
to predict and may vary significantly from quarter to quarter and from our expectations for any specific period.
Our quarterly results are difficult to predict and may vary significantly
from quarter to quarter, or from our expectations and guidance for any specific period. Most importantly, delays in product delivery or
completion of related services, delays in performing acceptance tests or delays in projects timetable on part of our customers or their
other vendors, can cause our revenues, net income and operating cash flow to deviate significantly from anticipated levels, especially
as a large portion of our revenues are traditionally generated towards the end of each quarter.
Additionally, as a significant portion of our business is concentrated
with certain customers, who are not obligated to purchase from us a fixed amount of products or services over any period of time and may
terminate or reduce their purchases from us at any time without prior notice or penalty, we have difficulty projecting future revenues
from these customers, which highly affect our overall revenue, cash-flow and business. Such customers may also change the desired delivery
schedule and adversely affect our revenues, working capital, and cash flow. In addition to the inherent uncertainty associated with such
business pattern, any credit crunch, distressed financial situation or insolvency on the part of such customers, may adversely affect
our ability to collect the balance due from them and further expend the variation in our revenues and operating results.
Moreover, factors such as geographical mix, delivery terms and
timeline(s), product mix, software portion, related services mix and other deal terms, may differ significantly from our expectations,
and thus impact our revenue recognition timing, gross margins, costs and expenses, as well as cash flow from operations. In addition,
the spending decisions of our customers throughout the year may also create unpredictable fluctuations in the timing in which we receive
orders and can recognize revenues, which may impact on our quarterly results. Such unpredictable fluctuations could be material in cases
where these spending decisions are made by our largest customers or regarding significant deals. Additionally, the aggregation of several
revenue recognition requirements for each such transaction, results in difficulty and complexity in establishing a firm prediction as
to the end-of-term results, and consequently, our actual revenue rates may significantly exceed or be less than our expectations.
We are engaged in providing installation
or rollout projects for
our customers and end users, whether directly
or via third party prime contractor, which are long-term projects that are subject to inherent risks, including early delivery of our
products with delayed payment terms, which expose us to our customers’ default, insolvency, or other adverse effects on our customers’
ability to pay us, delays or
failures in acceptance testing procedures
and other items beyond our control, all of which could have a material adverse effect on our
results
of operations or financial condition.
Our offering includes long term projects for our customers and
end-users, such as the networks rollout, managed services, and related projects, whether directly or via a third party prime contractor.
Some of those projects are characterized by providing customers’ credit and long payment terms. This has an adverse effect on our
working capital and exposes us to the risks of default, insolvency, or other adverse effect on the customer’s ability to pay us.
Although we hedge or insure some of those risks, the entire exposure cannot be covered. This may result in significant losses and may
adversely affect our financial results.
In certain projects, we serve as an integrator and prime contractor
of end-to-end rollout projects, which include installation and other services for our customers. In this context, we may act as the prime
contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required
for these projects, or we may provide such services and equipment (or part thereof) for projects handled by others, primarily system integrators.
These rollout projects often require us to deliver products and
services representing an important portion of the contract price before receiving any significant payment from the customer, as significant
amounts are to be paid by our customers over time, which expose us to our customers’ default, insolvency, or other adverse effects
on our customers’ ability to pay us. In cases where we do not serve as prime contractors as aforesaid, and acting as subcontractors
to a prime contractor, and the full project is handled by others, even if we have delivered to our commitments, there is a risk that we
will not be able to receive payments in a timely fashion due to failure or default on part of the prime contractor or other issues which
are not related to the performance of our portion of the project, causing payment delays by the end customers. Therefore, rollout projects
could cause us to experience significant collection issues and as a result substantial period-to-period fluctuations in our results of
operations, cash flow and financial condition.
Once a purchase order has been executed, the timing and amount
of revenue may remain difficult to predict. The completion of the installation and testing of the customer’s networks and the completion
of all other suppliers’ network elements are subject to the customer’s timing and efforts, and other factors outside our control,
such as site readiness for installation or availability of power and access to sites, which may prevent us from making predictions of
revenue with any certainty.
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Also, as we usually engage subcontractors, third party service
providers and temporary employees to perform a significant part of the work (such as installation, supervision, on-site testing, commissioning,
repair and replacement services), we are dependent on such service providers’ and temporary employees’ timely and quality
performance, including with respect to the fulfillment of or default under their back-to-back obligations to those we may have undertaken
vis-à-vis our customers, as well as pricing that may fluctuate significantly due to various factors. All these factors may affect
our ability to accurately project our costs and profits in providing these services and may result in significant deviations from our
projections, which may adversely affect our financial results. In addition, we may be subject to other risks that may apply to our subcontractors
or associated with their businesses.
In some of these projects, we may need to provide bank guarantees
to ensure successful completion of the rollout services, to secure an advance payment we have received, in case we fail to meet our obligations,
or to secure our warranty obligations. As a result, in these projects we assume greater financial risk.
In addition, typically in rollout projects, we are dependent on
the customer to issue acceptance certificates to generate and recognize revenue. In such projects, we bear the risks of loss and
damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. Moreover,
we are not always the prime integrator in these projects and in such cases, the acceptance may be delayed even further since it depends
on the acceptance of other network elements not in our control. The early deployment of our products during a long-term project reduces
our cash flow, as we generally collect a significant portion of the contract price after successful completion of an acceptance test.
If our products are damaged or stolen, if the network we install does not pass the acceptance tests or if the customer does not or will
not issue an acceptance certificate, the end user or the system integrator could refuse to pay us any balance owed and we would incur
substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs and expenses
related to repairing or manufacturing the products. In such a case, we may not be able to repossess the equipment, thus suffering additional
losses.
Our service offering includes full design and implementation of
wireless communication networks, while also using technologies of third-party vendors. The complexity of such projects and the reliance
on third parties’ performance is increasing the risk of not meeting our performance obligations. As a result, the completion of
such projects may be delayed, or the outcome may not be to the full satisfaction of the customer, who may in turn, impose penalties or
exercise any other remedy available to customers in the service contract. In addition, the cost of such projects may be higher than planned.
This may result in significant losses and may adversely affect our financial results.
We are exposed to risks
associated with integrating AI tools into our operations.
Ceragon integrates AI/ML into network optimization, predictive
maintenance and operations tools to enhance efficiency and decision-making. As another example, our employees and personnel may
use Generative AI to perform certain tasks in their work. The integration of AI/ML introduces inherent risks such as data privacy, intellectual
property disputes, cybersecurity vulnerabilities, confidentiality concerns, and regulatory non-compliance that may arise from the deployment
or misuse of AI systems. Additionally, reliance on AI poses risks, including biased or flawed predictions and inaccurate network optimizations
if models are not continuously updated. While AI enhances automation, human oversight remains critical to mitigate errors and unintended
consequences.
Our use of AI/ML models hosted or developed by third party providers
also presents certain information security risks. For example, any sensitive information that we input into such AI/ML platform could
be leaked or disclosed to others, including if sensitive information is used to train third party AI/ML. Where an AI/ML model ingests
sensitive information and makes connections using such data, those technologies may reveal other sensitive information generated by the
model. AI/ML models may create flawed, incomplete, or inaccurate outputs, some of which may appear correct. This may happen if the inputs
that the model relied on were inaccurate, incomplete or flawed (including if a bad actor “poisons” the AI/ML with bad inputs
or logic), or if the logic of the AI/ML is flawed.
Adopting and maintaining AI and ML technologies may increase
operational costs due to computing demands and specialized expertise requirements, and even if we are successful in maintaining such technologies,
our competitors or other third parties may incorporate AI and ML into their businesses more quickly or more successfully than us, which
could impair our ability to compete effectively and adversely affect our results of operations. If our technologies (including those of
our vendors and subcontractors) fail to perform as intended, our business, financial condition, and results of operations could be adversely
affected. Misuse of AI could also result in significant damage to our reputation. Additionally, we may incur substantial litigation costs
related to the use of AI, including but not limited to due to flawed AI/ML outputs.
Changes in legal or regulatory frameworks surrounding AI usage
may further pose compliance risks or limit the development and application of these technologies. For example, many U.S. federal and state
and foreign government bodies and agencies have introduced and/or are currently considering additional laws and regulations governing
the use of AI technologies. Any such changes could require us to expend significant resources to modify our business processes, or operations
to ensure compliance or remain competitive.
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We are subject to various
regulations and standards relating to data privacy and security. Failure to comply with any applicable privacy, security, data protection
laws, regulations, standards or other requirement could have an adverse effect on our business prospects, results of operations, and financial
condition.
As a public company with significant operations in Israel,
the United States, Europe and many other countries, we are subject to regulation and must comply with reporting and other requirements
in a number of jurisdictions, and may from time to time be reviewed and investigated by the relevant authorities. As such reviews progress,
the regulating agencies may determine that we are and have been in compliance with applicable rules, or they may determine to pursue enforcement
actions or other sanctions against us for alleged noncompliance. The regulatory framework for data and privacy protection issues is rapidly
evolving worldwide. Comprehensive data protection laws, including the General Data Protection Regulation (GDPR), imposes stricter obligations
and provides for greater penalties for noncompliance. Additionally, laws in all 50 U.S. states require businesses to provide notice to
parties whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance
in the event of a widespread data breach is costly. In addition, failure to comply with the Israeli Privacy Protection Law 1981 and its
regulations (PPL), as well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil
claims (including class actions) and, in certain cases, criminal liability. In August 2025, a comprehensive amendment to the PPL is expected
to enter into effect. This amendment aims to strengthen the Israeli Privacy Protection Authority’s enforcement powers and grant
it significant authority to impose administrative fines for non-compliance. The amendment is also expected to introduce broader oversight
capabilities, alongside mechanisms for monitoring adherence to privacy guidelines, thereby heightening the compliance requirements for
organizations that handle personal data in Israel. While we have invested in, and intend to continue to invest in, reasonably necessary
resources to comply with these evolving privacy standards, to the extent that we fail to adequately comply, that failure could have an
adverse effect on our business, financial conditions, results of operations and cash flows.
We are subject to complex and evolving regulatory
requirements that may be difficult and expensive to comply with and that could adversely impact our business, results of operations and
financial condition.
Our business and operations are subject to regulatory requirements
in Israel and in other jurisdictions where we operate or where our subsidiaries’ offices are located, including, among other things,
with respect to government contracts, global trade compliance, export controls, trade sanctions, labor, tax, anti-bribery, anti-corruption,
and data privacy and protection. In addition, certain countries have put regulations in place requiring local manufacturing of goods,
while foreign-made products are subject to pricing penalties or even bans from participation in public procurement auctions. Compliance
with these regulatory requirements may be onerous, time-consuming, and expensive, especially where these requirements vary from jurisdiction
to jurisdiction or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory
requirements in one jurisdiction may make it difficult or impossible to do business in another jurisdiction. Moreover, the cross-border
nature of our business operations may trigger not only a responsibility to comply with Israeli trade compliance and export control legislation
but also a responsibility to comply with certain applicable foreign trade and export control regulations. Certain of such requirements
may also vary from the jurisdiction in which we operate to jurisdictions in which our suppliers, customers or resellers are operating.
If we or our suppliers fail to obtain any required export licenses, or where existing licenses are revoked or become subject to export
restrictions, our ability to manufacture, market and sell our products and services could be adversely affected, all of which could have
a material adverse effect on our results of operations or financial condition.
Additionally, we may be limited in our ability to transfer or outsource
certain aspects of our business to certain jurisdictions, and may be limited in our ability to undertake research, development, or sales
activities in certain jurisdictions, or we may be unsuccessful in obtaining permits, licenses or other authorizations required to operate
our business, such as for the marketing, sale, import or export of products, solutions and services, which may adversely affect our business,
operations and results. We rely on a global supply chain and on certain marketing channels that may be similarly affected by these regulatory
requirements. We cannot assure you that despite our efforts we will be able to successfully or effectively assure that all of our suppliers,
agent and resellers will adhere, or will succeed in making sure that their suppliers or customers adhere, to the regulatory requirements
that flow down to them. Further, these regulatory requirements are subject to change and governments around the world are adopting a growing
number of compliance and enforcement initiatives. In particular, the pace and scope of changes to global trade control regulations has
increased dramatically over the past years, in multiple jurisdictions relevant to our business. These regulations may continue to increase
and change at an unusually rapid pace. It has been and may continue to be increasingly difficult to keep up with the pace and scope of
these changes. Violations of applicable laws or regulations, including by our officers, employees, contractors or agents, may harm our
reputation and deter governments and governmental agencies and other existing or potential customers or partners from purchasing our solutions.
Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, civil penalties, or criminal penalties
against us, our officers or our employees, restrictions on the conduct of our business, and damage to our reputation. While we make efforts
to comply with such regulatory requirements, we cannot assure you that we will be fully successful in our efforts, or that that regulatory
changes will not negatively affect our ability to develop, manufacture and sell the products, solutions and services we offer.
Our business is subject
to numerous laws and regulations designed to protect the environment, and the failure to comply with current or future environmental requirements
could expose the Company to criminal, civil and administrative charges.
Our business is subject to numerous laws and regulations designed
to protect the environment, including with respect to discharge management of hazardous substances. Although we believe that we comply
with these requirements and that such compliance does not have a material adverse effect on our results of operations, financial condition
or cash flows, the failure to comply with current or future environmental requirements could expose the Company to criminal, civil and
administrative charges. Due to the nature of our business and environmental risks, we cannot provide assurance that any such material
liability will not arise in the future.
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Our wireless communications products emit electromagnetic radiation.
While we are currently unaware of any negative effects associated with our products, there has been publicity regarding the potentially
negative direct and indirect health and safety effects of electromagnetic emissions from wireless telephones and other wireless equipment
sources, including allegations that these emissions may cause cancer. Health and safety issues related to our products may arise that
could lead to litigation or other actions against us or to additional regulation of our products, and we may be required to modify our
technology without the ability to do so. Even if these concerns prove to be baseless, the resulting negative publicity could affect our
ability to market these products and, in turn, could harm our business and results of operations. Claims against other wireless equipment
suppliers or wireless service providers could adversely affect the demand for our transport solutions.
We have significant operations globally, including
in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism, which expose
us to risks and challenges associated with conducting business internationally.
Certain of the regions in which we operate may be more susceptible
to political and economic instability, such as the state of war declared in Israel in October 2023 and the related regional conflicts,
and the military activity in the region, and the ongoing conflicts between China and Taiwan and Russia and Ukraine, that could result
in a loss of sales and business in such regions, and may prevent us from participating in governmental and private tenders or other competitive
procurement procedures. The invasion of Ukraine by Russia is likely to have numerous adverse effects on the global and European markets
in which we operate. Sanctions and export controls imposed by the U.S. U.K. and E.U. countries significantly limit trade with Russian
entities and individuals, requiring us to apply for export licenses and approval for orders placed by Russian customers or that are to
be delivered to Russian end-users. We have been recently denied certain license application we submitted to the U.S. Department of Commerce,
Bureau of Industry Security, and there is no assurance that such licenses and permissions shall be awarded in the future. These new regulatory
measures may also lead to the cancellation or suspension of orders in the short term as well as a more long-term loss of market share
to competitors who are unaffected or do not seek to comply with the new Russia-related trade limitation. Furthermore, as Russia is a global
source of raw materials, oil and gas and additional goods and commodities, the ongoing war and hostility also disrupts the supply of these
resources (in addition to the imposition of sanctions and embargoes), causes price increases, shortage, disruption to deliveries, shipping
and transportation. These disruptions are reflected both in price increases and shortages impacting our contract manufacturers and suppliers,
and adversely affect our production and supply chain costs and timelines.
The international environment in which we operate is affected by
inter-country trade agreements and tariffs. As a result of recent revisions in the U.S. administrative policy there are, and may be additional,
changes to existing trade agreements, greater restrictions on free trade and significant increases in tariffs on goods imported into the
United States. Therefore, there is current uncertainty about the future relationship between the United States and other countries with
respect to trade policies, taxes, government regulations, and tariffs, and we cannot predict whether, and to what extent, U.S. trade policies
will change in the future, including as a result of changes by the new U.S. presidential administration. For example, the U.S. has recently
signaled its intention to change U.S. trade policy, including potentially renegotiating or terminating existing trade agreements and leveraging
tariffs. In February 2025, the U.S. imposed tariffs on imports from China, Canada and Mexico. These additional tariffs or any future tariffs
or retaliation by another government against such tariffs or policies have introduced significant uncertainty into the market. Future
actions of the U.S. administration and that of foreign governments, with respect to tariffs or international trade agreements and policies,
remain currently unclear.
Our global headquarters and several manufacturing and RD facilities
are located in Israel and currently remain largely unaffected, and we have no manufacturing or RD facilities in Russia or Ukraine.
However, the duration, severity and global implications (including potential inflation and devaluation consequences) of these and other
geopolitical conflicts that may arise in the future, cannot be predicted at this time and could have an effect on our business, exchange
rate exposure, supply chain, operational costs and commercial presence in these markets.
Significant portions of our operations are conducted outside the
markets in which our products are sold, and accordingly we often import a substantial number of products into such markets. We may, therefore,
be denied access to our customers or suppliers or denied the ability to ship products as a result of a closing of the borders of the countries
in which we sell our products, or in which our or our suppliers’ operations are located, due to economic, legislative, political
and military conditions, including hostilities and acts of terror, in such countries.
Our corporate headquarters and a portion of our manufacturing activities
are located in Israel. Our Israeli operations are dependent upon materials imported from outside Israel. Accordingly, our operations and
information technology systems could be materially and adversely affected by acts of terrorism, including through cybersecurity threats,
or if major hostilities were to occur in the Middle East or trade between Israel and its present trading partners were materially impaired,
including as a result of acts of terrorism in the United States or elsewhere. The state of war declared in Israel in October 2023, and
the military activity and regional conflicts, may result in disruption to our operations and facilities, such as our manufacturing and
RD facilities located in Israel, and impact our employees, some of which are military reservists being called to active military
duty, and impact the economic, social and political stability of Israel.
The widespread outbreak of an illness or any
other communicable disease, or any other public health crisis, and the governmental and societal responses thereto, could adversely affect
our business, results of operations and financial condition.
Widespread outbreaks of disease or other public
health crises and responses thereto have in the past and may in the future negatively impact the global economy, disrupt global supply
chains and create significant volatility and disruption of financial markets. For example, during the COVID-19 pandemic, which resulted
in authorities imposing, and businesses and individuals implementing, numerous measures to try to contain the virus, our global operations,
which require physical presence in many stages of our business activities, were particularly vulnerable to the consequences of such measures.
The new working environment that emerged as a result of the COVID-19 pandemic, with many employees working remotely, also increased
the exposure of many companies, including us, to cyber-attacks and data security breaches. Future outbreaks of disease, including a resurgence
of COVID-19, could similarly have a material adverse impact on the global economy, our supply chain and our business operations.
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It is not possible to predict the impact of
future outbreaks of disease or the government responses thereto. Any disruptions caused by any new outbreaks of disease that may emerge
in the future could have a material adverse impact on our operational and financial performance, including our ability to execute our
business strategies in the expected time frame or at all.
Additional tax liabilities could materially
adversely affect our results of operations and financial condition.
As a global corporation, we are subject to income and other taxes both in Israel and in various foreign jurisdictions including indirect
as well as withholding taxes, and significant judgment is required in determining our provision for income taxes. Our domestic and international
tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and differentiation in the timing of
recognizing revenues and expenses. Our tax expense includes estimates or additional tax, which may be incurred for tax exposures and reflects
various estimates and assumptions, including assessments of our future earnings that could impact the valuation or recognition of our
deferred tax assets. From time to time, we are subject to income and other tax audits, the timing of which is unpredictable. Our future
results of operations could be adversely affected by changes in our effective tax rate as a result of a change in the mix of earnings
in countries with differing statutory tax rates, changes in our overall profitability, changes in local tax legislation and rates, changes
in tax treaties, changes in international tax guidelines (such as the OECD Base Erosions and Profit Shifting project – known as
BEPS), changes in generally accepted accounting principles, changes in the valuation or recognition of deferred tax assets and liabilities,
the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. While we believe
we comply with applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation
of the law and impose additional taxes. In 2024, we concluded a tax assessment with a positive outcome and no additional income tax payment,
however we received new tax assessments from local tax authorities in two territories in which we operate. The Company is in the process
of challenging such new assessments, however if these tax assessments are accepted, we may be required to pay penalties in addition to
the specific tax payment demand. Although we believe our estimates are reasonable, the ultimate outcome of tax audits, assessments and
related litigation could be different from our provision for taxes including the reserve provided for uncertain tax positions and may
have a material adverse effect on our consolidated financial statements and cash flows. Should we be assessed with additional taxes, there
could be a material adverse effect on our results of operations and financial condition.
Due to the volume of our sales
in emerging markets, we are
susceptible to a number of political, economic
and regulatory risks that could have a
material adverse effect on our
business, reputation, financial condition and results of
operations. This
includes the business practices in such emerging markets, that may expose us to legal and business conduct-related regulatory risks.
A majority of our sales are made in emerging economies in Latin
America, India, Asia Pacific and Africa. For each of the years ended December 31, 2024 and 2023, sales in these regions accounted for
approximately 63% and 62% of our revenues, respectively
.
As a result, the occurrence of international,
political, regulatory or economic events in these regions could adversely affect our business and result in significant revenue shortfalls
and collection risk. Any such revenue shortfalls and/or collection risks could have material adverse effects on our business, financial
condition and results of operations. Furthermore, other governmental action related to tariffs or international trade agreements,
changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing,
development and investment in the territories and countries, where our customers are located, could adversely affect our business, financial
condition, operating results and cash flows.
Below are the main risks and challenges that we face as a result
of operating in emerging markets:
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unexpected or inconsistent changes in regulatory requirements, including security regulations, licensing and allocation processes;
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unexpected changes in or imposition of tax, tariffs, customs levies or other barriers and restrictions;
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fluctuations in foreign currency exchange rates;
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restrictions on currency and cash repatriation;
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the burden of complying with a variety of foreign laws, including foreign import restrictions which may be applicable to our products;
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difficulties in protecting intellectual property;
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laws and business practices favoring local competitors;
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collection delays and uncertainties;
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difficulties in transferring or obtaining funds from certain countries within these emerging markets;
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requirements to do business in local currency; and
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judicial systems that do not apply the principles of natural justice with regard to disputes with foreign nationals.
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In addition, local business practices in jurisdictions in which
we operate, and particularly in emerging markets, may be inconsistent with international regulatory requirements, such as anti-corruption
and anti-bribery laws and regulations, to which we are subject. It is possible that, notwithstanding our strict policies and in violation
of our instructions, employees of ours, subcontractors, agents or business partners may violate such legal and regulatory requirements,
which may expose us to criminal or civil enforcement actions. If we fail to comply with or effectively enforce such legal and regulatory
requirements, our business and reputation may be harmed, and we might be exposed to civil and criminal penalties or sanctions.
All of these risks could result in increased costs or decreased
revenues, either of which could have a materially adverse effect on our profitability.
An industry downturn, reduction in our customers’
profitability due to increased regulation or new mobile services requirements, may cause investments in networks to slow, be delayed or
stop, which could harm our business.
We are exposed to changing network models that affect operator
and government spending on infrastructure as well as trends in investment cycles of telecom operators and other service providers. The
changes include but are not limited to: (i) further expansion of coverage; expansion out of metro, as well as other urban and suburban
areas to rural areas; (ii) densification and optimization of the 4G networks to provide faster speeds; (iii) introduction of 5G services
as well as expansion and densification of the 5G networks; and (iv) 2G and/or 3G networks shutdown, which is expected to take place within
the next several years and designed to free spectrum for the delivery of 5G services.
We are also exposed to private networks investment coming from
businesses, governmental entities and other public domains. Private networks can be an alternative to the Public Networks and may alternatively
support owners’ objectives, such as coverage, capacity, speed, security, and others. The demand for investments in private networks
is dynamic and slowdown or delay in such investments may have an adverse effect on our business, operating results and financial condition.
The proliferation of strategic options for service providers, as
outlined above, coupled with uncertain development path and clarity as to the future standards and mass-market use cases, may cause service
providers to prolong evaluations of services and network strategies, resulting in slower and smaller budget spent in the next several
years, which may negatively affect our business. In addition, the intensification of use of “over-the-top services” - which
make use of the operators’ network to deliver rich content to users but do not generate revenue to operators - is causing operators
to lose a substantial portion of their potential revenues. In addition, changes in regulatory requirements in certain jurisdictions around
the world are allowing smaller operators to enter the market, which may also reduce our customers’ pricing to their end-users, further
causing them to lose revenues. This has made operators more careful in their spending on infrastructure upgrades and buildouts.
As a result, operators are looking for more cost-efficient solutions
and network architectures, which will allow them to break the linearity of cost, coverage, capacity and costs of service delivery through
more efficient use of existing infrastructure and assets. If operators fail to monetize new services, fail to introduce new business models
or experience a decline in operator revenues or profitability, their willingness or ability to invest further in their network systems
may decrease, which will reduce their demand for our products and services and may have an adverse effect on our business, operating results
and financial condition.
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Our sales cycles in connection
with competitive bids or to prospective
customers are lengthy.
It typically takes from three to twelve months after we first begin
discussions with a prospective customer, before we receive an order from that customer, if an order is received at all. In some instances,
we participate in competitive bids, in tenders issued by our customers or prospective customers, and these tender processes can continue
for many months before a decision is made by the customer. In addition, even after the initial decision is made, there may be a lengthy
testing and integration phase or contract negotiation phase before a final decision to purchase is made. In some cases, even if we have
signed a contract and our products were tested and approved for usage, it could take a significant amount of time until the customer places
purchase orders, if at all. As a result, we are required to devote a substantial amount of time and resources to secure sales. In addition,
the lengthy sales cycle results in greater uncertainty with respect to any particular sale, as events that impact customers’ decisions
occur during such cycle and in turn, increase the difficulty of forecasting our results of operations and may cause an increase in inventory
levels and our liability to our suppliers, and a risk for inventory write downs and write-offs.
If we fail to obtain regulatory
approval for our products, or if sufficient
radio frequency spectrum is
not allocated for use by our products, our ability
to market our products
may be restricted.
Generally, our products must conform to a variety of regulatory
requirements and international treaties established to avoid interference among users of transmission frequencies and to permit interconnection
of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of those products.
Also, these regulatory requirements may change from time to time, which could affect the design and marketing of our products as well
as the competition we face from other suppliers’ products, which may not be affected as much from such changes. Delays in the allocation
of new spectrum for use with wireless transport communications, such as the E, V, D and W bands in various countries, at prices which
are competitive for our customers, may also adversely affect the marketing and sales of our products.
In addition, in most jurisdictions in which we operate, users of
our products are generally required to either have a license to operate and provide communications services in the applicable radio frequency
or must acquire the right to do so from another license holder. Consequently, our ability to market our products is affected by the allocation
of the radio frequency spectrum by governmental authorities, which may be by auction or other regulatory selection. These governmental
authorities may not allocate sufficient radio frequency spectrum for use by our products. We may not be successful in obtaining regulatory
approval for our products from these authorities and as we develop new products either our products or some of the regulations will need
to change to take full advantage of the new product capabilities in some geographies. Historically, in many developed countries, the lack
of available radio frequency spectrum has inhibited the growth of wireless telecommunications networks. If sufficient radio spectrum is
not allocated for use by our products, our ability to market our products may be restricted, which would have a materially adverse effect
on our business, financial condition and results of operations. Additionally, regulatory decisions allocating spectrum for use in wireless
transport at frequencies used by our competitors’ products, could increase the competition we face. In addition, the 5G rollout
could be contingent upon the allocation of the radio frequency spectrum by governmental authorities which could cause a delay in the ramp
up of those activities.
Other areas of regulation and governmental restrictions, including
tariffs on imports and technology controls on exports or regulations related to licensing and allocation processes, could adversely affect
our operations and financial results.
Our products are used in critical communications
networks, which may subject us to significant liability claims.
Since our products are used in critical communications and private networks, we may
be subject to significant liability claims if our products do not work properly. The terms of agreements with our customers do not always
provide sufficient protection from liability claims. In addition, any insurance policies we have may not adequately cover our exposure
with respect to such claims. We warrant to our current customers that our products will operate in accordance with our product specifications,
but if our products fail to conform to these specifications, our customers could require us to remedy the failure or could assert claims
for damages. Liability claims could require us to spend significant time and money on litigation or to pay significant damages. Such exposure
to claims may be heightened in the private networks sector, as a substantial portion of these networks are mission-critical. These include
networks operated by electricity companies, oil and gas companies, police departments, and other essential services. An outage in these
networks carries a significantly higher business impact and potentially even societal consequences. Any such claims, successful or not,
would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our reputation and our
business.
Our failure to establish and maintain effective
internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our
reporting obligations. This may expose us to fines and damages and cause investors to lose confidence in our reported financial information,
which could result in a decline of the trading price of our shares.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. If we conclude
in the future that our internal controls over financial reporting are not effective, we may fail to meet our future reporting obligations
on a timely basis, our financial statements may contain material misstatements, our operating results may be negatively impacted, and
we may be subject to litigation and regulatory actions, causing investor perceptions to be adversely affected and potentially resulting
in a decline in the market price of our shares. Even if we conclude that our internal controls over financial reporting are adequate,
any internal control or procedure, no matter how well designed and operated, can only provide reasonable assurance of achieving desired
control objectives and cannot prevent all mistakes or intentional misconduct or fraud.
23
We could be adversely affected by our failure
to comply with the covenants in our credit agreement or by the failure of any bank to provide us with credit under committed credit facilities.
We have a committed credit facility available for our use from
a syndicate of several banks. Our credit agreement contains financial and other covenants. Any failure to comply with the covenants, including
due to poor financial performance, may constitute a default under the credit facility, which may have a material adverse effect on our
financial condition. In addition, the payment may be accelerated, and the credit facility may be cancelled upon an event, in which a current
or future shareholder acquires control (as defined under the Israeli Securities Law) of us. For more information, please refer to Item
5: “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; B. Liquidity and Capital Resources.”
In addition, the credit facility is provided by the syndication
with each bank agreeing severally (and not jointly) to make its agreed portion of the credit loans to us. If one or more of the banks
providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the committed facility
provided by such defaulting bank would not be available to us.
In the event that the credit facility is terminated in
accordance with its terms, including due to breach of covenants by us, or if it is not renewed and we are not able to secure alternative
financing, we could experience distressed cash flow or cash flow challenges that could harm our business operations and prospects, results
of operations, cash flow and financial position.
If we are unable to protect our intellectual
property rights, our competitive position may be harmed.
Our ability to compete will depend, in part, on our ability to
obtain and enforce intellectual property protection for our technology internationally. We currently rely upon a combination of trade
secret, patent, trademark and copyright laws, as well as contractual rights, to protect our intellectual property. However, as our patent
portfolio may not be as extensive as those of our competitors, we may have limited ability to assert any patent rights in negotiations
with, or in counterclaims against, competitors who assert intellectual property rights against us.
We also enter into confidentiality, non-competition and invention
assignment agreements with our employees and contractors engaged in our research and development activities, as well as non-disclosure
agreements with our suppliers and certain customers so as to limit access to and disclosure of our proprietary information. We cannot
assure you that any steps taken by us will be adequate to deter misappropriation or impede independent third-party development of similar
technologies. These risks might be more severe in territories in which we have recently established research and development centers.
Moreover, under current law, we may not be able to enforce the non-competition agreements with our employees to their fullest extent.
We cannot assure you that the protection provided for our intellectual
property by the laws and courts of foreign nations will be substantially similar to the remedies available under U.S. law. Furthermore,
we cannot assure you that third parties will not assert infringement claims against us based on foreign intellectual property rights and
laws that are different from those established in the United States. Any such failure or inability to obtain or maintain adequate protection
of our intellectual property rights, for any reason, could have a material adverse effect on our business, results of operations and financial
condition.
Moreover, in an effort to further grow our business, we may also
sell our innovative Systems-on-Chip (SoC), which we use within our products, to some of our larger competitors, with full or limited access
to our technology capabilities, over which they may design products that more effectively compete with our own.
Defending against intellectual property infringement
claims could be expensive and could disrupt our business.
The wireless equipment industry is characterized by vigorous protection
and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. We have been exposed
to infringement allegations in the past, and we may in the future be notified that we or our vendors, allegedly infringed certain
patent or other intellectual property rights of others. Any such litigation or claim could result in substantial costs and diversion of
resources. In the event of an adverse result of any such litigation, we could be required to pay substantial damages (including potentially
punitive damages and attorney’s fees should a court find such infringement willful), or to cease the use and licensing of allegedly
infringing technology and the sale of allegedly infringing products (including those we purchase from third parties). We may be forced
to expend significant resources to develop non-infringing technology, obtain licenses for the infringing technology or replace infringing
third party equipment. We cannot assure you that we would be successful in developing such non-infringing technology, that any license
for the infringing technology would be available to us on commercially reasonable terms, if at all, or that we would be able to find a
suitable substitute for infringing third party equipment.
We occasionally use Open Source codes during
our development process and in our software products. An unintentional breach of Open Source licenses might compel us to publish certain
confidential and proprietary codes, incur damages, and result with intellectual property infringement claims that could be expensive and
could disrupt our business.
We occasionally use open source software component under open source
licenses. As certain open source copyright licenses may be categorized as “copyleft licenses” that place certain requirements
and restrictions on users, we maintain a process to assure the use of permissive licenses that guarantee the freedom to use, modify and
redistribute, and creating proprietary derivative works, in order to avoid any limitations on our IPs and exposure of confidential proprietary
software. Nonetheless, if we shall not correctly monitor and manage those licenses, fail to maintain their terms (for example, to provide
adequate copyright notices, or avoid modifications) or otherwise fail in identifying limited open source codes, we might be subject to
third party copyright and to reciprocity obligation requiring us to make our code open for use by others as well. Such claims may harm
our development efforts and competitive advantage and expose us to copyright infringement claims that could be expensive and could
disrupt our business.
24
Risks Relating to Our Ordinary Shares
Holders of our ordinary shares who are U.S.
residents may be required to pay additional U.S. income taxes if we are classified as a passive foreign investment company (“PFIC”)
for U.S. federal income tax purposes.
There is a risk that we may be classified as a PFIC. Our treatment
as a PFIC could result in a reduction in the after-tax return for U.S. holders of our ordinary shares and may cause a reduction in the
value of our shares. For U.S. federal income tax purposes, we will generally be classified as a PFIC for any taxable year in which either:
(1) 75% or more of our gross income is passive income, or (2) at least 50% of the average value (determined on a quarterly basis) of our
total assets for the taxable year produce, or are held for the production of, passive income. Based on our analysis of our income, assets,
activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2024. However, there
can be no assurance that the United States Internal Revenue Service (“IRS”) will not challenge our analysis or our conclusion
regarding our PFIC status. There is also a risk that we were a PFIC for one or more prior taxable years or that we will be a PFIC in future
years, including 2025. If we were a PFIC during any prior years, U.S. shareholders who acquired or held our ordinary shares during such
years will generally be subject to the PFIC rules. The tests for determining PFIC status are applied annually and it is difficult to make
accurate predictions of our future income, assets, activities and market capitalization, which are relevant to this determination. If
we were determined to be a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary
shares and such U.S. holders could suffer adverse U.S. tax consequences.
For more information, please see Item 10. ADDITIONAL INFORMATION
– Taxation - “U.S. Federal Income Tax Considerations” – “Tax Consequences if We Are a Passive Foreign Investment
Company.”
The price and trading volume of our ordinary
shares are subject to volatility. Such volatility could limit investors’ ability to sell our shares at a profit, could limit our
ability to successfully raise funds and may expose us to class actions against the Company and its senior executives.
The stock market in general, and the market price of our ordinary
shares in particular, are subject to fluctuation. As a result, changes in our share price and trading volumes may be unrelated to our
operating performance. In addition, smaller market cap companies have historically been more volatile than stocks of larger companies.
The price of our ordinary shares and the trading volumes in our ordinary shares have experienced volatility in the past and may continue
to do so in the future, which may make it difficult for investors to predict the value of their investment, to sell shares at a profit
at any given time, or to plan purchases and sales in advance. In the two-year period ended December 31, 2024, the price of our ordinary
shares has ranged from a high of $5 per share to a low of $1.55 per share. A variety of factors may affect the market price and trading
volume of our ordinary shares, including:
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announcements of technological innovations or new commercial products by us or by our competitors;
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announcement of significant deals won by us or by our competitors;
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competitors’ positions and other events related to our market;
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changes in the Company’s estimations regarding forward looking statements and/or announcement of actual results that vary significantly
from such estimations;
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the announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or
industry;
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changes and developments effecting our field or industry;
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period to period fluctuations in our results of operations and cash flow;
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changes in financial estimates by securities analysts;
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our earnings releases and the earnings releases of our competitors;
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our ability to show and accurately predict revenues;
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our need to raise additional funds and the success or failure thereof;
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other announcements, whether by the Company or others, referring to the Company’s financial condition, results of operations
and changes in strategy;
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changes in senior management or the board of directors;
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the general state of the securities markets (with a particular emphasis on the technology and Israeli sectors thereof);
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the general state of the credit markets, the volatility of which could have an adverse effect on our investments;
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developments concerning material proprietary rights, including material patents;
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whether we or our competitors receive or are denied regulatory approvals; and
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global and local macroeconomic developments, components shortage, effects of the Russia-Ukraine war, the conflict between China and
Taiwan, and the state of war declared in Israel in October 2023, and other global occurrences, such as an outbreak of pandemic with similar
effect.
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Many of these factors are beyond our control, and we believe that
period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
All these factors and any corresponding price fluctuations may
materially and adversely affect the market price of our ordinary shares and may result in substantial losses to our investors.
In addition to the volatility of the market price of our shares,
the stock market in general and the market for technology companies in particular, has been highly volatile and at times thinly traded.
These broad market and industry factors may seriously harm the market price of our ordinary shares, regardless of our operating performance.
Investors may not be able to resell their shares following periods of volatility.
In addition, the volatility of the market price of our share, especially
when market price is perceived to be very low, may stimulate hostile activities against us such as capital markets’ “activists”
trying to influence our operations and hostile takeover attempts by competitors (or other potential stakeholders), as we have recently
experienced (see below under “
Attempts for a hostile takeover or shareholder activism, may negatively
affect our business”)
. This may cause a significant distraction of management attention in executing against our plans and
adversely impact our business and financial results.
Moreover, the market prices of equity securities of companies
that have a significant presence in Israel may also be affected by changes in the Middle East, including political and economic changes,
and particularly in Israel. As a result, these companies may experience volatility in their share prices and/or difficulties in raising
additional funds required to effectively operate and grow their businesses. Thus, market and industry-wide fluctuations and political,
economic and military conditions in the Middle East and Israel, may adversely affect the trading price of our ordinary shares, regardless
of our actual operating performance. For further details see below under “
Conditions in the Middle
East and in Israel may adversely affect our operations
”
.
Further, as a result of the volatility of our stock price, we could
be subject, and are currently subject, to securities litigation, which could result in substantial costs and divert management’s
attention and Company resources from our business. On January 6, 2015, the Company was served with a motion to approve a purported class
action, naming the Company, its CEO and its directors as defendants, which was filed with the District Court of Tel-Aviv, was based on
Israeli law and alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements
during the period between July and October 2014. The plaintiff seeks specified compensatory damages in a sum of up to $75,000,000, as
well as attorneys’ fees and costs. Interim proceedings were held with respect to the application of the Securities Act, the Securities
Exchange Act, as amended, and the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, following a judgment
issued by the Israeli Supreme Court stating that Israeli companies whose shares are dually traded in Israel and in certain foreign stock
exchange, will be subject to the listing rules in the foreign jurisdiction. To date, after a rehearing proceedings it was ruled that U.S.
law will apply also in our case, which was returned to the first judicial instance and will be adjudicated as a class claim under U.S.
law. The Court further held that the Company’s claims based upon the statute of limitations should also be adjudicated under U.S.
law. On March 20, 2022, following the Court’s decision, the plaintiff filed to the first judicial instance, an amended class action
claim, based on provisions of U.S. law, estimated at $52,099,000. For more information see below in Item 8. “FINANCIAL INFORMATION
– Legal Proceedings”.
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If we sell ordinary shares
in future financings, shareholders may experience immediate dilution and as a result our share price may decline.
In order to raise additional capital, we may at any time offer
additional ordinary shares or other securities convertible into or exchangeable for our ordinary shares at prices that may not be the
same as the price paid for our ordinary shares by our shareholders. We have a shelf registration statement on Form F-3 on file with the
SEC which allows us to offer and sell, from time to time, in one or more offerings, our ordinary shares, rights, warrants, debt securities
and units comprising any combination of these securities with an aggregate offering price of up to U.S.$150 million (the “Shelf
Registration Statement”). The price per share at which we will sell additional ordinary shares, or securities convertible or exchangeable
into ordinary shares, in future transactions, including under the Shelf Registration Statement, may be higher or lower than the price
per share paid by our existing shareholders. If we issue ordinary shares or securities convertible into ordinary shares, our shareholders
would experience additional dilution and, as a result, our share price may decline.
In addition, as opportunities present themselves, we may enter
into financing or similar arrangements in the future, including the issuance of debt or equity securities with or without additional securities
convertible or exchangeable into ordinary shares. Whether or not we issue additional shares at a discount, any issuance of ordinary shares
will, and any issuance of other equity securities may, result in additional dilution of the percentage ownership of our shareholders and
could cause our share price to decline. New investors could also gain rights, preference and privileges senior to those of our shareholders,
which could cause the price of our ordinary shares to decline. Debt securities may also contain covenants that restrict our operational
flexibility or impose liens or other restrictions on our assets, which could also cause the price of our ordinary shares to decline.
Attempts for a hostile takeover or shareholder
activism may negatively affect our business.
In recent years, shareholder activists have become involved in
numerous public companies. We experienced such involvement in 2022 by our competitor Aviat that launched a hostile takeover attempt against
us. Shareholder activists could propose involving themselves in the governance, strategic direction and operations of a company. While
shareholders’ activism might be, in certain cases, an efficient course of action taken by financial investors in order to enhance
market efficiency and financial performance, other shareholders might have hostile intentions towards the company and may provoke actions
which are intended to damage its business and reputation.
Shareholder activism in general, and hostile takeover attempts
in particular, including proxy contests, divert our management’s and Board’s attention and resources from our business, could
give rise to perceived uncertainties as to our future direction, could result in the loss of potential business opportunities, limit our
ability to raise funds and make it more difficult for us to attract and retain qualified personnel for positions in both management and
Board levels. In addition, if nominees advanced by activist shareholders are elected or appointed to our Board with a specific agenda,
it may adversely affect our ability to effectively and timely implement our strategic plans or to realize long-term value from our assets.
Also, we may be required to incur significant expenses, including legal fees, related to hostile takeover, or shareholder activism matters.
Further, our share price could be subject to significant fluctuations or otherwise be adversely affected by the events, risks and uncertainties
associated with any shareholder activism in general, and hostile takeover attempts in particular.
Risks Relating to Operations in Israel
Conditions in the Middle East and in Israel
may adversely affect our operations.
On October 7, 2023, the “Swords of Iron” war broke
out between Israel and the terrorist organizations in the Gaza Strip, following a surprise attack on Israel led by certain armed groups
in the Gaza Strip that included massacres, terrorism and crimes against humanity. As of the date hereof, the majority of the fighting
is concentrated in the southern region of the State of Israel, and there have been additional active hostilities, including with the Hezbollah
(a Shia Islamist political party and militant group based in Lebanon), culminating in a 60-day cease fire
agreed to between Israel and the Hezbollah on November 27, 2024, the result of which is uncertain, and the Houthi movement which controls
parts of Yemen. The Houthi movement in Yemen has targeted marine vessels in the Red Sea, affecting those enroute to Israel or partly owned
by Israeli businesses. This has led shipping companies to reroute or halt shipments to Israel. The Red Sea is crucial for Israel’s
trade, and disruptions could cause delays in supplier deliveries, longer lead times, and increased costs for freight, insurance, materials,
and labor, and have a general adverse effect on the Israeli market. In addition, Israel has experienced hostilities with Iran, which is
perceived by Israel as sponsor of Hamas (a militia group and political party controlling the Gaza Strip), Hezbollah and the Houthi movement and
attacked Israel and has threatened to do so in the future, as well as with Iranian-backed militias in Syria. All these hostilities may
escalate in the future into a greater regional conflict. Israel responded to the attacks against it with airstrikes and extensive mobilization
of armed forces, including reserves, in the Gaza Strip and in the north of Israel in Lebanon and Syria and with airstrikes in Iran and
Yemen. In addition, most recently Israel has been involved in an armed operation with armed groups in the West Bank, which also included
mobilization of armed forces.
