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
,
2023
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:
85,418,321
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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37
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55
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55
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67
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86
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87
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91
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91
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100
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100
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PART II
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100
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100
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100
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101
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101
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102
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PART III
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104
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104
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105
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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.
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KEY INFORMATION
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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 (t
he 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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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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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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3
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the effects of volatility in our revenues, margins and working capital needs and the incurrence of substantial losses and negative
cash flows that we have experienced in recent years, which if continue, would adversely affect our business and financial condition and
in such case we cannot assure that we will be able to maintain improving trends and convert our current backlog into profitability and
positive operating cash flows;
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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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competition from other wireless transport equipment providers and from other communication solutions that compete with our wireless
solutions;
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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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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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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 Siklu and our revenues, net income and operating cash flow attributed
to the Siklu business might deviate significantly from anticipated levels;
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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 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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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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4
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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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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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risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
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the occurrence of international, political, regulatory or economic events in emerging markets, where the majority of our sales is
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. Higher interest rates and volatility in financial
markets could lead to additional economic uncertainty or recession. Recent increases in interest rates and weak economic conditions, has
reduced, and may continue to reduce, the amount of disposable income customers have, which, in turn, reduces customer spending. This has
had, and may continue to have, an adverse effect on our business, financial condition and results of operations. The recent increase in
inflation rates in the markets in which we operate may lead us to experience higher labor costs, energy costs, water costs, transportation
costs, wafer costs and other costs associated with raw materials from suppliers. 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,
recent increases in interest rates, and any additional 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. In addition to rising inflation,
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 increase our operating costs and adversely affect our results of operations, profits and cash flows.
The duration and extent of rising inflation, higher 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 increase 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 to the market 5G-based products. 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.
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.
6
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 2023, approximately 44.8% of our total revenues were attributed to two customers.
In 2022, approximately 31.3% of our total revenues were attributed to two customers and in 2021, approximately 28.3% 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 cashflow. 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 significant 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”.
7
In
recent years we experienced volatility in our revenues, margins and working capital needs, incurred substantial losses and generated negative
cash flows. If these trends continue, our results of operations and cash flow may be significantly adversely impacted. Although we were
able to increase our booking and backlog significantly during 2021 to 2023, we cannot assure you that we will be able to maintain this
improving trend and convert such backlog into profitability and positive operating cash flows
.
In 2021, we incurred
a net loss of $14.8 million, in 2022 we incurred a net loss of $19.7 million and in 2023 we incurred a net income of $6.2 million. We
have also experienced negative cash flow from operations of $15.0 million, and $4.9 million in 2021 and 2022, respectively, and positive
cash flow from operations of $30.9 million in 2023. Our losses in 2021 and 2022 resulted from, among other things, decreases in revenues,
credit loss (mainly in 2022), 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
2021 and 2022.
While in 2023 we have
taken measures to improve our gross profit, reduce our operating expenses, ratio, improve our working capital management and secure and
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. In the event that our revenues decline and that we experience
losses and negative cash flow, our results of operations will be significantly adversely impacted. In such a case, we may need to consider
taking 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.
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. For example, given the significant increase in components lead time (see below under “
The
global supply of electronic components, including integrated circles, 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 increase in their prices”
), and in order to minimize disruption to our business, we increased our forecast
horizon to 12-18 months. As a result, our inventory level increased significantly and risk of inventory write-offs due to, among other
factors, missing our forecast, has increased. Any such write-off may negatively impact our gross profit, working capital and cash flow.
Also if our bigger customers, primarily in India, decide to change the delivery pace of orders they have already placed we may be required
by our contract manufacturers to take the already manufactured equipment and pay for it and also fund the components that they have
already purchased and are not being used which can adversely impact our inventory working capital and cash flow.
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.
8
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.
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.
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.
9
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.
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”.
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 2023, 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, decreased availability of raw materials or commodities, 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. Such risk is intensified when there is a sharp
increase in demand for components throughout the electronic industry. 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.
10
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, as evidenced recently with respect to the semiconductors foundry industry. 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.
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, the 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 timely introduce
the new SoC-based products to the market and safeguard and maintain our position and market share as leaders in the introduction of advanced
5G solution.
11
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 Siklu’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 to public use and adopted, may be used to identify vulnerabilities
in our systems craft sophisticated cyberattacks. The rising adoption of AI and Generative AI in daily operations 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.
12
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.
Since the beginning of
the war between Israel and Hamas which began on October 7, 2023, 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 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.