Our facilities did not sustain any damage and in accordance with
the instructions of the Israeli National Emergency Management Authority, there is currently no limitation or denial of access or activity
limitation in our facilities. None of our employees were directly harmed as a result of the war. As of the date hereof, we operate continuously,
and so far, the situation in Israel has not had a material effect on our operations and business. We monitor closely the directives of
the Israeli National Emergency Management Authority and where needed, make required adjustments to our operations in accordance with such
directives, including by instructing our workforce to work remotely.
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Our headquarters, a substantial part of our research and development
facilities and some of our contract manufacturers’ facilities are located in Israel. Accordingly, we are directly influenced by
the political, economic and military conditions affecting Israel. Specifically, we could be adversely affected by:
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hostilities involving Israel;
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the interruption or curtailment of trade between Israel and its present trading partners;
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a downturn in the economic or financial condition of Israel; and
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a full or partial mobilization of the reserve forces of the Israeli army.
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Since its establishment in 1948, Israel has been subject to a number
of armed conflicts that have taken place between it and its Middle Eastern neighbors. While Israel has entered into peace or normalization
agreements with Egypt, Jordan, UAE, Bahrain, Morocco and Sudan, it has no peace arrangements with any other neighboring or other Arab
countries.
Further, all efforts to improve Israel’s relationship with
the Palestinians have failed to result in a peaceful solution, and there have been numerous periods of hostility, acts of terror against
Israeli civilians, as experienced recently once again in Israel, as well as civil insurrection of Palestinians in the West Bank and the
Gaza Strip.
All of the above raise a concern as to the stability in the region
which may affect the security, social, economic and political landscape in Israel and therefore could adversely affect our business, financial
condition and results of operations.
Furthermore, certain countries, primarily in the Middle East but
also in Malaysia and Indonesia, as well as certain companies and organizations in different parts of the world, continue to participate
in a boycott of Israeli brands and others doing business with Israel and Israeli companies. The boycott, restrictive laws, policies or
practices directed towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverse effect on our
business in the future. In addition, should the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli
institutions (including universities) and products become increasingly influential in the United States and Europe, this may also adversely
affect our business and financial condition. Further deterioration of Israel’s relationship with the Palestinians or countries in
the Middle East could expand the disruption of international trading activities in Israel, may materially and negatively affect our business
conditions, could harm our results of operations and adversely affect the Company’s share price. In addition, in January 2024 the
International Court of Justice, or ICJ, issued an interim ruling in a case filed by South Africa against Israel in December 2023, in connection
with the “Swords of Iron” war, and ordered Israel, among other things, to take steps to provide basic services and humanitarian
aid to civilians in Gaza and in November, 2024, the International Criminal Court, or ICC, issued arrest warrants for Israeli Prime Minister
Benjamin Netanyahu and former Israeli Minister of Defense Yoav Gallant based on allegations of war crimes. Companies and businesses may
terminate, and may have already terminated, certain commercial relationships with Israeli companies following the ICJ and ICC decisions.
The foregoing efforts by countries, activists and organizations, particularly if they become more widespread, as well as rulings by the
ICJ, ICC and other international tribunals, may materially and adversely impact on our business and supply chains. There are concerns
that companies and businesses will terminate, and may have already terminated, certain commercial relationships with Israeli companies
following the ICJ and the ICC decisions.
Our business may also be disturbed by the obligation of personnel
to perform military service. Our employees who are Israeli citizens are generally subject to a periodic obligation to perform reserve
military service, until, in general, they reach the age of 45 (or older, for reservists with certain occupations), but during military
conflicts, these employees may be called to active duty for longer periods of time, as occurred, and may continue to occur, during the
“Swords of Iron” war. In response to the increase in violence and terrorist activity in the past years, and especially during
the “Swords of Iron” war, there have been, and may continue to be, periods of significant call-ups for military reservists.
In case of further regional instability such employees, who may include one or more of our key employees, may be absent for extended periods
of time which may materially adversely affect our business.
Furthermore, our Company’s insurance does not cover loss
arising out of events related to the security situation in the Middle East. While the Israeli government generally covers the reinstatement
value of direct damages caused by acts of war or terror attacks, we cannot be certain that such coverage will be maintained.
Another risk for political, social and economic instability in
Israel is associated with the extensive changes which began in early 2023 by the current Israeli government with respect to Israel’s
judicial system. In response to such developments, individuals, organizations and financial institutions, both within and outside of Israel,
have voiced concerns that the proposed changes may negatively impact the business environment in Israel including due to reluctance of
foreign investors to invest or conduct business in Israel, as well as to increased currency fluctuations, downgrades in credit rating,
increased interest rates, increased volatility in securities markets, and other changes in macroeconomic conditions. Such proposed changes
may also adversely affect the labor market in Israel or lead to political instability or civil unrest. To the extent that any of these
negative developments do occur, they may have an adverse effect on our business, our results of operations and our ability to raise additional
funds, if deemed necessary by our management and board of directors, and to attract or retain qualified and skilled “talents”
and personnel.
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Moreover, it is widely believed that the ongoing “Swords
of Iron” war has had and is anticipated to continue to have adverse effects on the Israeli economy. In October 2024, SP Global
downgraded Israel's long-term credit rating from A+ to A with a negative outlook, reflecting heightened security risk. This and reductions
by other international rating agencies such as Moody's and Fitch Ratings could disrupt the business environment and make investors hesitant
to invest or transact business in Israel, as well as make it more difficult and expensive for us to raise capital and negatively influence
the market price of our ordinary shares.
We can give no assurance that the political, economic and security
situation in Israel will not have a material adverse effect on our business in the future.
We received grants from the IIA that may require
us to pay royalties and restrict our ability to transfer technologies or know-how outside of Israel.
In prior years we have received government grants from the Israel
Innovation Authority (the “IIA”) for the financing of a portion of our research and development expenditures in Israel. Under
royalty-bearing financing programs, we are obligated to repay the grants by way of royalty payments from revenues generated by the sale
of products and/or services developed in the framework of the approved RD program using financing from such grants (“Financed
Know-How”). Such royalties are payable until 100% of the amount of the grant (as adjusted for fluctuation in the USD/NIS exchange
rate) is repaid with applicable interest. In December 2006, Ceragon entered into an agreement with IIA under which Ceragon paid its debt
to the IIA and since than Ceragon is exempt from royalty payments to the IIA, except for the programs of Siklu Communication Ltd. (“
Siklu
”)
(following this arrangement with the IIA, Ceragon is considered as “Technological Innovation Investment-Abundant Corporation”
and can apply for grants only under non-royalty-bearing programs).
Notwithstanding the full repayment of any IIA grants (together
with the applicable interest) by Ceragon, unless otherwise agreed by IIA, we must continue to comply with the requirements of the Israeli
Law for the Encouragement of Industrial Research and Development, 1984 and regulations promulgated thereunder (the “RD Law”)
with respect to technologies that were developed using Financed Know-How.
In accordance with certain grant plans, in addition to the obligation
to pay royalties to the IIA, the RD Law requires that products which incorporate Financed Know-How be manufactured in Israel, and
prohibits the transfer of Financed Know-How and any right derived therefrom to third parties, unless otherwise approved in advance by
the IIA. Such prior approval may be subject to payment of increased royalties. Failure to comply with the requirements under the
RD Law may subject us to financial sanctions, to mandatory repayment of grants received by us (together with interest and penalties),
as well as expose us to criminal proceedings. Although such restrictions do not apply to the export from Israel of the Company’s
products developed with such Financed Know-How, they may prevent us from engaging in transactions involving the sale, outsource or transfer
of such Financed Know-How or of manufacturing activities with respect to any product or technology based on Financed Know-How, outside
of Israel, which might otherwise be beneficial to us. Furthermore, the consideration available to our shareholders in a transaction involving
the transfer outside of Israel of Financed Know-How (such as a merger or similar transaction) may be reduced by any amounts that we are
required to pay to the IIA. Moreover, the government of Israel may from time to time audit sales of products which it claims incorporate
Financed Know-How and this may lead to royalties being payable on additional products, and may subject such products to the restrictions
and obligations specified hereunder.
Siklu is a part of royalty-bearing financing programs of the IIA.
Following the acquisition of Siklu, we have assumed additional restrictions and liabilities arising out of Siklu’s Financed Know-How.
For more information regarding the restrictions imposed by the
RD Law and regarding grants received by us from the IIA, please see Item 4. “INFORMATION ON THE COMPANY- B. Business Overview
- The Israel Innovation Authority.”
The tax benefits to which the Company believes
it should be entitled from the approved enterprise program, require us to satisfy specified conditions, which, if we fail to meet,
might deny us from these benefits in the future. Further, if such tax benefits are rejected, reduced or eliminated in the future,
we may be required to pay increased taxes.
The Company has certain capital investment programs that have been
granted approved enterprise status by the Israeli government (the “Approved Programs”), pursuant to Israel’s Law for
the Encouragement of Capital Investments, 1959 (the “Encouragement Law”). The Company has three capital investment programs
that have been granted Approved Enterprise status, under the Law. The benefit period under Approved Enterprise starts with the first year
the benefited enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have
not passed since the enterprise began operating. As of December 31, 2024, the 14 years have passed for the three Approved Enterprise programs.
The Company believes it will continue to be eligible to
enjoy the tax benefits in accordance
with the provisions of the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”). Once it begins to
generate taxable income from these approved enterprise programs, the portion of its income derived from these programs will be tax exempt
for a period of two years. The benefits available to an approved enterprise program are dependent upon the fulfillment of conditions stipulated
under the Encouragement Law and in the certificates of approval or in rulings obtained from the Israeli Tax Authorities. If we fail to
comply with these conditions, in whole or in part, we may be required to pay additional taxes for the period(s) in which we benefited
from the tax exemption and would likely be denied these benefits in the future. The amount by which our taxes would increase, will depend
on the difference between the then-applicable corporate tax rate and the rate of tax, if any, that we would otherwise pay as an approved
enterprise, and on the amount of any taxable income that we may earn in the future.
In addition, the Israeli government may reduce, or eliminate in
the future, tax benefits available to approved enterprise programs. Our Approved Programs and the resulting tax benefits may not continue
in the future at their current levels or at any level. The termination or reduction of these tax benefits would likely increase our tax
liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax increase, the amount of
any tax rate benefit reduction, and the amount of any taxable income that we may earn in the future. For a description of legislation
regarding “Preferred Enterprise” see Item 10. “ADDITIONAL INFORMATION”.
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Being a foreign private issuer exempts us from
certain SEC requirements and Nasdaq Rules, which may result in less protection than is afforded to investors under rules applicable to
domestic issuers.
We are a “foreign private issuer” within the meaning
of rules promulgated by the SEC. As such, we are exempt from certain provisions under the Exchange Act applicable to U.S. public companies,
including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K;
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the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process;
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the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
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the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profit realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months).
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In addition, we are permitted to follow certain home country corporate
governance practices and laws in lieu of certain Nasdaq Rules applicable to U.S. domestic issuers. For instance, we have relied on the
foreign private issuer exemption with respect to shareholder approval requirements for equity-based incentive plans for our employees
and the requirement to have a formal charter for our Compensation Committee. Following our home country governance practices rather than
the Nasdaq Rules that would otherwise apply to a U.S. domestic issuer, may provide less protection to investors. For the list of the specific
exemptions that we have chosen to adopt, please see Item 16G. “CORPORATE GOVERNANCE”.
We may lose our status as a foreign private
issuer, which would increase our compliance costs and could negatively impact our operations results.
We may lose our foreign private issuer status if (a) a majority
of our outstanding voting securities are either directly or indirectly owned of record by residents of the United States and (b) one or
more of (i) a majority of our executive officers or directors are United States citizens or residents, (ii) more than 50% of our assets
are located in the United States or (iii) our business is administered principally in the United States. In such case, we would be required
to, among other things, file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more extensive
than the forms available to a foreign private issuer, follow U.S. proxy disclosure requirements, including the requirement to disclose,
under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis, modify certain
of our policies to comply with accepted governance practices associated with U.S. domestic issuers and we would lose our ability to rely
upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers,
as described in the previous risk factor above. All of the above would cause us to incur substantial additional internal and external
costs, including for outside legal and accounting support.
It may be difficult to enforce a U.S. judgment
against us or our officers and directors, or to assert U.S. securities laws claims in Israel.
We are incorporated under the laws of the State of Israel. Service
of process upon our directors and officers, almost all of whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, because the majority of our assets and investments, and almost all of our directors and officers are located
outside the United States, any judgment obtained in the United States against us or any of them may not be collectible within the United
States.
Additionally, it may be difficult for an investor, to assert U.S.
securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation
of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli
court agrees to hear such a claim, it is not certain if Israeli law or U.S. law will be applicable to the claim. If U.S. law is found
to be applicable, the content of applicable U.S. law must be proved as a fact by an expert witness, which can be a time-consuming and
costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses
the matters described above. Under certain circumstances, Israeli courts might not enforce judgments rendered outside Israel, which may
make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.
Your rights and responsibilities as a shareholder
will be governed by Israeli law which differs in some respects from the rights and responsibilities of shareholders of U.S. companies.
Since we are incorporated under Israeli law, the rights and responsibilities
of our shareholders are governed by our Articles of Association as in effect from time to time (the “Articles of Association”),
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United
States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner
in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power
in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment
to a company’s articles of association, an increase of a company’s authorized share capital, a merger of a company and approval
of interested party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating
against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine
the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in a company, or has another power
with respect to a company, has a duty to act in fairness towards such company. Israeli law does not define the substance of this duty
of fairness and there is limited case law available to assist us in understanding the nature of this duty or the implications of
these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not
typically imposed on shareholders of U.S. corporations.
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Provisions of Israeli law may delay, prevent,
or make undesirable an acquisition of all or significant portion of our shares or assets.
Israeli corporate law regulates mergers and acquisitions and requires
that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to
certain conditions), which may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us.
Further, Israeli tax considerations may make potential transactions undesirable to us, or to some of our shareholders, if the country
of residence of such shareholder does not have a tax treaty with Israel (thus not granting relief from payment of Israeli taxes). With
respect to mergers, Israeli tax law provides tax deferral in certain circumstances but makes the deferral contingent on the fulfillment
of numerous conditions, including a holding period of two years from the date of the transaction, during which certain sales and dispositions
of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See Exhibit
2.1 Item 10.B. – “
Mergers and Acquisitions under Israeli Law”.
In addition, in accordance with the Israeli Economic Competition
Law, 1988 (the “Economic Competition Law”), and the RD Law, to which we are subject due to our receipt of grants from
the IIA, a change in control in the Company (such as a merger or similar transaction) may be subject to certain regulatory approvals in
certain circumstances. For more information regarding such required approvals please see Item 4. “INFORMATION ON THE COMPANY - B.
Business Overview -
The Israel Innovation Authority”.
In addition, as a corporation incorporated under the laws of the
State of Israel, we are subject to the Economic Competition Law and the regulations promulgated thereunder, under which we may be required
in certain circumstances to obtain the approval of the Israel Competition Authority in order to consummate a merger or a sale of all or
substantially all of our assets.
These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our shareholders, and may also adversely affect the price that investors may be willing to pay in the future for our ordinary shares.
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
We were incorporated under the laws of the State of Israel on July
23, 1996 as Giganet Ltd. We changed our name to Ceragon Networks Ltd. on September 6, 2000. We operate under the Companies Law, our registered
office is located at 3 Uri Ariav St., Bldg. A (7th Floor) PO Box 112, Rosh Ha’Ayin, Israel, 4810002, and our telephone number is
+972-3-543-1000. The U.S. Securities and Exchange Commission (SEC) maintains a public internet site that contains Ceragon’s filings
with the SEC and reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC (
http://www.sec.gov
). Our web address is www.ceragon.com. Information contained on
our website does not constitute a part of this annual report.
Our agent for service of process in the United States is Ceragon
Networks, Inc., our wholly owned U.S. subsidiary and North American headquarters, located at 851 International Parkway, Suite 1340, Richardson,
Tx 75081.
For information concerning the Company’s principal capital
expenditures currently in progress, refer to Item 5.B. “Liquidity and Capital Resources”.
On December 5, 2023, the Company closed the acquisition of 100%
of Siklu Communication Ltd. and the assets and business activities of Siklu, Inc.
On January 31, 2025, we closed on the acquisition, by way of merger,
E2E to further expand our offer to private networks, in consideration for approximately $8.5 million, subject to customary post-closing
adjustments and up to an additional $4.3 million subject to achieving certain financial goals primarily in 2025 and paid mostly in 2026.
At closing, Ceragon issued approximately 215,000 Ordinary Shares to the stockholders of E2E.
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B. Business Overview
We are the leading wireless transport specialist company in terms
of unit shipments and global distribution of our business, providing innovative high-capacity wireless connectivity solutions to global
markets across various industries, such as wireless (mobile) networks service providers and private networks.
Wireless transport is a means for connecting mobile and fixed network
sites (
e.g.
cellular base stations in various architectures) to the rest of the network. It carries
information to and from the cellular base stations. It is used as high-speed connectivity to telecom sites, typically when fiber optics
wireline connectivity is not available and for its backup, or where and when rapid deployment is required.
Ceragon’s innovative technology of compact multi-core all-outdoor
and Split-Mount wireless backhaul solutions, assisted in positioning Ceragon as a leader in the global wireless transport market, and
we expect that it would have potentially positioned us to benefit from new wireless generation transitions such as the current 5G evolution.
In preparation for the transition from 4G to 5G technologies, we
have begun planning the roll-out of new 5G-supporting products. In 2019, we introduced the market-first “disaggregated wireless
transport” architecture, which allows operators to significantly simplify 5G network deployment and maintenance, as well as reduce
of capital and operating expenses. We have invested in a new chipset which incorporates multi-cores to be incorporated in products expected
to be launched as of 2025. The first new incorporated product is IP-100E which was recently launched.
The term ‘wireless transport’ refers to various types
of network connectivity signaling and network protocols which vary in speeds and include (i) backhaul - used in 4G, 5G and earlier generations
of mobile networks to send data packets between the network and the base-stations and between the base-stations to other network elements,
and (ii) fronthaul - used in 4G and 5G networks to send radio signal values between building blocks of the base station, which can be
separated from another across geographic site locations to achieve network efficiencies in some network scenarios.
Wireless transport offers network operators a cost-efficient alternative
to wire-line connectivity between network nodes at different sites, mainly fiber optics. Support for high broadband speeds and very large
numbers of devices, means that all value-added services can be supported, while the high reliability of wireless systems provide for lower
maintenance costs. Because they require no trenching, wireless transport links can also be set up much faster and at a fraction of the
cost of fiber solutions. On the customer’s side, this translates into an increase in operational efficiency and faster time-to-market,
as well as a shorter timetable to achieving new revenue streams.
We provide wireless transport solutions and services that
enable cellular operators, other service providers and private networks to build new networks and evolve networks towards 4G and 5G services.
The services provided over these networks are: voice, mobile and fixed broadband, multimedia, Industrial/Machine-to-Machine (M2M), Internet
of Things (IoT) connectivity, public safety and other mission critical services. We also provide our solutions for wireless transport
to other vertical markets such as Internet service providers, public safety, municipalities, government, utilities, oil and gas offshore
drilling platforms, as well as maritime communications broadcasters and defense. Our wireless transport solutions use microwave and millimeter-wave
radio technologies to transfer large amounts of telecommunication traffic between wireless 5G, 4G, 3G and other cellular base station
technologies (distributed, or centralized with dispersed remote radio heads) and the core of the service provider’s network. We
follow industry consortiums of companies, which attempt to better define future technologies in ICT (Information and Communication Technologies)
markets, such as Open Networking Foundation (ONF), Metro Ethernet Forum (MEF), European Telecommunications Standards Institute (ETSI),
Telecom Infra Project (TIP) and others, and when it is relevant, we take part in industry processes and standards setting.
In addition to providing our solutions, we also offer our customers
a comprehensive set of turn-key services, including advanced network and radio planning, site survey, solutions development, network rollout,
maintenance, wireless transport network audit and optimization, and training. To enable delivery of turn-key solutions to our customers,
in addition to providing roll-out services, we have partnered with other third-party providers of technologies complementary to our own.
Our offering includes technologies such as: Unlicensed Point-to-Point, Private Long-Term Evolution (LTE), Licensed/unlicensed Point-to-Multipoint,
Internet Protocol/Multi-Protocol label Switching (IP/MPLS) SW and/or white boxes and others. This allows us to better cover our customers’
end-to-end needs and increases the level of stickiness with these customers. Our services include powerful project management tools such
as our “InSide Software” tool that streamline deployments of complex wireless networks, thereby reducing time and costs associated
with network set-up and allowing a fast time-to-revenue. Our experienced teams can deploy hundreds of wireless transport links every week,
and our rollout project track record includes hundreds of thousands of links already installed and operational with a variety of industry-leading
operators.
Designed for any network scenario, including risk-free flexible
migration from current and legacy network technologies and architectures to evolving standards and network transport scenarios, our solutions
provide ultra-high-speed connectivity at any distance, be it a few kilometers or tens of kilometers, and even longer, over any available
spectrum (or combinations of available spectrum bands) and in any site and network architecture. Our solutions support all wireless access
technologies, including 5G-NR NSA, 5G-NR SALTE, HSPA, EV-DO, CDMA, W-CDMA, WIFI and GSM as well as Tetra, P.25 and LMR for critical communications.
These solutions allow wireless service providers to cost-effectively and seamlessly evolve their networks from a monolithic base-station
architecture to an open radio access network (RAN) architecture, utilizing vertical and horizontal disaggregation, allowing them extra
flexibility, scalability and efficiency, thereby meeting the increasing demand of a growing number of connections of any type for consumers
and enterprises with growing needs for mobile and other multimedia services, and a growing number of machines or IoT devices such as street
surveillance devices or meters.
We also provide our solutions to other non-carrier vertical markets
(private networks) such as oil and gas companies, public safety organizations, businesses and public institutions, broadcasters, energy
utilities and others that operate their own private communications networks. Our solutions are deployed by more than 600 service providers
of all sizes, as well as in more than 1,600 private networks, in more than approximately 130 countries.
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The acquired portfolio of products of Siklu is widely deployed
in Fixed Wireless Access applications, addressing the needs of Telecom Service Providers delivering Internet access to commercial properties
or business campuses as well as to private homes, apartment building and/or gated communities. Additionally, these solutions address the
growing Smart City application, connecting wirelessly the many properties and assets of the cities (e.g CCTV cameras for security, traffic
or parking management, Wi-Fi Access points, or IOT sensors). Thus, a new range of integrated services is available to the residents, the
visitors and to organizations addressing this market.
In January 2025 we acquired by merger E2E to further expand our
offering to private networks. E2E provides a full end-to-end solution for private networks, primarily serving customers in Oil and Gas,
Utilities and industrial verticals. E2E is essentially a systems integration company that designs, deploys and manages connectivity solutions
to its customers as well as other related devices. In addition, E2E has developed a software solution to help manage the customers’
networks and monitor certain operational and business-related metrics. Except for this proprietary software, E2E provides products to
its customers sourced from its ecosystem of vendors.
Established in 2013, E2E is active in the United States, headquartered
in Minnesota and employs approximately 50 employees.
Wireless Transport; Short-haul, Long-haul and Small Cells Transport
Today’s cellular networks are predominantly based on 4G technologies.
These networks constantly undergo expansion of coverage, densification with additional sites to cater to higher demands for speeds and
to make more services available per given area. However, more than 200 service providers in all 5 continents have now launched 5G services.
These investments in 5G radio network infrastructure, and consequently, associated wireless transport, are expected to gradually increase
during the next several years. In order to allocate spectrum resources for 4G and 5G, some operators are shutting down their 2G and/or
3G network (a “network sunset”) in order to re-allocate radio access network frequency bands to 4.5 and 5G services. These
market dynamics of network expansion and densification have resulted in higher demand for wireless transport capacity, at increased density,
accommodating sophisticated services over the network at far higher volume than available up to recent years. Such services include the
many 5G use cases, which among others include enhanced mobile broadband, mission critical services, IoT Industrial IoT (Industry
4.0, or “IIoT”), Gigabit broadband to homes, multi Gigabits services to enterprises and more.
The wireless transport market of service providers is divided into
two main market segments. The first is a market segment in which operators invest resources and efforts to select the best wireless transport
solution that will meet their wireless transport needs, in terms of the ability to improve their business operational efficiency, services
reliability and their customers’ (subscribers’) quality of experience. This market segment is referred to as “best-of-breed”.
The other market segment is characterized by operators that do not select the wireless transport solution, since this decision is made
by a network’s solution provider retained by the operator. This network solution provider delivers a full end-to-end solution and
the equipment required to operate the entire network, including the wireless transport equipment. Operators in this segment of the market
rely on the network solution providers to choose wireless transport as part of the full end-to-end solution while often compromising on
performance and optimization of the network and other resources, as see it as a solution which does not play a primary role within the
end-to-end network rollout considerations. This segment of the market is referred to as “bundled-deals”. Ceragon will also
sometimes offer end-to-end solutions to private networks, where usually there is no mobile network, utilizing its ecosystem of 3
rd
party vendors.
Ceragon serves the “best-of-breed” segment of the market
and specializes in a range of solutions, which to the Company’s belief, provide high value for our customers including:
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Short-haul solutions, which typically provide a wireless link capacity of up to 4 Gbps per link for backhaul with single unit, and/or
a link capacity of up to 20Gbps for fronthaul (25Gbps with next generation Eband IP-100E). These solutions are available for distances
of several hundred feet to 10 miles. Short-haul links are deployed in access applications (macro cells and small cells and distributed
cells) wirelessly connecting the individual base-stations or base-station element (i.e. a “central unit”, a “distributed
unit” or a “radio unit”) towers to the core network. Short-haul solutions are also used in a range of non-carrier “vertical”
applications such as state and local government, public safety, education and off-shore communication for oil and gas platforms.
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Long-haul solutions, which typically provide a capacity of up to 10 Gbps, are used in the “highways” of the telecommunication
backbone network. These links are typically used to carry services at distances of 10 to 50 miles, and, using the right planning, configuration
and equipment, can also bridge distances of 100 miles and more. Long-haul solutions are also used in a range of non-carrier “vertical”
applications such as broadcast, state and local government, public safety, utilities and offshore communication for oil and gas platforms.
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Ceragon has, on more than one occasion, been the first to introduce
new products and features to the market, including the first solution for wireless transmission for evolving cellular networks, providing
155 Mbps at 38 GHz in 1996 and numerous microwave and millimeter-wave technology innovations thereafter. Since 2008, Ceragon has invested
in pioneering the multicore technology focusing on addressing the multiple wireless transport challenges of 4G and 5G services. This technology
is at the core of Ceragon’s in-house developed chipsets for wireless transport, now in their Fourth generation, which enable Ceragon
to design and offer vertically integrated solutions. This vertical integration enables Ceragon to provide higher flexibility, better performance,
and improved time-to-market. With the first products based on multicore technology introduced to the market in 2013, Ceragon has enabled
dual-core radios and far advanced capabilities, such as Line-of-Sight Multiple Input Multiple Output (LoS MIMO), which allows efficient
use of spectrum where congestion of frequencies exist, Advanced Frequency Reuse (AFR), which allows massive network densification and
Advanced Space Diversity (ASD), which eliminates the use of multiple antennas in various network scenarios, thereby accelerating network
deployment and reducing total cost of ownership.
In 2019, Ceragon introduced the market-first “disaggregated
wireless transport” architecture, which allows operators to significantly simplify 5G network deployment and maintenance, as well
as reduce capital and operating expenses.
Ceragon has invested in a new chipset which incorporates multi-cores
in a chipset which was launched in 2024. This is integrated into our IP-100E product line which was recently launched and will be in mass
production and productization
during
2026, offering
industry-leading performance and capacity.
33
Industry Background
The market demand for wireless transport is being generated primarily
by cellular operators, wireless broadband service providers, businesses and public institutions that operate private networks. This market
is fueled by the explosion in mobile data usage in developing and developed countries.
The main catalyst for the wireless transport evolution has been
the huge increase in data and video consumption across the globe. This evolution generates higher capacity and cost-efficient architectures,
based on IP/Ethernet technologies in a developing set of network scenarios and architectures.
| • |
In 4G, the fronthaul transport network connects Remote Radio Heads (RRHs) to distant centralized/cloud Baseband Units (BBUs), while
backhaul connects BBUs back to 4G Evolved Packet Core (EPC). In 5G, the New Radios (NR) are connected to the BBU, which can be disaggregated
into a Central Unit (CU) and a Distributed Unit (DU). The new midhaul interconnects the CU to the DU via a new, standardized 3GPP interface.
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With help from organizations such as the operator-led O-RAN Alliance, 5G fronthaul and midhaul network interface specifications are
open and defined in a structured format. This allows MNOs to purchase RUs, DUs, CUs, and the associated transport networks between them,
from anyone. We believe that this presents new market opportunities for Ceragon’s leading wireless transport solutions with our
open network architecture.
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Rapid subscriber and connections growth and the proliferation of
advanced end devices, driven mainly by video content, have significantly increased the amount of traffic that must be carried over a cellular
operator’s transport infrastructure. The proliferation of industrial, security and metering devices through IoT technologies, and
implementation of new 5G network architectures is also increasing the total capacity and coverage that is needed to be transported throughout
networks and put additional strain on network capacity, requiring even higher capacity wireless backhaul and fronthaul connectivity.
New WiFi technologies offer much higher capacities to end users
and devices, and therefor require much higher capacity backhaul solutions.
Growing requirements are coming from private networks such as campuses,
oil gas, critical infrastructure and alike.
Smart and safe city projects require new capacities and performance
in ‘Street Level Networking’ in PtP and PtMP solutions.
With the growth in adoption of 4G and the accelerated pace of adoption
of 5G, which require even higher network speeds and wireless transport capacity, in particular, cellular operators are seeking strategies,
using new technologies, which will allow further business growth, to facilitate quick and cost-efficient enablement of new services for
more connected subscribers (either human or machine). Among those are Software Defined Networks (SDN) and Network Function Virtualization
(NFV) technologies, which are key for network slicing.
Network slicing is a network engineering model in which the physical
network is providing resources to numerous virtual networks on top, whereas each virtual network delivers a specific set of performance
characteristics for a specific service, or set of services, sharing common requirements. For example, a network slice that is tasked with
delivering ultra-high bandwidth for mission critical multimedia services (voice and video) to law enforcement agencies, requires a different
amount of network resources ensuring prioritized capacity and minimal delay variation, whereas a different network slice support video
streaming service for mobile entertainment. SDN and NFV technologies are designed to support network slicing models and its implementation,
for high quality subscriber experience, by simplifying service creation and orchestration through simple network traffic engineering rules
and tools, as well as enable end-to-end network resources optimization across all network domains, including the wireless transport domain,
for increased operational efficiency. Network resources optimization is expected to be achieved, in part, by the use of SDN technologies
with wireless transport optimization applications, which will exploit network intelligence gathered by SDN controllers within the network.
The wireless transport domain of the network will require adaptation
to these industry trends by enabling far higher capacities, with ultra-low latency for high service quality, simple service creation and
optimization to cope with the influx of a thousand-fold increase in the number of services compared to 4G networks, and a high degree
of wireless resources optimization (spectrum and other) that will be incorporated within the wireless transport network infrastructure.
34
Cellular Operators
In order to address the strain on backhaul and fronthaul capacity,
cellular operators have a number of alternatives, including leasing existing fiber lines, laying new fiber optic networks or deploying
wireless solutions. Leasing existing lines requires a significant increase in operating expenses and, in some cases, requires the wireless
service provider to depend on a direct competitor. Laying new fiber-optic lines is capital and labor-intensive and these lines cannot
be rapidly deployed. The deployment of high capacity and ultra-high-capacity point-to-point wireless links represents a scalable, flexible
and cost-effective alternative for expanding backhaul and fronthaul capacity. Supporting typical data rates of 2 Gbps (backhaul) and 20Gbps
(fronthaul) over a single radio unit, wireless transport solutions enable cellular operators to add capacity only as required while significantly
reducing upfront and ongoing backhaul and fronthaul costs.
The surge in mobile data usage, fueled by anticipation and adoption
of advanced releases of 4G and 5G services, drives operators to accelerate and finalize the migration of their networks to a more flexible,
feature-rich and cost optimized IP network architecture. Additionally, the surge in data usage in densely populated areas drives operators
to explore new network architectures that utilize a variety of small-cell technologies requiring the deployment of dense wireless transport
network in various microwave and millimeter-wave spectral bands. As operators intensify 4G services availability and transition to 5G
services, all of which are IP-based wireless access technologies, they look for ways to benefit from IP technology in their transport
network while maintaining support for their primary legacy services. The progression that is expected in 5G networks rollout over the
next several years, will broaden cellular operators’ assessment of the growing role that wireless backhaul and fronthaul may take
in their network, as reaching the small cells with more fiber is expected to become a significant challenge, both physically and economically.
Wireless Broadband Service Providers
For wireless broadband service providers, which offer alternate
high data access, high-capacity transport is essential for ensuring continuous delivery of rich media service across their high-speed
data networks. If the transport network and its components do not satisfy the wireless broadband service providers’ need for cost-effectiveness,
resilience, scalability or ability to supply enough capacity, then the efficiency and productivity of the network may be seriously compromised.
While both wireless and wire-line technologies can be used to build these transport systems, many broadband service providers opt for
wireless point-to-point microwave solutions. This is due to a number of advantages of the technology including: rapid installation, support
for high-capacity data traffic, scalability and lower cost-per-bit compared to wire-line alternatives.
This market segment will also benefit (in some cases) from PtMP
solutions as well.
Private Networks and Other Service Providers
Many large businesses and public institutions require private high
bandwidth communication networks to connect multiple locations. These private networks are typically built using IP-based communications
infrastructure. This market includes educational institutions, utility companies, oil and gas industry, broadcasters, state and local
governments, public safety agencies, maritime customers, defense contractors and more. These customers continue to invest in their private
communications networks for numerous reasons, including security concerns, the need to exercise control over network service quality and
redundant network access requirements. As data traffic on these networks rises, we expect that businesses and public institutions will
continue to invest in their communications infrastructure, including wireless transport equipment. Like wireless service providers, customers
in this market demand a highly reliable, cost-effective transport solution that can be easily installed and scaled to their bandwidth
requirements. Approximately 15% of our business is associated with private network. Following the acquisition by merger of E2E and along
with our organic efforts, our share of business associated with private networks may increase in the future.
This market segment will also benefit (in some cases) from PtMP
solutions as well.
Wireless vs. Fiber Transport
Though fiber-based networks can easily support the rapid growth
in bandwidth demands, they carry high initial deployment costs and take longer to deploy than wireless. Certainly, where fiber is available
within several hundred feet of the operator’s point of presence, with ducts already in place, and when there are no regulatory issues
that prohibit the connection – fiber can become the operator’s preferred route. In other scenarios, high-capacity wireless
connectivity using microwave and millimeter-wave technologies (wireless transport), is significantly more cost efficient. Wireless transport
is taking a significant role in 4G network densification and is expected to take an even more significant role in the 5G rollout as a
result of ease, cost and the speed of deployment. In fact, in most cases the return-on-investment from fiber installations can only be
expected in the long term, making it hard for operators to achieve lower costs per bit and earn profits in the foreseeable future.
Wireless microwave and millimeter-wave transport solutions on the
other hand are capable of delivering high bandwidth, carrier-grade network services. Our wireless transport solutions are suitable for
all capacities, carrying multi Gbps of the operators’ traffic over a single radio connection (or “link”). Unlike fiber,
wireless solutions can be set up quickly and are more cost efficient on a per-bit basis from the outset. In many countries, microwave
and millimeter-wave links are deployed as alternative routes to fiber, ensuring on-going communication in case of fiber-cuts and network
failures.
35
Licensed vs. License-exempt Wireless Transport
Licensed wireless transport:
Service providers select the optimal available transmission frequency based on the rainfall intensity in the transmission area and the
desired transmission range. The regulated, or licensed, microwave bands (4-42GHz) and millimeter-wave bands (71-86GHz) are allocated by
government licensing authorities for high-capacity wireless transmissions. The license grants the licensee the exclusive use of that spectrum
for a specific use thereby eliminating any interference issues. A licensed microwave or millimeter-wave spectrum is typically the choice
of leading operators around the world because it matches the bandwidth and interference protection they require. Our licensed spectrum
products operate across the entire span of the licensed microwave and millimeter-wave spectrum described herein, from 4GHz microwave to
86GHz, delivering multi Gbps per link and are scalable and versatile to meet all radio access networks, small cells, private networks
and long-haul radio transmission paths requirements.
License-exempt wireless transport:
Service providers and private network owners also select license-exempt spectrum in order to provide high speed connectivity to businesses,
campuses (often regarded as a wireless backhaul) and serve cellular small cells with wireless backhaul connectivity, without regulatory
approval for spectrum.
License exempt spectrum can be categorized into two main categories:
1) 57 – 66GHz millimeter-wave band, known as the v-band spectrum and operating at very wide channel bandwidths, up to 2,000MHz and
capable of delivering up to multiple Gbps bi-directional capacity. The use of v-band spectrum requires the existence of a line of sight
between the sites. Additional V-band solutions include point-to-multipoint and mesh networks architectures which provide up to multiple
Gbps aggregate capacity and their primary use is for access services to end-users with limited capacity of backhaul operating within the
access service spectrum (in-band backhaul); and 2) sub 6GHz license-exempt spectrum, operating at narrow channel bandwidths delivering
up to 1Gbps bi-directional capacity (FDD), typically in point-to-multipoint network architecture. The use of sub 6GHz spectrum allows
for non, or near, line of sight connectivity between the sites and facilitates an economic and flexible rollout model, at the expense
of achieving modest capacity, as specified above. License exempt V-band and sub 6GHz bands are more vulnerable to interference as a result
of the uncoordinated use of the spectrum.
Our Solutions
We offer a broad product portfolio of innovative, field-proven,
high-capacity wireless transport solutions, which incorporate our unique multicore technology. Our multicore technology is a key element
in our differentiation within the wireless transport market, serving the “best-of-breed” market segment. Our multicore technology
is comprised of a high order of digital signal carriers embedded in modems having multiple baseband cores, designed for microwave and
millimeter-wave communications, and RF integrated circuits (RFIC), which support the entire available microwave and millimeter-wave spectrum.
We integrate our multicore technology SoCs into sub-systems and complete wireless transport solutions that deliver high value for our
customers. With our approach to solutions, from system-on-a-chip design, all the way to solutions design, we enable cellular operators,
other wireless service providers, public safety organizations, utility companies and private network owners to effectively obtain a range
of benefits:
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Increase business operational efficiency by reducing network-related expenses.
Our customers
are able to obtain the required capacity with one-quarter of the spectrum needed otherwise, double network capacity without adding more
equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing our energy efficient
products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use
of a single wireless transport platform for their long-haul, short-haul and small/distributed cells transport needs. We offer a range
of solutions for quick and simple modernization of wireless networks to 4G and 5G, which significantly contribute to our customers’
ability to modernize and expand their services.
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Our wireless transport solutions are offered across the widest
range of frequencies - from 4GHz microwaves to 86GHz millimeter-waves. This provides our customer with more flexibility in deploying its
wireless transport infrastructure, as it enables the customer to select the spectrum available in the customer’s market, from a
wider range of frequencies. Any transport network topology is supported to enable high network availability and resiliency, including
ring, mesh, tree and chain topologies.
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Enhance service portfolio, quality of experience and reach.
Our multicore technology allows
our customers to introduce new services (e.g. 5G use cases), to improve subscriber (user) quality of experience generated from the voice,
data and multimedia services that they provide to their customers and to extend their network and services reach in order to address new
markets. Our All-outdoor offering enables quicker installation and deployment, hence improving time-to-market of our customers’
services to their subscribers.
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Ensure peace of mind.
Our solutions utilize the latest in microwave and millimeter-wave technology,
incorporated in-house developed System-on-Chips (baseband and RF integrated circuits), and use the latest advances in SMT (Surface-mount
technologies) based manufacturing – allowing our customers to benefit from the highest service availability across their Ceragon-based
wireless transport network.
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End to End connectivity solutions for Private Networks.
Our solutions for private networks
include a suite of products and services, either owned by us or by our ecosystem partners, to support private networks in everything they
need for high quality connectivity solutions and complete support from initial ideation and design, to deployment, ongoing management
and support, allowing our customers to have a one-stop shop for all network related operations. Our acquisition by merger of E2E expands
our offering with additional services, use cases and proprietary vendor-agnostic management software.
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36
We provide our customers with future solutions already built-in
to their Ceragon-installed base. We invest a significant amount of effort in designing and providing solutions, which are not only backward
compatible with our earlier product generations, but also allow our customers to reuse the radio units and antennas of their Ceragon links
installed base, thereby replacing only the low labor-consuming indoor (sheltered) units - thus benefiting from the latest wireless transport
performance of our latest technology across their Ceragon-installed base. Moreover, our solutions support multiple technologies within
the same wireless transport equipment, providing our customers with high flexibility in network transition from legacy connectivity to
4G and 5G connectivity and architectures, at their desired pace of transition - while achieving long-term operational efficiency, high
service quality and availability.
Design to Cost
. We see
increasing demand for smaller systems with low power consumption and a cost structure that fits today’s business environment in
the diverse markets, seeking wireless transport solutions. We believe that this complicated puzzle can only be solved through vertical
integration from system to chip level. Our strategy to drive performance up while driving costs down is achieved through our investment
in modem and RF (radio frequency) integrated circuit (IC) design. Our advanced chipsets, which are already in use in hundreds of thousands
of units in the field, integrate all the radio functionality required for high-end microwave and millimeter-wave systems. By owning the
technology and controlling the complete system design, we achieve a very high level of vertical integration and cost structure and control
over the timing of introducing certain capabilities, which is not available to vendors relying on off-the-shelf chipsets. This, in turn,
enables us to yield systems that have superior performance when compared with systems which use off-the-shelf chipsets component available
from the other single source, due to our ability to closely integrate and fine-tune the performance of all the radio components. We have
introduced automated testing that allows us to speed up production while lowering the costs for electronic manufacturing services manufacturers.
Thus, we believe we are able to achieve one of the lowest per-system cost positions in the industry and can offer our customers further
savings through compact, low power consumption designs – which is becoming a key parameter in the ability of operators to deploy
their networks, while meeting operational efficiency targets, and at the same time promote a more “green” environment by reducing
energy consumption and environmental pollution caused thereby.
Strategic Partnerships.
Ceragon maintains strategic partnerships with third party solution vendors and network integrators. Through these relationships Ceragon
develops interoperable ecosystems, enabling operators and private networks to profitably evolve networks by using complementary transport
alternatives. In some cases, we have entered into a strategic alliance with a multinational technology company that, nevertheless, chooses
our technology for its future products, acknowledging that we propose the “best-of-breed” cutting edge technology.
Our Products
Our portfolio of products utilizes microwave and millimeter-wave
radio technologies that provide our customers with a wireless connectivity that dynamically adapts to weather conditions and optimizes
range and efficiency for a given frequency channel bandwidth. Our products are typically sold as a complete system comprised of some or
all of the following four components: an outdoor unit, an indoor unit, a compact high-performance antenna and a network management system.
We offer all-packet microwave and millimeter-wave radio links, with optional migration from TDM to Ethernet. Our products include integrated
networking functions for both TDM, Ethernet and IP/MPLS.
We offer our products in four configurations: All-outdoor, split-mount,
all-indoor, and disaggregated transport.
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All-outdoor solutions combine the functionality of both the indoor and outdoor units in a single, compact device. This weather-proof
enclosure is fastened to an antenna, eliminating the need for rack space or sheltering, as well as the need for air conditioning, and
is more environmentally friendly due to its lower footprint and power consumption.
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Split-mount solutions consist of:
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Indoor units which are used to process and manage information transmitted to and from the outdoor unit, aggregate multiple transmission
signals and provide a physical interface to wire-line networks.
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➢ |
Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, and provide an interface between antennas
and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units are connected to outdoor units
by standard coaxial or Cat-5/6 baseband cables.
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All-indoor solutions refer to solutions in which the entire system (indoor unit and RFU) resides in a single rack inside a transmission
equipment room. A waveguide connection transports the radio signals to the antenna mounted on a tower. All indoor equipment is typically
used in long-haul applications.
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Disaggregated wireless transport solutions offer a single radio suitable for all-outdoor, a split-mount scenario, and a networking
unit, which provides versatile and scalable hardware options based on merchant routing silicon and also provides routing capabilities
(L3) that are radio technologies aware.
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Pointing out accurate solutions for high movement environments. These are advanced microwave radio systems for use on moving rigs/vessels
where the antenna is stabilized in one or two axes, azimuth or azimuth/elevation.
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Antennas are used to transmit and receive microwave radio signals from one side of the wireless link to the other. These devices
are mounted on poles typically placed on rooftops, towers or buildings. We rely on third party vendors to supply this component.
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End-to-End Network Management. Our network management system uses standard management protocol to monitor and control managed devices
at both the element and network level and can be integrated into our customers’ existing network management systems.
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Unified network intelligence and management software suite: Provides an intuitive and in-depth view of the entire wireless transport
network. It is the ideal tool to proactively run, analyze and maintain network health for the best performance and functionality. In addition,
it provides self-defined automation use cases, pre-defined configuration files that can be uploaded quickly to the network elements -
on-site or remotely.
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Smart Activation Key: A single centralized Smart Activation Key that instantly discovers and automatically activates all network
elements.
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PtMP - We acquired a new type of solution that provides Point to Multi-Point offering. This solution is ideal for the emerging 5G
Gigabit Wireless Access (GWA) market for residential customers and many enterprise market segments that require dense gigabit connectivity.
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The IP-20 Platform
provides
a wide range of solutions for any configuration requirement and diverse networking scenarios. Composed of high-density multi-technology
nodes and integrated radio units of multiple radio technologies ranging from 4GHz and up to 86GHz, it offers ultra-high capacity of multiple
Gbps with flexibility in accommodating for every site providing high performance terminals for all-indoor, split mount and all-outdoor
configurations. The IP-20 platform supports carrier-ethernet services and is MEF 2.0 certified.
The IP-50 Platform
provides
wireless transport using a single type of radio in microwave or millimeter-wave for all configuration and installation scenarios and IP/MPLS
and segment routing capabilities over merchant silicon hardware options.
IP-20 All-outdoor solutions:
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Product
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Frequency range
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Application
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Networking transport technologies
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IP-20C
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6-42GHz, dual-carrier
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Shorthaul, small cells, enterprise
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Carrier Ethernet
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IP-20C-HP
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4-11GHz, dual-carrier
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Longhaul
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Carrier Ethernet
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IP-20S
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6-42GHz
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Shorthaul, enterprise
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Carrier Ethernet
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IP-20E
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71-86GHz
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Shorthaul, small cells, enterprise
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Carrier Ethernet
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IP-20V
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57-66GHz
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Shorthaul, small cells, enterprise
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Carrier Ethernet
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38
IP-20 Split-mount / all-indoor solutions:
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Product
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Frequency range
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Application
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Networking transport technologies
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IP-20N / IP-20A
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4-86GHz
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Shorthaul, Long-haul
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Carrier Ethernet, TDM
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IP-20F
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4-86GHz
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Shorthaul
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Carrier Ethernet, TDM
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IP-20G
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6-42GHz
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Shorthaul
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Carrier Ethernet, TDM
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IP-50 disaggregated solutions:
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Product
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Frequency range
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Application
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Networking transport technologies
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IP-50E
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71-86GHz
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Shorthaul, Fronthaul, Enterprise access
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CE
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IP-50EX
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71-86GHz
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Shorthaul, Enterprise access
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CE
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IP-50C
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6-42GHz, dual-carrier
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Shorthaul
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CE
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IP-50CX
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6-42GHz, dual-carrier
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Shorthaul
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CE
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IP-50FX
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6-86GHz
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Shorthaul, Long-haul, Routing
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IP/MPLS, CE
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As wireless transport capacity needs grow, the wireless transport
network blueprint evolves to supporting more radio carriers in one box (2 carriers, instead of 1) as a basic configuration with the IP-20C
product, or even 4+0 (a link utilizing 4-carriers in a carrier-aggregation configuration) in all-outdoor configuration with layer-1 carrier
aggregation to support growing capacity needs at minimal footprint with the IP-50C product. Ceragon’s multicore technology covers
all network scenarios and site configurations wherever All-outdoor, Split-mount, or All-indoor. Various multicore radio units can be used
with IP-20N/ IP-20A, IP-20F or IP-50FX products, such as RFU-D and the RFU-D-HP, or IP-50C and IP-50E in the disaggregated solution (i.e.
can be used as a stand-alone, all-outdoor radio or in a split-mount configuration, connected to the IP-50FX). As part of the IP-50FX Disaggregated
Cell Site Gateway (DCSG), we introduced a Radio Aware Open Networking (RAON) Software, designed to increase operational efficiency, simplify
radio monitoring and management, and expect in the future to release a reduced energy consumption.
In addition to the IP-20 and the IP-50 Platforms, Ceragon
provides the PointLink portfolio that offers a tailored solution for oil and gas and other maritime offshore applications.
We are also able to address a new range of markets and opportunities
with the addition of Siklu’s products:
The EtherHaul Platform
(EH)
provides a wide range of Point-to-Point all-outdoor radios operating in the mmWave spectrum (V-band 60GHz license-exempt and E-band 70/80GHz
lightly licensed). Deployable at street level with integrated antennas or on roof-tops and towers with external antennas, the capacity
ranges from 1Gbps to 20Gbps. All the radios are PoE or DC powered, and many offer PoE-out options to power additional equipment served
by the wireless link.
39
The MultiHaul Platform
(MH)
is a novel series of all-outdoor compact radios operating in the 60GHz license exempt spectrum, with beam-forming self-aligning antennas,
and Layer 2 SDN MESH capability for SON (Self-Organizing-Network). The radios operate in Point-to-Multipoint topologies, lowering the
cost of the radio link, and growing the range or coverage of the wireless network. The MESH can feature redundant links to raise the resiliency
of the wireless network. All the radios are PoE powered, and many offer PoE-out options to power additional equipment served by the wireless
link.
|
Product
|
Frequency range
|
Application
|
Networking transport technologies
|
|
EH-600TX,
EH-614TX
|
57-68GHz
|
Smart City, Street level, Broadband Access, Private Network
|
PtP, CE transparent bridge, PoE-in/out
|
|
EH-710TX
|
71-76GHz
|
Smart City, Street level, Broadband Access, Private Network
|
PtP, CE transparent bridge, PoE-in/out
|
|
EH-8010FX
|
71-86GHz
|
Broadband Access, Private Network
|
PtP, transparent bridge
|
|
MH-B100 MH-T200
|
59-64GHz
|
Smart City, Street level, Broadband Access, Private Network
|
PtMP, transparent bridge to full VLAN, PoE-in/out
|
|
MH-N36x, MH-N265
MH-T280, MH-T265, MH-T260/1
|
57-66GHz
|
Smart City, Street level, Broadband Access, Private Network
|
PtMP, MESH, transparent bridge to full VLAN, PoE-in/out
|
Our network management system (NMS) can be used to monitor network
element status, provide statistical and inventory reports, download software and configuration to elements in the network, and provide
end-to-end service management across the network. Our NMS solutions support all our microwave and millimeter-wave products through a single
user interface.
SDN (Software Defined Network) solution
As the mobile industry progresses towards the 5G era, SDN is becoming
more important for operators. SDN concepts and protocols will allow the operators to have a complete, multi-technology, multi-vendor view
of their network and apply optimization and predictive maintenance instructions in real time. The SDN concepts and values fit well the
openness and disaggregation principles our customers are seeking. We offer our customers a wide variety of SDN supporting products and
tools:
| • |
SDN Controller
– Ceragon’s SDN Master is a complete controller supporting SDN
protocols that can monitor and control Ceragon’s products in an SDN environment. The SDN Master can work as a ‘standalone’
controller, or as part of an SDN solution managed by a higher level SDN controller offered by a third-party vendor (sometimes referred
to as an SDN Orchestrator), allowing full flexibility to our customers.
|
| • |
SDN support in our wireless transport products
- all Ceragon IP-20 and IP-50 products support
the needed SDN protocols allowing the operator to manage these products with Ceragon SDN controllers but also with third party SDN controllers,
again, allowing full flexibility to our customers.
|
| • |
SDN applications
– Software (SW) tools with significant impact on our customers’
TCO (total cost of ownership), network availability, and fast network rollout. These applications enable operators to increase their network
efficiency and effectiveness with operational optimization and automatization capabilities. With the SDN technology, Ceragon SW solutions
are entering into the cloud domain allowing multiple open and flexible deployment scenarios for our customers. Currently, Ceragon is developing
and enhancing those and other SW tools in order to expand our offering also to stand-alone SW solutions and services either as on-premises,
remote or SaaS services. Ceragon recently launched “Ceragon Insight”, which is a unified network intelligence and management
software suite for wireless transport network. It aims to provide NOC and Engineering teams with deep insight and analytics tools that
save money by enabling highly effective operations, assuring quality of service, and speeding response to ongoing and upcoming issues.
|
40
IP-100 Platform
Ceragon has invested in a new chipset which incorporates multi-cores in a chipset
which was launched in 2024 and is now integrated into our IP-100E family, offering industry-leading performance and capacity. We are already
designing the first IP-100 products that will be using that chipset that will significantly increase our wireless transport products capabilities
in terms of higher capacity, lower latency and more, the first of them just recently launched. These capabilities will make the IP-100
platform the optimized choice for existing and new use cases in the 5G mobile market. The IP-100 platform is expected to expand Ceragon
products coverage beyond the MW bands, V-Band and E-Band range (4-86 GHz) and include W-band (up to 110 GHz) and D-band (up to 170 GHz)
products.
As telecommunication networks and services become more demanding,
there is an increasing need to match the indoor units’ advanced networking capabilities with powerful and efficient radio units.
Our outdoor RFUs are designed with sturdiness, power, simplicity and compatibility in mind. As such, they provide high-power transmission
for both short and long distances and can be assembled and installed quickly and easily. The RFUs can operate with different Ceragon indoor
units, according to the desired configuration, addressing any network need be it cellular, backbone, rural or private transport networks.
Our Services
We offer complete solutions and services for the design and implementation
of telecommunication networks, as well as the expansion or integration of existing ones. We have a global projects and services group
that operates alongside our products groups. Under this group we offer our customers a comprehensive set of turn-key services including:
advanced network and radio planning, site survey, solutions development, installation, network auditing and optimization, maintenance,
training and more. Our services include utilization of powerful project management tools in order to streamline deployments of complex
wireless networks, thereby reducing time and costs associated with network set-up, and allowing faster time to revenue. Our experienced
teams can deploy hundreds of “wireless transport links” every week, and our rollout project track-record includes hundreds
of thousands of links already installed and in operation with a variety of Tier 1 operators.
We are committed to providing high levels of service and implementation
support to our customers. Our sales and network field engineering services personnel work closely with customers, system integrators and
others to coordinate network design and ensure successful deployment of our solutions.
We support our products with documentation and training courses
tailored to our customers’ varied needs. We have the capability to remotely monitor the in-network performance of our products and
to diagnose and address problems that may arise. We help our customers to integrate our network management system into their existing
internal network operations control centers.
Currently, in the pursuit of our new strategy to diversify and
expand our offering to include, among other things, solutions for WISPs (wireless internet services), private networks and software based
solutions, we are developing and enhancing SW tools including those that have been used by us for networks planning, commissioning, monitoring,
optimization and maintenance, to be included in our services offering as a stand-alone SW solutions and services either as on-premise,
remote or SaaS.
Ceragon Digital Twin is a Ceragon developed tool that creates a
virtual representation of customers’ physical networks. The Ceragon Digital Twin can be used to analyze, emulate, diagnose,
and optimize the physical network and site infrastructure based on detailed modeling, data collection and interfaces to achieve
near real-time, interactive mapping between physical networks and virtual twin networks. Our customers benefit from a data-driven
and vendor- agnostic system that proactively identifies network weak spots, redundancies, energy cost inefficiencies, alerts for upcoming
capacity bottlenecks, and many other network health and efficiency features. Customers benefit from a more resilient network as well as
both CAPEX and OPEX savings, driven by optimized, when and where needed expansion, energy cost reduction, and a lowered need for site
visits. We also invest to expand our Digital Twin solution offering to better support critical private networks requirements, including
IoT standards and selected devices.
Ceragon’s Managed Services offering provides end-to-end,
proactive management of the customer’s network operation. Ceragon leverages its decades of networking expertise, specialized software
tools and Network Management personnel, to relieve customers from the need to manage their network infrastructure. Professional and efficient
network management saves customer resources, provides “peace of mind”, and allows our customers to focus on their actual business
activities. These services are specifically designed for smaller public networks and private networks where there is lower available headcount
and often less technological expertise.
Our suite of Professional Services was designed specifically for
private networks to make possible the easiest network implementation throughout the entire network lifecycle – to help meet all
of their connectivity needs. From planning and designing the right solution, through sourcing the required equipment, rolling out and
installing the network and assuring optimal performance through ongoing testing, management and maintenance services, Ceragon can customize
the appropriate service offering for each customer. In addition, we are investing in expanding our system integration capabilities to
support more use cases and verticals, as the demand for modern private networks continues to increase.
41
Our recent acquisition by merger of E2E expands our services and
software offering, focused on the needs of private networks. E2E served dozens of customers, supporting them with meaningful networks
deployments and software-based management. E2E brings capabilities in providing a full suite of services and system integration capabilities.
Our Customers
We have sold our products, directly and through a variety of channels,
to over 600 service providers and more than 1,600 private network customers in more than approximately 130 countries. Our principal customers
are wireless service providers that use our products to expand transport network capacity, reduce transport costs and support the provision
of advanced telecommunications services. In 2024, we continued to maintain our position as the number one wireless transport specialist,
in terms of unit shipments and global distribution of our business. While most of our sales are direct, we do reach a number of these
customers through OEM or distributor relationships. We also sell systems to large enterprises and public institutions that operate their
own private communications networks through system integrators, resellers and distributors. Our customer base is diverse in terms of both
size and geographic location.
In 2024, customers from the Europe region contributed 14% of total
yearly revenue. Our sales in Latin America and Africa in 2024 were 9% and 2% of yearly revenue, respectively. Our sales in Asia Pacific
(excluding India), North America and India in 2024 were 9%, 23% and 43%, respectively.
The following table summarizes the distribution of our revenues
by region, stated as a percentage of total revenues for the years ended December 31, 2024, 2023 and 2022:
|
Year Ended December 31,
|
||||||||||||
|
Region
|
2024
|
2023
|
2022
|
|||||||||
|
North America (*)
|
23
|
%
|
27
|
%
|
23
|
%
|
||||||
|
EMEA (**)
|
16
|
%
|
19
|
%
|
21
|
%
|
||||||
|
India
|
43
|
%
|
34
|
%
|
27
|
%
|
||||||
|
Asia-Pacific
|
9
|
%
|
7
|
%
|
11
|
%
|
||||||
|
Latin America
|
9
|
%
|
13
|
%
|
18
|
%
|
||||||
(*) As of December 31, 2024, 2023 and 2022, 97%, 94% and 87% represent revenues in
the United States.
(**) Including Europe, Middle East and Africa.
Sales and Marketing
We sell our products through a variety of channels, including direct
sales, OEMs, resellers, distributors and system integrators. Our sales and marketing staff, including services and supporting functions,
include approximately 679 employees in many countries worldwide, who work together with local agents, distributors and OEMs to expand
our business.
We are a supplier to various key OEMs which together account for
approximately 4% of our revenues in 2024. System integrators, distributors and resellers accounted for approximately 15% of our revenues
for 2024. We are focusing our efforts on direct sales, which accounted for approximately 81% of our revenues for 2024. We also plan
to develop additional strategic relationships with equipment vendors, global and local system integrators, distributors, resellers, networking
companies and other industry suppliers with the goal of gaining greater access to our target markets.
42
Marketing plays an important role in promoting Ceragon’s
products, solutions and services in creating lead generation to new and existing customers, and ultimately establishing its leadership
and differentiation in the market. Ceragon’s key marketing activities include the following:
| • |
Proactively planning and executing marketing campaigns and developing content as well as communications material to promote the Ceragon
products, solutions and services to customers and prospects over the entire course of the sales-cycle. Activities include advertising,
e-mail, press releases, newsletters, marketing collateral (white papers, e-books, brochures, case studies, etc.), blogs, promotional videos
and more. This content is produced and written with search engine optimization in mind to ensure Ceragon high ranking in customer organic
search results.
|
| • |
Organizing and running exhibitions, seminars and events. This goes far beyond the mere planning the logistics of the event, but customizing
messaging for target audience, creating event materials, such as displays, presentations, animated videos, demos, and most importantly
promoting the event to customers and prospects to ensure successful attendance and secure customer meetings.
|
Following the outbreak of the COVID-19 pandemic, we have developed
remote marketing tools such as webinars, live-demos, remote seminars and enhanced the use of digital tools and remote marketing activities.
Although revenues may sometimes be lower in the first quarter of
the year than in the rest of the year and may sometimes increase towards the end of a fiscal year, our revenue and operating results are
hard to predict and may vary significantly from quarter to quarter and from our expectations for any specific period. The timing of revenue
recognition is based on several factors. See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting
Policies and Estimates – Revenue Recognition.
Manufacturing and Assembly
Our manufacturing process consists of materials planning and procurement,
assembly of indoor units and outdoor units, final product assurance testing, quality control and packaging and shipping. With the goal
of streamlining all manufacturing and assembly processes, we have implemented an outsourced, just-in-time manufacturing strategy that
relies on contract manufacturers to manufacture and assemble circuit boards and other components used in our products and to assemble
and test indoor units and outdoor units for us. The use of advanced supply chain techniques has enabled us to increase our manufacturing
capacity, reduce our manufacturing costs and improve our efficiency.
We comply with standards promulgated by the International Organization
for Standardization and have received certification under the ISO 9001 (Quality), ISO 14001 (Environment), ISO 27001 (Information Security
Management System) and ISO 45001 (Health and Safety) standards. These standards define the procedures required for the manufacture of
products with predictable and stable performance and quality, as well as environmental guidelines for our operations and safety assurance.
We outsource most of our manufacturing operations to major contract
manufacturers in Israel, Singapore, the Philippines and China. We established an RMA center in India. Most of our warehouse operations
are outsourced to subcontractors in Israel, the Netherlands, the United States, Philippines and Singapore. The raw materials (components)
for our products come primarily from the United States, Europe and Asia Pacific.
Our activities in Europe require that we comply with European Union
Directives with respect to product quality assurance standards and environmental standards including the “RoHS” (Restrictions
of Hazardous Substances) Directive.
Additionally, we apply and maintain a conflict mineral policy with
respect to the sourcing of metal parts containing tin, tungsten, tantalum and gold, also referred to as 3TG, in addition to other
trade compliance policies.
43
Research and Development
We place considerable emphasis on research and development to improve
and expand the capabilities of our existing products, to develop new products and features and effective bandwidth utilization, and to
lower the cost of producing both existing and future products. We intend to continue to devote a significant portion of our personnel
and financial resources to research and development. As part of our product development process, we maintain close relationships with
our customers to identify market needs and to define appropriate product specifications. In addition, we intend to continue to comply
with industry standards and we are full members of the European Telecommunications Standards Institute in order to participate in the
formulation of European standards.
Our research and development activities are conducted mainly at
our facilities in Rosh Ha’Ayin, Israel, but also at our subsidiaries in Greece, Romania and India (Bangalore). As of December 31,
2024, our research, development and engineering staff consisted of 260 employees globally. Our research and development team includes
highly specialized engineers and technicians with expertise in the fields of millimeter-wave design, modem and signal processing, data
communications, system management and networking solutions.
Our research and development department provide us with the ability
to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both application specific integrated
circuits, or ASICs and RFICs, to full system integration. Our research and development projects currently in process include extensions
to our leading IP-based networking product lines and development of new technologies to support future product concepts. In addition,
our engineers continually work to redesign our products with the goal of improving their manufacturability and testability while reducing
costs.
Intellectual Property
To safeguard our proprietary technology, we rely on a combination
of patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangements with our customers,
third-party distributors, consultants and employees, each of which affords only limited protection. We have a policy which requires all
of our employees to execute employment agreements which contain confidentiality provisions.
To date, Ceragon has 18 patents granted in the United States and
other foreign jurisdictions including the EPO (European Patent Office) and 10 patent applications pending in the United States and other
foreign jurisdictions including the EPO.
In addition, Siklu has 31 patents granted in the United States,
1 patent granted in the UK and 4 patent applications pending in Germany.
Ceragon has registered trademarks as follows:
|
|
- |
for the standard character mark Ceragon Networks in Canada;
|
|
|
- |
for the standard character mark CERAGON, national registrations in Morocco, Malaysia, Indonesia (under the name of Ceragon Networks
AS), Japan, Israel, Mexico, the United States, South Africa, the Philippines, Argentina, Venezuela, Peru, Canada, Nigeria, Brazil and
Colombia, United Kingdom and India, and International Registration (protection granted in Australia, Iceland, Bosnia Herzegovina,
Korea, Switzerland, Croatia, Norway, Russia, China, Ukraine, CTM (European Union), Turkey, Singapore, Macedonia, Egypt, Kenya and Vietnam);
|
|
|
- |
for our design mark for FibeAir in United Kingdom and the European Union;
|
|
|
- |
for the standard character mark FibeAir in the United States; and
|
|
|
- |
for the standard character mark CeraView in United Kingdom and the European Union.
|
In addition, E2E has 1 trademark for the standard character mark
E2E in the United States.
44
Competition
The market for wireless equipment is rapidly evolving, fragmented,
highly competitive and subject to rapid technological change. We expect competition, which may differ from region to region, to persist
in the future - especially if rapid technological developments occur in the broadband wireless equipment industry or in other competing
high-speed access technologies.
We compete with a number of wireless equipment providers worldwide
that vary in size and in the types of products and solutions they offer. Our primary competitors include large wireless equipment manufacturers
referred to as generalists, such as Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, Nokia Corporation and ZTE Corporation.
In addition to these primary competitors, a number of other smaller wireless transport equipment suppliers, including Aviat Networks Inc.,
SIAE Microelectronica S.p.A, Cambium Networks (60GHz MESH products only), and Intracom telecom, offer and develop products that compete
with our products.
We also expect consolidation pressure to continue as the wireless
equipment market continues to be highly competitive and, as a result, we face price pressures. We expect to continue to be a leader in
the “best-of-breed” market segment of the wireless transport market in terms of market share, technology and innovation, providing
significant value to our customers.
Further market dynamics may drive some operators, which seek “best-of-breed”
solutions, to seek “bundled” network solutions from the generalists. This trend may put additional strain on our competitiveness.
In addition, the development and expansion of Low Earth Orbit (LEO)
satellite networks have become more capable of providing backhaul connectivity for cellular networks, and therefore there is a potential
for network operators to favor satellite-based solutions over our microwave transmission products.
Furthermore, technologies such as FSO, laser and photonic, are
emerging as potential alternatives to traditional wireless transport solutions. These technologies leverage optical communication principles
to deliver high-capacity, low-latency, and interference-resistant connectivity.
We believe we compete favorably based on:
|
|
• |
the diversification of our technologies and capabilities, which allows flexible vertical integration options, including the development
of the core technology – RFIC and modems, including SoC (System on Chip);
|
|
|
• |
our focus and active involvement in shaping next generation standards and technologies, which deliver best customer value;
|
|
|
• |
our product performance, reliability and functionality, which assist our customers to achieve the highest value;
|
|
|
• |
the range and maturity of our product portfolio, including the ability to provide solutions in every widely available microwave and
millimeter-wave licensed and license-exempt frequency, as well as our ability to provide both IP and circuit switch solutions and therefore
to facilitate a migration path for circuit-switched to IP-based networks;
|
|
|
• |
our design to cost structure;
|
|
|
• |
our time-to-market advantage, due to having our own technology and our own chipsets;
|
|
|
• |
our focus on high-capacity, point-to-point microwave and point-to-point as well as point-to-multipoint millimeter-wave technologies,
which allows us to quickly adapt to our customers’ evolving needs;
|
|
|
• |
the range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership;
|
45
|
|
• |
our support and technical service, experience and commitment to high quality customer service,
|
|
|
• |
our ability to expand to other vertical markets such as oil and gas and public safety, by drawing upon the capabilities of our technologies
and solutions;
|
|
|
• |
Our unified network intelligence and management software suite is used for multi-vendor wireless transport networks. It provides
the customer’s NOC and Engineering teams with deep insight and analytics tools that save money by enabling highly effective operations,
assuring the best quality of service, and speeding up the team’s response to ongoing and upcoming issues;
|
|
|
• |
Our Smart activation key SW allows to instantly discover and automatically activate all customers' network elements efficiently.
This eliminates delivery and deployment delays with easy, instant, friction-free activation, along with powerful actionable intelligence
from network element usage reports to improve performance, increase efficiency, and reduce operating costs; and
|
|
|
• |
Our Wireless Network Design Engine, WiNDE, simplifies the design challenges of deploying the right piece of equipment at every point
in the network. WiNDE takes in all the locations to be served in a given mmW network and applies cost and performance factors to automatically
recommend optimal, cost-effective, and robust implementations from which to choose. The tool also creates a Bill of Materials to build
the selected design as well as the configuration files to ensure that operations are as designed.
|
The Israel Innovation Authority and other Granting Authorities
The government of Israel encourages research and development projects
in Israel through the IIA, formerly known as the Israeli Office of Chief Scientist, pursuant to the provisions of the RD Law
and subject thereto. We received grants from the IIA for several projects and may receive additional grants in the future.
Under the terms of certain IIA plans, a company may be required
to pay royalties ranging between 3% to 6% (depending on the terms and conditions of the specific plan and the classification of the
company), of the revenues generated from its products or services incorporating know-how developed with, or are a derivative of, funds
received from the IIA (“IIA Products”), until 100% of the dollar value of the grant is repaid (plus LIBOR interest applicable
to grants received on or after January 1, 1999 and until July 1, 2017; the interest applicable to grants received on or after July 1,
2017, and until January 1, 2024 is: (i) LIBOR interest until December 31, 2023, and (ii) thereafter, 12 months Term SOFR as published
in the first trading day of each year by CME Group, or by any other party authorized by the Federal Reserve, or in alternative publication
by the Bank of Israel, with the addition of 0.71513%; the interest applicable to grants received on or after January 1, 2024 is 12 months
Term SOFR as published in the first trading day of each year by CME Group, or by any other party authorized by the Federal Reserve, or
in alternative publication by the Bank of Israel).
The RD Law requires that the manufacturing of IIA Products
be carried out in Israel, unless the IIA provides its approval to the contrary. Such approval may only be granted under various conditions
and entails repayment of increased royalties equal to up to 300% of the total grant amount, plus applicable interest, depending on the
extent of the manufacturing that is to be conducted outside of Israel. In any case, IIA Products manufactured abroad carry an increase
of 1% in the royalty rate.
The RD Law also provides that know-how (and its derivatives)
developed with, or that is a derivative of, funds received from the IIA and any right derived therefrom may not be transferred to third
parties, unless such transfer was approved in accordance with the RD Law. The research committee operating under the IIA may approve
the transfer of know-how between Israeli entities, provided that the transferee undertakes all the obligations in connection with the
RD grant as prescribed under the RD Law. In certain cases, such research committee may also approve a transfer of know-how outside
of Israel, in both cases subject to the receipt of certain payments, calculated according to a formula set forth in the RD Law, in
amounts of up to six (6) times the total amount of the IIA grants, plus applicable interest (in case of transfer outside of Israel), and
three (3) times of such total amount, plus applicable interest, (in case sufficient RD activity related to the know how remains in
Israel). Such approvals are not required for the sale or export of any products resulting from such RD activity.
Further, the RD Law imposes reporting requirements on certain
companies with respect to changes in the ownership of a grant recipient. The grant recipient, its controlling shareholders, and foreign
interested parties of such companies must notify the IIA of any change in control of the grant’s recipient or the holdings of the
“means of control” of the recipient that result in an Israeli or a non-Israeli becoming an interested party directly in the
recipient. The RD Law also requires the new interested party to undertake to comply with the RD Law. For this purpose, “control”
means the ability to direct the activities of a company (other than any ability arising solely from serving as an officer or director
of the company), including the holding of 25% or more of the “means of control”, if no other shareholder holds 50% or more
of such “means of control.” “Means of control” refers to voting rights or the right to appoint directors or the
chief executive officer. An “interested party” of a company includes a holder of 5% or more of its outstanding share capital
or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least
one director, and a company with respect to which any of the foregoing interested parties owns 25% or more of the outstanding share capital
or voting rights or has the right to appoint 25% or more of the directors. Accordingly, in certain cases, any non-Israeli who acquires
5% or more of our ordinary shares may be required to notify the IIA that it has become an interested party and to sign an undertaking
to comply with the RD Law. In addition, the rules of the IIA may require additional information or representations with respect to
such events.
46
In December 2006, Ceragon entered into an agreement with IIA to
conclude our research and development grant programs sponsored by the IIA. Under the agreement, we were obligated to repay the IIA approximately
$11.9 million in outstanding grants, in six semiannual installments from 2007 through 2009. During the second quarter of 2008, we paid
the IIA approximately $7.4 million to retire all the debt remaining from this agreement. Nevertheless, we continue to be subject to the
obligations and restrictions under the RD Law and the IIA regulations, including regarding transfer of know-how and manufacturing
outside of Israel, in respect to these grants. Following the 2006 arrangement with the IIA, Ceragon is considered as “Technological
Innovation Investment-Abundant Corporation” and we can apply for grants only under non-royalty-bearing programs.
In each of 2013 and 2014 we received approval for a new RD
grant from the IIA in amounts of approximately $0.7 million and $0.9 million respectively, under a generic program (the “Generic
Plan”). Additionally, and under such plan, in 2015 we received approval for new RD grants in the amount of approximately $0.6
million, and in 2016, 2017 and 2018 we received approval for grants in a total amount for the three years, of approximately $1.4 million.
In 2019 and 2020 we received approval for additional grants under the Generic Plan, in the frame of which we received a total amount of
approximately $ 1.3 million. The Generic Plan has ended. The Generic Plan requires us to comply with the requirements of the RD Law
in the same manner applicable to previous grants, provided, however, that the obligation to pay royalties on sales of products based on
technology or know how developed with the Generic Plan may apply, under certain conditions, to a recipient of the technology or knowhow
developed with the Generic Plan, to the extent such is sold and/or transferred, while the Company’s self-sales of its products without
such transfer, do not bear royalty payment obligations. In addition, we may manufacture part of the products developed under the program
outside of Israel, up to the percentages declared in our applications for such grants.
In March 2014, we participated in two Magnet Consortium Programs
called “Hyper” and “Neptune” (the “Magnet Programs”) sponsored by the IIA. Under these Magnet Programs,
which are intended to support innovative generic industry-oriented technologies, we cooperated with additional companies and research
institutes. In the years 2016, 2017 and 2018 we received approval from the IIA for a sum of $3.8 million in aggregate, under these Magnet
Programs. These two Magnet Programs have ended. The RD Law applies to Magnet Programs, including the restrictions on transfer of
know how or manufacturing outside of Israel, as described above. In addition, certain restrictions resulting from Magnet Programs’
internal agreements between the consortium members may apply.
In 2020, we joined as a member to an Industrial consortium
called “WIN – Wireless Intelligent Networks Consortium” under a MAGNET consortium. The project ended in February 2023.
In the framework of this project, Ceragon received a grant totaling $1.2 million during the years 2020-2024.
In 2020, we signed with Ariel University a Research and License
Agreement under a Magneton plan. This project ended at the end of November 2022. In the framework of this project, we received a grant
totaling $0.6 million during the years 2020-2024.
In 2021, we applied under the Promoting Applied Research in Academia
(Nofar). Under this project, we supported a development plan of Ariel University and funded 10% of this plan (the IIA grants the other
90%). This plan did not call for any grant from the IIA. This project ended in 2023.
In January 2023, we applied under the Magneton Plan with the Technion,
Haifa Institute of Technology (“Technion”). This project called “SW Managed Diplexer” was approved by the IIA.
The project started in January 2024 and will end in March 2025. During 2024 we received a grant totaling approximately $0.2 million.
In January 2023, we entered as a member into the Magnet Consortium
Program called “MM Production”. The total grant for this project is approximately $1.0 million (for a three-year period).
So far, we have received an amount of $0.5 million. The RD Law applies to the Magnet Consortium Programs, including the restrictions
on transfer of know how or manufacturing outside of Israel, as described above. In addition, certain restrictions resulting from Magnet
Consortium Programs’ internal agreements between the consortium members may apply.
In February 2023, we applied under the Magneton Program with Ben-Gurion
University. This program called “MESH Scheduling based AI” was approved and the total grant for it is approximately $0.5 million
(for a two year-period). So far, we have received an amount of approximately $0.2 million.
In March 2023, we applied under the Magneton Plan with Tel-Aviv
University. This program called “Fault Analysis” was approved and the total grant for it is approximately $0.2 million (for
a one-year period). So far, we have received an amount of $0.1 million.
In May 2023, we applied under the Industry Research Program for
research in the D-band field. This program was approved and the total grant for it is approximately $1.1 million (for a two-year period).
So far, we have received approximately $0.4 million.
During 2024 we applied under the Magneton Plan with Ben-Gurion
University. This program called “Identifying and classifying communication network fault locations” was approved and the total
grant for it is approximately $0.3 million (for a two year-period). The project started in March 2025.
In addition, we are part of a Horizon Europe project called Unity-6G.
The UNITY-6G project aims to address energy efficiency and sustainability challenges in networked services, leveraging technologies like
AI/ML, distributed ledger technologies (DLTs) to secure data exchange and build trust between parties, and via different network access
technologies such as Non-Terrestrial Networks (NTNs), Non-Public Networks (NPNs), or approaches such as Open Radio Access Network (O-RAN).
The project focuses on developing energy-efficient, integrated network infrastructures supporting convergence and interoperability of
heterogeneous domains, including wireless networking, IoT, and mobile and distributed computing. The project started in January 2025,
and we are expected to receive from the European Commission an amount of approximately $0.75 million total (for three-year period).
47
All the above-described programs do not bear royalty payment obligations
to the IIA, but may be subject to certain commercial arrangements among the participants thereof.
At the end of 2021, the publication of the LIBOR ceased, and alternative
interests were applied throughout the worldwide economy, including the SOFR interest. The interest applicable to grants received on or
after January 1, 2024 is 12 months Term SOFR as published in the first trading day of each year by CME Group, or by any other party authorized
by the Federal Reserve, or in alternative publication by the Bank of Israel, with the addition of 0.71513%.
With respect to Siklu, between the years 2008-2020, Siklu received
grants from the IIA in the total amount of approximately $14.6 million (approximately $16.2 million, including interest) for 20 files
under a royalty-bearing program. So far, Siklu has reported to the IIA royalties in the amount of approximately $8.8 million and has paid
to the IIA royalties in the amount of approximately $6.3 million. Accordingly, as of December 31, 2024, Siklu's debt to the IIA amounts
to approximately $2.7 million. In 2023, Siklu agreed with the IIA to pay its past debt in monthly payments over a 5-year period, with
the first payment being approximately $0.1 million and the remaining payments being $30,000 per month, after which the remaining debt
shall be immediately repaid.
In addition, Siklu has also received from
the European Commission (under the Horizon Europe program) a total amount of $1.4 million for three non-royalty-bearing programs (called
“5G-PHOS”, “THOR” and “5G-COMPLETE”), which have ended, and an amount of $0.6 million for two non-royalty-bearing
programs (called “Int5Gent” and “PARALIA”), which are still active. An additional amount of approximately $0.3
million is expected to be received from the European Commission for the programs “Int5Gent” and “PARALIA”.
C. Organizational
Structure
We are an Israeli company that commenced operations in 1996. The
following is a list of our significant subsidiaries:
|
Company
|
Place of Incorporation
|
Ownership
Interest |
|||
|
Ceragon Networks, Inc.
|
New Jersey
|
100
|
%
|
||
|
Ceragon Networks (India) Private Limited
|
India
|
100
|
%
|
D.
Property, Plants and Equipment
Our corporate headquarters and principal administrative, finance,
RD and operations departments are located at Rosh Ha’Ain, Israel, at which we hold a leased facility of approximately 66,600
square feet of office space and approximately 5,800 square feet of warehouse space.
We also lease approximately 22,089 square feet of office space
and warehouse space in Plano, Texas, USA.
We also lease space for other local subsidiaries to conduct pre-sales
and marketing activities, RD activities and other operations in their respective regions, as well as co-working spaces.
48
| ITEM 4A. |
UNRESOLVED STAFF COMMENTS
|
Not applicable.
| ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The following discussion and analysis should be read in conjunction
with our consolidated financial statements, the notes to those financial statements, and other financial data that appear elsewhere
in this annual report. In addition to historical information, the following discussion contains forward-looking statements based
on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly
from those projected in such forward-looking statements due to a number of factors, including those set forth in “Risk Factors”
and elsewhere in this annual report. Our consolidated financial statements are prepared in conformity with U.S. GAAP.
For a discussion of our results of operations for the year ended
December 31, 2023, including a year-to-year comparison between 2022 and 2023, and a discussion of our liquidity and capital resources
for the year ended December 31, 2022, refer to Item 5. “Operating and Financial Review and Prospects” in our Annual
Report on Form 20-F for the year ended December 31, 2023, filed with the SEC on March 21, 2024.
A.
Operating Results
Overview
We are the number one wireless transport specialist in terms of
unit shipments and global distribution of our business. We provide wireless transport solutions that enable cellular operators and other
wireless service providers to serve a broad range of use-cases, including mobile broadband, fixed broadband, Industrial and other IoT
services. Our solutions use microwave and millimeter wave technology to transfer large amounts of telecommunication traffic between base
stations and small/distributed cells and the core of the service provider’s network.
We also provide our solutions to other non-carrier private networks
such as oil and gas companies, public safety network operators, businesses and public institutions, broadcasters, energy utilities and
others that operate their own private communications networks. Our solutions are deployed by more than 600 service providers, as well
as more than 1,600 private network owners, in over approximately 130 countries.
Industry Trends
Market trends have placed, and will continue to place, pressure
on our solutions, products and services. Our objective is to continue meeting the demand for our solutions while at the same time increasing
our profitability. We seek to achieve this objective by constantly reviewing and improving our execution in, among others, development,
manufacturing and sales and marketing. Set forth below is a more detailed discussion of the trends affecting our business:
|
|
• |
The widespread surge in network traffic in 2020 to date emerging from the COVID-19 pandemic has significantly affected the way business
and individuals access information for work and leisure. National lock-ins for large parts of the population and labor market trends brought
many businesses to exercise company-wide work-from-home activities with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is an increase in home broadband demand, while today’s home broadband networks are not designed for such usage
patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result, service providers are
required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate that the increase
in network traffic which service providers experienced amidst the pandemic will remain and may even increase, as companies and employees
adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions of the world population,
young and elderly alike, use highly visual remote communication tools and high-volume communication transactions.
|
|
|
• |
5G
enables operators to enhance their services portfolio with more use cases such as
enhanced mobile broadband (eMBB) delivering gigabit broadband, as well as address new market segments such as IoT IIoT and mission
critical applications with URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) services.
Those services, combined with new network architectures require higher capacity, lower latency networks and in particular higher transport
capacity, far denser macro cells and small/distributed cells grids and the implementation of network virtualization technologies and architectures,
namely network slicing using SDN. Our wireless transport solutions resolve both higher capacity, lower latency and network densification
requirements with advanced capabilities, based on our multicore technology for microwave narrowband spectrum (up to 224Mhz) and the use
of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization requirements are addressed with layer 3 capabilities
and SDN support.
|
49
|
|
• |
OPEN RAN transforms Radio Access Network (RAN) technology from design to operation of the network. OPEN RAN creates the possibility
of an open RAN environment, with interoperability between different vendors over defined interfaces. In a legacy mobile network ecosystem,
RAN is proprietary where a single vendor provides proprietary radio hardware, software, and interface to enable the mobile network to
function.
|
|
|
• |
RAN ecosystem is evolving towards proving the competitive landscape of RAN supplier ecosystem and network operators embracing the
transformation. Opening up RAN horizontally brings in a new range of low-cost radio players, and it gives mobile operators a choice to
optimize deployment options for specific performance requirements at a much better cost. This trend is expected to increase the size of
Best-of-Breed segment (on the account of the end-to-end market segment) that Ceragon is focusing on.
|
|
|
• |
Software Defined Networking
(SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and can be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
|
|
• |
The emergence of
distributed cells
presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements.
|
|
|
• |
The introduction of a
disaggregated model
for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. Different domains in the network are
being opened these days, such as the Radio Access Network - OpenRAN, the Routing in the cell-sites – DCSG (Disaggregated Cell Site
Router), and the Disaggregated Wireless Transport.
|
|
|
• |
The
network sharing
business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained.
|
|
|
• |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “
modernizing
” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue.
|
|
|
• |
A growing market for non-mobile transport applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale.
|
|
|
• |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and even 5G services.
|
|
|
• |
Subscriber growth
continues mainly in emerging markets such as India, Africa and Latin America,
but is getting close to saturation.
|
50
We are also experiencing pressure on our sale prices as a result of several factors:
|
|
• |
Increased competition. Our target market is characterized by vigorous, worldwide competition for market share and rapid technological
development. These factors have resulted in aggressive pricing practices and downward pricing pressures and growing competition.
|
|
|
• |
Regional pricing pressures. A significant
portion of our sales derives from India, in response to the rapid build-out of cellular networks in that country. For the years ended
December 31, 2024 and 2023, 42.5% and 30.9%, respectively, of our revenues were earned in India. Sales of our products in these markets
are generally at lower gross margins in comparison to other regions.
|
As we continue to focus on operational improvements, these price pressures may have
a negative impact on our gross margins.
As part of our business, we are engaged in supplying installation
and other services for our customers, often in emerging markets. In this context, we may act as the prime contractor and equipment supplier
for network build-out projects, providing installation, supervision and commissioning services required for these projects, or we may
provide such services and equipment for projects handled by system integrators. In such cases, we typically bear the risks of loss and
damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. If our
products are damaged or stolen, or if the network we install does not pass the acceptance tests, the end user or the system integrator,
as the case may be, could delay payment to us and we would incur substantial costs, including fees owed to our installation subcontractors,
increased insurance premiums, transportation costs and expenses related to repairing or manufacturing the products. Moreover, in such
a case, we may not be able to repossess the equipment, thus suffering additional losses. Also, these projects are rollout projects, which
involve fixed-price contracts. We assume greater financial risks on fixed-price projects, which routinely involve the provision of installation
and other services, versus short-term projects, which do not similarly require us to provide services or require customer acceptance certificates
in order for us to recognize revenue. In addition, as most of our deliveries occur before we are able to collect the consideration for
such projects, it poses further financial and customer credit risk, as well as collection and liquidity risks of such customers.