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 the fourth quarter
of 2023, we completed the acquisition of Siklu Communications Ltd., and the assets and business activities of Siklu, Inc (together, “Siklu”).
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 of Siklu, 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 Siklu acquisition 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.
14
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, 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.
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 will 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 offering, 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 Siklu acquisition 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. A 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 WISPs (wireless internet service providers) and private networks market
segments, as well as focus on offering of software based solutions, managed services and disaggregated cell-site routing, it will take
time for our new offering and our focused market segments to materialize and mature.
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 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.
16
Developing
and commercializing new products may not be successful and could adversely affect our business, financial condition, and operating results;
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 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.
The
markets for our products change rapidly.
If we fail to timely develop, commercialize and market new products and solutions 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. During 2024, we plan to expand
the product portfolio of the IP50 family with the new IP-50CX and IP-50EX/ The IP-50 products deliver solutions to various use cases,
including 5G scenarios. In addition, we have achieved leadership in technology by innovating through design of state-of-the-art Systems-on-Chip
(SoC), which we plan to integrate in the future in the products we provide. While we expect to launch our 5G SoC in 2024, we cannot provide
assurance that the final post silicon validation tests will pass successfully, which may further delay the productization process and
may require additional significant investments. In addition, while we are seeing some relief, if the overloads and continuous delays
in deliveries in the semiconductor market continue, this can cause delays in the mass production and productization
of
our SoC, and therefore, we cannot assure you that we will be able to successfully commercialize such sophisticated and technology-rich
SoC by the time we expected. Also, delays in the production of our SoC may delay the launch of new products and consequently we may 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.
17
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.
I
f 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.
Last, we cannot assure
you 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.
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.
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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” may cause delays in our development
efforts and operational challenges as well as shortage in knowhow and capabilities which cannot always immediately mitigated.
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. 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 cashflow. 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.
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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 availing long
payment terms, which 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.
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.
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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.
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.
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.
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.
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. Furthermore,
California enacted the California Consumer Privacy Act, or the CCPA, which provides for civil penalties for violations, as well as a private
right of action for data breaches. The California Privacy Rights Act, or the CPRA, which took effect in most material respects on January
1, 2023, significantly modifies the CCPA, potentially resulting in further uncertainty as the California Privacy Protection Agency is
still working to promulgate final rules. In addition, failure to comply with the Israeli Privacy Protection Law 1981 and its regulations,
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. Current pending legislation may result in a change to the current enforcement
measures and sanctions. We may be required to incur significant costs to comply with such data and privacy protection laws, as applicable
to our company (for example, we collect, use, maintain and otherwise process certain data about candidates and employees, or may fail
to protect the privacy of customers’ personal data against breaches of network or IT security), or else face an adverse effect on
our business prospects and/or financial position. As we have a presence in Europe, our European subsidiaries are subject to the GDPR in
relation to their collection, control, processing, sharing, disclosure and other use of data relating to their employees or customers.
These laws and regulations constantly evolve and remain subject to significant change. In addition, the application and interpretation
of these laws and regulations are often uncertain. New privacy laws add additional complexity, requirements, restrictions and potential
legal risk, require additional investment in resources to compliance programs, and could result in increased compliance costs and/or changes
in business practices and policies. Any inability to adequately address privacy and security concerns or comply with applicable privacy
and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial
position.
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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, w
e
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.
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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.
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 exposes 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 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.
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 in the region, 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.
23
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 also 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 notes 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 2023, we incurred losses in the amount of $0.8 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.
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 2023, we received tax assessments from local tax authorities in two territories in which we
operate. The Company is in the process of challenging such 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.
24
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, 2023, and 2022, sales in these regions accounted for approximately 62% and 63% 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 principals 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.
25
An
industry downturn, reduction in our customers’ profitability due to increased regulation or new mobile services requirements, may
cause operators’ investments in networks to slow, be delayed or stop, which could harm our business.
We are exposed to changing
network models that affect operator spending on infrastructure as well as trends in investment cycles of telecom operators and other service
providers. The changes include: (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.
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.
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 the trading price of our shares to decline.
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.
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.
26
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 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
in litigation or to pay significant damages. 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.
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 a distressed cash flow challenges that could harm our business operations
and prospects, results of operations, cash flow and financial position.
27
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.
28
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, 2023. 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 2024. 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,
2023, the price of our ordinary shares has ranged from a high of $2.87 per share to a low of $1.53 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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29
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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 US Securities Act of 1933 and the Securities Exchange Act of 1934, 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 US law, estimated
at
$52,099,000
.