In 2022, revenues slightly increased. The increase was mainly in
North America, as part of our increased focus on this region and to a lesser extent in Asia-Pacific offset by decreases in all other regions,
mainly in India. 2022 growth was adversely affected by supply chain challenges and component shortages which affected our ability to fulfill
strong bookings.
In 2023, revenues increased mainly in North America and India,
as part of our continued focus on these regions. This growth is primarily attributed to the increased demand both for our IP-20 and software
solutions by our customers in these regions.
In 2024, revenues increased significantly mainly in India, as a
result of new contracts with both existing and new customers. The increased demand for our IP-50CX products is the main contributor to
the growth in 2024.
In 2024, the majority of suppliers returned to normal lead times
and standard supply chain status, although some critical suppliers continued to suffer from long lead time of component deliveries and
supply chain constraints.
Results of Operations
Revenues.
We generate revenues
primarily from the sale of our products, and, to a lesser extent, services. The final price to the customer may largely vary based on
various factors, including but not limited to the size of a given transaction, the geographic location of the customer, the specific application
for which products are sold, the channel through which products are sold, the competitive environment and the results of negotiation.
Cost of Revenues.
Our cost
of revenues consists primarily of the prices we pay contract manufacturers for the products they manufacture for us, the costs of off
the shelf parts, accessories and antennas, the costs of our manufacturing and operations facilities, estimated and actual warranty costs,
costs related to management of our manufacturers’ activity and procurement of our proprietary and other product parts, supply chain
and shipping, as well as inventory write-off costs and amortization of intangible assets. In addition, we pay salaries and related costs
to our employees and fees to subcontractors relating to installation, maintenance, and other professional services.
51
Significant Expenses
Research and Development Expenses,
net.
Our research and development expenses, net of government grants, consist primarily of salaries and related costs for research
and development personnel, subcontractors’ costs, costs of materials, costs of RD facilities and depreciation of equipment.
All of our research and development costs are expensed as incurred, except for development expenses, which are capitalized in accordance
with ASC 985-20 and ASC 350-40. We believe that continued investment in research and development is essential to attaining our strategic
objectives.
Sales and Marketing Expenses.
Our sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, trade show
and exhibit expenses, travel expenses, commissions and promotional materials.
General and Administrative Expenses.
Our general and administrative expenses consist primarily of compensation and related costs for executive, finance, information system
and human resources personnel, professional fees (including legal and accounting fees), insurance, provisions for credit loss (doubtful
debts) and other general corporate expenses.
Restructuring and related charges.
Restructuring expenses consist primarily of costs associated with reduction in workforce, establishment of new research and development
centers in additional countries, consolidation of excess facilities, termination of contracts and the restructuring of certain business
functions. Restructuring and related expenses are reported separately in the consolidated statements of operations.
Acquisition and integration-related
charges.
Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred
by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees. Acquisition-related
costs are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are
incurred.
Integration-related expenses represent incremental costs related
to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging
the previously separate companies' systems and processes.
Financial and other expenses,
net.
Our financial and other expenses, net, consist primarily of gains and losses arising from the re-measurement of transactions
and balances denominated in non-dollar currencies into dollars, gains and losses from our currency hedging activity, interest paid on
bank loans and factoring activities, other fees and commissions paid to banks, actuarial losses and other expenses.
Taxes
. Our taxes on income
consist of current corporate tax expenses in various locations and changes in tax deferred assets and liabilities, as well as reserves
for uncertain tax positions.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the U.S (“U.S. GAAP”). These accounting principles require management to
make certain estimates, judgments and assumptions based upon information available at the time they are made, historical experience and
various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect
the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues
and expenses during the periods presented.
52
Our management believes the accounting policies that affect its
more significant judgments and estimates used in the preparation of its consolidated financial statements and which are the most critical
to aid in fully understanding and evaluating our reported financial results include the following:
|
|
• |
Revenue recognition;
|
|
|
• |
Inventory valuation;
|
|
|
• |
Provision for credit loss (doubtful debts); and
|
|
|
• |
Business combination.
|
Revenue recognition
We
generate revenues from selling products and services to end users, distributors, system integrators and original equipment manufacturers
(“OEM”). The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products
or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following
five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction
price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance
obligation is satisfied.
The Company considers customer purchase orders, which in some
cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise
to transfer tangible products, software products and licenses, network roll-out, professional services and customer support, each of which
are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price
is subject to any variable consideration, to determine the net consideration which the Company expects to receive. As the Company’s
standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction
price to each distinct performance obligation, based on their relative standalone selling price. Revenue from tangible products is recognized
when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
The revenues from customer support and extended warranty are recognized
ratably over the contract period and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out
and professional services are recognized when the Company's performance obligation is satisfied, usually upon customer acceptance.
The Company accounts for rebates and stock rotations provided to
customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as
a deduction from revenue in the period in which the revenue is recognized.
Inventory valuation.
Our
inventories are stated at the lower of cost or realizable net value. Cost is determined by using the moving average cost method. At each
balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes an analysis of
slow-moving items and sales levels by product and projections of future demand. If needed, we write off inventories that are considered
obsolete or excessive. If future demand or market conditions are less favorable than our projections, additional inventory write-offs
may be required and would be reflected in cost of revenues in the period the revision is made.
Provision for credit loss.
We are exposed to credit losses primarily through sales to customers. Our provision for credit loss methodology is developed using historical
collection experience, current and future economic and market conditions and a review of the current balances status. The estimate of
the amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of
the trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar
geographies. Additionally, a specific provision is recorded for customers that have a higher probability of default.
Business Combination
. We
apply the provisions of ASC 805, “Business Combination,” and we allocate the fair value of purchase consideration to the tangible
assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining
the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect
to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash
flows from customer relationships, acquired technology and acquired trademarks from a market participant perspective, useful lives and
discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable and, as a result, actual results may differ from estimates. Acquisition-related expenses are recognized separately
from the business combination and are expensed as incurred.
53
Impact of recently adopted accounting standards
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable
to its business or that no material effect is expected on the consolidated financial statements as a result of their future adoption.
Comparison of Period to Period Results of Operations
The following table presents a consolidated statement of operations
data for the periods indicated as a percentage of total revenues.
|
Year Ended December 31
|
||||||||
|
2024
|
2023
|
|||||||
|
Revenues
|
100
|
%
|
100
|
%
|
||||
|
Cost of revenues
|
65.3
|
65.5
|
||||||
|
Gross profit
|
34.7
|
34.5
|
||||||
|
Operating expenses:
|
||||||||
|
Research and development, net
|
8.9
|
9.3
|
||||||
|
Sales and marketing
|
11.3
|
11.7
|
||||||
|
General and administrative
|
3.6
|
6.9
|
||||||
|
Restructuring and related charges
|
0.4
|
0.3
|
|
|||||
|
Acquisition and integration-related charges
|
0.4
|
0.3
|
|
|||||
|
Other operating expenses
|
0.3
|
|
-
|
|||||
|
Total operating expenses
|
24.9
|
28.5
|
||||||
|
Operating income
|
9.8
|
6.1
|
||||||
|
Financial and other expenses, net
|
2.9
|
2.4
|
||||||
|
Taxes on income
|
0.8
|
1.9
|
||||||
|
Net Income
|
6.1
|
%
|
1.8
|
%
|
||||
Year ended December 31, 2024 compared to year ended December 31,
2023
Revenues.
Revenues totaled
$394.2 million in 2024 as compared to $347.2 million in 2023, an increase of $47.0 million, or 13.5%. Revenues in India increased to $167.6
million in 2024, from $107.4 million in 2023. Revenues in EMEA increased to $65.0 million in 2024, from $62.0 million in 2023. Revenues
in Latin America decreased to $37.2 million in 2024, from $47.2 million in 2023. Revenues in North America decreased to $89.9 million
in 2024, from $95.6 million in 2023. Revenues in APAC decreased to $34.5 million in 2024, from $35.0 million in 2023. In addition, the
acquisition of Siklu at the end of 2023 contributed to our revenue growth in 2024.
Cost of Revenues.
Cost
of revenue totaled $257.3 million in 2024 as compared to $227.3 million in 2023, an increase of $30.0 million, or 13.2%. The increase
was primarily due to an increase of $33.2 million related to material costs, mainly resulted from the higher volume of revenues, an increase
of $2.9 million related to shipping and storage costs, and an increase of $0.5 million in salaries and employee-related expenses, offset
by a decrease of $3.8 million related to inventory write-off, a decrease of $2.4 million in service costs, and a decrease of $0.4 million
in other production costs.
Gross Profit. Gross profit increased to $136.9 million or 34.7%
as a percentage of revenues in 2024 from $119.9 million or 34.5% in 2023. This improvement in gross profits is mainly attributable to
the substantial increase in revenues, while maintaining same or higher margins in most regions, keeping general operational costs under
tight control, improved supply chain costs, alongside lower inventory write-offs.
54
Research and Development Expenses,
Net
. Our
net research and development expenses totaled $35.0 million in 2024 as compared to $32.3 million in 2023, resulting in an increase of
$2.7 million, or 8.3%. The increase was primarily due to an increase of $3.3 million in salaries and related expenses (which were
impacted from additional costs associated with the acquisition of Siklu at the end of 2023), an increase of $1.5 million in subcontractors
cost, offset by a decrease of $1.2 million related to a one-time loss from termination of joint development recorded in 2023, and a decrease
of $0.9 million related to higher grants from the IIA.
Our research and development efforts are a key element of our strategy
and are essential to our success. We intend to maintain or slightly increase our commitment to research and development, and an increase
or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and
development expenditures. As a percentage of revenues, research and development expenses represent 8.9% and 9.3% in 2024 and 2023.
Sales and Marketing Expenses
.
Sales and marketing expenses totaled $44.7 million in 2024, as compared to $40.6 million in 2023, an increase of $4.1 million, or 10.2%.
The increase was primarily attributed to an increase of $2.5 million in salaries and related expenses, an increase of $0.9 million in
trade shows, an increase of $0.6 million in acquired-intangible amortization, an increase of $0.3 million in travel costs, and an increase
of $0.3 million in other sales and marketing expenses (all of which were impacted from additional costs associated with the acquisition
of Siklu at the end of 2023), offset by a decrease of $0.4 million related to sales commission. As a percentage of revenues, sales and
marketing expenses were 11.3% in 2024 compared to 11.7% in 2023.
Our selling and marketing expenses worldwide are paid in local
currencies and are reported in U.S. dollars. Therefore, changes to the exchange rates between the local currencies and the U.S. dollar
have affected, and may in the future affect, our expense level.
General and Administrative Expenses
.
General
and administrative expenses totaled $14.2 million in 2024 as compared to $23.8 million in 2023, a decrease of $9.6 million, or 40.2%.
The decrease was primarily due to a $10.6 million improvement in credit loss expenses, substantially impacted by recovery of $9.1 million
from a single customer in Latin America, offset by an increase of $0.5 million in share-based compensation costs, an increase of $0.3
million in salaries and related expenses, and an increase of $0.2 million in other general and administrative expenses. As a percentage
of revenues, general and administrative expenses were 3.6% in 2024 compared to 6.9% in 2023.
Restructuring and related charges.
Restructuring and related charges totaled $1.4 million in 2024, as compared to $0.9 million in 2023. The increase was primarily
attributed to contractual and termination severance pay and other related costs for the impacted employees.
Acquisition and integration-related
charges
. Acquisition and integration-related charges totaled $1.7 million in 2024, as compared to $1.1 million in 2023. The increase
was primarily attributed to the acquisition and integration expenses associated with the acquisition of Siklu and E2E, which would
otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent
and other fees as well as incremental costs related to combining the Company and the acquired companies, such as third-party consulting
and other third-party services related to merging the acquired companies’ systems and processes.
Other operating expenses.
Other operating expenses totaled $1.2 million in 2024, as compared to $0.0 million in 2023, related to the provision for the settlement
of a class action claim (see Note 1C of our audited consolidated financial statements).
Financial and other expenses,
Net.
Financial and other expenses, net totaled $11.5 million in 2024 as compared to $8.5 million in 2023, an increase of $3.0 million,
or 35.5%. The increase was mainly attributed to an increase of $2.9 million in exchange rate differences, and an increase of $1.6 million
related to mark-to-market revaluation of acquisition-related holdback liability, offset by a decrease of $1.2 million in interest on loans
and a decrease of $0.3 million in other financial expenses. As a percentage of revenues, financial and other expenses, net, were 2.9%
in 2024 compared to 2.4% in 2023.
Taxes on income
. Tax expenses
were $3.2 million in 2024, compared to $6.5 million in 2023, resulting in a decrease of $3.3 million. The decrease was mainly attributable
to a decrease of $2.4 million in deferred taxes, a decrease of $0.5 million in current taxes, and a decrease of $0.4 million in uncertain
tax positions.
Net Income
.
In
2024, the Company had $24.1 million in net income as compared to net income of $6.2 million in 2023. As a percentage of revenues, net
income was 6.1% in 2024 compared to a net income of 1.8% in 2023.
55
Impact of Currency Fluctuations
The majority of our revenues are denominated in U.S. dollars, and
to a lesser extent, in INR (Indian Rupee), Euro, and in other currencies. Our cost of revenues is primarily denominated in U.S. dollars
as well, while a major part of our operating expenses is in New Israeli Shekel (NIS), and to a lesser extent, in Indian INR (Indian Rupee),
Euro, NOK (Norwegian Kroner), BRL (Brazilian Real) and other currencies. We anticipate that a material portion of our operating expenses
will continue to be in NIS.
Fluctuation in the exchange rates between any of these currencies
(other than U.S. dollars) and the U.S. dollar could significantly impact our results of operations as well as the comparability of these
results in different periods. Even in cases where our revenues or our expenses in a certain currency are relatively modest, high volatility
of the exchange rates with the U.S. dollar can still have a significant impact on our results of operations. For example, in recent years
we have suffered a significant adverse impact on our financial results due to fluctuation in the exchange rates of the U.S. dollar compared
to the NGN (Nigerian Naira) and the ARS (Argentine Peso). We partially reduce currency exposure to NIS by entering into hedging transactions
and may do so for other currencies in the future. The effects of foreign currency re-measurements are reported in our consolidated statements
of operations. For a discussion of our hedging transactions, please see Item 11.”QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK”.
The influence on the U.S. dollar cost of our operations in Israel
relates primarily to the cost of salaries in Israel, which are paid in NIS and constitute a substantial portion of our expenses in NIS.
In 2024, the U.S. dollar appreciated in relation to the NIS at a rate of 0.6%, from NIS 3.627 per $1 on December 31, 2023, to NIS 3.647
per $1 on December 31, 2024. In 2023, the U.S. dollar appreciated in relation to the NIS at a rate of 3.1%, from NIS 3.519 per $1 on December
31, 2022, to NIS 3.627 per $1 on December 31, 2023.
The annual rate of inflation in Israel was 3.2% in 2024
and 3.0% in 2023.
Transactions and balances in currencies other than U.S. dollars
are re-measured into U.S. dollars according to the principles in ASC Topic 830, “Foreign Currency Matters.” Gains and losses
arising from re-measurement are recorded as financial income or expense, as applicable.
Effects of Government Regulations and Location on the Company’s
Business
For a discussion of the effects of governmental regulation and
our location in Israel on our business, see Item 3. “KEY INFORMATION” – Risk Factors – “Risks Relating to
Operations in Israel”.
Additionally, due to the nature of our global presence and operations,
we are subject to the law and jurisdiction in the countries where our branches or subsidiaries are located or in which we conduct our
operations. For a discussion of the effects of governmental regulation and our global spread and operation of our business, see Item 3.
“KEY INFORMATION” – Risk Factors – “We are subject to complex and evolving regulatory requirements that
may be difficult and expensive to comply with and that could adversely impact our business, results of operations and financial condition”,
“As part of our business are located throughout Europe, we are exposed to the negative impact of invasion of Ukraine by Russia on
the European markets in which we operate and on our operations”, “Our international operations expose us to the risk of fluctuations
in currency exchange rates and restrictions related to foreign currency exchange controls” and “Due to the volume of
our sales in emerging markets, we are susceptible to a number of political, economic and regulatory risks that could have a material
adverse effect on our business, reputation, financial condition and results of operations”.
| B. |
Liquidity and Capital Resources
|
Since our initial public offering in August 2000, we have financed
our operations primarily through the proceeds of that initial public offering, follow-on offerings, cash provided by operating activities,
and various loans and facilities from banks, including factoring and grants from the IIA.
The Company entered into the revolving Credit Facility, dated as
of March 14, 2013 by and among the Company and Bank Hapoalim B.M., HSBC Bank Plc, Bank Leumi Le’Israel Ltd. and First International
Bank of Israel Ltd. (the “Credit Facility”). The Credit Facility has been renewed and amended several times during the
past years according to the Company’s needs and financial position.
In December 2023, in connection with the acquisition of Siklu,
the Company signed an amendment to the Credit Facility in which it obtained the approval of the syndication of banks to carry out Siklu's
acquisition and added additional bank, Bank Mizrahi Tefahot Ltd., to the syndication agreement.
56
In June 2024, the Company signed an amendment to the Credit Facility
pursuant to which the term of the Credit Facility was extended by an additional 2 years to June 30, 2026. This amendment also included
a decrease of $5 million to the bank guarantees credit lines to $40.8 million and an increase of $9.8 million to $77 million to the Credit
Facility for Loans.
As of December 31, 2024, the Company has utilized $25.2 million of the $77 million available
under the Credit Facility for short-term loans. During 2024, the credit lines carried interest rates in the range of 6.12% and 7.95%.
As of December 31, 2024, the total credit facilities for bank guarantees and for loans
is $117.8 million.
The Credit Facility is secured by a floating charge over all Company assets as well
as several customary fixed charges on specific assets.
Repayment could be accelerated by the financial institutions in certain events of default
including in insolvency events, failure to comply with financial covenants or an event in which a current or future shareholder acquires
control (as defined under the Israel Securities Law) of the Company.
The Credit Facility contains financial and other covenants requiring that the Company
maintains, among other things, minimum shareholders' equity value and financial assets, a certain ratio between its shareholders' equity
(excluding total intangible assets and goodwill) and the total value of its assets (excluding total intangible assets and goodwill) on
its balance sheet, a certain ratio between its net financial debt to each of its working capital and accounts receivable. As of December
31, 2024 and 2023, the Company met all of its covenants.
As of December 31, 2024, we had approximately $35.3 million in cash and cash equivalents.
In 2024, our $26.2 million in cash provided by operating activities
was affected by the following principal factors:
|
|
• |
Net income of $24.1 million;
|
|
•
|
$26.9 million increase in trade and other accounts payable and accrued expenses, net;
|
|
|
• |
$12.1 million of depreciation and amortization expenses;
|
|
•
|
$7.6 million decrease in inventories;
|
|
|
• |
$4.6 million decrease in operating lease right-of-use assets;
|
|
|
• |
$4.3 million share-based compensation expenses; and
|
|
|
• |
$0.3 million of loss from sale of property and equipment, net
|
57
These
factors were offset mainly by:
|
|
• |
$44.9 increase in trade and other accounts receivable and prepaid expenses, net;
|
|
|
• |
$4.2 million decrease in operating lease liability;
|
|
|
• |
$3.6 million decrease in deferred revenues; and
|
|
•
|
$1.0 million decrease in accrued severance pay and pensions, net
|
In 2023, our $30.9 million in cash provided by operating activities
was affected by the following principal factors:
|
|
• |
Net income of $6.2 million;
|
|
•
|
$14.6 million decrease in trade and other accounts receivable and prepaid expenses,
net;
|
|
|
• |
$10.0 million of depreciation and amortization expenses;
|
|
•
|
$6.3 million decrease in inventories; and
|
|
|
• |
$4.0 million share-based compensation expenses; and
|
|
|
• |
$3.8 million decrease in operating lease right-of-use assets.
|
These factors were offset mainly by:
|
|
• |
$9.6 million decrease in deferred revenues;
|
|
|
• |
$4.0 million decrease in operating lease liability;
|
|
•
|
$0.2 million decrease in trade and other accounts payable and accrued expenses, net;
and
|
|
|
• |
$0.2 million decrease in accrued severance pay and pensions, net
|
Net cash used in investing activities was approximately $16.5 million
for the year ended December 31, 2024, as compared to net cash used in investing activities of approximately $20.9 million for the year
ended December 31, 2023. In the year ended December 31, 2024, our investing activities were comprised of $14.6 million paid for purchases
of property and equipment and $1.9 million of software development costs capitalized. In the year ended December 31, 2023, our investing
activities were comprised of $8.0 million of cash paid as cash consideration for the acquisition of Siklu, $10.0 million paid for purchases
of property and equipment and $2.9 million of software development costs capitalized.
58
Net cash used in
financing
activities was approximately $1.5 million for the year ended December 31, 2024, as compared to approximately $4.9 million net cash used
in financing activities for the year ended December 31, 2023. In the year ended December 31, 2024, our net cash used in
financing
activities was primarily due to repayments of bank credits and loans of $7.4 million offset by proceeds from exercise of stock options
of $5.9 million. In the year ended December 31, 2023, our net cash used in
financing activities
was primarily due to repayments of bank credits and loans of $4.9 million.
Our material cash requirements as of December 31, 2024, and any
subsequent interim period, primarily include our capital expenditures, lease obligations and purchase obligations.
Our capital expenditure primarily consists of purchases of manufacturing
and test equipment, computers and peripheral equipment, office furniture and equipment. Our capital expenditures were $14.6 million in
2024, $10.0 million in 2023 and $10.5 million in 2022. We will continue to make capital expenditures to meet the expected growth of our
business.
During the normal course of business, we enter into certain lease
contracts with lease terms through 2034. As of December 31, 2024, the total remaining contractual obligations are approximately $18.3
million, of which $3.3 million is for the next 12 months. Our lease obligations consist of the commitments under the lease agreements
for offices and warehouses for our facilities worldwide, as well as car leases. Our facilities are leased under several lease agreements
with various expiration dates. Our leasing expenses were $4.6 million in 2024, $4.0 million in 2023, and $4.5 million in 2022.
Our purchase obligations consist primarily of commitments for our
operating activities and working capital needs. Our operating expenses were $98.1 million in 2024, $98.7 million in 2023 and $104.0 million
in 2022. As of December 31, 2024, the Company had outstanding inventory purchase orders with its suppliers in the amount of $45.2 million.
Our capital requirements are dependent on many factors, including
working capital requirements to finance the business activity of the Company, and the allocation of resources to research and development,
marketing and sales activities. We plan on continuing to raise capital as we may require, subject to changes in our business activities.
We believe that the current working capital, cash and cash equivalent
balances together with the Credit Facility available with the five financial institutions, will be sufficient for our expected requirements
through at least the next 12 months.
| C. |
Research and Development, Patents and Licenses, Etc.
|
We place considerable emphasis on research and development to improve
and expand the capabilities of our existing products, to develop new products (with particular emphasis on equipment for emerging IP-based
networks) and to lower the cost of producing both existing and future products. We intend to continue to devote a significant portion
of our personnel and financial resources to research and development. As part of our product development process, we maintain close relationships
with our customers to identify market needs and to define appropriate product specifications. In addition, we intend to continue to comply
with industry standards and, in order to participate in the formulation of European standards, we are full members of the European Telecommunications
Standards Institute.
Our research and development activities are conducted mainly at
our facilities in Rosh Ha’Ayin, Israel, and also at our subsidiaries in Greece and Romania. As of December 31, 2024, our research,
development and engineering staff consisted of 260 employees globally. Our research and development team includes highly specialized engineers
and technicians with expertise in the fields of millimeter-wave design, modem and signal processing, data communications, system management
and networking solutions.
The IIA sometimes participate in our RD funding for our Israel-based
company. For more information regarding the restrictions imposed by the RD Law and regarding grants received by us from the IIA,
please see Item 4. “INFORMATION ON THE COMPANY- B. Business Overview
- The Israel Innovation
Authority.”
Our research and development department provides us with the ability
to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both ASICs and RFICs, to full system
integration. Our research and development projects currently in process include extensions to our leading IP-based networking product
lines and development of new technologies to support future product concepts. In addition, our engineers continually work to redesign
our products with the goal of improving their manufacturability and testability while reducing costs.
59
Intellectual Property
For a description of our intellectual property see Item 4. “INFORMATION
ON THE COMPANY – B. Business Overview - Intellectual Property”.
| D. |
Trend Information
|
For a description of the trend information relevant to us see discussions
in Parts A and B of Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS”.
| E. |
Critical Accounting Estimates
|
See Item 5 “Critical Accounting Policies and Estimates”
above.
Effect of Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, in Notes to the Consolidated
Financial Statements in Item 8 of Part II of this Report, for a full description of recent accounting pronouncements, including the expected
dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference.
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
| A. |
Directors and Senior Management
|
The following table lists the name, age and position of each of our current directors
and executive officers:
|
Name
|
Age
|
Position
|
||||
|
Ilan Rosen
(1)
|
67
|
Chairman of the Board of Directors
|
||||
|
Shlomo Liran
(1)
|
73
|
Director
|
||||
|
Efrat Makov
(1)
|
57
|
Director
|
||||
|
Rami Hadar
(1)
|
61
|
Director
|
||||
|
David (Dudi) Ripstein
(1)
|
58
|
Director
|
||||
|
Robert Wadsworth
(1,2)
|
64
|
Director
|
||||
|
Yael Shaham
(1)
|
56
|
Director
|
||||
|
Doron Arazi
|
61
|
Chief Executive Officer
|
||||
|
Ronen Stein
|
57
|
Chief Financial Officer
|
||||
|
Oz Zimerman
|
61
|
Chief Marketing Officer EVP Corporate Development
|
||||
|
Hadar Vismunski Weinberg
|
51
|
Chief Legal Officer Corporate Secretary
|
||||
|
Michal Goldstein
|
54
|
Chief People Officer
|
||||
|
Ulik Broida
|
58
|
Chief Product Officer
|
||||
|
Dima Friedman
|
56
|
Chief Operating Officer
|
||||
|
Ronen Ben-Hamou
|
53
|
Chief Growth Officer
|
||||
|
Ram Prakash Tripathi
|
58
|
Regional President, APAC
|
||||
|
Mario Querner
|
63
|
Regional President, EMEA
|
||||
|
Ronen Rotstein
|
48
|
Regional President, North America
|
||||
|
Carlos Alvarez
|
49
|
Regional President, Latin America
|
||||
|
|
(1) |
Independent Director.
|
|
|
(2) |
Commenced service on May 23, 2024.
|
60
Set forth below is a biographical summary of each of the above-named
directors and members of senior management.
Ilan Rosen
has served as
our director since July 2021 and as the Chairman of our Board of Directors since July 23, 2023. Mr. Rosen currently serves as Managing
Director in HarbourVest Partners LLC, a global private equity firm with more than 700 employees, that manages about $75B worth of investments
in various private equity strategies around the globe. Mr. Rosen additionally serves as a board member of the “Nazareth District
Water and Sewage municipal authority LTD” since 2019. From 1997-2012 Mr. Rosen served as Chairman of the Board of Tdsoft LTD which
later merged into VocalTec. In the years 1996-2003 Mr. Rosen served as VP of Investments at Teledata Communications, where he was an active
Chairman of various Teledata Subsidiaries. From 1993-1996 he served as the CEO of Adsha Development Ltd. From 1989-1993 Mr. Rosen worked
as a Senior Investment Manager at the Bank Hapoalim Investment Company. In the years 1985-1989 he worked as an economic consultant at
A. Twerski Economic Consulting. Mr. Rosen holds a B.Sc. (cum laude) in Mechanical Engineering from Tel Aviv University in 1979 and an
MBA from Tel Aviv University in 1986.
Shlomo Liran
has served
as our director since August 2015, after gaining experience in senior management positions, including in the telecommunication industry.
Mr. Liran is also a director at Maytronics Ltd. and Globrands Ltd. In October 2016 Mr. Liran was appointed as the CEO of Spuntech
Industries Ltd. From July 2014 until January 2015, Mr. Liran served as the Chief Executive Officer of Hadera Paper Ltd. From 2010 to 2013,
Mr. Liran served as the Chief Executive Officer of Avgol Nonwovens Ltd. During the years 2008 and 2009 Mr. Liran served as the Chief Executive
Officer of Ericsson Israel Ltd., and from 2004 to 2007 he served as Chief Executive Officer of TRE (Scandinavian cellular network) in
Sweden and in Denmark. From 2000 to 2003, he served as Chief Executive Officer of YES Satellite Multi-Channel TV. Prior to that, Mr. Liran
spent thirteen years in Strauss as CEO (1995-2000), General Manager of the Dairy Division (1991-1995) and VP Operations (1987-1991). Mr.
Liran holds a B.Sc. in Industrial Engineering from the Technion, an M. Eng. System Analysis from University of Toronto, Canada and an
AMP-ISMP advanced management program from the Harvard Business School.
Efrat Makov
has served
as our director since October 2022. Ms. Makov is currently serving as a director of Allot Ltd. and B Communications Ltd. Ms. Makov previously
served as a director of BioLight Life Sciences Ltd., Kamada Ltd., Anchiano Therapeutics Ltd. and iSPAC 1 Ltd. Previously, Ms. Makov served
as the CFO of Alvarion, and as the CFO of Aladdin Knowledge Systems. Formerly, Ms. Makov served as Vice President of Finance at Check
Point Software Technologies. Earlier in her career, Ms. Makov spent seven years in public accounting with Arthur Andersen LLP in its New
York, London and Tel Aviv offices. Ms. Makov holds a B.A. degree in accounting and economics from Tel Aviv University and is a Certified
Public Accountant in Israel and the United States.
Rami Hadar
has served as
our director since July 2021. Mr. Hadar serves as a Managing Partner in Claridge Israel, as well as serves on the board of its portfolio
companies: AlgoSec, Gigaspaces, Cloudify, Shopic and D-Fend. In the years 2006 to 2014, Mr. Hadar served as CEO and board member of Allot
Communications. Early in his career Mr. Hadar co-founded and served as the CEO of CTP Systems (micro cellular networks) until its acquisition
by DSP Communications. Mr. Hadar continued with DSPC’s executive management team for two years, and subsequently the company was
acquired by Intel. Thereafter, Mr. Hadar co-founded Ensemble Communications, a pioneer in the broadband wireless space and the WiMax standard,
where he served as Executive Vice President, Sales and Marketing. Following that, Mr. Hadar served as CEO of Native Networks where he
was instrumental in orchestrating the company’s ultimate acquisition by Alcatel. Hadar holds a B.Sc. in Electrical Engineering from
the Technion
David Ripstein
has served
as our director since July 2021. Mr. Ripstein has three decades of experience in senior management positions in Israel’s telecommunications
industry and Israel Defense Force technology and intelligence units. From June 2022 to January 2023 Mr. Ripstein served as the Chief Executive
Officer of SatixFy Ltd. From 2017 to 2022, Mr. Ripstein served as the President and Chief Executive Officer of GreenRoad Technologies
Ltd., a global leader in fleet safety telematics. In 2016 Mr. Ripstein served the CEO of Spotoption Technologies a fintech software provider.
From 2000-2015, Mr. Ripstein served in various positions in RADCOM, a Nasdaq-traded (RDCM) provider of service assurance solutions, first
for six years as a General Manger and then for nine years as its President Chief Executive Officer. Prior to Radcom, Mr. Ripstein
co-founded two technology startups and served for 10 years as the head of a large RD engineering group within the Israel Defense
Forces-Intelligence Unit. Mr. Ripstein holds a B.Sc. in Electrical Engineering from the Technion.
Robert Wadsworth
has served
as our director since May 2024. He is a founding partner of HarbourVest Partners, the successor entity of Hancock Venture Partners, where
he served as a senior partner overseeing global direct investment activity and a member of the firm's Executive Management Committee.
Mr. Wadsworth’s prior experience also includes management consulting with Booz, Allen Hamilton, where he specialized in the
areas of operations strategy and manufacturing productivity. Mr. Wadsworth serves as a founding partner of both W3 Capital, LLC, a family
investment firm and as a founding partner of New Harbour Partners, a small enterprise private equity firm. He currently serves on the
Board of Directors of AGL Credit Management, Whisker Labs Inc., Spiro Technologies, and Direct Commerce, and on HarbourVest supervisory
committee. He holds a BS (magna cum laude) in Systems Engineering and Computer Science from the University of Virginia in 1982 and an
MBA (with distinction) from Harvard Business School in 1986.
Yael Shaham
has served
as a director since September 2023. Ms. Yael Shaham has more than 25 years of experience in management and strategic leadership roles,
and brings a wealth of knowledge from across the technology and business landscape. Ms. Shaham currently serves as a member of the Board
of Clalit Health Services, where she contributes her rich experience and knowledge in digital transformation and future IT technologies.
Ms. Shaham is also a member of the board of Advisors at Veego, where her product experience plays a critical role in the development of
Product Strategy and Go-to-Market initiatives. In addition, Ms. Shaham serves as a Board Member at Glassbox (TASE:GLBX), where her responsibilities
include the role of Chairwoman of Remuneration and Audit committees, along with membership in the Financial Statements committee, helping
to shape the company's governance and overall performance. In her previous role as General Manager of the Enterprise Learning Division
at Kaltura (NASDAQ:KLTR), she led multiple go-to-market teams to increase ARR while playing a key role in successfully guiding the company's
IPO process. At Amdocs (NASDAQ:DOX), Ms. Shaham served as the General Manager of the Network Division, IT Operations Division, and
Revenue Management Division. Her strategic vision and expertise contributed to revenue growth, successful MA integrations, and a
quantitative increase in the company's perceived brand value. Ms. Shaham is also a member of the Israel Board of Directors Team of the
Government Companies Authority. She holds an MA in Organizational Sociology (cum laude) and BA in Computer Science and Sociology (summa
cum laude), both from Bar Ilan University and served as a Major in the Israeli Air Force.
61
Doron Arazi
has served
as our Chief Executive Officer since July 2021. He rejoined Ceragon after taking a year and a half break where he served as CFO of privately
held software companies in the Cyber and Telecom spaces. Mr. Arazi originally joined the company in 2014 as Executive Vice President and
Chief Financial Officer, and in 2016 was appointed Deputy CEO, while continuing to carry the role of Chief Financial Officer. Prior to
joining Ceragon, Mr. Arazi managed the business relationship with a U.S. Tier 1 mobile operator in Amdocs and was responsible for hundreds
of employees. Prior to Amdocs, Mr. Arazi looked after the financial and growth activities of other high-tech companies in the telecommunications
sector, including serving as CFO of Allot Communications and VP of Finance at Verint. Mr. Arazi is a CPA and holds a B.A. degree in Economics
and Accounting as well as an MBA degree focusing on Finance and Insurance, both from Tel Aviv University.
Ronen Stein
has served
as our Chief Financial Officer since September 2022. Mr. Stein brings more than twenty years of experience as chief financial officer
and leadership roles in both private and U.S. listed public companies. From 2021 to 2022 Mr. Stein served as the CFO of Siklu, an Israel
based company in the telecommunications sector. Prior to that, Mr. Stein served as the CFO of 10bis from 2017 to 2021, Enercon technologies
Ltd. from January 2015 to December 2015, Knock N’Lock from 2008 to 2014 and Pointer Telocation (NASDAQ:PNTR), from 2002 to 2007.
Mr. Stein is a Certified Public Accountant in Israel and holds an M.B.A, as well as a B.A. degree in economics and accounting, both from
Tel Aviv University.
Oz Zimerman
joined Ceragon
in March 2013 and currently serves as our Chief Marketing Officer EVP Corporate Development. Oz brings with him over 25 years of
global executive business experience in marketing, business development and strategy. From 2008 to 2012, Mr. Zimerman was Corporate Vice
President Marketing and Business Development at DSP Group, where he penetrated world leading consumer electronic customers, acquired new
technology which became the main growth engine of the company, established the DECT ULE Alliance and managed relations with top executive
decision makers at world leading service providers. Prior to joining DSP Group, Oz was VP Channels Sales, Business Development and Strategic
Marketing at ECI Telecom, where he defined and implemented exceptional and innovative pricing approach generating sharp sales increase.
Prior to his work at ECI, he was Engagement Manager at Shaldor, a leading management consulting firm. Mr. Zimerman holds a B.Sc. in Industrial
Engineering Management from NYU University (summa cum laude) and a Master of Science in Engineering and Management from Columbia
University.
Hadar Vismunski-Weinberg
joined Ceragon in April 2023 and serves as Chief Legal Officer and Corporate Secretary. Ms. Vismunski-Weinberg has extensive global
leadership experience. Prior to Ceragon, she served as the Bank Corporate Secretary of Bank Leumi Ltd. (2021-2022), as Vice President,
Chief General Counsel and Corporate Secretary at Partner Communications Company Ltd. (2017-2021) and held various legal leadership positions
at Teva Pharmaceutical Industries Ltd., including VP Legal (2007-2017). In her earlier career, Ms. Vismunski-Weinberg was a partner in
an Israeli law firm specializing in commercial and corporate law. Ms. Vismunski-Weinberg holds a Bachelor of Law from The Hebrew University
of Jerusalem, and is a member of the Israeli Bar Association since 1999.
Michal Goldstein
has
served as our Chief People Officer since March 2020. Previous to this appointment, Ms. Goldstein served as the Chief Human Resources Officer
of Contentsquare, a privately held global software company. Prior to Contentsquare, Ms. Goldstein was Vice President of Human Resources
Centers of Excellence at NICE Systems (Nasdaq), as well as served in various Human Resources Business Partner positions at Amdocs, where
she spent twelve years, including three years in the company’s Silicon Valley office. Ms. Goldstein has a background in organizational
development and consulting and holds a B.A in Psychology from the University of Haifa, Israel, an M.Sc. in Organizational Psychology from
the University of Nottingham, UK, and a Doctor of Management Degree from the University of Hertfordshire, UK, specializing in organizational
complexity.
Ulik Broida
has served
as our Chief Product Officer since January 2019 and in April 2021 joined Ceragon’s executive management team as Executive Vice President
Solutions Management. In February 2022, Mr. Broida also assumed the role of Executive Vice President Products. Mr. Broida is responsible
for product strategy, innovation and product management, and leads the company’s Product Management and Global Sales Engineering
teams to ultimately support global sales in delivering value to service providers and mission critical private networks worldwide. Mr.
Commencing in February 2022, Mr. Broida also leads the products research and development from inception and design using innovative, cutting-edge
technologies, all the way to high volume production. Mr. Broida brings over 21 years of experience in strategic marketing and product
strategy in the Telecom and IIOT industry. Prior to joining Ceragon, Mr. Broida served as the VP Marketing at mPrest, where he was responsible
for product management, marketing, and business development. He served as Vice President of Marketing and Business Development at RAD
from 2013 to 2016 and held numerous additional VP product management roles in Wavion (2010-2013), NICE (2006-2010), Alvarion (2000-2006).
Mr. Broida holds a B.Sc in electrical engineering from the Technion, Israel’s Institute of Technology, and a Master’s degree
in Business Administration from the Tel Aviv University.
Dima Friedman
has served
as our Executive Vice President, Chief Operating Officer since January 22, 2023. Prior to joining Ceragon, Mr. Friedman served as a Corporate
Vice President of Operations (2010-2022) at DSP Group Inc., publicly traded global leader in wireless communication and voice processing
chipsets and algorithms. Mr. Friedman served also in a number of capacities including responsibilities for manufacturing engineering,
production test engineering, foundry and assembly technology, configuration and lifecycle management, supplier management, product quality
and reliability, as well as other business functions. Mr. Friedman hold a BSc in Electrical Engineering and graduation of the Director
and Senior Executive Program from Tel Aviv University.
Ronen Ben-Hamou
has served
as our Chief growth officer, since December 2023. Mr. Ben-Hamou brings over 20 years of international leadership experience in C-level,
general management, business, and technical executive roles in the Telecommunication and IoT industries. He has led innovation and managed
large-scale international organizations focusing on system, silicon, and software development. Prior to joining Ceragon, Mr. Ben-Hamou
served as the CEO of Siklu, a provider of multi-Gigabit “wireless fiber” connectivity in urban, suburban and rural areas.
His extensive experience includes commercializing new technologies with Tier 1 customers as well as driving digital transformation across
the globe. Mr. Ben-Hamou’s previous roles also included EVP of Products Solutions and Head of Global RD as well as EVP,
of IoT Technologies Solutions at Telit. Prior to that, he held leadership positions at Ericsson, as COO Head of RD of
their Modems business unit, ST-Ericsson as SVP GM of Thin Modem Solutions, and Infineon Technologies as VP GM of Entry Phone
base unit. Mr. Ben-Hamou holds a B.Sc. degree in Electrical Engineering from Coventry University in the UK.
62
Ram Prakash Tripathi
has
served as our Regional President, APAC since 2002. Prior to joining Ceragon, Mr. Tripathi held senior managerial positions at several
companies including Stratex and Reliance and has over 20 years of experience in the telecommunications industry. Mr. Tripathi holds a
B.Sc. in Electronics Communication Engineering from the Dr. Babasaheb Ambedkar University, in Aurangabad, Maharashtra, India.
Mario Querner
has served
as our Regional President, EMEA since October 2016 and additionally Africa since January 2020. Mr. Querner has over 25 years of international
business experience in telecommunications and media, working in Europe and Asia. Prior to joining Ceragon, Mr. Querner held the position
of Vice President of Asia-Pacific at Newtec, a leading provider for satellite telecommunication solutions. From 2011 to 2013, Mr. Querner
served as Head of Region, South East Asia at ECI (optical transmission networks). From 2009 to 2011 he was the Head of Sales at Technicolor,
formerly Thomson, in charge of APAC-EMEA for Digital Home Solutions. From 1999 to 2009, Mr. Querner held several management positions
at Alcatel-Lucent, the last of which was Managing Director and Country Senior Officer in Indonesia. Mr. Querner has a degree in Electrical
Engineering from the University of Applied Science in Braunschweig/Wolfenbuettel (Germany) and a degree in Business Administration from
the Brunel University (United Kingdom).
Ronen Rotstein
has served
as our Regional President, North America since 2022. Mr. Rotstein joined Ceragon in 2015, and most recently he was responsible for Ceragon
Business Finance teams across the Americas, while leading the Group’s operations in North America. Prior to that Mr. Rotstein held
various Finance and Operations positions in Asia, Europe and North America Mr. Rotstein brings over 20 years of international business
and finance experience. Prior to joining Ceragon, he held senior finance positions with Amdocs, and before that was a consultant with
PwC in Israel and the UK. He holds a Bachelor’s degree in Accounting from the Tel-Aviv University.
Carlos Alvarez
has served
as our Regional President, Latin America since December 2021. Mr. Alvarez has over 24 years of business experience in telecommunications
working across Latin America Region. Mr. Alvarez most recently served as General Manager at TimweTech helping businesses drive digital
marketing and fintech strategies. Prior to this, Mr. Alvarez served as Vice President of Caribbean and the Latin America region at Amdocs
leading the OSS/BSS business. His career also included various positions at Alcatel-Lucent/Nokia, the latest of which was Global Account
Manager for the CALA Division. Mr. Alvarez holds an M.B.A. from IESA and has a degree in Electronical Engineering from the UNET in Venezuela.
Arrangements Involving Directors and Senior
Management
There are no arrangements or understandings of which we are aware
relating to the election of our current directors or the appointment of current executive officers in our Company. In addition, there
are no family relationships among any of the individuals listed in this Section A (Directors and Senior Management).
| B. |
Compensation
|
|
|
a) |
Aggregate
Executive Compensation
|
During 2024, the aggregate compensation paid by us or accrued on
behalf of all persons listed in Section A above (Directors and Senior Management), and other directors and executive officers who served
as such during the year 2024, including Mr. Alon Klomek, who ceased to serve in his position on January 1, 2025 and Robert Wadsworth who
joined the Company’s board of directors on May 24, 2024, consisted of approximately $3.8 million in salary, fees, bonuses, commissions
and directors’ fees and approximately $0.5 million in amounts set aside or accrued to provide pension, retirement or similar benefits,
but excluding amounts expended for automobiles made available to our officers, expenses (including business travel, professional and business
association dues and expenses) reimbursed to our officers and other fringe benefits commonly reimbursed under local practices or paid
by companies in Israel (all the amounts were translated to USD based on exchange rate as of December 31, 2024). This aggregation does
not include Messrs. Querner, Tripathi, Alvarez and Rotstein (together the “
Region Heads
”),
who were not considered executive officers during 2024. Following the departure of Mr. Klomek, the Region Heads will be considered executive
officers beginning in 2025.
We have a performance-based bonus plan, which includes our executive
officers. The plan is based on our overall performance, the particular unit performance, and individual performance. A non-material portion
of the performance objectives of our executive officers are qualitative. The measurable performance objectives can change year over year,
and are a combination of financial parameters, such as revenues, booking, gross profit, regional operating profit, operating income, net
income and collection. The plan for our executive officers is reviewed and approved by our Compensation Committee and Board of Directors
annually (and with respect to our CEO, also by our shareholders), as are any bonus payments to our executive officers made under such
plan.
63
Cash Compensation
Our directors (except for Mr. Ilan Rosen, our Chairman of the Board of Directors (“
Chairman
”),
as described below) are compensated in accordance with regulations promulgated under the Companies Law concerning the remuneration of
external directors (the “
Remuneration Regulations
”), as amended by the Israeli Companies
Regulations (Relief for Companies with Shares Registered for Trade in a Stock Exchange Outside of Israel) - 2000 (the “
Foreign
Listed Regulations
”). Each of them is entitled to a cash compensation in accordance with the “fixed” amounts
of the annual and participation fees, as set forth in the Remuneration Regulations, based on the classification of the Company according
to the amount of its capital, and to reimbursement of travel expenses for participation in a meeting, which is held outside of the director’s
place of residence; currently – the sum of NIS 112,000 (approximately $31,016) (based on the NIS/USD exchange ratio as published
by the Bank of Israel on March 4, 2025 (the “
Exchange Ratio
”) as an annual fee, the
sum of NIS 3,500 (approximately $969, based on the Exchange Ratio) as an in-person participation fee, NIS 2,100 (approximately $582, based
on the Exchange Ratio) for conference call participation and NIS 1,750 (approximately $485, based on the Exchange Ratio) for written resolutions.
As the above-mentioned amounts are within the range between the fixed amounts set forth in the Remuneration Regulations and the maximum
amounts set forth in the Foreign Listed Regulations, they are exempt from shareholder approval, in accordance with the Israeli Companies
Regulations (Relief from Related Party Transactions) – 2000 (the “
Relief Regulations
”).
At the annual general meeting held on May 24, 2024 (“
2024 AGM
”), our shareholders approved
an annual fee of NIS 230,000 (approximately $66,295, based on the Exchange Ratio) to our Chairman, and participation fees equal to those
listed above. Additionally, at the 2024 AGM our shareholders approved that Mr. Wadsworth shall be entitled to in-person participation
fees also for conference call participation, as he is our only director residing outside of Israel. These cash amounts are subject to
an annual adjustment for changes in the Israeli consumer price index in accordance with the Remuneration Regulations. The above-mentioned
cash compensation is in line with the Company’s compensation policy, which was most recently revised and adopted by our shareholders
on the 2023 AGM (as defined below) (the “
Compensation Policy
”), according to which
each of the Company’s non-executive directors is entitled to receive cash fees which include annual and participation fees. For
more information, please see “
Remuneration of Directors
” and “
The
Stock Option Plan
” below and Note 14 to our consolidated financial statements included as Item 18 in this annual report.
Equity Compensation.
During 2024, we granted to our directors and members of our senior management detailed in Section 6.A (excluding our Region Heads,
as described above) and other directors and executive officers who served as such during the year 2024, in the aggregate, options to purchase
501,683 ordinary shares, with an exercise price that ranges from $2.58 to $3.08 per share. During 2024, we granted to our directors and
members of our senior management detailed in Section 6A, in the aggregate 250,867 restricted share units (“
RSUs
”).
As of December 31, 2024, there were a total of 1,876,488 outstanding options to purchase ordinary shares and 522,707 RSUs that were held
by our directors and senior management.
In addition to cash fees, as remuneration for their contribution
and efforts as directors of the Company, and in line with the limitations set forth in our Compensation Policy with respect to equity-based
compensation for non-executive directors, our directors received annual equity grants with respect to their three-year terms of service
as directors, which was last approved to them by our shareholders at the 2024 AGM, as follows:
(i) each of Efrat Makov, Yael Shaham, Robert Wadsworth, Shlomo
Liran, Rami Hadar and David Ripstein, directors of the Company, receive, on an annual basis, for a period of three years, an equal mix
of outstanding options to purchase ordinary shares (“
Options
”) and RSUs in an annual
value of $75,000 (the “
Annual Equity Value
” and collectively the “
Annual
Equity Awards
”). The actual number of Options and RSUs shall be determined based on the average closing price per share as
quoted on the Nasdaq stock market during the 30 consecutive trading days preceding the grant date (being the date of the 2024 AGM and
its first and second anniversaries). Further detailed description of the Annual Equity Awards is provided under our 2024 AGM proxy statement
filed on April 18, 2024 (the “
2024 Proxy Statement
”);
(ii) Ilan Rosen, our Chairman, also receives Annual Equity Awards
provided that their Annual Equity Value is $112,500.
b)
Individual
Compensation of Office Holders
The following information describes the compensation of our five
most highly compensated “officer holders” (as such term is defined in the Companies Law) with respect to the year ended December
31, 2024. The five individuals for whom disclosure is provided are referred to herein as “Covered Office Holders.” All amounts
specified below are in terms of cost to the Company, translated to USD based on exchange rate as of December 31, 2024, and are based on
the following components:
|
|
• |
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by applicable law which may include,
to the extent applicable to each Covered Office Holder, payments, contributions and/or allocations for pension, severance, car or car
allowance, medical insurance and risk insurance (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments for
social security, and other benefits consistent with the Company’s guidelines.
|
|
|
• |
Performance Bonus Costs. Performance Bonus Costs represent bonuses granted to the Covered Office Holder with respect to the year
ended December 31, 2024, paid in accordance with the Covered Office Holder’s performance of targets as set forth in his bonus plan,
and approved by the Company’s Compensation Committee and Board of Directors.
|
|
|
• |
Equity Costs represent the expense recorded in our financial statements for the year ended December 31, 2024, with respect to equity-based
compensation granted in 2024 and in previous years. For assumptions and key variables used in the calculation of such amounts see Note
2U of our audited consolidated financial statements.
|
|
|
• |
Doron Arazi – CEO: Salary Costs - $432,360; Performance Bonus Costs - $277,804; Equity Costs - $409,912.
|
64
|
|
• |
Alon Klomek – (former) Chief Revenue Officer: Salary Costs - $318,213; Performance Bonus Costs -
$169,080; Equity Costs - $142,031.
|
|
|
• |
Ronen Ben-Hamou – Chief Growth Officer: Salary Cost - $321,328; Performance Bonus Costs - $153,598;
Equity Costs - $69,614.
|
|
|
• |
Ulik Broida – Chief Product Officer: Salary Costs - $282,353; Performance Bonus Costs - $97,868;
Equity Costs - $100,215.
|
|
|
• |
Ronen Stein – CFO: Salary Costs - $303,516; Performance Bonus Costs - $87,740; Equity Costs - $62,100.
|
Compensation Policy
Under the
Companies Law, we are required to adopt a compensation policy, which sets forth company policy regarding the terms of office and employment
of office holders, including compensation, equity awards, severance and other benefits, exemption from liability and indemnification.
Such compensation policy should take into account, among other things, providing proper incentives to office holders, management of risks
by the Company, the office holder’s contribution to achieving corporate objectives and increasing profits, and the function of the
office holder.
Our Compensation Policy is designed to balance between the importance
of incentivizing office holders to reach personal targets and the need to assure that the overall compensation meets our Company’s
long-term strategic performance and financial objectives. The Compensation Policy provides our Compensation Committee and Board of Directors
with adequate measures and flexibility to tailor each of our office holder’s compensation package based, among other matters, on
geography, tasks, role, seniority and capability. Moreover, the Policy is intended to motivate our office holders to achieve ongoing targeted
results in addition to high-level business performance in the long term, without encouraging excessive risk taking.
The Compensation Policy and any amendments thereto must be approved
by the board of directors, after considering the recommendations of the compensation committee, and by a special majority of our shareholders
which should include (i) at least a majority of the shareholders who are not controlling shareholders and who do not have a personal interest
in the matter, present and voting (abstentions are disregarded), or (ii) the non-controlling shareholders and shareholders who do not
have a personal interest in the matter who were present and voted against the matter hold two percent or less of the aggregate voting
power in the company (“
Special Majority
”). The Compensation Policy must be reviewed
from time to time by the board and must be re-approved or amended by the board of directors and the shareholders no less than every three
years. If the Compensation Policy is not approved by the shareholders, the compensation committee and the board of directors may nonetheless
approve the policy, following further discussion of the matter and for detailed reasons.
Our Compensation Policy was originally approved by our shareholders
in 2012 and was revised and adopted by our shareholders at the 2023 AGM, which was held on September 6, 2023.
Clawback Policy
On June 9, 2023, the SEC approved Nasdaq’s proposed clawback
listing standards that implement the SEC’s clawback rule, which was adopted under Rule 10D-1 under the Exchange Act (the “
Clawback
Listing Rules
”). The SEC’s final rule directed U.S. stock exchanges, including Nasdaq, to adopt listing standards requiring
all listed companies, including foreign private issuers, such as the Company, to adopt and comply with a written clawback policy, to disclose
the policy and to file the policy as an exhibit to its annual report, as well as to include other disclosures in the event a clawback
is triggered under the policy. At the 2023 AGM, following the approvals of the Compensation Committee and Board of Directors, we
amended Section 9 (Clawback Policy) of the Compensation Policy, to provide that the Company would adopt a clawback policy as contemplated
pursuant to the Clawback Listing Rules. On November 30, 2023, our Compensation Committee and Board of Directors approved the adoption
of a clawback policy in compliance with the Clawback Listing Rules (the “
Clawback Policy
”)
to recover any excess incentive-based compensation from current and former officers after an accounting restatement, effective as of October
2, 2023. In addition, the Compensation Committee and the Board of Directors may apply this Clawback Policy to persons who are not officers.
Under the Clawback Policy, in the event that the Company is required to prepare an accounting restatement due to its material noncompliance
with any financial reporting requirement under U.S. federal securities law, the policy provides that the Company will recoup compensation
from each current or former executive officer who, during the three-year period preceding the date on which an accounting restatement
is required, received incentive compensation based on the erroneous financial data that exceeds the amount of incentive-based compensation
the executive would have received based on the restatement. The Compensation Committee and the Board of Directors administer the Company’s
Clawback Policy and have sole discretion to determine how to seek recovery under the policy and may forgo recovery if both determine that
recovery would be impracticable.
65
| C. |
Board Practices
|
Corporate Governance Practices
We are incorporated in Israel and therefore are generally subject
to various corporate governance practices under the Companies Law, relating to matters such as external directors, audit committee, compensation
committee, internal auditor and approvals of interested parties’ transactions. These matters are in addition to the ongoing listing
conditions under the Nasdaq Rules and other relevant provisions of U.S. securities laws. Under applicable Nasdaq Rules, a foreign private
issuer (such as the Company) may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq Rules,
except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. See Item
3. “KEY INFORMATION – Risk Factors – Risks Relating to Operation in Israel -
Being
a foreign private issuer exempts us from certain SEC requirements and Nasdaq Rules, which may result in less protection than is afforded
to investors under rules applicable to domestic issuers.”
For information regarding home country rules followed by us see
Item 16G. “CORPORATE GOVERNANCE”.
General Board Practices
Under the Company’s Articles of Association, the Board of
Directors is to consist of not less than five (5) and not more than nine (9) directors, unless otherwise determined by a resolution of
the Company's shareholders. Our Board of Directors presently consists of seven (7) members. The Board of Directors retains all the powers
in managing our Company that are not specifically granted to the shareholders. For example, for whatever purposes it deems fit, the Board
may decide to borrow money or may set aside reserves out of our profits.
The Board of Directors may pass a resolution when a quorum is present,
and by a vote of at least a majority of the directors present when the resolution is put to vote. A quorum is defined as at least a majority
of the directors then in office who are lawfully entitled to participate in the meeting but not less than two directors. The Chairman
of the Board is elected and removed by the board members. Minutes of the Board meetings are recorded and kept at our offices.
The Board of Directors may, subject to the provisions of the Companies
Law, appoint a committee of the Board and delegate to such committee all or any of the powers of the Board, as it deems appropriate. Notwithstanding
the foregoing and subject to the provisions of the Companies Law, the Board may, at any time, amend, restate or cancel the delegation
of any of its powers to any of its committees. Our Board of Directors has appointed a Corporate Audit Committee under the Companies Law,
a Financial Audit Committee under Nasdaq Rules, a Compensation Committee and a Nomination Committee.
Our Articles of Association provide that any director may appoint
as an alternate director, by written notice to us, any individual who is qualified to serve as director and who is not then serving as
a director or alternate director for any other director. An alternate director has all of the rights and obligations of a director, excluding
the right to appoint an alternate for himself. Currently no alternate directors serve on our Board.
Terms and Skills of Directors
Our directors are generally elected at the annual general meeting
of shareholders for a term ending on the date of the third annual general meeting following the general meeting at which they were elected,
unless earlier terminated in the event of such director’s death, resignation, bankruptcy, incapacity or removal. At the 2024 AGM,
Messrs. Rami Hadar, Ilan Rosen, Efrat Makov, Yael Shaham, Shlomo Liran and David Ripstein were re-elected to serve as directors and Mr.
Robert Wadsworth was elected to serve as director. Information regarding the period during which each of our directors has served in that
office can be found above under the heading “Directors and Senior Management”.
According to the Companies Law, a person who does not possess the
skills required and the ability to devote the appropriate time to the performance of the office of director in a company, taking into
consideration, among other things, the special requirements and size of that company, shall neither be appointed as a director nor serve
as director in a public company. A public company shall not convene a general meeting the agenda of which includes the appointment of
a director, and a director shall not be appointed, unless the candidate has submitted a declaration that he or she possesses the skills
required and the ability to devote the appropriate time to the performance of the office of director in the company, that sets forth the
aforementioned skills and further states that the limitations set forth in the Companies Law regarding the appointment of a director do
not apply in respect of such candidate.
A director who ceases to possess any qualification required under
the Companies Law for holding the office of director or who becomes subject to any ground for termination of his/her office must inform
the company immediately and his/her office shall terminate upon such notice.
66
Independent Directors
Under the Nasdaq Rules, the majority of our directors are required
to be independent. The independence criteria under the Nasdaq Rules excludes, among others, any person who is: (i) a current or former
(at any time during the past three years) employee of the company or its affiliates; or (ii) an immediate family member of an executive
officer (at any time during the past three years) of the company or its affiliates.
In addition, under the Companies Law, an “independent director”
is either an external director or a director appointed or classified as such who meets the same non-affiliation criteria as an external
director, as determined by the company’s audit committee, and who has not served as a director of the company for more than nine
consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the
consecutive nature of such a director’s service. However, as our shares are listed on the Nasdaq Global Select Market, we may also,
in accordance with the Foreign Listed Regulations, classify directors who qualify as independent directors under the relevant non-Israeli
rules, as “independent directors” under the Companies Law. In addition, the Foreign Listed Regulations provide that “independent
directors” may be elected for additional terms that do not exceed three years each, beyond the nine consecutive years, permitted
under the Companies Law, provided that, if the director is being re-elected for an additional term or terms beyond the nine consecutive
years (i) the audit committee and board of directors must determine that, in light of the director’s expertise and special contribution
to the board of directors and its committees, the re-election for an additional term is to the company’s benefit; (ii) the director
must be re-elected by the required majority of shareholders and subject to the terms specified in the Companies Law.
Currently, all of our serving directors – Ms. Makov, Ms.
Shaham and Messrs. Liran, Rosen, Hadar, Wadsworth and Ripstein – qualify and serve as independent directors under the Nasdaq Rules.
External Directors
Under the Companies Law, Israeli public companies are generally
required to appoint at least two external directors. Each committee of a company’s board of directors, which is authorized to exercise
the board of directors’ authorities, is required to include at least one external director, and the corporate audit and compensation
committees must include all of the external directors. The Foreign Listed Regulations allow us, as a company whose shares are traded on
Nasdaq, and does not have a controlling shareholder (within the meaning of the Companies Law) to exempt ourselves from the requirement
to have external directors on our Board of Directors and from related requirements imposed by the Companies Law concerning the composition
of the audit and compensation committees, provided that we continue to comply with the relevant U.S. securities laws and Nasdaq Rules
applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation committee.
An external director who was elected to serve as such prior to
the date on which the company opted to comply with the applicable U.S. securities laws and Nasdaq Rules governing the appointment of independent
directors and the composition of the audit and compensation committees, as set forth above, may continue to serve out his/her term as
a non-external director on the company’s board of directors until the earlier of (i) the end of his/her three year term, or (ii)
the second annual general meeting following the company’s decision to comply with the said applicable rules, without any further
action on the part of the company or its shareholders. Such director may be elected to the board of directors by the company’s shareholders,
but he/she would now be elected as a “regular” director (not an external director) and his/her election would be no different
than the election of any other director.
On August 12, 2019, our Board of Directors resolved that commencing
on the day following the date of the 2019 Annual General Meeting of Shareholders, the Company would follow the exemption from the requirement
to have external directors on our Board, provided that it continues to meet the requisite requirements for said relief and unless the
Board of Directors determines otherwise.
Financial
and Accounting Expertise
Pursuant to the Companies Law and regulations promulgated thereunder,
the board of directors of a publicly traded company is required to make a determination as to the minimum number of directors who must
have financial and accounting expertise based, among other things, on the type of company, its size, the volume and complexity of the
company’s activities and the number of directors. A director with “accounting and financial expertise” is a director
whose education, experience and skills qualify him or her to be highly proficient in understanding business and accounting matters, thoroughly
understand the Company’s financial statements and stimulating discussion regarding the manner in which financial data is presented.
Currently, Ms. Makov, who chairs the Financial Audit Committee,
and Messrs. Liran, Rosen, and Ripstein, all independent directors, are considered “financial experts” for the purposes of
the Nasdaq Rules. Each of Ms. Makov and Messrs. Liran, Rosen, and Ripstein, satisfy the qualifications set forth for “accounting
and financial expertise” as defined under the Companies Law.
67
Remuneration of Directors
Directors’ remuneration is generally consistent with our
compensation policy for office holders (see below) and generally requires the approval of the Compensation Committee, the Board of Directors
and the shareholders (in that order).
Notwithstanding the above, under special circumstances, the compensation
committee and the board of directors may approve an arrangement that deviates from our compensation policy, provided that such an arrangement
is approved by a Special Majority.
According to the Remuneration Regulations, directors who are being
compensated in accordance with such regulations are generally entitled to an annual fee, a participation fee for board or committee meetings
and reimbursement of travel expenses for participation in a meeting which is held outside of the director’s place of residence.
The minimum fixed and maximum amounts of the annual and participation fees are set forth in the Remuneration Regulations, and are based
on the classification of the Company according to the size of its capital. Remuneration of a director who is compensated in accordance
with the Remuneration Regulations, in an amount which is less than the fixed annual fee or the fixed participation fee, requires the approval
of the Compensation Committee, the Board of Directors and the shareholders (in that order). A company may compensate a director (who is
compensated in accordance with the Remuneration Regulations) in shares or rights to purchase shares, other than convertible debentures
which may be converted into shares, in addition to the annual and the participation fees, and the reimbursement of expenses, subject to
certain limitations set forth in the Remuneration Regulations.
Additionally, according to the Relief Regulations, shareholders’
approval for directors’ compensation and employment arrangements is not required if both the compensation committee and the board
of directors resolve that either (i) the directors’ compensation and employment arrangements are solely for the benefit of the company
or (ii) the remuneration to be paid to any such director does not exceed the maximum amounts set forth in the Foreign Listed Regulations.
Further, according to the Relief Regulations, shareholders’ approval for directors’ compensation and employment arrangements
is not required if (i) both the compensation committee and the board of directors resolve that such terms are not more beneficial than
the former terms, or are essentially the same in their effect, and are in line with the company’s compensation policy; and (ii)
such terms are brought for shareholder approval at the next general meeting of shareholders.
Neither we nor any of our subsidiaries have entered into a service
contract with any of our current directors that provides for benefits upon termination of their service as directors.
For a full discussion of the remuneration paid to our directors
see above in “B. Compensation a) Aggregate Executive Compensation”.
Mandatory Committees of the Board of Directors
Financial Audit Committee
In accordance with the rules of the SEC under the Exchange Act
and under Nasdaq Rules, we are required to have an audit committee consisting of at least three directors, each of whom (i) is independent;
(ii) does not receive any compensation from the Company (other than directors’ fees); (iii) is not an affiliated person of the Company
or any of its subsidiaries; (iv) has not participated in the preparation of the Company’s (or subsidiary’s) financial statements
during the past three years; and (v) is financially literate and one of whom has been determined by the board to be a financial expert.
The duties and responsibilities of the Financial Audit Committee include: (i) recommending the appointment of the Company’s independent
auditor to the Board of Directors, determining its compensation and overseeing the work performed by it; (ii) pre-approving all services
of the independent auditor; (iii) overseeing our accounting and financial reporting processes and the audits of our financial statements;
and (iv) handling complaints relating to accounting, internal controls and auditing matters. Nonetheless, under the Companies Law, the
appointment of the Company’s independent auditor requires the approval of the shareholders, and its compensation requires the approval
of our Board of Directors.
As of the date hereof, Messrs. Liran, Ripstein and Ms. Makov serve
on our Financial Audit Committee, each of whom has been determined by the Board to meet the Nasdaq Rules and SEC standards described above,
and with Ms. Makov serving as chairperson of such committee and as its financial expert. See Item 16A. “AUDIT COMMITTEE FINANCIAL
EXPERT” below. We have adopted an Audit Committee charter as required under the Nasdaq Rules.
68
Corporate Audit Committee
We maintain a Corporate Audit Committee which is our audit committee
for the purposes of the Companies Law; the duties and responsibilities of our Corporate Audit Committee mainly include: (i) identifying
of irregularities and deficiencies in the management of our business, in consultation with the internal auditor and our independent auditor,
and suggesting appropriate courses of action to amend such irregularities; (ii) reviewing and approving certain transactions and actions
of the Company, including the approval of related party transactions that require approval by the audit committee under the Companies
Law; defining whether certain acts and transactions that involve conflicts of interest are material or not and whether transactions that
involve interested parties are extraordinary or not, and to approve such transactions; (iii) establishing procedures to be followed with
respect to related party transactions; (iv) discuss with management policies and practices for risk assessment; (v) recommending
the appointment of the internal auditor and its compensation to the Board of Directors; (vi) examining the performance of our internal
auditor and whether it is provided with the required resources and tools necessary for him to fulfill its role, considering,
inter
alia
, the Company’s size and special needs; (vii) examining the independent auditor’s scope of work as well as his
fees and providing its recommendations to the appropriate corporate organ; (viii) overseeing the accounting and financial reporting processes
of the Company; (ix) setting procedures for handling complaints made by the Company’s employees in connection with management deficiencies
and the protection to be provided to such employees; (x) discuss and review responses to SEC comments regarding the Company’s financial
statements or financial reporting; (xi) review and discuss with the independent auditor the matters required by Public Company Accounting
Oversight Board Auditing Standard No. 1301 6 (Communications with Audit Committees) relating to the conduct of the audit; (xii) review
and monitor, significant findings of any examination by regulatory authorities or agencies; (xiii) review proposed future internal audit
plans; and (xiv) performing such other duties that are or will be designated solely to the audit committee in accordance with the Companies
Law and the Company’s Articles of Association.
The Corporate Audit Committee composition requirements referred
to under Section 115 of the Companies Law are not applicable to the Company as the Board of Directors, as part of its decision to opt
out of the requirement to appoint external directors, as provided for under the Foreign Listed Regulations, also adopted relief from such
composition requirements on the basis that the Company complies, and will continue to comply, with the relevant U.S. securities laws and
Nasdaq Rules applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation
committees.
As of the date hereof, Mr. Ripstein, Ms. Shaham and Ms. Makov serve
on our Corporate Audit Committee, each of whom has been determined by the Board to meet the Nasdaq Rules and SEC standards described under
the Financial Audit Committee section above, and Mr. Ripstein serves as its chairman.
Compensation Committee
Under the Nasdaq Rules, the compensation payable to our executive
officers must be determined or recommended to the board for determination either by a majority of the independent directors on the board,
in a vote in which only independent directors participate, or by a compensation committee consisting of at least two independent directors
(as defined under the Nasdaq Rules). Each compensation committee member must also be deemed by our Board of Directors to meet the enhanced
independence requirements for members of the compensation committee under the Nasdaq Rules, which requires, among other things, that our
Board of Directors consider the source of each such committee member’s compensation in considering whether he or she is independent.
According to the Companies Law, the compensation committee shall include all the external directors, which shall consist of the majority
of its members. As indicated above, we opted out of the external director rules in accordance with the exemption provided under the Foreign
Listed Regulations. Nonetheless, as our Board has decided to opt out of the requirement to elect external directors and to adopted relief
from the audit and compensation composition requirements under the Companies Law, we are subject to the relevant U.S. securities laws
and Nasdaq Rules applicable to U.S. domestic issuers regarding the independence of the Board and the composition of the audit and compensation
committees.
According to the Companies Law, the board of directors of any Israeli
public company must appoint a compensation committee, which is responsible for: (i) making recommendations to the Board of Directors with
respect to the approval of the compensation policy (see below) and any extensions thereto; (ii) periodically reviewing the implementation
of the compensation policy and providing the Board of Directors with recommendations with respect to any amendments or updates thereto;
(iii) reviewing and resolving whether or not to approve arrangements with respect to the terms of office and employment of office holders;
and (iv) determining whether or not to exempt under certain circumstances a transaction with a candidate for CEO, who is not affiliated
with the Company or its controlling shareholders, from shareholder approval, and provided that the terms approved are consistent with
the compensation policy. Under the Companies Law, the Compensation Committee may need to seek the approval of the Board of Directors and
the shareholders for certain compensation-related decisions. See “Item 6 - Directors, Senior Management and Employees – B.
Compensation”.
In addition, our Compensation Committee administers our Amended
and Restated Share Option and RSU Plan. The Board has delegated to the Compensation Committee the authority to grant options and RSUs
under this plan and to act as the share incentive committee pursuant to this plan, provided that such grants are within the framework
determined by the Board, and that the grant of equity compensation to our office holders is also approved by our board.
The Compensation Committee composition requirements referred to
under Section 118A of the Companies Law are not applicable to the Company as the Board of Directors, as part of its decision to opt out
of the requirement to appoint external directors, as provided for under the Foreign Listed Regulations, also adopted relief from such
composition requirements on the basis that the Company complies, and will continue to comply, with the relevant U.S. securities laws and
Nasdaq Rules applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation
committees.
Mr. Rosen, Ms. Shaham, and Mr. Hadar serve on our Compensation
Committee, each of whom meets the above-mentioned qualification requirements set forth under the Nasdaq Rules, and Mr. Hadar serves as
its chairman.
69
Nomination Committee
The Nasdaq Rules require that director nominees be selected or
recommended for the board’s selection either by a nomination committee composed solely of independent directors, or by a majority
of independent directors, in a vote in which only independent directors participate, subject to certain exceptions. Currently, Messrs.
Liran, Rosen and Hadar, all independent directors, serve as members of our Nomination Committee, which recommends director nominees for
our Board’s approval.
Approval of Office Holders Terms of Employment
The terms of office and employment of office holders (other than
directors and the CEO) require the approval of the compensation committee and then of the board of directors, provided such terms are
in accordance with the company’s compensation policy. If terms of employment of such office holder are not in accordance with the
compensation policy, then shareholder approval is also required following the approval of the compensation committee and board of directors
after taking into account the various policy considerations and mandatory requirements set forth in the Companies Law with respect to
office holders’ compensation. However, in special circumstances the compensation committee and then the board of directors may nonetheless
approve such terms of office and employment, even if they were not approved by the shareholders, following further discussion and for
detailed reasoning. In addition, the Relief Regulations provide that non-material changes to the terms of office of office holders who
are subordinated to the company’s CEO will require only CEO approval, provided that the company’s compensation policy includes
a reasonable range for such non-material changes.
The terms of office and employment of a CEO, regardless of whether
such terms conform to the company’s compensation policy, must be approved by the compensation committee, the board of directors
and then by a Special Majority.
Notwithstanding the above, in special circumstances the compensation
committee and then the board of directors may nonetheless approve compensation for the CEO, even if such compensation was not approved
by the shareholders, following further discussion and for detailed reasoning. In addition, under certain circumstances, a company’s
compensation committee may exempt the terms of office and employment of a candidate for the position of CEO from shareholders’ approval,
provided that the candidate is not a director and that the terms of office are compliant with the company’s compensation policy.
Amendment of existing terms of office and employment of office
holders who are not directors, including chief executive officers, require the approval of the compensation committee only, if the compensation
committee determines that the amendment is not material.
The terms of office and employment of directors, regardless of
whether such terms conform to the company’s compensation policy, must be approved by the compensation committee, the board of directors
and then by the shareholders, and, in case that such terms are inconsistent with the company’s compensation policy, such shareholders’
approval must be obtained by the Special Majority with respect to the CEO.
However, and as referred to above with respect to remuneration
of directors, according to the Relief Regulations, a company’s compensation committee and board of directors are permitted to approve
terms of office and employment of a CEO or of a director, without convening a general meeting of shareholders, provided however, that
such terms: (i) are not more beneficial than the former terms, or are essentially the same in their effect; (ii) are in line with the
company’s compensation policy; and (iii) are brought for shareholder approval at the next general meeting of shareholders. In addition,
a company's compensation committee and board of directors are permitted to approve the terms of office of a director, without convening
a general meeting of shareholders, provided that such terms are only beneficial to the company or that such terms are in compliance with
the terms set forth in the Remuneration Regulations.
70
Approval of Certain Transactions
with
Related
Parties
The Companies Law requires the approval of the corporate audit
committee or the compensation committee, thereafter, the approval of the board of directors and in certain cases the approval of the shareholders,
in order to effect specified actions and extraordinary transactions such as the following:
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• |
transactions with office holders and third parties, where an office holder has a personal interest in the transaction;
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• |
employment terms of office holders; and
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• |
extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party
has a personal interest in the transaction, or any transaction with the controlling shareholder or his relative regarding terms of service
provided directly or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a
controlling shareholder who is not an office holder). A “relative” is defined in the Companies Law as spouse, sibling, parent,
grandparent, descendant, spouse’s descendant, sibling or parent and the spouse of any of the foregoing.
|
Further, such extraordinary transactions with controlling shareholders
require the approval of the corporate audit committee or the compensation committee, the board of directors and the majority of the voting
power of the shareholders present and voting at the general meeting of the company (not including abstentions), provided that either:
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• |
the majority of the shares of shareholders who have no personal interest in the transaction and who are present and voting, not taking
into account any abstentions, vote in favor; or
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• |
shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent
of the aggregate voting rights in the company.
|
The Companies Law extends the disclosure requirements applicable
to an office holder (as detailed below) to a controlling shareholder in a public company. Any shareholder participating in the vote on
approval of an extraordinary transaction with a controlling shareholder must inform the company prior to the voting whether or not he
or she has a personal interest in the approval of the transaction, and if he or she fails to do so, his or her vote will be disregarded.
Further, such extraordinary transactions as well as any transactions
with a controlling shareholder or his relative concerning terms of service or employment need to be re-approved once every three years,
provided however that with respect to certain such extraordinary transactions the corporate audit committee may determine that a longer
duration is reasonable given the circumstances related thereto and such extended period has been approved by the shareholders.
In accordance with the Relief Regulations, certain defined types
of extraordinary transactions between a public company and its controlling shareholder(s) are exempt from the shareholder approval requirements.
The approval of the corporate audit committee, followed by the
approval of the board of directors and the shareholders, is required to effect a private placement of securities, in which either: (i)
20% or more of the company’s outstanding share capital prior to the placement is offered, and the payment for which (in whole or
in part) is not in cash, in tradable securities registered in a stock exchange or not under market terms, and which will result in: (a)
an increase of the holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights;
or (b) will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share
capital or voting rights; or (ii) a person will become a controlling shareholder of the company.
A “controlling party” is defined in the Israeli Securities
Law and in the Companies Law, for purposes of the provisions governing related party transactions, as a person with the ability to direct
the actions of a company but excluding a person whose power derives solely from his or her position as a director of the company or any
other position with the company, and with respect to approval of transactions with related parties
also
a person who holds 25% or more of the voting power in a public company if no other shareholder owns more than 50% of the voting power
in the company, and provided that two or more persons holding voting rights in the company, who each have a personal interest in the approval
of the same transaction, shall be deemed to be one holder for the purpose of evaluating their holdings with respect to approvals of transactions
with related parties.
Compensation committee approval is also required (and thereafter,
the approval of the board of directors and in certain cases – the approval of the shareholders) to approve the grant of an exemption
from the responsibility for a breach of the duty of care towards the company, for the provision of insurance and for an undertaking to
indemnify any office holder of the company; see below under “
Exemption, Insurance and Indemnification
of Directors and Officers”.
The Company has adopted a Related Parties Transactions Policy which
was last reviewed and ratified by the Corporate Audit Committee and the Board of Directors on February 8, 2023, that, among other things,
reflects the approval procedures as required under law and sets criteria for the classification of proposed transactions as Extraordinary
Transaction (or Exceptional Transaction), Ordinary Transactions and Ordinary Transactions that are insignificant ones.
71
Duties of Office Holders and Shareholders
Duties of Office Holders
Fiduciary Duties.
The Companies
Law imposes a duty of care and a duty of loyalty on all office holders of a company, including directors. The duty of care requires an
office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same
circumstances, and requires office holders to use reasonable means to obtain (i) information regarding the business advisability of a
given action brought for the office holders’ approval or performed by the office holders by virtue of their position, and (ii) all
other information of importance pertaining to the aforesaid actions. The duty of loyalty includes avoiding any conflict of interest between
the office holder’s position in the company and his personal affairs, avoiding any competition with the company, avoiding the exploitation
of any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company
any information or documents relating to the company’s affairs which the office holder has received due to his position as an office
holder.
The company may approve an action by an office holder from which
the office holder would otherwise have to refrain due to its violation of the office holder’s duty of loyalty if: (i) the office
holder acts in good faith and the act or its approval is not to the detriment of the company, and (ii) the office holder discloses the
nature of his or her interest in the transaction to the company a reasonable time prior to the company’s approval.
Each person listed in the table above under “Directors and
Senior Management” is considered an office holder under the Companies Law.
Disclosure of Personal Interests
of an Office Holder.
The Companies Law requires that an office holder of a company promptly disclose any personal interest that
he or she may have, and all related material information and documents known to him or her relating to any existing or proposed transaction
by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by
the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s siblings, parents and descendants and the
spouses of any of these people, or any corporation in which the office holder: (i) holds at least 5% of the company’s outstanding
share capital or voting rights; (ii) is a director or chief executive officer; or (iii) has the right to appoint at least one director
or the chief executive officer. An extraordinary transaction is defined as a transaction that is either: (i) not in the ordinary course
of business; (ii) not on market terms; or (iii) likely to have a material impact on the company’s profitability, assets or liabilities.
In the case of a transaction which is not an extraordinary transaction,
after the office holder complies with the above disclosure requirements, only board approval is required unless the articles of association
of the company provide otherwise. The transaction must not be adverse to the company’s interest. If a transaction is an extraordinary
transaction, or concerns the terms of office and employment, then, in addition to any approval stipulated by the articles of association,
it must also be approved by the company’s audit committee (or with respect to terms of office and employment, by the compensation
committee) and then by the board of directors, and, under certain circumstances, by shareholders of the company.
A person with a personal interest in any matter may not generally
be present at any audit committee, compensation committee or board of directors meeting where such matter is being considered, and if
he or she is a member of the committee or a director, he or she may not generally vote on such matter at the applicable meeting.
Duties of Shareholders
Under the Companies Law, a shareholder has a duty to: (i) act in
good faith toward the company and other shareholders; and (ii) refrain from abusing his or her power in the company, including, among
other things, voting in a general meeting of shareholders with respect to the following matters: (a) any amendment to the articles of
association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) approval of interested party transactions
which require shareholders’ approval.
In addition, any controlling shareholder, or any shareholder who
knows that it possesses power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a
company’s articles of association, has the power to appoint or prevent the appointment of an office holder in the company, is under
a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty but states that the remedies
generally available upon a breach of contract, will also apply in the event of a breach of the duty of fairness, taking into account such
shareholder’s position.
72
Exemption, Insurance and Indemnification of
Directors and Officers
The Companies Law provides that companies like ours may indemnify
their officers and directors and purchase an insurance policy to cover certain liabilities, if provisions for that purpose are included
in their articles of association.
Our Articles of Association allow us to indemnify and ensure our
office holders to the fullest extent permitted by law.
Office Holders’ Exemption
Under the Companies Law, an Israeli company may not exempt an office
holder from liability for a breach of his or her duty of loyalty, but may exempt in advance an office holder from his or her liability
to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions), provided that
the articles of association allow it to do so. Our Articles of Association allow us to exempt our office holders to the fullest extent
permitted by law.
Office Holders’ Insurance
Our Articles of Association provide that, subject to the provisions
of the Companies Law, we may enter into a contract for the insurance of all or part of the liability imposed on our office holder in respect
of an act or omission performed by him or her in his or her capacity as an office holder, regarding each of the following:
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a breach of his or her duty of care to us or to another person;
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a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume
that his or her act would not prejudice our interests;
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monetary liabilities or obligations imposed upon him or her in favor of another person; and/or
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any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder.
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Without derogating from the aforementioned, subject to the provisions
of the Companies Law and the Israeli Securities Law, we may also enter into a contract to insure an office holder, in respect of expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted
against such office holder or payment required to be made to an injured party, pursuant to certain provisions of the Israeli Securities
Law.
73
Office Holder’s Indemnification
Our Articles of Association provide that, subject to the provisions
of the Companies Law and the Israeli Securities Law, we may indemnify any of our office holders for an obligation or expense specified
below, imposed on or incurred by the office holder in respect of an act or omission performed in his or her capacity as an office holder,
as follows:
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a financial liability imposed on him or her in favor of another person by any judgment, including a settlement or an arbitration
award approved by a court.
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reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or
proceeding instituted against him by a competent authority which concluded without the filing of an indictment against him and without
the imposition of any financial liability in lieu of criminal proceedings, or which concluded without the filing of an indictment against
him but with the imposition of a financial liability in lieu of criminal proceedings concerning a criminal offense that does not require
proof of criminal intent or in connection with a financial sanction (the phrases “proceeding concluded without the filing of an
indictment” and “financial liability in lieu of criminal proceeding” shall have the meaning ascribed to such phrases
in section 260(a)(1a) of the Companies Law);
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reasonable litigation expenses, including attorneys’ fees, expended by an office holder or charged to the office holder by
a court, in a proceeding instituted against the office holder by the Company or on its behalf or by another person, or in a criminal charge
from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of an offense that does
not require proof of criminal intent;
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expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative
proceeding instituted against such office holder, or payment required to be made to an injured party, pursuant to certain provisions of
the Securities Law; and/or
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any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office holder.
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The Company may undertake to indemnify an office holder as aforesaid:
(a) prospectively, provided that, in respect of the first act (financial liability) the undertaking is limited to events which in the
opinion of the Board of Directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify
is given, and to an amount or criteria set by the Board of Directors as reasonable under the circumstances, and further provided that
such events and amount or criteria are set forth in the indemnification undertaking; and (b) retroactively.
Limitations on Insurance and Indemnification
The Companies Law provides that a company may not exempt or indemnify
an office holder nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of
any of the following:
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a breach by the office holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an office holder if the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
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a breach by the office holder of his or her duty of care, if such breach was intentional or reckless, but unless such breach was
solely negligent;
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any act or omission intended to derive an illegal personal benefit; or
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any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings imposed on such office holder.
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In addition, under the Companies Law, exemption and indemnification
of, and procurement of insurance coverage for, our office holders must be approved by our Compensation Committee and our Board of Directors
and, with respect to an office holder who is CEO or a director, also by our shareholders. However, according to the Relief Regulations,
shareholders’ and Board approvals for the procurement of such insurance coverage are not required if the insurance policy is approved
by our Compensation Committee and: (i) the terms of such policy are within the framework for insurance coverage as approved by our shareholders
and set forth in our Compensation Policy; (ii) the premium paid under the insurance policy is at fair market value; and (iii) the insurance
policy does not and may not have a substantial effect on the Company’s profitability, assets or obligations.
74
Our Insurance and Indemnification
Indemnification letters, covering indemnification and insurance
of those liabilities imposed under the Companies Law and the Israeli Securities Law, as discussed above, were granted to each of our present
office holders and were approved for any future office holders.
In addition, in accordance with the Compensation Policy, we are
currently entitled to hold directors’ and officers’ liability insurance policy for the benefit of our office holders, with
insurance coverage of up to $45 million.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons, we have been advised that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Administrative Enforcement
As detailed above, under the Israeli Securities Law, a company
cannot obtain insurance against or indemnify a third party (including its officers and/or employees) for any administrative procedure
and/or monetary fine (other than for payment of damages to an injured party). The Israeli Securities Law permits insurance and/or indemnification
for expenses related to an administrative procedure, such as reasonable legal fees, provided that it is permitted under the company’s
articles of association.
We have adopted and implemented an internal enforcement plan to
reduce our exposure to potential breaches of sections in the Companies Law and in the Israeli Securities Law applicable to us. Our Articles
of Association and letters of indemnification permit, among others, insurance and/or indemnification as contemplated under the Israeli
Securities Law (see “
Exemption, Insurance and Indemnification of Directors and Officers”
above).
Internal Auditor
Under the Companies Law, the board of directors of a public company
must appoint an internal auditor proposed by the corporate audit committee (see under
“Committees
of the Board of Directors
” – “
Corporate Audit Committee
”, above).
The internal auditor may be an employee of the company but may not be an interested party, an office holder or a relative of the foregoing,
nor may the internal auditor be the company’s independent accountant or its representative. The role of the internal auditor is
to examine, among other things, whether the company’s actions comply with applicable law, integrity and orderly business procedure.
The internal auditor has the right to request that the chairman of the corporate audit committee convene a corporate audit committee meeting,
and the internal auditor may participate in all corporate audit committee meetings. The internal auditor’s tenure cannot be terminated
without his or her consent, nor can he or she be suspended from such position unless the board of directors has so resolved after hearing
the opinion of the corporate audit committee and after providing the internal auditor with the opportunity to present his or her position
to the board of directors and to the corporate audit committee.
We have appointed the firm of C.C.R Chaikin, Cohen, Rubin
Co. as our internal auditor. Our internal auditor meets the independence requirements of the Companies Law, as detailed above.
75
D.
Employees
As of December 31, 2024, we had 1,056 employees worldwide. Among
our employees, 260 were employed in research, development and engineering, 679 in sales and marketing including services and supporting
functions, 34 in management and administration and 83 in operations. Out of our employees, 330 were based in Israel, 63 were based in
the United States, 242 were based in EMEA (not including Israel), 168 were based in Latin America and 253 were based in Asia Pacific (including
India).
In addition, as of December 31, 2024, we employed 400 Services
Contractors, mainly supporting the projects we have won in the regions. Most of the costs of these employees were included in the cost
of revenues in our financial statement.