For more information see below in Item 8. “FINANCIAL INFORMATION – Legal Proceedings”.
30
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.
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.
In the summer of 2022,
our competitor Aviat launched a hostile takeover attempt against us, after purchasing more than 5% of our outstanding shares. In June
2022, immediately after becoming a 5% shareholder, Aviat sent us a letter (the “Letter”), demanding that we convene an extraordinary
general meeting of shareholders for the purpose of presenting and voting on the following proposals made by Aviat: (i) to remove from
office three of our directors at the time: Ms. Yael Langer, Mr. Ira Palti and Mr. David Ripstein, and to also remove from office any and
all new directors appointed to the Board following the conclusion of our 2021 Annual General Meeting of Shareholders; and (ii) to appoint
five of Aviat’s director nominees to our Board (the “Proposals”). The purpose of the Proposals was for Aviat to gain
control of our Board, and to be able to execute a business combination between the two companies, under terms which we considered as undervaluing
the Company and to the detriment of our shareholders. As in accordance with the Companies Law at that time, a 5% shareholder was entitled
to demand the convening of such meeting, and on August 23, 2022, we held an extraordinary general meeting of shareholders (the “Extraordinary
Meeting”), in which the Proposals were rejected by our shareholders. 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.
31
Risks Relating to Operations
in Israel
The
impact of the latest Israel-Hamas war could impede our ability to operate and develop, manufacture and deliver products and components
and harm our business and financial results.
On October 7, 2023, the “Swords of Iron” war erupted
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.
Thereafter, Israel’s
security cabinet declared war against Hamas. We may lose business due to the ongoing and revived hostilities, which could also prevent
or delay shipments of our products, participation and winning in governmental or customers tenders or other competitive procurement procedures,
harm our operations and product development and cause our sales to decrease. In the event that the hostilities disrupt the ongoing operation
of our and our Israeli subcontractors' facilities or the airports and seaports on which we depend to import and export our supplies and
products, our operations may be materially adversely affected. The conflict could cause situations where applicable foreign regulatory
bodies, could not be able to visit our third-party manufacturing facilities in Israel in order to review, causing delays. The war could
also result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions in such agreements.
Further, there have been travel advisories
imposed as related to travel to Israel, and restriction on travel, or delays and disruptions as related to imports and exports may be
imposed in the future. An inability to receive supplies and materials, shortages of materials or difficulties in procuring our materials,
among others, may adversely impact our ability to commercialize and manufacture our product candidates and products in a timely manner.
This could cause a number of delays and/or issues for our operations, including delay of the review of our product candidates by regulatory
agencies, which in turn would have a material adverse impact on our ability to commercialize our product candidates. Although the resulting
sanctions and any related market disruptions are impossible to predict, they could be substantial, particularly if current or new sanctions
continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale.
Conditions
in the Middle East and in Israel may adversely affect our operations.
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
.
Israel is engaged,
from time to time, in armed conflicts with Hamas (a militia group and political party controlling the Gaza Strip). These conflicts have
involved missile strikes against civilian targets in the south and center parts of Israel.
On October 7, 2023, the
“Swords of Iron” war erupted between Israel and the terrorist organizations in the Gaza Strip, as described above. As of the
date hereof, the majority of the fighting is concentrated in the southern region of the State of Israel, whereas the Hezbollah (a Shia Islamist political
party and militant group based in Lebanon) started joining the war with lower intensity. In addition, the Houthi movement
in Yemen, aligned with Hamas, launched attacks targeting Israel and ships claimed to be destined for Israel, and in response to such
attacks, the U.S. announced the creation of a multilateral naval task force of protective escorts for commercial vessels in the region,
and has launched “Operation Prosperity Guardian” in December 2023. Israel responds 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. 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 does not have 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.
32
Also,
relations between Israel and Iran continue to be hostile, due to the fact that Iran is perceived by Israel as sponsor of Hamas and Hezbollah,
while maintaining a military presence in Syria and Lebanon
and has threatened
to attack Israel in the course of the “Swords of Iron”
,
and with regard to Iran’s nuclear program. In addition, the normalization agreements that Israel has entered into with some Arab
countries in the Middle East may affect the geo-political condition in the Middle East in general, and the relations between Israel and
Iran in particular.
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.
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 pursued 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.
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.