We and our Israeli employees are not parties to any collective
bargaining agreements. However, with respect to such employees, we are subject to Israeli labor laws, regulations and extension orders
signed by the Israeli Ministry of Labor, Social Affairs and Social Services, as are in effect from time to time. Generally, we provide
our employees with benefits and working conditions above the legally required minimums.
Israeli applicable law requires severance pay upon the dismissal,
retirement or death of an employee or termination without due cause. In addition, applicable extension orders require every employee in
Israel (except for specific circumstances) has a pension insurance policy, which includes,
inter alia
,
death and disability insurance coverage. The amounts contributed by us to the severance component in the employees’ pension insurance
are in lieu of the severance pay due to them. Israeli applicable law requires us and our employees to make payments to the National Insurance
Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for mandatory
health insurance.
Substantially all our employment agreements include employees’
undertakings with respect to non-competition, assignment to us of intellectual property rights developed in the course of employment and
confidentiality. However, it should be noted that the enforceability of non-competition undertakings is rather limited under the local
laws in certain jurisdictions, including Israel.
To date, we have not experienced labor-related work stoppages and
believe that our relations with our employees are good.
The employees of our other subsidiaries are subject to local labor
laws and regulations that vary from country to country. In certain locations such as Brazil and Norway we are a party to collective bargaining
agreements.
76
E.
Share Ownership
The following table sets forth certain information regarding the
ordinary shares owned, and stock options held, by our directors and senior management as of March 4, 2025. The percentage of outstanding
ordinary shares is based on 88,839,079 ordinary shares outstanding as of March 4, 2025, that consists, for the purpose of the below calculation
and presentation, ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days of March
25, 2025.
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Name
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Number of Ordinary Shares
Beneficially Owned
(1)
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Percentage of Outstanding
Ordinary Shares Beneficially Owned
|
Number of Stock Options
Held
(2)
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Exercise price of Options
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Number of RSUs Held
(2)
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|||||||||||||||
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All directors and senior management as a group consisting of 19
people (3) |
989,405
|
1.10
|
984,405
|
$
|
1.68 – 4.22
|
549,694
|
||||||||||||||
|
|
(1) |
Consists of 5,000 ordinary shares and 984,405 options to purchase ordinary shares which are vested or shall become vested within
60 days of March 25, 2025.
|
|
|
(2) |
Each stock option is exercisable into one ordinary share and expires 6 years from the date of its grant. Of the number of stock options
listed 984,405 options are vested or shall become vested within 60 days of March 25, 2025 for senior management as a group. 23,591 RSUs
are expected to vest within 60 days of March 25, 2025.
|
|
|
(3) |
Each of the directors and senior management beneficially owns less than 1% of the outstanding ordinary shares as of March 25, 2025
(including options held by each such person and which are vested or shall become vested within 60 days of March 25, 2025) and have therefore
not been separately listed.
|
Equity Plans
Our previous Amended and Restated Share Option and RSU Plan (the
“
Share Option and RSU Plan
”), expired pursuant to its terms on December 31, 2024, following
which no additional grants may be made and any outstanding grants continue to be governed by the terms of such plan. During 2024, our
Compensation Committee and our Board adopted the Company’s 2024 Equity Incentive Plan (the “
2024
Equity Incentive Plan
”; the Share Option and RSU Plan and the 2024 Equity Incentive Plan shall be collectively referred to
as our “
Equity Plans
”), and at the 2024 AGM, our shareholders approved the 2024 Equity
Incentive Plan.
The 2024 Equity Incentive Plan has been approved by the Israeli
Tax Authority as required by applicable law and as an Incentive Stock Option “qualified plan” as defined by U.S. tax law.
The 2024 Equity Incentive Plan is designed to grant options to our employees, directors, consultants and contractors, in Israel and worldwide,
and is administered by our Compensation Committee. Generally, options granted under the 2024 Equity Incentive Plan expire six years from
the date of grant, unless otherwise approved by the administrator.
In addition, under our Equity Plans, in the event of a sale of
all, or substantially all, of our Ordinary Shares or assets, a merger, consolidation amalgamation, reorganization or similar transaction,
or certain changes in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances
that the Board determines to be a relevant transaction, then without the consent of the grantee or prior notice requirement, the administrator
may make certain determinations as to the treatment of outstanding awards. Under our Equity Plans, in the event that all or substantially
all of the issued and outstanding share capital of the Company shall be sold, each grantee shall be obligated to participate in the sale
and to sell his/her equity awards at the price equal to that of any other share sold.
Amendment of our Equity Incentive Plans
Subject to applicable law, our Board of Directors may amend the
Equity Plans, provided that any action by our Board of Directors which will alter or impair the rights or obligations of an option or
RSU holder requires the prior consent of that option/RSU holder. Shareholder approval of any amendment to the 2024 Equity Incentive Plan
will be obtained to the extent necessary to comply with applicable law or the extent that the Board determines that shareholder approval
is appropriate and advisable. The administrator at any time and from time to time may modify or amend any award theretofore granted under
the 2024 Equity Incentive Plan, including any award agreement, to the extent necessary to ensure compliance with Section 424 of the Code
and Section 409A of the United States Internal Revenue Code of 1986, as amended.
77
The following tables present information regarding options and
RSU grants under the Equity Plans. All additional options and RSUs from former plans have expired as of December 31, 2024.
|
Number of
securities to be issued upon
exercise or vesting of
outstanding Options or RSUs
|
Weighted-average exercise price of outstanding options
|
||
|
6,446,328
(1)
|
$2.52
|
|
|
(1) |
Total of 2,723,042 relates to RSUs outstanding and 3,723,286 relates to options outstanding, under all the Equity Plans.
|
Outstanding Equity Awards at Fiscal Year-End
The following table presents certain option and RSU grant information
concerning the distribution of options and RSUs (granted under the Equity Plans) among directors and employees of the Company as of December
31, 2024:
|
Options and RSUs Outstanding
|
Unvested Options and RSUs
|
|||||||
|
Directors and senior management consisting
of 16 people
|
2,399,195
|
1,566,751
|
||||||
|
All other grantees
|
4,074,133
|
3,347,427
|
||||||
F.
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation.
Not applicable.
78
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Major Shareholders
The following table sets forth stock ownership information as of
March 25, 2025 (unless otherwise noted below) with respect to each person who is known by us to be the beneficial owner of more than 5%
of our outstanding ordinary shares, based on information provided to us by the holders or disclosed in public filings with the SEC.
Except where otherwise indicated, and except pursuant to community
property laws, we believe, based on information furnished by such owners, that the beneficial owners of the ordinary shares listed below
have sole investment and voting power with respect to such shares. The shareholders listed below do not have any different voting rights
from any of our other shareholders. We know of no arrangements which would, at a subsequent date, result in a change in control of our
company.
Total shares beneficially owned in the table below include shares
that may be acquired upon the exercise of options that are exercisable within 60 days. The shares that may be issued under these options
are treated as outstanding only for purposes of determining the percent owned by the person or group holding the options but not for the
purpose of determining the percentage ownership of any other person or group. Each of our directors and officers who is also a director
or officer of an entity listed in the table below disclaims ownership of our ordinary shares owned by such entity.
|
Name
|
Number of Ordinary Shares
(1)
|
Percentage of Outstanding Ordinary Shares
(2)
|
||||||
|
Joseph D. Samberg
(3)
|
9,430,000
|
10.6
|
%
|
|||||
|
|
(1) |
Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of
March 25, 2025.
|
|
|
(2) |
Based on 88,839,079 ordinary shares outstanding as of March 4, 2025, excluding options to purchase ordinary shares which are
vested or shall become vested within 60 days of March 25, 2025.
|
|
|
(3) |
This information is derived from a Schedule 13D/A filed with the SEC on February 27, 2025. The Ordinary Shares are beneficially owned
directly or indirectly by Joseph D. Samberg through the Joseph D. Samberg Revocable Trust (the “Revocable Trust”), of which
Mr. Samberg serves as trustee, and entities controlled by Mr. Samberg (the “Trusts”). Mr. Samberg may be deemed to beneficially
own the securities directly held by the Revocable Trust and the Trusts. Joseph D. Samberg’s address is 1091 Boston Post Road, Rye,
NY 10580.
|
As of March 25, 2025, approximately 99.98% of our ordinary shares
were registered for trade and held in the United States and there were 32 record holders with addresses in the United States. These
numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial
holders reside due to the fact that many of these ordinary shares were held of record by brokers or other nominees (including one U.S.
nominee company, CEDE Co., which held approximately 99.7% of our outstanding ordinary shares as of said date).
Related Party Transactions
Zohar Zisapel, the late Chairman of our Board of Directors and
a principal shareholder of our company, passed away in May 2023. Mr. Zisapel, Yehuda Zisapel (who passed away in March 2024), and Ms.
Nava Zisapel, had shared voting and dispositive power with respect to the ordinary shares held by RAD Data Communications Ltd. Since May
2023, the entities of the RAD-BYNET group are no longer considered related parties to Ceragon.
The Company’s Related Party Policy provides, among other
things, that the board of directors may, from time to time, set criteria for routine/insignificant transactions which are not an extraordinary
transaction. A proposed transaction that shall satisfy the criteria for routine/insignificant transactions, shall be deemed as classified
as an ordinary transaction by the corporate audit committee and as pre-approved by the board. As
Any transaction and arrangement with entities in which our office
holders may have a personal interest will require approval by our Corporate Audit Committee, our Board of Directors and, if applicable,
our shareholders.
79
Supply Arrangement
C. Interests of Experts
and Counsel
Not applicable.
| ITEM 8. |
FINANCIAL INFORMATION
|
Consolidated Statements and Other Financial Information
The annual financial statements required by this Item are found
at the end of this annual report, beginning on Page F-1.
Export Sales
In 2024, our sales to end users located outside of Israel amounted
to $389.0 million, or 98.7% of our $394.2 million revenues for this year.
Legal Proceedings
Class Action
Claim
(District Court of Tel Aviv - Economic Department)
On January 6, 2015, the Company was served with a motion to approve
a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants (the “
Defendants
”).
The motion was filed with the District Court of Tel-Aviv (the “
Court
”). The purported
class action alleges breaches of duties by making false and misleading statements in the Company's SEC filings and public statements.
The class action claimed amount is approximately $75,000,000.
On June 21, 2015, the Defendants filed their response to the motion,
arguing that the motion should be dismissed.
On May 27, 2021, following a lengthy procedure that included filing
of various pleadings and affidavits, evidentiary hearings, and submission of summaries, the Court ruled to certify the motion as a class
action, while applying the Israeli Law (the “
Ruling
”). According to the Ruling, the
class action shall include several causes of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning
the alleged misleading statements in the Company’s SEC filings.
On June 9, 2021, the Court issued a decision suggesting that the
parties refer the case to a mediation procedure.
The Company believes that the Ruling is erroneous and that the
Defendants have strong defense arguments, and therefore, on September 12, 2021, filed a motion for a rehearing on behalf of the Defendants
in order to revert the Ruling (the “
Rehearing Motion
”).
On October 20, 2021, the Plaintiff submitted his response to the
Rehearing Motion and the Defendants submitted their reply to the Plaintiff’s response on November 23, 2021.
In light of the fact that the Ruling applied and was based upon
Israeli Law (instead of the relevant foreign law), the Tel Aviv Stock Exchange filed a motion requesting the Court to allow it to join
the proceedings as Amicus Curiae, in order to express its principle opinion that the applicable law, in so far as dual listed companies
are concerned, is the foreign law, as well as regarding the negative implications of the Court’s application of Israeli law on dual
listed companies.
Without delaying or derogating from the Rehearing Motion, the Company
agreed to the Court’s suggestion that the parties refer the case to a mediation procedure and designated the retired Judge B.
Arnon as a mediator. After several mediation meetings were held, the mediation process ended without reaching a settlement.
80
On January 3, 2022, a hearing was held in Court in the Rehearing
Motion before the Honorable Justices K. Kabub, R. Ronen and T. Avrahami. Following the hearing, on January 25, 2022, the Attorney General
joined the proceedings of the Rehearing Motion and submitted his position in collaboration with the Securities Authority. The Attorney
General’s principle position as outlined, was that the applicable law in so far as dual listed companies are concerned is the foreign
law, and in our case – U.S. law.
On January 27, 2022, a judgment was rendered in the Rehearing Motion.
The Court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that the law that
will apply is U.S. law. The Court further held that the case will be returned to the first judicial instance and will be adjudicated as
a class claim under U.S. law. The Court commented that the Company’s claims based upon the Statute of Limitations should prima facie
also be adjudicated under U.S. law.
On March 20, 2022, following the Court's decision, the Plaintiff
filed to the first judicial instance, an amended class action claim, based on provisions of U.S. law. The Plaintiff estimated the
amended claim amount at $52,099,000.
On June 28, 2022, following a joint application filed by the parties
in order to approve certain procedural matters, the Court issued a decision suggesting that the parties should consider initiating another
mediation procedure. On July 5, 2022, following the Court's decision, the parties filed a notice, informing the Court that they
believe that the time to consider initiating another mediation procedure will be only after the parties submit their pleadings.
On November 3, 2022, the Defendants submitted their Statement of
Defense, based on U.S law. On February 5, 2023, the Plaintiff submitted his response to the Defendants’ Statement of Defense. The
parties are currently conducting preliminary procedures, including discovery and questionnaires. A preliminary hearing is scheduled for
June 19, 2023.
On June 15th, 2023, the Court rejected a motion filed by the Defendants
to rule on the issues of Statute of Repose and Limitations as a preliminary matter and held that those issues will be dealt with as part
of the main hearing. Additionally, the parties conducted preliminary procedures, including discovery and questionnaires, and filed related
motions.
On September 21, 2023, a preliminary hearing was held. At the conclusion
of the hearing, the Court ruled that it would issue written decisions on the discovery issues and then set dates for further proceedings.
On September 28th, 2023, the Court approved the defendants’ motion for document discovery and determined that the documents in question
are indeed relevant. As a result, the Court has directed the plaintiff to furnish the requested documents by October 28, 2023. Alternatively,
the Court has given the plaintiff the option to waive any claims associated with these documents.
On October 1, 2023, the Court granted the plaintiff's motion for
document discovery and ordered the Company to produce all requested documents within 45 days. In making this decision, it was determined
that, in addition to the documents already provided to the plaintiff, the company is required to disclose thousands of additional documents
and document types. As a result, on December 31, 2023, the Company sought permission to appeal to the district Court's decision and requested
a delay in its implementation. The Supreme Court granted a stay on the execution of the district Court's decision and scheduled a hearing
for January 25, 2024.
During the hearing, the Supreme Court acknowledged the company's
contentions. It clarified that the extensive disclosure mandated by the district Court exceeded the necessary requirements in accordance
with the law, and suggested that the plaintiff negotiate agreements with the company. Following discussions both outside the courtroom
and before the Honorable Judge, partial agreements were reached. These agreements outline the documents the company will provide to the
plaintiff. Validated by the Supreme Court, these agreements substantially reduced the disclosure requirements outlined in the district
Court's decision. The plaintiff, in turn, waived certain demands entirely and significantly narrowed others. For the limited remaining
requirements, it was established that the company would convey its position on transferring the requested documents to the plaintiff in
the reduced format proposed during the hearing. It was also decided that if no agreements are reached concerning these documents, the
Court will make a decision on the matter.
On March 26, 2024, the Company provided the plaintiff with the
required documents, in accordance with the agreements between the parties.
On March 12, 2024, following the submission of pleadings by the
parties, the Supreme Court reduced the amount of expenses imposed by the district Court against the Company in its decision dated October
1, 2023, since the appeal resulted in a reduction in the extent of disclosure initially determined by the district Court.
81
On April 2024, the parties have agreed to refer the dispute to
a mediation procedure before the esteemed retired judge, Dr. Avi Zamir. To date, two mediation meetings have been held.
On January 30, 2025, the parties filed an update with the Court,
indicating that, as part of the mediation process, they have reached preliminary understandings. As a result, the Court was requested
to grant the parties an additional 60-day period to allow them to finalize a settlement agreement, which will then be submitted for the
Court’s approval. On February 2, 2025, the Court approved the parties' request. Given the above, the mediation process is
still ongoing.
Although the parties have not yet reached a conclusive and binding
settlement agreement, nor has the settlement agreement been submitted for Court approval (or approved by the Court), the Company estimates,
based on its external legal counsel and all facts and circumstances, that the maximum potential loss under the settlement agreement will
not exceed approximately 1.162 million USD and a provision for this amount was recorded on the balance sheet as of December 31, 2024.
Claim against Station Enterprises Ltd. regarding
breach of the Lease Agreement
A dispute has arisen between the Company and Station Enterprises
Ltd, with respect to the lease agreement signed between the parties on April 11, 2019 (the “Lease Agreement”), under which
the Company leases its offices and labs in Rosh Haayin.
The Company, the lessee, claims that Station Enterprises was late
in delivering the possession to the lessee and has not fulfilled its maintenance and management obligations. Therefore, the Company claims
that Station Enterprises breached its contractual obligations, causing the Company damages and expenses.
Due to such alleged breaches, the Company has set off the rent
and management fees against outstanding debts of Station Enterprises towards the Company and provided Station Enterprises with a set-off
notice.
On February 8, 2022, Station Enterprises provided notice to the
Company of the termination of the Lease Agreement, and also on the exercise of the bank guarantees provided to it in connection with the
Lease Agreement, in the amount of approximately $682,000. The Company rejected the alleged termination notice, which was provided with
no legal grounds, and further required Station Enterprises not to exercise the bank guarantees. This demand was disregarded, and the bank
guarantees were exercised in full.
The Company instructed its legal counsel to file a claim against
Station Enterprises, in the framework of which the court will be asked to issue a Declarative Order, declaring that the notice of termination
was invalid and that Lease Agreement is valid and in force; to order Station Enterprises to reimburse the Company for the amount of the
exercised bank guarantees; to order Station Enterprises to uphold and fulfil its contractual obligation and undertakings under the Lease
Agreement and the management agreement; and to compensate the Company for the damages caused to it in an amount of approximately $328,000.
The Statement of Claim was filed on May 31, 2022. A Statement of
Defense was filed on October 23, 2022, and a Statement of Response was filed on November 23, 2022.
On October 13, 2022, Station Enterprises Ltd. submitted a new claim
against the Company, for its eviction from the leased premises. The Statement of Defense was filed on February 12, 2023.
Since both lawsuits deal with the same issues, on December 25,
2022, the Company submitted a request to consolidate the lawsuits.
On January 12, 2023, the judge determined that he would make a
final decision on the request when submitting the statement of defense, which, as mentioned, was filed on February 12, 2023. On March
27, 2023, the judge ordered the consolidation of the hearings in the two lawsuits.
The parties agreed to refer the dispute in both claims to mediation
that started on May 8, 2023.
82
On June 27, 2023, a mediation meeting took place between the parties.
After extensive meetings and negotiations between the parties, on September 22, 2024, the mediator announced that the mediation between
the parties had failed. On July 15, 2024, during the first pre-trial, the judge made another attempt to mediate the dispute between the
parties, but without success. Consequently, the court scheduled deposition dates and set another pre-trial for March 5, 2024.
On December 1, 2024, Ceragon submitted its affidavits. Following
the submission of the affidavits, the parties resumed the mediation process.
Based on our external legal counsel and all facts and circumstances,
the amount of loss cannot be reasonably estimated because of the preliminary stage of the lawsuit.
Arbitration proceeding against Ceragon and one of its subsidiaries
On September 8, 2023, a request for arbitration against the
Company and one of its subsidiaries was submitted by a South American customer to an arbitration tribunal in that jurisdiction, alleging
that the Company’s subsidiary breached a services agreement it entered with such customer and requesting that the Company also be
included in such arbitration process. This is the same customer of which the Company recorded a $12.3 million credit loss provision in
the fourth quarter of 2022. In its request the customer stated that its claim was in the amount of $10.8 million.
On May 28, 2024, the Company announced that it has reached a settlement
agreement with the customer to collect a debt of $12.0 million and terminate the arbitration proceeding against the Company and its subsidiary.
Said settlement agreement includes a waiver by the customer of all its claims against the Company and its subsidiaries. During 2024, the
Company collected $9.1 million from the customer and is actively working to collect the remaining balance of the debt in accordance with
the settlement agreement.
We are not a party to any other material legal proceedings.
Dividends
We have never declared or paid any dividend on our ordinary shares
except for the share dividend that was paid as a result of a 250-for-1 share recapitalization that took place immediately prior to our
initial public offering. To date, we do not anticipate paying any dividends on our ordinary shares in the future. We currently intend
to retain all future earnings to finance our operations and to expand our business. Under our Credit Facility, we undertook not to distribute
dividends (unless certain terms are met) without the lenders’ prior written consent.
Significant Changes
See Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS
- B. Liquidity and Capital Resources” for a description of the January and June 2022 amendments to the credit facility.
| ITEM 9. |
THE OFFER AND LISTING
|
Offer and Listing Details
Our ordinary shares are listed on the Nasdaq Global Select Market
under the symbol “CRNT”.
83
ITEM 1
0.
ADDITIONAL INFORMATION
Memorandum and Articles of Association
Our registration number with the Israeli Registrar of Companies
is 51-235244-4. Our purpose as set forth in article 1 to our Articles of Association is to engage, directly or indirectly, in any lawful
undertaking or business whatsoever. A copy of our Articles of Association is attached as Exhibit 1.1 to this Annual Report on Form 20-F.
The information called for by this Item is set forth in Exhibit 2.1 to this Annual Report on Form 20-F and is incorporated by reference
into this Annual Report on Form 20-F. Exhibit 2.1 sets forth a description of our ordinary shares and certain provisions of our Articles
of Association which are summaries and are qualified in their entirety by reference to the full text of our Articles of Association.
Material Contracts
For a description of our Credit Facility dated as of March 14,
2013 and signed by and between the Company and Bank Hapoalim B.M., HSBC Bank Plc, Bank Leumi Le’Israel Ltd. and First International
Bank of Israel Ltd., as amended from time, inter alia in 2023 to supplement Bank Mizrahi-Tefahot Ltd., see Item 5
"
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS - B. Liquidity and Capital Resources”. The summary provided is not complete and is qualified
in its entirety by reference to the English summary of the material terms of such agreement including its amendments, which are filed
as exhibits to this Annual Report on Form 20-F and incorporated herein by reference.
Except as otherwise disclosed in this annual report (including
its exhibits), we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered
into in the ordinary course of business.
Exchange Controls
There are currently no Israeli currency control restrictions on
payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for
the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains
in effect pursuant to which currency controls can be imposed by administrative action at any time.
The ownership or voting of our ordinary shares by non-residents
of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our Memorandum
or Articles of Association or by the laws of the State of Israel.
Taxation
The following is a short summary of the tax environment to which
shareholders may be subject. The following is not intended, and should not be construed, as legal or professional tax advice and is not
exhaustive of all possible tax considerations. Each shareholder should consult his or her own tax or legal advisor.
This summary is based on the current provisions of tax law and,
except for the foregoing, does not anticipate any possible changes in law, whether by legislative, regulatory, administrative or judicial
action. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences
of the purchase, ownership and disposition of ordinary shares.
General Corporate Tax Structure in Israel
The corporate tax rate in 2024 is 23%.
However, the effective tax rate payable by a company that derives
income from an approved enterprise, or preferred enterprise as discussed further below, may be considerably lower. See “The Investment
Law” below.
84
The Investments Law
In general, the Investment Law is intended to provide tax benefits
to Industrial Enterprises who undertake significant export activities leading to the economic competitiveness of the country. The Investment
Law underwent several amendments in recent years as will be detailed below, however, benefits which were granted under prior versions
of the law remain intact and may be applied to the extent the company who obtained such benefits continues to comply with the respective
requirements and has not waived such benefits.
Tax Benefits under the 2017 Amendment
The 2017 Amendment was enacted as part of the Economic Efficiency
Law that was published on December 29, 2016, and is effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for
two types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs
under the Investment Law.
The 2017 Amendment provides that a technology company satisfying
certain conditions will qualify as a “Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate
of 12% on income that qualifies as “Preferred Technology Income”, as defined in the Investment Law. The tax rate is further
reduced to 7.5% for a Preferred Technology Enterprise located in development Zone A.
Dividends distributed by a Preferred Technology Enterprise paid
out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be
provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority (“ITA”)
allowing such for reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If
such dividends are distributed to a foreign company (holding at least 90% of the share capital) and other conditions are met, the withholding
tax rate will be 4%.
In 2024, Israel announced its intention to implement a minimum
corporate tax rate of 15% on multinational corporations, aligning with the OECD's Base Erosion and Profit Shifting (BEPS) initiative.
This measure, targeting companies with annual revenues exceeding €750 million, is scheduled to take effect in 2026 and will determine
the reduction in the beneficial corporate tax rate mentioned above.
The Company did not apply the 2017 Amendment. The Company may change
its position in the future.
Tax Benefits and Grants for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction
in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, for the
year in which they are incurred if:
|
|
• |
the expenditures are approved by the relevant Israeli government ministry, determined by the field of research;
|
|
|
• |
the research and development are for the promotion or development of the company; and
|
|
|
• |
the research and development are carried out by or on behalf of the company seeking the deduction.
|
However, the amount of such deductible expenses shall be reduced
by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenditures
not so approved are deductible over a three-year period if the RD is for the promotion or development of the company.
85
Tax Benefits under the Law for the Encouragement of Industry (Taxes),
1969
According to the Law for the Encouragement of Industry (Taxes),
1969, generally referred to as the Industry Encouragement Law, an industrial company is a company incorporated and resident in Israel,
at least 90% of the income of which, in a given tax year, determined in Israeli currency exclusive of income from specified government
loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined
as an enterprise whose major activity in a given tax year is industrial production activity.
Under the Industry Encouragement Law, industrial companies are
entitled to the following preferred corporate tax benefits, among others:
|
|
• |
deduction of purchases of know-how, patents and the right to use a patent over an eight-year period for tax purposes;
|
|
|
• |
deduction over a three-year period of specified expenses incurred with the issuance and listing of shares on the Tel Aviv Stock Exchange
or on a recognized stock exchange outside of Israel (including Nasdaq);
|
|
|
• |
the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies;
and
|
|
|
• |
accelerated depreciation rates on equipment and buildings.
|
Eligibility for benefits under the Industry Encouragement Law is
not subject to receipt of prior approval from any governmental authority.
We believe that we currently qualify as an industrial company within
the definition of the Industry Encouragement Law. We cannot assure you that we will continue to qualify as an industrial company or that
the benefits described above will be available to us in the future.
Israeli Capital Gains Tax on Sales of Shares
Israeli law imposes a capital gains tax on the sale of any capital
assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares of Israeli
resident companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the
shareholder’s country of residence provides otherwise (and subject to the receipt in advance of a valid certificate from the ITA
allowing such exemption). The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the
total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase
in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the
date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Generally, the tax rate applicable to capital gains derived from
the sale of securities, listed on a stock market, is 25% for Israeli individuals. Additionally, if such individual shareholder is considered
a “significant shareholder” at any time during the 12-month period preceding such sale (i.e. such shareholder holds directly
or indirectly, including jointly with others, at least 10% of any “means of control” in the company. “means of control”
- including, among other things, the right to receive profits of the Company, voting rights, the right to receive the Company’s
liquidation proceeds and the right to appoint a director) the tax rate is increased to 30%. Israeli companies are subject to the regular
corporate tax rate (currently, 23%) on capital gains derived from the sale of securities.
Furthermore, beginning on January 1, 2013, an additional tax liability
at the rate of 2% was added to the applicable tax rate on the annual taxable income of the individuals (whether any such individual is
an Israeli resident or non-Israeli resident) exceeding NIS 803,520 (in 2016) (hereinafter: “Added Tax”). Effective January
1, 2017, the Added Tax rate has increased to 3% and the taxable income for 2024 threshold was reduced to NIS 640,000 (amount is linked
to the annual change in the Israeli consumer price index and was NIS 698,280 in 2024).
Generally, non-Israeli residents are exempt from Israeli capital
gains tax on any gains derived from the sale of shares publicly traded on a recognized stock market in Israel or outside of Israel (including
Nasdaq) subject to meeting certain conditions. However, non-Israeli corporations will not be entitled to such exemption if an Israeli
resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such an exemption is not applicable
to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
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Persons paying consideration for shares, including purchasers of
shares, Israeli securities dealers effecting a transaction, or a financial institution through which securities being sold are held, are
required, to withhold tax upon the sale of publicly traded securities at a rate of 25% for individuals and at the corporate tax rate (currently,
23%) for corporations. However, the sale of shares may be exempt from Israeli capital gain tax under the provisions of the Israeli Income
Tax Ordinance or the provisions of an applicable tax treaty, subject to the receipt in advance of a valid certificate from ITA allowing
for such exemption no tax will be withheld.
Under the convention between the United States and Israel concerning
taxes on income, as amended (the “U.S.-Israel Tax Treaty”), generally, Israeli capital gains tax will not apply to the sale,
exchange or disposition of ordinary shares by a person who:
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holds the ordinary shares as a capital asset;
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qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and
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is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty.
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However, this exemption will not apply, among other cases, if (i)
the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month
period preceding the sale, exchange or disposition, subject to specified conditions, (ii) the capital gains from such sale, exchange or
disposition can be allocated to a permanent establishment in Israel or (iii) such person is an individual and was present in Israel for
a period or periods of 183 days or more in the aggregate during the relevant tax year. In this case, the sale, exchange or disposition
would be subject to Israeli tax, to the extent applicable. However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be
permitted to claim a credit for the taxes against the U.S. federal income tax imposed on the sale, exchange or disposition, subject to
the limitations in U.S. laws applicable to foreign tax credits.
Israeli Taxation of Dividends Distributed to Non-Resident Holders
of Our Shares
Non-residents of Israel are subject to income tax on income accrued
or derived from sources in Israel. These sources of income include passive income, including dividends, royalties and interest, as well
as non-passive income from services provided in Israel. On distributions of dividends income tax is withheld at source at the following
rates: 25%, increased to 30% for a shareholder that is considered a significant shareholder, as defined above, at the time of the distribution
or at any time during the 12-month period preceding such distribution. However, if such shares are registered with a nominee company (as
such term is used in the Israeli Securities Law, 5728-1968), such dividends will be subject to Israeli withholding tax at a rate of 25%
whether the recipient is a substantial shareholder or not, unless a lower rate is provided in a treaty between Israel and the shareholder’s
country of residence (subject to the receipt in advance of a valid tax certificate from the ITA allowing for a reduced tax rate). The
distribution of dividends to non-Israeli residents (either individuals or corporations) from income derived from an Approved Enterprises
or Benefited Enterprises or a Preferred Enterprise or a Preferred Technology Enterprise, in each case during the applicable benefits period
is subject to withholding tax at a rate of 20%; unless a lower rate is provided in a treaty between Israel and the shareholder’s
country of residence (subject to the receipt in advance of a valid tax certificate from the ITA allowing for a reduced tax rate). According
to the U.S.-Israel Tax Treaty, the tax withholding rate on dividends distributed by an Israeli corporation to a U.S. individual and a
U.S. corporation is 25%. If the U.S. company holds 10% or more of the voting power of the Israeli company
during
the part of the tax year which precedes the date of payment of the dividend and during the whole of the preceding tax year and certain
other conditions are met, the tax withholding rate is reduced to 12.5%. Dividends received by such U.S. company distributed from income
generated by an Approved Enterprise, a Benefited Enterprise, or a Preferred Enterprise or a Preferred Technology Enterprise, are subject
to withholding tax at a rate of 15%. However, these provisions do not apply if the company generates certain amounts of passive income.
The aforementioned rates under the U.S.-Israel Treaty will not apply if the dividend income was derived through a permanent establishment
of the U.S. resident in Israel.
87
Israeli Transfer Pricing Regulations
On November 29, 2006, Income Tax Regulations (Determination of
Market Terms), 2006, promulgated under Section 85A of the Israeli Income Tax Ordinance, came into effect (the “TP Regulations”).
Section 85A of the Tax Ordinance and the TP Regulations generally requires that all cross-border transactions carried out between related
parties be conducted on an arm’s length principle basis and will be taxed accordingly. The TP Regulations including the 2022 amendments
are being implemented by the Company and have not had a material effect on the Company.
U.S. Federal Income Tax Considerations
Subject to the limitations described below, the following discussion
summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. Holder
that owns our ordinary shares as a capital asset (generally, for investment). A U.S. holder is a Holder of our ordinary shares that is
for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States, any political subdivision thereof or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person.
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If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of the entity and an equity owner in such entity will
generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or entity should consult its
own tax advisor as to its tax consequences.
Certain aspects of U.S. federal income taxes relevant to a holder
of our ordinary shares (other than a partnership) that is not a U.S. Holder (a “Non-U.S. holder”) are also discussed below.
This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations, and administrative and judicial
decisions as of the date of this annual report, all of which are subject to change, possibly on a retroactive basis. This discussion does
not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. Holder in light of such holder’s
individual circumstances. In particular, this discussion does not address the potential application of the U.S. federal income tax consequences
to U.S. Holders that are subject to special treatment, including U.S. Holders that:
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are broker-dealers or insurance companies;
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have elected mark-to-market accounting;
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are tax-exempt organizations or retirement plans;
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are grantor trusts;
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are S corporations;
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are certain former citizens or long-term residents of the United States;
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are financial institutions;
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hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments;
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acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation;
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are real estate investment trusts or regulated investment companies;
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own directly, indirectly or by attribution at least 10% of our shares (by vote or value); or
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have a functional currency that is not the U.S. dollar.
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This discussion is not a comprehensive description of all the tax
considerations that may be relevant to each person’s decision to purchase our ordinary shares. For example, this discussion does
not address any aspect of state, local or non-U.S. tax laws, the possible application of the alternative minimum tax or United States
federal gift or estate taxes.
Each holder of our ordinary shares is advised to consult his or
her own tax advisor with respect to the specific tax consequences to him or her of purchasing, owning or disposing of our ordinary shares,
including the applicability and effect of federal, state, local and foreign income and other tax laws to his or her particular circumstances.
Taxation of Distributions Paid on Ordinary Shares
Subject to the discussion below under “Tax Consequences if
We Are a Passive Foreign Investment Company,” a U.S. Holder will be required to include in gross income as dividend income the amount
of any distribution paid on our ordinary shares, including any non-U.S. taxes withheld from the amount paid, to the extent the distribution
is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess
of earnings and profits will be applied against and will reduce the U.S. Holder’s tax basis in its ordinary shares and, to the extent
in excess of that basis, will be treated as gain from the sale or exchange of ordinary shares. The dividend portion of such distribution
generally will not qualify for the dividends received deduction otherwise available to corporations.
Dividends that are received by U.S. Holders that are individuals,
estates or trusts will be taxed at the rate applicable to long-term capital gains (currently a maximum rate of 20%), provided that such
dividends meet the requirements to be treated as “qualified dividend income.” Subject to the holding period and risk-of-loss
requirements discussed below generally, dividends paid by a non-U.S. corporation that is not a PFIC (as discussed below) will generally
be qualified dividend income if either the stock with respect to which the dividend is paid is readily tradable on an established securities
market in the United States (such as the Nasdaq Global Select Market) or such corporation is eligible for the benefits of an income tax
treaty with the IRS determines is satisfactory and which includes an exchange of information program. The IRS has determined that the
U.S.-Israel income tax treaty is satisfactory for this purpose and includes an exchange of information program. Dividends that fail to
meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income tax rates. No dividend received
by a U.S. Holder will be a qualified dividend if (1) the U.S. Holder held the ordinary share with respect to which the dividend was paid
for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such
dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. Holder has an option to
sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share
(or substantially identical securities) or (2) the U.S. Holder is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the
dividend is paid. If we were to be PFIC (as such term is defined in the Code) for any year, dividends paid on our ordinary shares in such
year or in the following year would not be qualified dividends. In addition, a non-corporate U.S. Holder will be able to take a qualified
dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only
if it elects to do so; in such case the dividend will be taxed at ordinary income tax rates.
Distributions of current or accumulated earnings and profits paid
in foreign currency to a U.S. Holder (including any non-U.S. taxes withheld from the distributions) will generally be includible in the
income of a U.S. Holder in a dollar amount calculated by reference to the exchange rate on the date of the distribution. A U.S. Holder
that receives a foreign currency distribution and converts the foreign currency into dollars after the date of distribution may have foreign
exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally
be U.S. source ordinary income or loss.
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U.S. Holders generally will have the option of claiming the amount
of any non-U.S. income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar credit against their
U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not
claim a deduction for the amount of the non-U.S. income taxes withheld, but the amount may be claimed as a credit against the individual’s
U.S. federal income tax liability. The amount of non-U.S. income taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by each holder. These limitations include rules which limit
foreign tax credits allowable for specific classes of income to the U.S. federal income taxes otherwise payable on each such class of
income. The total amount of allowable foreign tax credits in any year generally cannot exceed the pre-credit U.S. tax liability for the
year attributable to non-U.S. source taxable income. Distributions of our current or accumulated earnings and profits generally will be
non-U.S. source passive income for U.S. foreign tax credit purposes.
A U.S. Holder will be denied a foreign tax credit for non-U.S.
income taxes withheld from a dividend received on the ordinary shares (1) if the U.S. holder has not held the ordinary shares for at least
16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date with respect to such dividend or (2) to
the extent the U.S. holder is under an obligation to make related payments with respect to positions in substantially similar or related
property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward
meeting the required 16-day holding period.
Taxation of the Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences if
We Are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our ordinary shares (other than in
certain non-recognition transactions), a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between
the U.S. Holder’s basis in the ordinary shares, which is usually the cost to the U.S. Holder of the ordinary shares, and the amount
realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more than one year will
be long-term capital gain and may, in the case of non-corporate U.S. holders, be subject to a reduced rate of taxation (long-term capital
gains are currently taxable at a maximum rate of 20% for U.S. Holders that are individuals, estates or trusts). Gain or loss recognized
by a U.S. Holder on a sale, exchange or other disposition of ordinary shares will generally be treated as U.S. source income for U.S.
foreign tax credit purposes. The deductibility of a capital loss recognized on the sale, exchange or other disposition of ordinary shares
may be subject to limitations.
A U.S. Holder that uses the cash method of accounting calculates
the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. Holder that uses the accrual
method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign
currency gain or loss. An accrual method U.S. Holder may avoid realizing such foreign currency gain or loss by electing to use the settlement
date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. Holder that
receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement date
or trade date (whichever date the U.S. Holder is required to use to calculate the value of the proceeds of sale) may have foreign exchange
gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be
U.S. source ordinary income or loss.
Net Investment Income Tax
Certain non-corporate U.S. Holders may also be subject to an additional
3.8% tax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized
from the disposition of, our ordinary shares, subject to certain limitations and exceptions. U.S. Holders are urged to consult their own
tax advisors regarding the implications of the Net Investment income tax on their investment in our ordinary shares.
Tax Consequences if We Are a Passive Foreign Investment Company
For U.S. federal income tax purposes, we will be classified as
a passive foreign investment company, (a “PFIC”), for any taxable year in which, after applying certain look-through rules,
either (i) 75% or more of our gross income is passive income or (ii) at least 50% of the average value of our total assets (determined
on a quarterly basis) for the taxable year produce, or are held for the production of, passive income. For this purpose, cash is considered
to be an asset which produces passive income. Passive income includes dividends, interest, royalties, rents, annuities and the excess
of gains over losses from the disposition of certain assets which produce passive income.
Based on our income, assets, activities and market capitalization,
we do not believe that we were a PFIC for the taxable year ended December 31, 2024. However, there can be no assurances that the IRS will
not challenge this conclusion. If we were not a PFIC for 2024, U.S. Holders who acquired our ordinary shares in 2024 will not be subject
to the PFIC rules described below (regardless of whether we were a PFIC in any prior year) unless we are classified as a PFIC in future
years. The tests for determining PFIC status are applied annually, and it is difficult to make accurate predictions of our future income,
assets, activities and market capitalization, including fluctuations in the price of our ordinary shares, which are relevant to this determination.
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If we are a PFIC, a U.S. Holder of our ordinary shares could be
subject to increased tax liability upon the sale or other disposition (including gain deemed recognized if the ordinary shares are used
as security for a loan) of its ordinary shares or upon the receipt of distributions that are treated as “excess distributions”,
which could result in a reduction in the after-tax return to such U.S. Holder. In general, an excess distribution is the amount of distributions
received during a taxable year that exceed 125% of the average amount of distributions received by a U.S. Holder in respect of the ordinary
shares during the preceding three taxable years, or if shorter, during the U.S. Holder’s holding period prior to the taxable year
of the distribution. Under these rules, the distributions that are excess distributions and any gain on the disposition of ordinary shares
would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares. The amount allocated to the current taxable
year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated
to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer
for that taxable year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such
other taxable years. The tax liability with respect to the amount allocated to taxable years prior to the year of the disposition or distribution
cannot be offset by net operating losses. In addition, holders of stock in a PFIC may not receive a “step-up” in basis on
shares acquired from a decedent. Furthermore, if we are a PFIC, each U.S. Holder of our common equity generally will be required to file
an annual report with the IRS.
As an alternative to the tax treatment described above, a U.S.
Holder could elect to treat us as a “qualified electing fund” (“QEF”), in which case such U.S. Holder would be
required to include in income, for each taxable year that we are a PFIC, its pro rata share of our ordinary earnings as ordinary income
and its pro rata share of our net capital gains as capital gain, subject to a separate election to defer payment of taxes where such deferral
is subject to an interest charge. We may supply U.S. Holders that make a request in writing with the information needed to report income
and gain under a QEF election, if we are a PFIC. Any income inclusion will be required whether or not such U.S. Holder owns our ordinary
shares for an entire taxable year or at the end of our taxable year. The amount so includible will be determined without regard to our
prior year losses or the amount of cash distributions, if any, received from us. Special rules apply if a U.S. Holder makes a QEF election
after the first year in its holding period in which we are a PFIC. A U.S. Holder’s basis in its ordinary shares will increase by
any amount included in income and decrease by any amounts distributed to the extent such amounts were previously taxed under the QEF rules.
So long as a U.S. Holder’s QEF election is in effect beginning with the first taxable year in its holding period in which we were
a PFIC, any gain or loss realized by such holder on the disposition of its ordinary shares held as a capital asset ordinarily would be
capital gain or loss. Such capital gain or loss ordinarily would be long-term if such U.S. Holder had held such ordinary shares for more
than one year at the time of the disposition. The QEF election is made on a shareholder-by-shareholder basis, applies to all ordinary
shares held or subsequently acquired by an electing U.S. Holder and can be revoked only with the consent of the IRS.
As an alternative to making a QEF election, a U.S. Holder of PFIC
stock which is “marketable stock” (e.g., “regularly traded” on the Nasdaq Global Select Market) may in certain
circumstances avoid certain of the tax consequences generally applicable to holders of stock in a PFIC by electing to mark the stock to
market as of the beginning of such U.S. Holder’s holding period for the ordinary shares. As a result of such election, in any taxable
year that we are a PFIC, a U.S. Holder generally would be required to report gain or loss to the extent of the difference between the
fair market value of the ordinary shares at the end of the taxable year and such U.S. Holder’s tax basis in its ordinary shares
at that time. Any gain under this computation, and any gain on an actual disposition of the ordinary shares in a year in which we are
a PFIC, would be treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of the ordinary shares
in a year in which we are a PFIC, generally would be treated as ordinary loss to the extent of the cumulative net-mark-to-market gain
previously included. Any remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual
disposition of ordinary shares generally would be capital loss. A U.S. Holder’s tax basis in its ordinary shares is adjusted annually
for any gain or loss recognized under the mark-to-market election. There can be no assurances that there will be sufficient trading volume
with respect to the ordinary shares in order for the ordinary shares to be considered “regularly traded” or that our ordinary
shares will continue to trade on the Nasdaq Global Select Market. Accordingly, there are no assurances that the ordinary shares will be
marketable stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis,
applies to all ordinary shares held or subsequently acquired by an electing U.S. Holder and can only be revoked with consent of the IRS
(except to the extent the ordinary shares no longer constitute “marketable stock”).
The U.S. federal income tax consequences to a U.S. Holder if we
were to be classified as a PFIC in 2024 or any previous taxable year are complex. A U.S. Holder should consult with his or her own advisor
regarding those consequences, as well as regarding whether he or she should make either of the elections described above.
Tax Consequences for Non-U.S. Holders of Ordinary Shares
Except as described in “Information Reporting and Back-up
Withholding” below, a non-U.S. Holder of our ordinary shares will not be subject to U.S. federal income or withholding tax on the
payment of dividends on, and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes:
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the item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in
the case of an individual, the item is attributable to a fixed place of business in the United States; or
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the non-U.S. Holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, and certain other conditions are met.
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Information Reporting and Back-up Withholding
U.S. Holders generally are subject to information reporting requirements
with respect to dividends on, or proceeds from the disposition of, our ordinary shares. In addition, a U.S. Holder may be subject, under
certain circumstances, to backup withholding with respect to dividends paid on, or proceeds from the disposition of, our ordinary shares
unless the U.S. Holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with
the applicable requirements of the backup withholding rules. A U.S. holder of our ordinary shares who provides an incorrect taxpayer identification
number may be subject to penalties imposed by the IRS. Amounts withheld under the backup withholding rules are not an additional tax and
may be refunded or credited against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely
furnished to the IRS.
Non-U.S. Holders generally are not subject to information reporting
or back-up withholding with respect to dividends paid in the United States on, or proceeds from the disposition of, our ordinary shares,
provided that the non-U.S. Holder provides a taxpayer identification number, certifies to its foreign status, or establishes another exemption
from the information reporting or back-up withholding requirements.
Certain U.S. Holders (and to the extent provided in IRS guidance,
certain Non-U.S. Holders) who hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code)
are generally required to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified
foreign financial assets, which may include our ordinary shares, if the total value of those assets exceed certain thresholds. Substantial
penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a holder that is required to file IRS Form
8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder
for the related tax year may not close until three years after the date that the required information is filed. Holders should consult
their own tax advisors regarding their tax reporting obligations.
Documents on Display
We are subject to the informational requirements of the Exchange
Act applicable to foreign private issuers and fulfill these requirements by filing reports with the SEC. These reports include certain
financial and statistical information about us and may be accompanied by exhibits.
The SEC maintains an Internet website at http://www.sec.gov that
contains reports, proxy statements, information statements and other information regarding issuers that file electronically with the SEC
filed through the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
You may also visit us on the Internet at www.ceragon.com. However,
information contained on our website does not constitute a part of this annual report.
Annual Report to Security Holders.
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments for trading purposes.
Accordingly, we have concluded that there is no material market risk exposure of the type contemplated by Item 11, and that no quantitative
tabular disclosures are required. We are exposed to certain other types of market risks, as described below.
Foreign Currency Risk
As the majority of our revenues and cost of revenues, as well as
a significant portion of our operating expenses, are in U.S. dollars, we have determined that our functional currency is the U.S. dollar.
However, a significant portion of our revenues, costs of revenue as well as a major portion of our operating expenses are denominated
in other currencies, mainly in NIS, INR, EUR, BRL, ARS and NOK. As our financial results are reported in U.S. dollars, fluctuations in
the exchange rates between the U.S. dollar and applicable non-dollar currencies may have an effect on our results of operations. In order
to reduce such effect, we hedge a portion of certain cash flow transactions denominated in non-dollar currencies as well as a portion
of certain monetary items in the balance sheet, such as trade receivables and trade payables, denominated in non-dollar currencies. The
following sensitivity analysis illustrates the impact on our non-dollar net monetary assets assuming an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables held constant. On December 31, 2024, a 10% strengthening of the
U.S. dollar versus other currencies would have resulted in a decrease of approximately $6.1 million in our net monetary assets position,
while a 10% weakening of the dollar versus all other currencies would have resulted in an increase of approximately $7.4 million in our
net monetary assets position.
The counter-parties to our hedging transactions are major financial
institutions with high credit ratings. As of December 31, 2024, we had outstanding forward like contracts in the amount of $21.2 million
for a period of up to twelve months.
We do not invest in interest rate derivative financial instruments.
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| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
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Not applicable.
PART II
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
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None.
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
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None
| ITEM 15. |
CONTROLS AND PROCEDURES
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(a) |
Disclosure Controls and Procedures
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The Company performed an evaluation of the effectiveness of its
disclosure controls and procedures that are designed to provide reasonable assurance that the material financial and non-financial information
required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on the Company’s evaluation, the
Company’s management, including the CEO and CFO, has concluded that the Company’s disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of December 31, 2024 are effective in reaching such reasonable assurance.
Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover
all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s
reports.
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(b) |
Management’s Annual Report on Internal Control Over Financial Reporting
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The Company’s management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company.
The Company performed an evaluation of the effectiveness of
its internal control over financial reporting that is designed by, or under the supervision of, the Company’s principal executive
and principal financial officers, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
|
|
(i) |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
|
|
|
(ii) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
|
|
|
(iii) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
|
Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December
31, 2024 based on the framework for Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (COSO). Based on our assessment under that framework and the criteria established therein, our
management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024, in providing
reasonable assurance regarding the reliability of the Company’s financial reporting. Notwithstanding the foregoing, there can be
no assurance that the Company’s financial reporting controls and procedures will detect or uncover all failures of persons within
the Company to do all the required activities properly, which may impact the fair presentation of the financial statements of the Company
otherwise required to be set forth in the financial reports.
93
(c)
Attestation
Report of Independent Registered Public Accounting Firm
Kost, Forer, Gabbay Kasierer, A Member of EY Global, our
independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial
reporting, appearing under Item 18: “FINANCIAL STATEMENTS” on pages F-3 – F-4, and such report is incorporated herein
by reference.
|
|
(d) |
Changes in Internal Controls Over Financial Reporting
|
There were no changes in the Company’s internal control over
financial reporting that occurred during the year ended December 31, 2024, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
| ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
The Company’s Board of Directors has determined that each
of Ms. Makov and Messrs. Liran, Hadar, Rosen and Ripstein qualifies as an audit committee financial expert and is an independent director
under the Nasdaq Rules and regulations of the SEC.
ITEM 16B. CODE
OF ETHICS
The Company has adopted a Code of Ethics that applies to the CEO,
chief financial officer and controller. In October 2008, we amended our Code of Ethics in order to update it and expand its applicability
to additional senior officers. In December 2009, we combined the Code of Ethics together with certain Standards of Business Conduct to
strengthen the Company’s Ethics and Compliance Program. In October 2014, and again in December 2016, we amended and expanded the
Company’s Ethics and Compliance Program, in order to strengthen certain provisions thereunder. In 2024 we further amended the Company’s
Ethics and Compliance Program and expanded the applicability of the Code of Ethics to all employees of the Company. A copy of the Company’s
updated Code of Ethics may be obtained, without charge, upon a written request addressed to the Company’s investor relations department,
3 Uri Ariav st., Bldg. A (7th Floor) PO Box 112, Rosh Ha’Ayin, Israel, 4810002 (Telephone no. +972-3-543-1000) (e-mail: ir@ceragon.com).
| ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Fees Paid to Independent Auditors
The following table sets forth, for each of the years indicated,
the fees billed by Kost, Forer, Gabbay Kasierer, A member of EY Global, our auditors, and the percentage of each of the fees out
of the total amount billed by them.
|
Year Ended December 31,
|
||||||||||||||||
|
2024
|
2023
|
|||||||||||||||
|
Services Rendered
|
Fees
|
Percentages
|
Fees
|
Percentages
|
||||||||||||
|
Audit Fees
(1)
|
$
|
667,524
|
84
|
%
|
$
|
742,500
|
88
|
%
|
||||||||
|
Audit-Related Fees
(2)
|
$
|
7,500
|
1
|
%
|
$
|
26,000
|
3
|
%
|
||||||||
|
Tax Fees
(3)
|
$
|
119,203
|
15
|
%
|
$
|
79,400
|
9
|
%
|
||||||||
|
Total
|
$
|
794,227
|
100
|
%
|
$
|
847,900
|
100
|
%
|
||||||||
| (1) |
Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can reasonably provide.
|
| (2) |
Audit related fees principally relates to assistance with audit services and consultation
|
| (3) |
Tax fees relate to tax compliance, planning and advice
|
94
Policies and Procedures
Our Financial Audit Committee is in charge of a policy and procedures
for pre-approval of audit and non-audit services rendered by our independent auditors. The policy requires the Financial Audit Committee’s
pre-approval of the scope of the engagement of our independent auditor. The policy prohibits retention of the independent auditors to
perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also
considers whether proposed services are compatible with the independence of the public auditors.
All of the fees listed in the table above were pre-approved by
our Board of Directors, at the recommendation of our Financial Audit Committee.
| ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
None.
| ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
There were no purchases of our ordinary shares made by or on behalf of the Company
or any “affiliated purchaser” during the year ended December 31, 2024.
| ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
ITEM 16G.
CORPORATE
GOVERNANCE
The Nasdaq Rules provide that foreign private issuers may follow
home country practice in lieu of certain Nasdaq Rules, subject to certain exceptions and except to the extent that such exemptions would
not be contrary to U.S. federal securities laws, so long as the foreign private issuer: (i) provides a written statement from an independent
counsel in its home country certifying that the company’s practices are not prohibited by the home country law; and (ii) discloses
that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. The
practices we currently follow in lieu of Nasdaq Rules are described below:
| - |
Compensation Committee Charter
: We have opted out of the requirement to adopt and
file a compensation committee charter as set forth in Nasdaq Rule 5605(d)(1). Instead, our Compensation Committee conducts itself in accordance
with provisions governing the establishment (but not the composition) and the responsibilities of a compensation committee as set forth
in the Companies Law and as further stipulated in our Compensation Policy.
|
| - |
Shareholder Approval
: We have opted out of the requirement for shareholder approval
of stock option plans and other equity-based compensation arrangements as set forth in Nasdaq Rule 5635. Nevertheless, as required under
the Companies Law, shareholder voting procedures are followed for the approval of equity-based compensation of certain office holders
or employees, such as our CEO and members of our Board of Directors. Equity based compensation arrangements with other office holders
are approved by our Compensation Committee and our Board of Directors, provided they are consistent with our Compensation Policy, and
in special circumstances in deviation therefrom, taking into account certain considerations as set forth in the Companies Law.
|
| - |
Annual General Meetings of Shareholders
: We have opted out of the requirement for
conducting annual meetings as set forth in Nasdaq Rule 5620(a), which requires Ceragon to hold its annual meetings of shareholders within
twelve months of the end of its fiscal year end. Instead, Ceragon is following home country practice and law in this respect. The Companies
Law requires that an annual meeting of shareholders be held every year, and not later than 15 months following the last annual meeting
(see in Item 10.B above – “Additional Information – Voting, Shareholders’ Meetings and Resolutions”).
|
| - |
Quorum at General Meetings of Shareholders
: As a result of the amendment of our Articles
of Association in the 2024 AGM, we follow the requirement set under Rule 5620(c) of the Nasdaq Rules which requires the presence of two
or more shareholders holding at least 33 1/3% to establish a quorum for any shareholders meeting.
|
| - |
Distribution of Annual Reports
: We have chosen to follow our home country practice
in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating to an issuer’s furnishing of its annual report to shareholders.
Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an independent accounting firm, electronically
with the SEC, and also post a copy on our website.
|
95
| ITEM 16H. |
MINE SAFETY DISCLOSURE
|
Not Applicable.
| ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
Not Applicable.
Item 16J.
INSIDER TRADING POLICIES
The Company has
adopted an Insider Trading Policy
which contains insider trading policies and procedures governing the purchase, sale, and other dispositions of the Company’s securities by directors, senior management, and employees that are reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and the NASDAQ listing standards applicable to the Company. The Company’s Insider Trading Policy is attached as Exhibit 11.1 to this Annual Report.
Item 16K.
CYBERSECURITY
Risk Management and Strategy
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer networks,
certain
third party
hosted services
, communications systems, hardware and software, and our critical data, including intellectual property, confidential information that is proprietary, strategic or competitive in nature, and employees’ information.
We have established comprehensive governance routines that convene relevant parties at regular intervals, ensuring constant vigilance and strategic oversight in our cybersecurity efforts.
Our annual and quarterly forums are distinguished by the participation of our top executives, underscoring the strategic importance of cybersecurity at the highest levels of management. In addition to our scheduled gatherings, we promptly convene ad-hoc sessions to address immediate and emerging cybersecurity issues as necessary.
This agile and responsive approach to cybersecurity governance enables us to rapidly adapt to the evolving cyber threat landscape and reinforces our commitment to safeguarding our digital assets, preserving the integrity of our data, and maintaining the trust of our customers and shareholders.
As part of our unwavering commitment to cybersecurity, our Company has instituted an annual work plan that focuses on cyber-related objectives and initiatives. This strategic plan forms the blueprint for our cybersecurity efforts throughout the fiscal year and is designed to enhance our defense mechanisms, incident response capabilities, and overall security posture.
96
We are proactively monitoring the execution of our cybersecurity work plan, consistently tracking our progress against established milestones and deliverables. Our management team regularly reviews these metrics to ensure we are on course to meet or exceed our cybersecurity goals.
In alignment with our dedication to cybersecurity excellence, we conduct thorough reviews of prevailing cybersecurity standards that underscore our commitment to maintaining a secure and trustworthy digital environment. As part of our cybersecurity risk management efforts, we engage independent third-party consultants and auditors to enhance our security posture. These experts play a key role in identifying and mitigating risks through comprehensive assessments. Each year, they conduct an ISO 27001 compliance audit, along with one to two additional security audits and one to two penetration tests on our critical assets. These evaluations help us proactively address vulnerabilities, strengthen resilience against emerging threats.
Governance
Comprising those members of our Board who possess the highest level of expertise in cybersecurity among our Board members, the Corporate Audit Committee in this extended composition ensures knowledgeable and experienced governance in this critical domain. This underscores the Board's recognition of the importance of cybersecurity.
PART III
| ITEM 17 . |
FINANCIAL STATEMENTS
|
Not applicable.
| ITEM 18. |
FINANCIAL STATEMENTS
|
The Consolidated Financial Statements and related notes thereto required by this item are contained on pages F-2 through F-48 hereof.
|
Page
|
|
|
F-2 – F-5
|
|
|
F-6 – F-7
|
|
|
F-8
|
|
|
F-9
|
|
|
F-10
|
|
|
F-11 - F-12
|
|
|
F-13 - F- 53
|
97
ITEM 19.
EXHIBITS
| 1.1 |
| 2.1 |
| 4.1 |
| 4.2 |
| 4.3 |
| 4.4 |
| 4.5 |
| 4.6 |
| 4.7 |
| 4.8 |
| 4.9 |
| 4.10 |
| 4.11 |
| 4.12 |
| 4.13 |
98
| 4.14 |
| 4.15 |
| 4.16 |
| 4.17 |
| 4.18 |
| 4.19 |
| 4.20 |
| 4.21 |
| 4.22 |
| 8.1 |
| 11.1 |
| 12.1 |
| 12.2 |
| 13.1 |
| 15.1 |
| 97.1 |
| 101 |
Inline XBRL Instance Document
|
| 101 |
SCH Inline XBRL Taxonomy Extension Schema Document
|
| 101 |
CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
| 101 |
DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
|
| 101 |
LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
|
| 101 |
PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
| 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
99
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CERAGON NETWORKS LTD.
| By: | /s/ Doron Arazi. | |
|
Name:
|
Doron Arazi
|
|
|
Title:
|
Chief Executive Officer
|
Date: March 25, 2025
100
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
IN U.S. DOLLARS
INDEX
|
Page
|
|
|
Reports of Independent Registered Public Accounting Firm
(PCAOB ID:
|
F-2 – F-5
|
|
F-6 – F-7
|
|
|
F-8
|
|
|
F-9
|
|
|
F-10
|
|
|
F-11 - F-12
|
|
|
F-13 - F- 53
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ceragon Networks Ltd. and subsidiaries (the Company) as of December 31, 2024, and 2023, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 25, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.
|
Inventory Reserve Valuation
|
||
|
Description of the Matter
|
As of December 31, 2024, the Company had $ 59.7 million of inventory. As disclosed in Note 2 to the consolidated financial statements, the Company states inventories at the lower of cost or net realizable value. In connection with this policy, the Company periodically reviews inventory quantities on hand and records a reserve for obsolescence, excess quantities and slow-moving inventory based on historical and projected sales volume. The Company’s evaluation of inventory reserve includes management's analysis of inventory aging, future sales forecasts and market conditions.
Auditing management’s estimate of obsolescence, excess quantities and slow-moving inventory reserve was complex and required significant judgment due to estimation uncertainty in the significant assumptions such as the future salability of the inventory, assessment by inventory age and market demand for the Company's products.
|
|
|
How we Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s process to determine the valuation of the Company’s inventory reserve. This included management’s assessment of the significant assumptions and data underlying the inventory reserve valuation.
Our substantive audit procedures included, among others, evaluating the significant assumptions used and testing the accuracy and completeness of the underlying data that management used to estimate the inventory reserve value. We performed inquiries of appropriate non-financial personnel including operational employees, regarding the inventory reserve items and other factors to corroborate management's assertions regarding qualitative judgments about obsolescence, excess quantities and slow-moving inventory.
We compared the cost of on-hand inventories to customer demand forecasts and historical sales and evaluated adjustments to sales forecasts for specific product considerations such as technological changes or alternative uses. We also assessed the historical accuracy of management estimates by comparing the forecasted sales to actual utilization of inventory |
|
/s/ KOST FORER GABBAY KASIERER
A Member of EY Global
We have served as the Company's auditor since 2002
Tel-Aviv, Israel
March 25, 2025
F - 3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on Internal Control over Financial Report
We have audited Ceragon Networks Ltd. and subsidiaries' internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ceragon Networks Ltd. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024, and 2023, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated March 25, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
F - 4
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
KOST FORER GABBAY KASIERER
A Member of EY Global
March 25, 2025
F - 5
Ceragon Networks Ltd. and Subsidiaries
Consolidated Balance Sheets
as of December 31
|
2024
|
2023
|
||||||||||
|
Note
|
$ thousands
|
$ thousands
|
|||||||||
|
Assets
|
|||||||||||
|
Current assets:
|
|||||||||||
|
Cash and cash equivalents
|
|
|
|||||||||
|
Trade receivables, net of allowance for credit losses of $
|
|||||||||||
|
and $
|
11
|
|
|
||||||||
|
Inventories
|
5
|
|
|
||||||||
|
Other accounts receivable and prepaid expenses
|
4
|
|
|
||||||||
|
Total current assets
|
|
|
|||||||||
|
Non-current assets:
|
|||||||||||
|
Severance pay and pension fund
|
|
|
|||||||||
|
Property and equipment, net
|
6
|
|
|
||||||||
|
Operating lease right-of-use assets
|
14
|
|
|
||||||||
|
Intangible assets, net
|
7
|
|
|
||||||||
|
Goodwill
|
|
|
|||||||||
|
Other non-current assets
|
|
|
|||||||||
|
Total non-current assets
|
|
|
|||||||||
|
Total assets
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
Ceragon Networks Ltd. and Subsidiaries
Consolidated Balance Sheets as of December 31
|
2024
|
2023
|
||||||||||
|
Note
|
$ thousands
|
$ thousands
|
|||||||||
|
Liabilities and shareholders’ equity
|
|||||||||||
|
Current Liabilities:
|
|||||||||||
|
Trade payables
|
|
|
|||||||||
|
Deferred revenues
|
17
|
|
|
||||||||
|
Short-term loans
|
9
|
|
|
||||||||
|
Operating lease liabilities
|
14
|
|
|
||||||||
|
Other accounts payable and accrued expenses
|
8
|
|
|
||||||||
|
Total current liabilities
|
|
|
|||||||||
|
Non-current liabilities:
|
|||||||||||
|
Accrued severance pay and pensions
|
|
|
|||||||||
|
Deferred revenues
|
17
|
|
|
||||||||
|
Operating lease liabilities
|
14
|
|
|
||||||||
|
Other long-term payables
|
|
|
|||||||||
|
Total non-current liabilities
|
|
|
|||||||||
|
Commitments and contingent liabilities
|
13
|
|
|
||||||||
|
Shareholders’ Equity:
|
15
|
||||||||||
|
Share capital -
|
|||||||||||
|
Ordinary shares of NIS
Authorized:
|
|
|
|||||||||
|
Additional paid-in capital
|
|
|
|||||||||
|
Treasury shares at cost –
|
(
|
)
|
(
|
)
|
|||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
|||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
|||||||
|
Total shareholders' equity
|
|
|
|||||||||
|
Total liabilities and shareholders' equity
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Operations
|
Year ended December 31,
|
|||||||||||||||
|
2024
|
2023
|
2022
|
|||||||||||||
| Note |
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||||
|
Revenues
|
18
|
|
|
|
|||||||||||
|
Cost of revenues
|
|
|
|
||||||||||||
|
Gross profit
|
|
|
|
||||||||||||
|
Operating expenses:
|
|||||||||||||||
|
Research and development, net
|
|
|
|
||||||||||||
|
Sales and marketing
|
|
|
|
||||||||||||
|
General and administrative
|
|
|
|
||||||||||||
|
Restructuring and related charges
|
|
|
|
||||||||||||
|
Acquisition and integration-related charges
|
3b
|
|
|
|
|||||||||||
|
Other operating expenses
|
1c
|
|
|
|
|||||||||||
|
Total operating expenses
|
|
|
|
||||||||||||
|
Operating income (loss)
|
|
|
(
|
)
|
|||||||||||
|
Financial and other expenses, net
|
19
|
|
|
|
|||||||||||
|
Income (loss) before taxes on income
|
|
|
(
|
)
|
|||||||||||
|
Taxes on income
|
16c
|
|
|
|
|||||||||||
|
Net income (loss)
|
|
|
(
|
)
|
|||||||||||
|
Net income (loss) per share:
|
|||||||||||||||
|
Basic net income (loss) per share
|
$ |
|
$ |
|
$ |
(
|
)
|
||||||||
|
Weighted average number of ordinary shares used in computing basic net income (loss) per share
|
|
|
|
||||||||||||
|
Diluted net income (loss) per share
|
$ |
|
$ |
|
$ |
(
|
)
|
||||||||
|
Weighted average number of ordinary shares used in computing diluted net income (loss) per share
|
|
|
|
||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Loss)
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Net income (loss)
|
|
|
(
|
)
|
||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Change in foreign currency translation adjustment
|
(
|
)
|
|
|
||||||||
|
Change in unrealized gains (losses) on cash flow hedges:
|
||||||||||||
|
Unrealized gains (losses) during the period
|
|
(
|
)
|
(
|
)
|
|||||||
|
Losses (gains) reclassified into net income (loss)
|
(
|
)
|
|
|
||||||||
|
Net change
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive income (loss)
|
(
|
)
|
|
(
|
)
|
|||||||
|
Comprehensive income (loss)
|
|
|
(
|
)
|
||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
|
Ordinary shares
|
Share
capital
|
Additional
paid-in
capital
|
Treasury shares at cost
|
Accumulated other comprehensive loss
|
Accumulated deficit
|
Total shareholders' equity
|
||||||||||||||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
$ thousands
|
$ thousands
|
$ thousands
|
|||||||||||||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Exercise of options and vesting of RSUs
|
|
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss, net
|
-
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Net loss
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance as of December 31, 2022
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Exercise of options and vesting of RSUs
|
|
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Shares issued as consideration in connection with the acquisition of Siklu Communication Ltd.
|
|
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Other comprehensive income, net
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance as of December 31, 2023
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Exercise of options and vesting of RSUs
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss, net
|
-
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance as of December 31, 2024
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
*) Represent an amount lower than $1 thousand
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
|
|
(
|
)
|
||||||||
|
Adjustments required to reconcile net income (loss) to net
|
||||||||||||
|
cash provided by (used in) operating activities:
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Loss from sale of property and equipment, net
|
|
|
|
|||||||||
|
Share-based compensation expense
|
|
|
|
|||||||||
|
Decrease in accrued severance pay and pensions, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease (increase) in trade receivables, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Decrease (increase) in other assets (including other accounts receivable, prepaid expenses, other non-current assets, and the effect of exchange rate changes on cash and cash equivalents)
|
|
|
(
|
)
|
||||||||
|
Decrease (increase) in inventories
|
|
|
(
|
)
|
||||||||
|
Decrease in operating lease right-of-use assets
|
|
|
|
|||||||||
|
Increase (decrease) in trade payables
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase (decrease) in deferred revenues
|
(
|
)
|
(
|
)
|
|
|||||||
|
Decrease in operating lease liability
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Increase (decrease) in other accounts payable and accrued expenses (including other long-term liabilities)
|
|
|
(
|
)
|
||||||||
|
Net cash provided by (used in) operating activities
|
|
|
(
|
)
|
||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Software development costs capitalized
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Payments made in connection with business acquisitions, net of acquired cash
|
|
(
|
)
|
|
||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 11
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from exercise of stock options
|
|
|
|
|||||||||
|
Proceeds from (repayments of) bank credits and loans, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Net cash provided by (used in) financing activities
|
(
|
)
|
(
|
)
|
|
|||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(
|
)
|
|
|
||||||||
|
Increase in cash and cash equivalents
|
|
|
|
|||||||||
|
Cash and cash equivalents at the beginning of the year
|
|
|
|
|||||||||
|
Cash and cash equivalents at the end of the year
|
|
|
|
|||||||||
|
Supplemental disclosure of non - cash investing activities:
|
||||||||||||
|
Fair value of ordinary shares issued and contingent holdback obligations to selling shareholders provided as consideration
for business combination
|
|
|
|
|||||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash paid for income taxes, net
|
|
|
|
|||||||||
|
Cash paid for interest on bank loans and factoring fees
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 12
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 1 - General
| A. |
Ceragon Networks Ltd. ("the Company") is a global innovator and leading solutions provider of wireless transport. The Company helps operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul and fronthaul solutions. The Company’s unique multicore technology and disaggregated approach to wireless transport provides highly reliable, fast to deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate, and labor resources. It enables increased productivity, as well as simple and quick network modernization. The Company delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization to achieve the highest value for its customers.
|
The Company sells its products through a direct sales force, systems integrators, distributors and original equipment manufacturers.
The Company's wholly owned subsidiaries provide research and development, marketing, manufacturing, distribution, sales and technical support to the Company's customers worldwide.
As to principal markets and major customers, see notes 18b and 18c.
| B. |
On December 4, 2023, the Company completed a series of definitive agreements with Siklu Communication Ltd. (“Siklu”) and Siklu Inc. (the “Seller”), referred to as the “Siklu Acquisition”. In the framework of the Siklu Acquisition, the Company acquired all of the outstanding shares of Siklu and the assets and business activities of the Seller. Siklu is a privately held Israeli-based company which is a provider of multi-Gigabit “wireless fiber” connectivity in urban, suburban and rural areas. See also note 3.
|
| C. | 1. | In January 2015, the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants. The motion was filed with the District Court of Tel-Aviv. See Note 13D.1. Expenses of $1,160 thousand related to the provision for the settlement of the class action were presented in 2024 as part of other operating expenses in the Company's consolidated financial statements. |
| 2. |
During 2022, Aviat Networks Inc a competitor of the Company has launched a hostile takeover attempt against the Company, after purchasing more than 5% of the Company outstanding shares. Total expenses associated with the hostile takeover amounted to $
|
Note 2 - Significant Accounting Policies
A.
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP").
F - 13
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
B.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. Actual results could differ from those estimates.
On an ongoing basis, the Company's management evaluates estimates, including those related to the fair value of acquired intangible assets and goodwill and the useful life of intangible assets, tax assets and liabilities, fair values of share-based awards, inventory write-offs, warranty provision, incremental borrowing rate (IBR) used for lease liabilities measurement, and allowance for credit loss. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
C.
Financial statements in U.S. dollars
A majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars ("dollars"). In addition, a substantial portion of the Company's and certain of its subsidiaries' costs is incurred in dollars. Since management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate and considers the non-U.S. subsidiaries to be a direct, integral extension of the parent company's operations, the dollar is its functional and reporting currency.
Accordingly, amounts in currencies other than U.S dollars have been re-measured in accordance with ASC topic 830, "Foreign Currency Matters" ("ASC 830") as follows:
Monetary balances - at the exchange rate in effect on the balance sheet date. Consolidated statements of operations items - average exchange rates prevailing during the year.
All exchange gains and losses from the re-measurement mentioned above are reflected in the statement of operations in financial and other expenses, net (see note 19).
The financial statements of the Company's Brazilian subsidiary, whose functional currency is not the dollar, have been re-measured and translated into dollars. All amounts on the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of operations have been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders' equity.
D.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
E.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and short-term unrestricted, highly liquid investments that are readily convertible to cash and with original maturities of three months or less at acquisition.
F - 14
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
F.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any.
The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. At the point of the loss recognition, a new lower cost basis for that inventory is established. In addition, if required, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company's future demands forecast consistent with its valuation of excess and obsolete inventory.
Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the related arrangements were not recognized.
Cost is determined for all types of inventory using the moving average cost method plus indirect costs.
G.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:
|
%
|
|
|
Computers, manufacturing and peripheral equipment
|
|
|
Office, furniture and equipment
|
Mainly
|
|
Leasehold improvements
|
Over the shorter of the term of the lease or useful life of the asset
|
The Company capitalizes development costs incurred during the application development stage that are related to internal use technology that supports its cloud services. Under ASC 350-40, internal-use software is included in property and equipment, net in the consolidated balance sheets, under “Computers, manufacturing and peripheral equipment”. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose. Costs incurred in the process of software production are charged to expenses as incurred.
H.
Leases
The Company has operating leases for corporate offices and cars. Operating leases are reported separately in the Company's consolidated balance sheets on December 31, 2024 and 2023. The Company has no finance leases as of December 31, 2024 or 2023.
The Company determines if an arrangement is a lease at inception. A contract is determined to contain a lease component if the arrangement provides the Company with a right to control the use of an identified asset. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.
F - 15
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
H.
Leases (cont’d)
Lease contracts may contain variable lease costs, such as common area maintenance and utilities, that vary over the term of the contract. Certain lease agreements include rental payments adjusted periodically for the consumer price index (“CPI”). The ROU and lease liability were calculated using the initial CPI and will not be subsequently adjusted unless the liability is reassessed for other reasons. Lease liabilities are measured using the Company’s estimated incremental borrowing rate (“IBR”), based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments in economic environments where the leased asset is located. Variable lease costs are not included in minimum fixed lease payments and, as a result, are excluded from the measurement of the right-of-use assets and lease liabilities. The Company expenses all variable lease costs as incurred. The Company combines its lease payments and fixed payments for non-lease components and accounts for them together as a single lease component.
I.
Intangible assets, net
The Company's intangible assets are comprised of incurred software development costs, core technology, customer relationship, and trademark.
The Company capitalizes certain incurred software development costs. Capitalization of incurred software development costs is in accordance with ASC 985-20, "Software - Costs of Software to be Sold, Leased, or Marketed". Capitalization of software development costs begins upon the determination of technological feasibility and continues up to the time the software is available for general release to customers, at which time capitalized software costs are amortized to cost of revenues on a straight-line basis over the expected life of the related product.
Other purchased intangible assets have been recorded in the Company's financial statements as a result of acquisitions, consisting of core technology, customer relationship, and trademark.
Intangible assets that are considered to have definite useful life are amortized using the straight-line basis over their estimated useful lives.
J.
Business Combinations
The Company applies the provisions of ASC 805, “Business Combination” and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s Consolidated Statements of Operation. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred (see also Note 3).
F - 16
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
K.
Goodwill
Goodwill is recorded as a result of acquisitions. Goodwill represents the excess of the purchase price in a business combination over the fair value of identifiable net tangible and intangible assets acquired. Goodwill is not amortized but rather is subject to an impairment test.
ASC No. 350, “Intangibles - Goodwill and other” (“ASC No. 350”) requires goodwill to be tested for impairment at the reporting unit level at least annually or between annual tests in certain circumstances and written down when impaired.
ASC No. 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the quantitative goodwill impairment test is performed. Alternatively, ASC No. 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, the Company recognizes an impairment of goodwill for the amount of this excess, in accordance with the guidance in FASB Accounting Standards Update (“ASU”) No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company operates in one operating segment, and this segment is the only reporting unit. The Company performs an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment indicators are present and compares the fair value of the reporting unit with its carrying value.
During the year 2024 and 2023, no goodwill impairment losses have been identified.
L.
Impairment of long-lived assets
The Company's long-lived assets are reviewed for impairment in accordance with ASC topic 360," Property Plant and Equipment", ("ASC 360"), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During the years 2024, 2023 and 2022,
no
impairment losses have been recognized.
M.
Income taxes
The Company accounts for income taxes in accordance with ASC topic 740, "Income Taxes" ("ASC 740"). This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carry-forward losses deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
F - 17
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
M.
Income taxes (cont’d)
ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.
The second step is to measure the tax benefit as the largest amount that is more than
50
% likely to be realized upon ultimate settlement. The Company elected to classify interest expenses and penalties recognized in the financial statements as income taxes.
N.
Revenue recognition
The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company determines that it has a contract with a customer when each of the parties has an identifiable right with regards to the products or services that should be transferred, payment terms, and customer’s ability and intention to pay, as long as contract’s commercial substance. A master sale agreement under which a customer places purchase orders to obtain goods or services does not itself constitute a contract with a customer, as it usually does not create an enforceable right and obligations for the parties. The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer.
For each contract, the Company considers the promise to transfer tangible products, network roll-out, professional services and customer support, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates, amounts collected on behalf of other third parties, indirect taxes or other adjustments, to determine the net consideration that the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price, which is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices for the Company’s products and services are generally not observable, and consequently the Company uses the expected cost plus a margin method to determine a standalone selling price. Revenue from tangible products is recognized at a point in time when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
Revenues from customer support and extended warranty are recognized ratably over the contract period, and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out and professional services are recognized when the Company's performance obligation is satisfied.
The Company accounts for rebates and stock rotations provided to customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as a deduction from revenue in the period in which the revenue is recognized.
F - 18
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
N.
Revenue recognition (cont’d)
The Company elected to use the practical expedient and recognize the incremental costs of obtaining contracts as an expense since the amortization period of the assets that the Company otherwise would have recognized is one year or less. Additionally, the Company has elected to apply the practical expedient such that it does not evaluate payment terms of one year or less for the existence of a significant financing component.
O.
Research and development expenses, net
Research and development expenses, net of government grants, are charged to the statement of operations as incurred, except for development expenses, which were capitalized in accordance with ASC 985-20 "Software – Costs of Software to be Sold, Leased, or Marketed" (see I above).
The Company records grants received from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA") and from the European Commission (under the Horizon Europe program) as a reduction to Research and development expenses. Royalties payable to the IIA are recognized pursuant to sales of related products and are included in Cost of revenues.
P.
Warranty costs
The Company generally offers a standard limited warranty, including parts and labor for an average period of
1
-
3
years for its products. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
The Company recorded income (expenses) from decrease (increase) of warranty provision for the years ended December 31, 2024, 2023 and 2022 in the amounts of $(
631
) thousand, $(
293
) thousand and $
290
thousand respectively. As of December 31, 2024 and 2023, the warranty provision was $
2,325
thousand and $
1,694
thousand respectively.
Q.
Derivative instruments
The Company has instituted a foreign currency cash flow hedging program using foreign currency forward contracts ("derivative instruments") in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These transactions are designated as cash flow hedges, as defined under ASC topic 815, "Derivatives and Hedging".
ASC 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the financial statements at fair value. The Company measured the fair value of the contracts in accordance with ASC topic 820, "Fair value Measurement and Disclosures" at Level 2 (see also note 2v). The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge.
F - 19
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
Q.
Derivative instruments (cont’d)
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings (see also note 2w). For derivative instruments that don’t meet the definition of a hedge, the changes in the fair value are included immediately in earnings in “Financial and other expenses, net” in each reporting period.
The Company's cash flow hedging program is to hedge against the risk of overall changes in cash flows resulting from forecasted foreign currency of salary. The Company hedges portions of its forecasted expenses denominated in NIS with forward exchange contracts.
R.
Concentrations of credit risk
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables.
The majority of the Company's cash and cash equivalents are maintained in U.S. dollar. Generally, these cash and cash equivalents may be redeemed upon demand. Management believes that the financial institutions that hold the Company's and its subsidiaries' cash and cash equivalents are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these assets.
The Company's trade receivables are geographically diversified and derived from sales to customers all over the world. The Company and its subsidiaries generally do not require collateral; however, in certain circumstances, the Company and its subsidiaries may require letters of credit, additional guarantees or advance payments.
The Company and its subsidiaries perform ongoing credit evaluations of their customers and insure certain trade receivables under credit insurance policies.
S.
Transfers of financial assets
ASC 860 "Transfers and Servicing", ("ASC 860"), establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company's arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a true sale. The transfers of financial assets are typically performed by the factoring of receivables to four financial institutions.
As of December 31, 2024, and 2023, the Company sold trade receivables to several different financial institutions in a total net amount of $
30,346
thousand and $
30,902
thousand, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860.
During the years ended on December 31, 2024, 2023 and 2022, the Company recorded amounts of $
1,612
thousand, $
2,038
thousand, and $
1,262
thousand, respectively, as financial expense related to its factoring arrangements.
F - 20
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
T.
Severance pay
The Company's severance pay liability for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its employees in Israel is covered by monthly deposits with pension funds, insurance policies and an accrual. The value of the funds deposited into pension funds and insurance policies is recorded as an asset - Severance pay fund - in the Company's balance sheet.
The severance pay fund includes the deposited funds and accumulated adjustments to the Israeli Consumer Price Index up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds in insurance policies, is based on the cash surrendered value of these policies and includes profits / losses.
Starting April 2009, the Company's agreements with new employees in Israel are under section 14 of the Severance Pay Law -1963. The Company's contributions for severance pay shall replace its severance obligation, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.
As of December 2024, and 2023, accrued severance pay amounted to $
6,661
thousand and $
7,422
thousand, respectively. Severance expenses for the years ended December 31, 2024, 2023 and 2022, amounted to approximately $
2,074
thousand, $
3,449
thousand, and $
2,859
thousand, respectively.
The Company accounts for its obligations for pension and other postretirement benefits in accordance with ASC 715, "Compensation - Retirement Benefits". For more information refer to note 12.
U.
Accounting for Share-based compensation
ASC topic 718, "Compensation - Stock Compensation", ("ASC 718"), requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.
The Company estimates the fair value of stock options granted under ASC 718 using the binomial model with the following assumptions for 2024, 2023 and 2022:
|
December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Dividend yield
|
|
%
|
|
%
|
|
%
|
||||||
|
Volatility
|
|
%
|
|
%
|
|
%
|
||||||
|
Risk-free interest
|
|
%
|
|
%
|
|
%
|
||||||
|
Early exercise multiple
|
|
|
|
|||||||||
F - 21
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
U.
Accounting for Share-based compensation (cont’d)
Risk-free interest rates are based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options and the volatility of the price of the Company's shares based upon actual historical stock price movements. The Early exercise factor represents the value of the underlying stock as a multiple of the exercise price of the option, which, if achieved, results in the exercise of the option.
Early exercise multiple is based on actual historical exercise activity. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding.
The Company recognizes compensation expense using the accelerated method for all awards ultimately expected to vest. Estimated forfeitures are based on historical pre-vesting forfeitures and on management's estimates. ASC topic 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
V.
Fair value of financial instruments
The Company applies ASC 820, "Fair Value Measurements and Disclosures". Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
F - 22
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
V.
Fair value of financial instruments (cont’d)
The following methods and assumptions were used by the Company and its subsidiaries in estimating their fair value disclosures for financial instruments.
The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable and prepaid expenses, trade payables, and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The liability with respect to the Holdback Consideration regarding the Siklu Acquisition is classified within Level 3, as this liability is valued using valuation models. Some of the inputs to these models are unobservable in the market.
W.
Comprehensive income (loss)
The Company accounts for comprehensive income in accordance with ASC topic 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.
The components of accumulated other comprehensive income - (“AOCI”) were as follows:
|
Unrealized Gains (Losses) on Cash Flow Hedges
|
Foreign Currency Translation Adjustments
|
Total
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Balance as of January 1, 2024
|
|
(
|
)
|
(
|
)
|
|||||||
|
Other comprehensive income (loss) before
|
||||||||||||
|
reclassifications
|
|
(
|
)
|
(
|
)
|
|||||||
|
Amounts reclassified from AOCI
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Balance as of December 31, 2024
|
|
(
|
)
|
(
|
)
|
|||||||
The effects on net loss of amounts reclassified from AOCI for the year ended December 31, 2024 derived from realized losses on cash flow hedges, included in cost of sales and operating expenses.
X.
Treasury shares
The Company repurchased its ordinary shares on the open-market and holds such shares as Treasury shares. The Company presents the cost of repurchased treasury shares as a reduction of shareholders' equity.
F - 23
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
Y.
Basic and diluted net earnings per share
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC topic 260, "Earnings Per Share" ("ASC 260").
The total weighted average number of shares related to the outstanding options and RSUs excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect was
2,364,143
5,164,222
and
5,599,666
for the years ended December 31, 2024, 2023 and 2022, respectively.
Z.
Recently Adopted Accounting Standards
In November 2023, the Financial Accounting Standard Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. In addition, it provides new segment disclosure requirements for entities with a single reportable segment. The Company adopted this guidance for its annual period beginning January 1, 2024. See Note 18 “Segments, Customers and Geographic Information” for further information.
AA.
Recently Issued But Not Yet Adopted Accounting Standards
| 1. |
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which requires disaggregated information about the effective tax rate reconciliation as well as information on income taxes paid. The guidance will be effective for the Company for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of the ASU on its financial statement disclosures.
|
| 2. |
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires an entity to disclose the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption. It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. An entity may apply the amendments prospectively for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact of the ASU on its financial statement disclosures.
|
F - 24
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 3 - Acquisitions
A.
Siklu
On December 4, 2023, the Company completed the Siklu Acquisition. See also note 1B.
As consideration for the Siklu Acquisition, the Company issued to the Seller
504,902
ordinary shares of the Company with a fair value of $
944
thousand (the "Share Consideration") and paid $
8,341
thousand of cash to repay Siklu's outstanding debt, including both principal and interest. In addition, the Company accounted for $
1,617
thousand for additional consideration of up to
735,294
ordinary shares of the Company or cash, in certain circumstances, which will be released from holdback and issued to the Seller in 18 months following the indemnity release date as defined in the Siklu Acquisition agreement (the "Holdback Consideration"). The Holdback Consideration is classified by the Company as a liability that is marked to market each reporting period. As of December 31, 2023, the Company recorded an adjustment to the fair value of its Holdback Consideration of $
110
thousand in Financial and other expenses, net.
The Siklu Acquisition has been accounted for as a business combination, and the financial results of Siklu have been included in the Company's consolidated financial statements for the period subsequent to the Siklu Acquisition.
A summary of the allocation of the purchase consideration for Siklu is as follows (in thousands):
|
Amortization Period
|
Amount
|
||||||
|
years
|
$ thousands
|
||||||
|
Repayment of Siklu's outstanding debt obligations
|
|
||||||
|
Share Consideration
|
|
||||||
|
Holdback Consideration
|
|
||||||
|
Fair value of total consideration
|
|
||||||
|
Fair value of assets acquired and liabilities assumed:
|
|||||||
|
|
|||||||
|
Current assets (including cash and cash equivalents of $
|
|
||||||
|
Non-current assets
|
|
||||||
|
Trademark
|
|
|
|||||
|
Customer Relationships
|
|
|
|||||
|
Technology
|
|
|
|||||
|
Goodwill
|
|
||||||
|
Other current liabilities
|
(
|
) | |||||
|
Long-term liabilities
|
(
|
) | |||||
|
|
|||||||
F - 25
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 3 - Acquisitions (cont'd)
A.
Siklu
(cont'd)
The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired developed technology, customer relationships and trade mark intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets arising from the Siklu Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a useful life range of
2
-
10
years (see Note 7). Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes.
B.
Acquisition- and Integration-Related Charges
Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees. Acquisition-related costs are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging the previously separate companies' systems and processes.
The components of Acquisition- and integration-related expenses incurred in the years ended December 31, 2024, 2023 and 2022 were as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Acquisition-related professional and services fees
|
|
|
|
|||||||||
|
Integration-related expenses
|
|
|
|
|||||||||
|
Total acquisition- and integration-related expense
|
|
|
|
|||||||||
Note 4 - Other Accounts Receivable and Prepaid Expenses
|
December 31, |
December 31, |
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Government authorities
|
|
|
||||||
|
Deferred charges and prepaid expenses
|
|
|
||||||
|
Deposits receivable
|
|
|
||||||
|
Advances to suppliers
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
F - 26
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 5 - Inventories
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Raw materials
|
|
|
||||||
|
Work in progress
|
|
|
||||||
|
Finished products
|
|
|
||||||
|
|
|
|||||||
During the years ended December 31, 2024, 2023 and 2022, the Company recorded inventory write-offs for excess inventory and slow-moving inventory in a total amount of $
3,939
thousand, $
7,731
thousand and $
1,980
thousand, respectively that have been included in Cost of revenues.
As of December 31, 2024, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $
45,157
thousand. The commitments are due primarily within one year.
Note 6 - Property and Equipment, Net
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Cost
|
||||||||
|
Computers, manufacturing, peripheral
|
||||||||
|
equipment
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
|
|
|||||||
|
Accumulated depreciation
|
||||||||
|
Computers, manufacturing, peripheral equipment
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
|
|
|||||||
|
Depreciated cost
|
|
|
||||||
Depreciation expenses for the years ended December 31, 2024, 2023 and 2022 were $
10,336
thousand, $
9,335
thousand, and $
10,620
thousand respectively.
Changes of property and equipment not resulted in cash outflows as of December 31, 2024, 2023 and 2022 amounted to $
1,819
thousand, $
1,499
thousand, and $
586
thousand, respectively.
F - 27
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 7 - Intangible Assets, Net
Intangible Assets:
|
Useful
|
December 31,
|
December 31,
|
|||||||||
|
Life
|
2024
|
2023
|
|||||||||
|
$ thousands
|
$ thousands
|
||||||||||
|
Original amounts:
|
|||||||||||
|
Software development costs
|
|
|
|
||||||||
|
Core technology
|
|
|
|
||||||||
|
Customer relationship
|
|
|
|
||||||||
|
Trademark
|
|
|
|
||||||||
|
|
|
||||||||||
|
Accumulated amortization:
|
|||||||||||
|
Software development costs
|
|
|
|||||||||
|
Core technology
|
|
|
|||||||||
|
Customer relationship
|
|
|
|||||||||
|
Trademark
|
|
|
|||||||||
|
|
|
||||||||||
|
Other Intangible assets, net:
|
|||||||||||
|
Software development costs
|
|
|
|||||||||
|
Core technology
|
|
|
|||||||||
|
Customer relationship
|
|
|
|||||||||
|
Trademark
|
|
|
|||||||||
|
Other Intangible assets, net:
|
|
|
|||||||||
The following table represents the expected amortization in future periods, as of December 31, 2024:
|
$ thousands
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and thereafter
|
|
|||
|
Total expected amortization
|
|
|||
Amortization expenses for the years ended December 31, 2024, 2023 and 2022 amounted to $
1,776
thousand $
632
thousand and $
420
thousand respectively.
F - 28
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 8 - Other Accounts Payable and Accrued Expenses
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Employees and payroll accruals
|
|
|
||||||
|
Holdback Liability
|
|
|
||||||
|
Government authorities
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Provision for warranty costs
|
|
|
||||||
|
Advanced payments from customers
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
Note 9 - Short-term loans
In March 2013, the Company was provided with a revolving Credit Facility by four financial institutions. The Credit Facility was renewed and amended several times during the past years according to Company's needs and financial position.
In December 2023, in connection with the acquisition of Siklu, the Company signed an amendment to the Credit Facility in which it obtained the approval of the syndication of banks to carry out Siklu's acquisition and added additional bank to the syndication agreement.
In June 2024, the Company signed an amendment to the Credit Facility in the frame of which the Credit Facility was extended by an additional 2 years till
June 30, 2026
. This amendment included a decrease of $
5,000
thousand to the bank guarantees credit lines to $
40,886
thousand.
As of December 31, 2024, the Company has utilized $
25,200
thousand of the $
77,000
thousand available under the Credit Facility for short-term loans. During 2024, the credit lines carried interest rates between
6.12
% and
7.95
%.
As of December 31, 2024, the total credit facilities for bank guarantees and for loans is $
117,886
thousand.
The Credit Facility is secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets.
Repayment could be accelerated by the financial institutions in certain events of default, including in insolvency events, failure to comply with financial covenants or an event in which a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company.
The credit agreement contains financial and other covenants requiring that the Company maintains, among other things, minimum shareholders' equity value and financial assets, a certain ratio between its shareholders' equity (excluding total intangible assets and goodwill) and the total value of its assets (excluding total intangible assets and goodwill) on its balance sheet, a certain ratio between its net financial debt to each of its working capital and accounts receivable. As of December 31, 2024 and 2023, the Company met all of its covenants.
F - 29
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 10 - Derivative Instruments
The Company enters into foreign currency forward contracts with financial institutions to protect against the exposure to changes in exchange rates of several foreign currencies that are associated with forecasted cash flows and existing assets and liabilities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The fair value of derivative contracts in the consolidated balance sheets on December 31, 2024, and December 31, 2023 were as follows:
|
Other accounts
receivable and
prepaid expenses
|
Other accounts
payable and
accrued
expenses
|
|||||||
|
December 31, 2024
|
||||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Derivatives designated as hedging instruments:
|
||||||||
|
Currency forward contracts
|
|
(
|
)
|
|||||
|
Total derivatives
|
|
(
|
)
|
|||||
|
Other accounts
receivable and
prepaid expenses
|
Other accounts
payable and
accrued
expenses
|
|||||||
|
December 31, 2023
|
||||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Derivatives designated as hedging instruments:
|
||||||||
|
Currency forward contracts
|
|
|
||||||
|
Total derivatives
|
|
|
||||||
F - 30
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 10 - Derivative Instruments (cont’d)
The notional amounts for derivatives contracts were as follows:
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Derivatives designated as hedging instruments:
|
||||||||
|
Currency forward contracts
|
|
|
||||||
The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is up to 12 months.
The effect of total income (loss) from derivative contracts designated as cash flow hedges in the consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022 was as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
|
(
|
)
|
(
|
)
|
|||||||
Note 11 - Credit Losses
The Company is exposed to credit losses primarily through sales to customers. The Company’s expected loss allowance methodology for trade receivables is developed using historical collection experience, current and future economic and market conditions and a review of the current status.
The estimate of amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of the trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar geographies.
Additionally, specific allowance amounts are established to record the appropriate provision for customers who have a higher probability of default.
F - 31
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 11 - Credit Losses (cont’d)
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Balance, at beginning of period
|
|
|
||||||
|
Provision for expected credit losses
|
|
|
||||||
|
Balance added in business combination
|
|
|
||||||
|
Recoveries collected
|
(*) (
|
) |
(
|
)
|
||||
|
Amounts written off charged against the allowance and others
|
(
|
)
|
(
|
)
|
||||
|
Balance, at end of period
|
|
|
||||||
(*) During 2024, the Company collected $
9,064
thousand
from South American customer, see Note 13D.3.
Note 12 - Pension Liabilities, Net
The Norwegian subsidiary Ceragon Networks AS (formerly "Nera Networks AS") has defined contribution schemes and four unfunded pension plans.
Under the defined contributions scheme Ceragon Networks AS makes a payment to the insurance company who administer the fund on behalf of the employee. Ceragon Networks AS has no liabilities relating to such schemes after the payment to the insurance company. As of December 31, 2024, all active employees are in this scheme. The contribution and the corresponding social security taxes are recognized as payroll expenses in the period to which the employee's services are rendered. The defined pension contribution schemes meet the requirements of the law on compulsory occupational pension.
Defined benefit scheme was stopped for admission from December 1, 2007, and persons that were employed after that date were automatically entered into the defined contribution scheme. The schemes give right to defined future benefits. These are mainly dependent on the number of qualifying employment years, salary level at pension age, and the amount of benefits from the national insurance scheme. The commitment related to the pension scheme is covered through an insurance company.
AFP-scheme - in force from 1 January 2011, the AFP-scheme is a defined benefit multi-enterprise scheme, but is recognized in the accounts as a defined contribution scheme until reliable and sufficient information is available for the group to recognize its proportional share of pension cost, pension liability and pension funds in the scheme. Ceragon Networks AS's liabilities are therefore not recognized as liability in the balance sheet.
The liabilities in respect of Ceragon Networks AS's unfunded pension plans together represent 100% of the PBO (Projected Benefit Obligation) of the entire group.
F - 32
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Pension Liabilities, Net (cont’d)
The following tables provide a reconciliation of the changes in the plans' benefits obligation for the year ended December 31, 2024 and 2023, and the statement of funds status as of December 31, 2024 and 2023:
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Change in projected benefit obligation
|
||||||||
|
Projected benefit obligation at beginning of year
|
|
|
||||||
|
|
|
|
||||||
|
Expenses paid
|
(
|
)
|
(
|
)
|
||||
|
Exchange rates differences
|
(
|
)
|
(
|
)
|
||||
|
Actuarial (gain) loss
|
(
|
)
|
|
|||||
|
Projected benefit obligation at end of year
|
|
|
||||||
The assumptions used in the measurement of the Company's benefits obligations as of December 31, 2024 and 2023 are as follows:
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
Weighted-average assumptions
|
||||||||
|
Discount rate
|
|
%
|
|
%
|
||||
|
Rate of compensation increase
|
|
%
|
|
%
|
||||
The amounts reported for net periodic pension costs and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviews historical trends, future expectations, current market conditions and external data to determine the assumptions. The discount rate is the covered bond. For purposes of calculating the 2024 net periodic benefit cost and the 2024 benefit obligation, the Company has used a discount rate of
3.90
%. The rate of compensation increase is determined by the Company, based upon its long-term plans for such increases.
F - 33
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Pension Liabilities, Net (cont’d)
Benefit payments are expected to be paid as follows:
|
$ thousands
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and thereafter
|
|
|||
|
|
||||
Regarding the policy for amortizing actuarial gains or losses for pension and post-employment plans, the Company has chosen to charge the actuarial gains or losses to statement of operations.
Interest cost and actuarial gain or losses are presented in financial and other expenses, net.
For the years ended December 31, 2024, 2023 and 2022, an actuarial gain of $
22
thousand, and loss of $
105
thousand, and $
26
thousand, respectively, was recognized in Financial and other expenses, net.
Note 13 - Commitments and Contingent Liabilities
A.
Leases
See Note 14 “Leases” for lease-related commitments as of December 31, 2024.
B. Liabilities for Royalty Payments to the IIA
During 2024, 2023 and 2022, Ceragon received several research and development grants from the Israeli Innovation Authority ("IIA"). The grants require the Company to comply with the requirements of the Research and Development Law, however, Ceragon is not obligated to pay royalties on sales of products based on technology or know-how developed from the grants. In a case involving the transfer of technology or know how developed from the grants outside of Israel, Ceragon may be required to pay royalties related to past sales of products based on the technology or the developed know how. The Company recorded income from IIA grants for the years ended December 31, 2024, 2023 and 2022 in the amount of $
1,264
thousand, $
542
thousand, and $
460
thousand, respectively.
Prior to the Siklu Acquisition, Siklu had received research and development grants from the IIA. The Company assumed Siklu's contract with the IIA, which requires the Company to pay royalties to the IIA on sales of products based on technology or know-how developed from the grants. The royalties were calculated at the rates of
3
% to
4
% of the aggregated proceeds from the sale of such products. As of December 31, 2024, the Company's maximum possible future royalties commitment, including $
2,721
thousand of unpaid royalties accrued, was $
10,164
thousand, based on grants received from the IIA and not yet repaid.
C.
Charges and guarantees
As of December 31, 2024 and 2023, the Company provided guarantees in an aggregate amount of $
18,555
thousand, and $
26,686
thousand respectively, with respect to tender offer guarantees, financial guarantees, warranty guarantees and performance guarantees to its customers.
F - 34
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
D.
Litigations
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues liability for the estimated loss.
1) Class action claim (District Court of Tel Aviv - Economic Department)
On January 6, 2015, the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants (the “Defendants”). The motion was filed with the District Court of Tel-Aviv (the “Court”). The purported class action alleges breaches of duties by making false and misleading statements in the Company's SEC filings and public statements. The class action claimed amount is approximately $
75,000
thousand.
On May 27, 2021, following a procedure that included filing of various pleadings and affidavits, the Court ruled to certify the motion as a class action, while applying the Israeli Law (the “Ruling”).
On September 12, 2021, the company filed a motion for a rehearing on behalf of the Defendants in order to revert the Ruling (the “Rehearing Motion”).
On January 3, 2022, a hearing was held in Court in the Rehearing Motion before the Honorable Justices K. Kabub, R. Ronen and T. Avrahami.
On January 27, 2022, a judgment was rendered in the Rehearing Motion. The Court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that the law that will apply is U.S. law. The Court further held that the case will be returned to the first judicial instance and will be adjudicated as a class claim under U.S. law. The Court commented that the Company’s claims based upon the Statute of Limitations should prima facie also be adjudicated under U.S. law.
On March 20, 2022, following the Court's decision, the Plaintiff filed to the first judicial instance, an amended class action claim, based on provisions of U.S. law. The Plaintiff estimated the amended claim amount at $
52,099
thousand.
On June 28th, 2022, following a joint application filed by the parties in order to approve certain procedural matters, the Court issued a decision suggesting that the parties should consider initiating another mediation procedure. On July 5th, 2022, following the court's decision, the parties filed a notice informing the court that they believe that the time to consider initiating another mediation procedure, will be only after the parties submit their pleadings.
On November 3rd, 2022, the Defendants submitted their Statement of Defense, based on U.S law. On February 5th, 2023, the plaintiff submitted his response to the Defendants’ Statement of Defense.
On June 15th, 2023, the court rejected a motion filed by the Defendants to rule on the issues of Statute of Repose and Limitations as a preliminary matter, and held that those issues will be dealt with as part of the main hearing. Additionally, the parties conducted preliminary procedures, including discovery and questionnaires, and filed related motions.
F - 35
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
D.
Litigations (cont’d)
1) Class action claim (District Court of Tel Aviv - Economic Department) (cont’d)
On September 21st, 2023, a preliminary hearing was held. At the conclusion of the hearing, the court ruled that it would issue written decisions on the discovery issues and then set dates for further proceedings.
On September 28th, 2023, the court approved the defendants’ motion for document discovery and determined that the documents in question are indeed relevant. As a result, the court has directed the plaintiff to furnish the requested documents by October 28, 2023. Alternatively, the court has given the plaintiff the option to waive any claims associated with these documents.
On October 1, 2023, the court granted the plaintiff's motion for document discovery and ordered the company to produce all requested documents and to complete some of the answers to the questions included in the plaintiff questionnaire within 45 days. In making this decision, it was determined that, in addition to the documents already provided to the plaintiff, the company is required to disclose thousands of additional documents and document types. These materials, however, were deemed irrelevant and extended beyond the approved grounds for the class action request. The discovery and disclosure of such documents would impose a substantial burden on the company.
As a result, on December 31, 2023, the company sought permission to appeal the district court's decision and requested a delay in its implementation. The Supreme Court granted a stay on the execution of the district court's decision and scheduled a hearing for January 25, 2024.
During the hearing, the Supreme Court, presided over by the Honorable Judge Grosskopf, acknowledged the company's contentions. It clarified that the extensive disclosure mandated by the district court exceeded the necessary requirements in accordance with the law and suggested that the plaintiff negotiate agreements with the company. These agreements are aimed at significantly reducing the scope of disclosure, particularly concerning the period for which documents and correspondence must be provided.
Following discussions both outside the courtroom and before the Honorable Judge, where the parties presented their arguments on each dispute demand, partial agreements were reached. These agreements outline the documents the company will provide to the plaintiff.
Validated by the Supreme Court, these agreements substantially reduced the disclosure requirements outlined in the district court's decision. The plaintiff, in turn, waived certain demands entirely and significantly narrowed others. For the limited remaining requirements, it was established that the company would convey its position on transferring the requested documents to the plaintiff in the reduced format proposed during the hearing. It was also decided that if no agreements are reached concerning these documents, the court will make a decision on the matter.
On March 26, 2024, the Company provided the plaintiff with the required documents, in accordance with the agreements between the parties.
On March 12, 2024, following the submission of pleadings by the parties, the Supreme Court reduced the amount of expenses imposed by the district court against the Company in its decision dated October 1, 2023, since the appeal resulted in a reduction in the extent of disclosure initially determined by the district court.
F - 36
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
D.
Litigations (cont’d)
1) Class action claim (District Court of Tel Aviv - Economic Department) (cont’d)
On April 2024, the parties have agreed to refer the dispute to a mediation procedure before the esteemed retired judge, Dr. Avi Zamir. To date, two mediation meetings have been held.
On January 30, 2025, the parties filed an update with the court, indicating that, as part of the mediation process, they have reached preliminary understandings. As a result, the court was requested to grant the parties an additional 60-day period to allow them to finalize a settlement agreement, which will then be submitted to the court’s approval. On February 2, 2025, the court approved the parties' request. Given the above, the mediation process is still ongoing.
Although the parties have not yet reached a conclusive and binding settlement agreement, nor has the settlement agreement been submitted for court approval (or approved by the court), the company estimates, based on its external legal counsel and all facts and circumstances, that the probable loss under the settlement agreement will be approximately $
1,160
thousand USD. Accordingly, a provision for this amount was recorded on the balance sheet as of December 31, 2024.
2) Claim against Station Enterprises Ltd. regarding breach of the Lease Agreement
A dispute has arisen between the Company and Station Enterprises Ltd, with respect to the lease agreement signed between the parties on April 11, 2019 (the "Lease Agreement"), under which the Company leases its offices and labs in Rosh Haayin.
The Company, the lessee, claims that Station Enterprises was late in delivering the possession to the lessee and has not fulfilled its maintenance and management obligations. Therefore, the Company claims that Station Enterprises breached its contractual obligations, causing the Company damages and expenses.
Due to such alleged breaches, the Company has set off the rent and management fees against outstanding debts of Station Enterprises towards the Company and provided Station Enterprises with a set-off notice.
A dispute has arisen between the Company and Station Enterprises Ltd, with respect to the lease agreement signed between the parties on April 11, 2019 (the "Lease Agreement"), under which the Company leases its offices and labs in Rosh Haayin.
The Company, the lessee, claims that Station Enterprises was late in delivering the possession to the lessee and has not fulfilled its maintenance and management obligations. Therefore, the Company claims that Station Enterprises breached its contractual obligations, causing the Company damages and expenses.
Due to such alleged breaches, the Company has set off the rent and management fees against outstanding debts of Station Enterprises towards the Company and provided Station Enterprises with a set-off notice.
F - 37
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
D.
Litigations (cont’d)
2) Claim against Station Enterprises Ltd. regarding breach of the Lease Agreement (cont’d)
On February 8, 2022, Station Enterprises provided notice to the Company of the termination of the Lease Agreement, and also on the exercise of the bank guarantees provided to it in connection with the Lease Agreement, in the amount of approximately $
682
thousand. The Company rejected the alleged termination notice, which was provided with no legal grounds, and further required Station Enterprises not to exercise the bank guarantees. This demand was disregarded, and the bank guarantees were exercised in full.
The Company instructed its legal counsel to file a claim against Station Enterprises, in the framework of which the court will be asked to issue a Declarative Order, declaring that the notice of termination was invalid and that Lease Agreement is valid and in force; to order Station Enterprises to reimburse the Company for the amount of the exercised bank guarantees; to order Station Enterprises to uphold and fulfil its contractual obligation and undertakings under the Lease Agreement and the management agreement; and to compensate the Company for the damages caused to it in an amount of approximately $
328
thousand.
The Statement of Claim was filed on May 31, 2022. A Statement of Defense was filed on October 23, 2022, and a Statement of Response was filed on November 23, 2022.
On October 13, 2022, Station Enterprises Ltd. submitted a new claim against the Company, for its eviction from the leased premises. The Statement of Defense was filed on February 12, 2023.
Since both lawsuits deal with the same issues, on December 25, 2022, the Company submitted a request to consolidate the lawsuits.
On January 12, 2023, the judge determined that he would make a final decision on the request when submitting the statement of defense.
On February 12, 2023, the Statement of Defense was filed on behalf of the Company.
On March 27, 2023, the judge ordered the consolidation of the hearings in the two lawsuits.
The parties agreed to refer the dispute in both claims to mediation before attorney Yitzhak Marciano. The first mediation meeting was held on May 8, 2023.
On June 27, 2023, a mediation meeting took place between the parties. After extensive meetings and negotiations between the parties, on September 22, 2024, the mediator announced that the mediation between the parties had failed.
On July 15, 2024, during the first pre-trial, the judge made another attempt to mediate the dispute between the parties, but without success. Consequently, the court scheduled deposition dates and set another pre-trial for March 5, 2024. The date of the pre-trial was rescheduled several times and is now scheduled for September 16, 2025.
On December 1, 2024, the Company submitted its affidavits. following the submission of the affidavits, the parties resumed the mediation process.
Based on its external legal counsel and all facts and circumstances, the amount of loss cannot be reasonably estimated because of the preliminary stage of the lawsuit.
F - 38
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
D.
Litigations (cont’d)
3) Arbitration proceeding against Ceragon and one of its subsidiaries
On September 8, 2023, a request for arbitration against the Company and its subsidiary was submitted by a South American customer to an arbitration tribunal in that jurisdiction, alleging that the Company’s subsidiary breached a services agreement it entered with such customer and requesting to include the Company too in such arbitration process. This is the same customer of which the Company recorded a $
12,290
thousand credit loss provision in 2022. In its request, the customer stated that its claims amount to $
10,809
thousand, which is less than its outstanding debts to the Company.
On May 28, 2024, the Company announced that it has reached a settlement agreement with the customer to collect a debt of $
12,000
thousand and terminate the arbitration proceeding against the Company and its subsidiary. Said settlement agreement includes a waiver by the customer of all its claims against the Company and its subsidiaries. During 2024, the Company collected $
9,064
thousand from the customer and is actively working to collect the remaining balance of the debt in accordance with the settlement agreement.
We are not a party to any other material legal proceedings.
Note 14 - Leases
The Company`s leases include offices and warehouses for its facilities worldwide, as well as car leases, which are all classified as operating leases. Certain leases include renewal options that are under the Company`s sole discretion. The renewal options were included in the right of use (“ROU”) and liability calculation if it was reasonably certain that the Company would exercise the option.
The components of lease expense and supplemental cash flow information related to leases for the years ended December 31, 2024, 2023 and 2022 were as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Components of lease expense
|
||||||||||||
|
Operating lease cost
|
|
|
|
|||||||||
|
Short-term lease cost
|
|
|
|
|||||||||
|
Variable lease cost
|
|
|
|
|||||||||
|
Total lease expenses
|
|
|
|
|||||||||
F - 39
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 14 – Leases (cont’d)
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Supplemental cash flow information
|
||||||||||||
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|||||||||
|
Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets
|
|
|
|
|||||||||
Supplemental balance sheet information related to leases was as follows:
|
Year ended
December 31, 2024
|
||||
|
Weighted-average remaining operating lease term
|
|
|||
|
Weighted-average discount rate of operating leases*
|
|
%
|
||
* The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
Maturities of lease liabilities as of December 31, 2024, were as follows:
|
$ thousands
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and thereafter
|
|
|||
|
Total undiscounted lease payments
|
|
|||
|
Less: imputed interest
|
|
|||
|
Present value of lease liability
|
|
|||
F - 40
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Shareholders' Equity
The ordinary shares of the Company are traded on the Nasdaq Global Select Market, under the symbol "CRNT".
A.
General
The ordinary shares entitle their holders to receive notice to participate and vote in general meetings of the Company, the right to share in distributions upon liquidation of the Company, and to receive dividends, if declared.
B.
Stock options plans
| 1. |
In 2003, the Company adopted a share option plan which has been extended or replaced from time to time. At December 2024, the plan that was in effect was the Amended and Restated Share Option and RSU Plan as amended on August 10, 2014 (the “Plan”). Under the Plan, options and RSUs were granted to officers, directors, employees and consultants of the Company or its subsidiaries. The options vest primarily over
The Company has reserved sufficient authorized but unissued Shares for purposes of the Plan and the New Plan (together the “Plans”) subject to adjustments as provided in the Plans.
|
| 2. |
The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2024:
|
|
Year ended December 31, 2024
|
||||||||||||||||
|
Number
of options
|
Weighted
average
exercise
price
|
Weighted average
remaining
contractual term
(in years)
|
Aggregate
intrinsic
value
|
|||||||||||||
|
$ thousands
|
||||||||||||||||
|
Outstanding at beginning of year
|
|
|
|
|
||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited or expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at end of the year
|
|
|
|
|
||||||||||||
|
Options exercisable at end of the year
|
|
|
|
|
||||||||||||
|
Vested and expected to vest
|
|
|
|
|
||||||||||||
The weighted average fair value of options granted during 2024, 2023 and 2022 was $
1.18
, $
1.02
and $
1.32
, respectively.
F - 41
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Shareholders' Equity (cont’d)
B.
Stock options plans (cont’d)
The intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 was $
2,454
thousand, $
6
thousand, and $
117
thousand, respectively.
The following table summarizes the activities for the Company’s RSUs for the year ended December 31, 2024:
The following table summarizes the activities for the Company’s RSUs for the year ended December 31, 2024:
|
Year ended December 31, 2024
|
||||||||
|
Number of RSUs
|
Weighted average
fair value
|
|||||||
|
Unvested at beginning of year
|
|
|
||||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Unvested at end of the year
|
|
|
||||||
As of December 31, 2024, the total unrecognized estimated compensation cost related to non-vested stock options and RSUs granted prior to that date was $
3,893
thousand, which is expected to be recognized over a weighted average period of approximately
one year
.
The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2024, 2023 and 2022, was comprised as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Research and development, net
|
|
|
|
|||||||||
|
Sales and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Total share-based compensation expenses
|
|
|
|
|||||||||
C.
Dividends
In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. The Company does not intend to pay cash dividends in the foreseeable future.
F - 42
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income
A.
Israeli taxation
1. Measurement of taxable income:
The Company has elected to file its tax return under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, starting tax year 2003, results of operations in Israel are measured in terms of earnings in U.S. dollars.
2. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):
According to the Law, the Company is entitled to various tax benefits by virtue of the "Approved Enterprise" status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
According to the provisions of the Law, the Company has chosen to enjoy the "Alternative" track. Under this track, the Company is tax exempt in the first
two years
of the benefit period and subject to tax at the reduced rate of
10
%-
25
% for the remaining benefit period. The benefit period under Approved Enterprise starts with the first year the benefited enterprise earns taxable income, provided that
14
years have not passed since the approval was granted and
12
years have not passed since the enterprise began operating.
Generally, a company that is Abundant in Foreign Investment is entitled to an extension of the benefits period by an additional five years.
The tax benefits under the Approved Enterprise are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published and the letters of approval for the investments in the approved enterprises. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest.
The Company has three capital investment programs that have been granted Approved Enterprise status, under the Law.
As of December 31, 2024, the 14 years have passed for the three Approved Enterprise programs.
Income from sources other than the "Approved Enterprise" during the benefit period will be subject to the tax at the regular tax rate.
The Company believes it will continue to enjoy its current tax benefits in accordance with the provisions of the Investment Law prior to the 2005 Amendment.
In December 2016, the Knesset (the Israeli parliament) passed an additional amendment to the Law which provides for additional benefits to Preferred Technological Enterprises by reducing the tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to
12
% (the "Amendment"). This Amendment came into effect in May 2017 when the Minister of Finance promulgated the regulations for its implementation. The Company has evaluated the effect of the adoption of the Amendment on its financial statements, and as of the date of the approval of the financial statements, the Company did not apply the Amendment. The Company may change its position in the future.
F - 43
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
A.
Israeli taxation (cont’d)
3. Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident and located in Israel, at least
90
% of the income of which in a given tax year, exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Management believes that the Company is currently qualified as an "industrial company" under the Encouragement Law and, as such, enjoys tax benefits, including: (1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over
three years
.
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, that the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the future.
4. Tax rates:
Taxable income of Israeli companies was subject to tax at the rate - of
23
% in the years 2024, 2023 and 2022.
The effective tax rate payable by a company that is taxed under the Investment Law may be considerably lower (see also note 16.a2 above). Israeli corporations are generally taxed at the corporate income tax rate on their capital gains.
The Company's tax assessments through the 2018 tax year are considered final.
B
. Income taxes for non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.
C
. Tax Assessments:
In 2023 and 2024, the Company and two of its subsidiaries received tax assessments from local tax authorities in two territories in which they operate. The Company’s management believes it has adequately provided for the reasonably foreseeable outcome related to these assessments and is currently challenging them. However, if these tax assessments are accepted, the Company may be subject to additional tax liabilities, which could have a material adverse effect on its results of operations.
F - 44
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
D.
The income tax expense for the years ended December 31, 2024, 2023 and 2022 consisted of the following:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Current
|
|
|
|
|||||||||
|
Deferred
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Domestic (Israel)
|
|
|
|
|||||||||
|
Foreign
|
|
|
|
|||||||||
|
|
|
|
||||||||||
E.
Deferred income taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are as follows:
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Net operating loss carry forward
|
|
|
||||||
|
Temporary differences:
|
||||||||
|
Allowance for credit loss
|
|
|
||||||
|
Research and development
|
|
|
||||||
|
Lease liabilities
|
|
|
||||||
|
Unrealized foreign exchange gains/losses
|
|
|
||||||
|
Vacation
|
|
|
||||||
|
Severance
|
|
|
||||||
|
Other
|
|
|
||||||
|
Deferred tax assets before valuation allowance
|
|
|
||||||
|
Valuation allowance
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax assets
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Right-of-use lease assets
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets
|
(
|
)
|
(
|
)
|
||||
|
Other including property and equipment, net
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax asset, net
|
|
|
||||||
F - 45
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
E.
Deferred income taxes (cont’d)
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized in each tax jurisdiction. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded valuation allowance amounted to $
104,707
thousand and $
103,409
thousand as of December 31, 2024 and 2023 respectively.
F.
Net operating loss carry forward and capital loss
As of December 31, 2024, the Company and Siklu have accumulated net operating losses and capital loss for Israeli income tax purposes in the amount of approximately $
234,120
thousand and $
8,248
thousand, respectively. The net operating losses and capital loss may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2024, the Company's Norwegian subsidiary had a net operating loss carry forward of approximately $
11,336
thousand that can be carried forward. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2024, the Company's Brazilian subsidiary had a net operating loss carryforward of approximately $
30,044
thousand that can be carried forward. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period. The offset is limited to a maximum of
30
% of the annual taxable income.
G.
Income (Loss) before taxes is comprised as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Domestic
|
|
|
(
|
)
|
||||||||
|
Foreign
|
|
|
|
|||||||||
|
|
|
(
|
)
|
|||||||||
F - 46
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
H.
Reconciliation of the theoretical tax expense to the actual tax expense
Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statements of operations is as follows:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Income (loss) before taxes as reported in the consolidated statements of operations
|
|
|
(
|
)
|
||||||||
|
Statutory tax rate
|
|
%
|
|
%
|
|
%
|
||||||
|
Theoretical tax expenses (income) on the
|
||||||||||||
|
above amount at the Israeli statutory
|
||||||||||||
|
tax rate
|
|
|
(
|
)
|
||||||||
|
Non-deductible expenses and other
|
||||||||||||
|
permanent differences
|
|
|
|
|||||||||
|
Non-deductible expenses related to employee
|
||||||||||||
|
stock options
|
|
|
|
|||||||||
|
Deferred tax assets on losses and other
|
||||||||||||
|
temporary differences for which valuation
|
||||||||||||
|
allowance was provided, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Other
|
(
|
)
|
|
(
|
)
|
|||||||
|
Actual tax expense
|
|
|
|
|||||||||
| I. |
A reconciliation of the beginning and ending balances of unrecognized tax benefits related to uncertain tax positions is as follows:
|
|
December 31,
|
December 31,
|
December 31,
|
||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Beginning balance
|
|
|
|
|||||||||
|
Increases related to tax positions taken during prior years
|
|
|
|
|||||||||
|
Increases related to tax positions taken during the current year
|
|
|
|
|||||||||
|
Decreases related to statute of limitations
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Ending balance
|
|
|
|
|||||||||
The Company has further accrued $
293
thousand due to interest and penalties related to uncertain tax positions as of December 31, 2024.
As of December 31, 2024, the total amount of gross unrecognized tax benefits was $
3,644
thousand of which if recognized, would favorably affect the Company’s effective tax rate.
F - 47
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 17 - Revenues
Unbilled trade receivable occurs when a right to consideration for the Company’s performance under the customer contract occurs before invoicing to the customer. The amount of unbilled accounts receivable included within trade receivable, net on the Consolidated Balance Sheets, was $
10,950
thousand and $
7,253
thousand, as of December 31, 2024, and 2023, respectively.
The Company recognizes contract liabilities, or deferred revenues when it receives advance payments from customers before performance obligations have been performed. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
The following table presents the significant changes in the deferred revenue balance during the years ended December 31, 2024 and 2023:
|
Year ended
|
Year ended
|
|||||||
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Balance, beginning of the period
|
|
|
||||||
|
New performance obligations
|
|
|
||||||
|
Reclassification to other balance sheet item (*)
|
(
|
)
|
(*) (
|
) | ||||
|
Reclassification to revenue as a result of satisfying performance obligations
|
(
|
)
|
(
|
)
|
||||
|
Balance, end of the period
|
|
|
||||||
|
Less: long-term portion of deferred revenue
|
|
|
||||||
|
Current portion, end of period
|
|
|
||||||
(*) Deferred revenue in the amount of $
13,800
thousand was reversed against Other non-current assets as a result of a termination of joint development, resulting one-time loss in the amount of $
1,199
thousand recorded in the Company’s statement of operation.
The Company elected to apply the optional exemption under ASC 606 paragraph 10-50-14(a) not to disclose the remaining performance obligations that relate to contracts with an original expected duration of one year or less.
Note 18 - Segments, Customers and Geographic Information
| A. |
The Company applies ASC topic 280, "Segment Reporting", ("ASC 280"). The Company operates in
|
F - 48
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 18 - Segments, Customers and Geographic Information (cont’d)
The following table summarizes the Company’s segment revenue, significant segment expenses, and segment net income (loss):
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Revenues:
|
|
|
|
|||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Less:
|
||||||||||||
|
Employee related
(1)
|
|
|
|
|||||||||
|
Other segment items
(2)
|
|
|
|
|||||||||
|
Financial and other expenses, net |
|
|
|
|||||||||
|
Taxes on income
|
|
|
|
|||||||||
|
Net income (loss)
|
|
|
(
|
)
|
||||||||
(1) Employee related includes employee salaries and commissions, payroll taxes, benefits, and outsourced labor costs.
(2) Other segment items include consulting and professional services, depreciation of property and equipment, amortization of intangible assets, share-based compensation expenses, acquisition and integration related charges, marketing expenses, finance and legal expenses, travel expenses, subcontractors costs, software and subscription costs, overhead expenses and restructuring and related charges.
| B. |
The total revenues are attributed to geographic areas based on the location of the end customer. The following tables present total revenues for the years ended December 31, 2024, 2023 and 2022 and long-lived assets as of December 31, 2024, and 2023:
|
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Revenues:
|
||||||||||||
|
North America (*)
|
|
|
|
|||||||||
|
EMEA (**)
|
|
|
|
|||||||||
|
Asia-Pacific
|
|
|
|
|||||||||
|
India
|
|
|
|
|||||||||
|
Latin America
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| (*) |
As of December 31, 2024, 2023 and 2022,
|
| (**) |
Including Europe, Middle East and Africa. Revenues from sales in Israel for the years ended December 31, 2024, 2023 and 2022, amounted to $
|
F - 49
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 18 - Segments, Customers and Geographic Information (cont’d)
|
December 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Long-lived assets, net:
|
||||||||
|
Israel
|
|
|
||||||
|
Others
|
|
|
||||||
|
Total long-lived assets, net (*)
|
|
|
||||||
| (*) |
Long-lived assets are comprised of property and equipment, net and operating lease right-of-use assets.
|
C.
Major customer data as a percentage of total revenues:
In 2024, the Company had revenues from a customer that represents a group of affiliated companies, equaling
22.6
%, a single customer that accounted for
14.6
%, and a single customer that accounted for
12.0
% of total revenues. In 2023, the Company had revenues from a customer that represents a group of affiliated companies, equaling
28.9
%, a single customer that accounted for
18.1
%, and a customer that represents a group of affiliated companies equaling
8.5
% of total revenues. In 2022, the Company had revenues from a customer that represents a group of affiliated companies, equaling
22.8
%, a single customer that accounted for
12.4
%, and a customer that represents a group of affiliated companies equaling
12.4
% of total revenues.
Note 19 - Selected Statements of Operations Data
A.
Restructuring and related charges
During 2023, the Company approved a cost reduction and re-organization plan that included, among other things, downsizing the Company's number of employees in a certain territory (the "2023 Restructuring Plan"). During 2024, the Company approved a cost reduction and re-organization plan that included, among other things, downsizing the Company’s number of employees (the “2024 Restructuring Plan”).
The Company recorded contractual and termination severance pay and other related costs for the impacted employees.
The liabilities related to the restructuring plans as of December 31, 2024, and 2023 amounted to $
0
thousand, and $
80
thousand, respectively.
The Company does not expect to incur additional costs related to the 2024 and 2023 Restructuring plans.
F - 50
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 19 - Selected Statements of Operations Data (Cont’d)
B.
Financial and other expenses, net
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Financial income:
|
||||||||||||
|
Interest on deposits
|
|
|
|
|||||||||
|
Foreign currency translation differences and
|
||||||||||||
|
derivatives
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Financial expenses:
|
||||||||||||
|
Bank charges and interest on loans
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Foreign currency translation differences and
|
||||||||||||
|
derivatives
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Non-cash revaluation expenses associated with business combination
|
(
|
)
|
(
|
)
|
||||||||
|
Others
|
(
|
)
|
(
|
)
|
|
|||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
C.
Net Income (loss) per share
The following table sets forth the computation of basic and diluted net earnings per share:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Numerator:
|
||||||||||||
|
Numerator for basic and diluted net income (loss) per share – income (loss) available to shareholders of Ordinary shares
|
|
|
(
|
)
|
||||||||
|
Denominator:
|
||||||||||||
|
Denominator for basic net income (loss) per share – adjusted weighted average number of Ordinary shares
|
|
|
|
|||||||||
|
Add – employee stock options and RSU
|
|
|
|
|||||||||
|
Denominator for diluted net income (loss) per share – adjusted weighted average number of Ordinary shares
|
|
|
|
|||||||||
F - 51
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 20 - Related Party Balances and Transactions
Related party balances and transactions are with related companies and principal shareholders. Yehuda Zisapel, who passed away in March 2024, was a shareholder of the Company. Zohar Zisapel who passed away in May 2023, was the former Chairman of the Board of Directors of the Company and a principal shareholder. Since May 2023, the entities of the RAD-BYNET group are no longer considered related parties to Ceragon. Yehuda and Zohar Zisapel were brothers who did not have a voting agreement between them. Jointly or severally, they were also founders, directors and principal shareholders of several other companies that are known as the RAD-BYNET group.
Members of the RAD-BYNET group provide the Company on an as-needed basis with information systems infrastructure, administrative services, and medical insurance, as well as in connection with logistics services; the Company reimburses each company for its costs in providing these services. The aggregate amount of these expenses was approximately $
0
thousand, $
941
thousand, $
1,662
thousand and in 2024, 2023 and 2022, respectively.
The Company has an OEM arrangement with RADWIN, a member of RAD-BYNET group, according to which the Company purchases RADWIN products that are then resold to the Company's customers. In addition, the Company purchases certain inventory components from other members of the RAD-BYNET group, which are integrated into its products. The aggregate purchase price of these components was approximately $
0
thousand, $
104
thousand, and $
122
thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
The Company purchases certain property and equipment from members of the RAD- BYNET group, the aggregate purchase price of these assets was approximately $
0
thousand, $
37
thousand, and $
180
thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
Transactions with related parties:
|
Year ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Research and development expenses
|
|
|
|
|||||||||
|
Sales and marketing expenses
|
|
|
|
|||||||||
|
General and administrative expenses
|
|
|
|
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F - 52
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 21 - Subsequent Events
On January 31, 2025, the Company completed the acquisition of End 2 End Technologies, LLC (“End 2 End”) a U.S. systems integration and software development company that serves Private Networks, primarily in the Energy and Utilities markets. The total consideration paid at closing was approximately $
8.5
million, subject to customary post-closing adjustments.
In addition, the transaction includes a contingent consideration (earnout) of up to $
4.3
million, subject to achieving certain financial goals primarily in 2025 and paid mostly in 2026.
The Company is in the process of performing the Purchase Price Allocation (PPA) in accordance with ASC 805, which includes the identification and valuation of acquired assets, liabilities, and any potential goodwill or intangible assets. The final allocation of the purchase price, including the fair value assessment of the contingent consideration, will be disclosed in a future reporting period once the evaluation is complete.
F - 53
TABLE OF CONTENTS
Part IItem 1. Identity Of Directors, Senior Management and AdvisersItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on The CompanyItem 4A. Unresolved Staff CommentsItem 5. Operating and Financial Review and ProspectsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholders and Related Party TransactionsItem 8. Financial InformationItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures About Market RiskItem 12. Description Of Securities Other Than Equity SecuritiesPart IIItem 13. Defaults, Dividend Arrearages and DelinquenciesItem 14. Material Modifications To The Rights Of Security Holders and Use Of ProceedsItem 15. Controls and ProceduresItem 16A. Audit Committee Financial ExpertItem 16B. Code Of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Change in Registrant S Certifying AccountantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosureItem 16I. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsItem 16J. Insider Trading PoliciesItem 16K. CybersecurityPart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. ExhibitsNote 1 - GeneralNote 2 - Significant Accounting PoliciesNote 2 - Significant Accounting Policies (cont D)Note 3 - AcquisitionsNote 3 - Acquisitions (cont'd)Note 4 - Other Accounts Receivable and Prepaid ExpensesNote 5 - InventoriesNote 6 - Property and Equipment, NetNote 7 - Intangible Assets, NetNote 8 - Other Accounts Payable and Accrued ExpensesNote 9 - Short-term LoansNote 10 - Derivative InstrumentsNote 10 - Derivative Instruments (cont D)Note 11 - Credit LossesNote 11 - Credit Losses (cont D)Note 12 - Pension Liabilities, NetNote 12 - Pension Liabilities, Net (cont D)Note 13 - Commitments and Contingent LiabilitiesNote 13 - Commitments and Contingent Liabilities (cont D)Note 14 - LeasesNote 14 Leases (cont D)Note 15 - Shareholders' EquityNote 15 - Shareholders' Equity (cont D)Note 16 - Taxes on IncomeNote 16 - Taxes on Income (cont D)Note 17 - RevenuesNote 18 - Segments, Customers and Geographic InformationNote 18 - Segments, Customers and Geographic Information (cont D)Note 19 - Selected Statements Of Operations DataNote 19 - Selected Statements Of Operations Data (cont D)Note 20 - Related Party Balances and TransactionsNote 21 - Subsequent Events