33
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 significant portion of
our research and development expenditures in Israel. 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. Even following full repayment of any IIA grants (together with the applicable interest), unless
otherwise agreed by IIA, we must nevertheless 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 addition, in the framework
of the recent acquisition of Siklu, we have assumed additional restrictions and liabilities arising of Siklu’s 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.
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, 2023, the 14 years have passed
for the three Approved Enterprise programs. 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 when it will begin 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”.
34
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.
35
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.
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.
36
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
October
23, 2023
, the Company signed a series of definitive agreements with Siklu Communication Ltd. (“
Target
”)
and Siklu, Inc (the “
Seller
”; Target and Seller together, “
Siklu
”)
referred to as the “
Siklu Transaction
”. In the framework of the Siklu Transaction,
the Company acquired 100% of Target and the assets and business activities of the Seller, in consideration of 504,902 Ordinary Shares
of the Company at Closing, with a fair value of $944,000, and paid $8.3 million of cash to repay Siklu's outstanding debt, including both
principal and interest. As part of this transaction, Ceragon expanded its total loan credit facility by $5.0 million to $77.0 million
in total, and Siklu’s primary lender joined Ceragon’s lending consortium. See –
also Item 4. Information on the Company – Business Overview - The Israel
Innovation Authority below for Siklu’s past
debt to the IIA of
approximately $2.8 million
. In addition, the Company accounted for $1.617
million for additional consideration of up to 735,294 Ordinary Shares of the Company 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 and is classified by the Company
as a liability that is marked to market each reporting period. The Siklu Transaction closed on December 4, 2023.
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, mainly wireless (mobile) networks service providers.
Wireless transport is
a means for connecting mobile 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.
According to recent market research, about 45% of global telecom sites are connected to the rest of the network via wireless transport,
and this portion is expected to grow in the coming years.
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. Currently, we are investing in a new chipset which incorporates multi-cores
in a chipset to be incorporated in products expected to be launched in 2024.
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.
37
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.
The recently 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.
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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 2 Gbps per link for backhaul, and/or a link capacity
of up to 20Gbps for fronthaul. 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 20 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.
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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 is currently
investing in a new chipset which incorporates multi-cores in a chipset, expected to be launched in 2024, offering industry-leading performance
and capacity.
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.
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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.
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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.
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 12% of our business is associated with private network.
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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.
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.
Industry
Trends and Developments
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The widespread surge in network traffic in 2020 to 2023 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.
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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 IIoTand 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.
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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 may 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.
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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.
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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.
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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.
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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.
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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 eventually 5G services.
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Subscriber
growth
continues mainly in emerging markets such as India, Africa and Latin
America, but is getting close to saturation.
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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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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.
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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 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 easily integrated into our customers’ existing network management systems.
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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 disaggregated 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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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
|
4-86GHz
|
Shorthaul, Long-haul
|
Carrier Ethernet, TDM
|
|
IP-20F
|
4-86GHz
|
Shorthaul
|
Carrier Ethernet, TDM
|
|
IP-20G
|
6-42GHz
|
Shorthaul
|
Carrier Ethernet, TDM
|
IP-50 disaggregated solutions:
|
Product
|
Frequency range
|
Application
|
Networking transport technologies
|
|
IP-50E
|
71-86GHz
|
Shorthaul, Fronthaul, Enterprise access
|
CE
|
|
IP-50EX
|
71-86GHz
|
Shorthaul, Enterprise access
|
CE
|
|
IP-50C
|
6-42GHz, dual-carrier
|
Shorthaul
|
CE
|
|
IP-50CX
|
6-42GHz, dual-carrier
|
Shorthaul
|
CE
|
|
IP-50FX
|
6-86GHz
|
Shorthaul, Long-haul, Routing
|
IP/MPLS, CE
|
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.
46
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.
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.
47
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.
|
IP-100
Platform
Ceragon is currently investing in a new
chipset which incorporates multi-cores in a chipset which is expected to be launched in 2024, 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, lower physical size and power consumption and more. 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.
48
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.
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 2023, 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 2023, customers from
the Europe region contributed 11% of total yearly revenue. Our sales in Latin America and Africa in 2023 were 13% and 8% of yearly revenue,
respectively. Our sales in Asia Pacific (excluding India), North America and India in 2023 were 7%, 27% and 34%, 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, 2023, 2022 and 2021:
|
Year Ended December 31,
|
||||||||||||
|
Region
|
2023
|
2022
|
2021
|
|||||||||
|
North America
|
27
|
%
|
23
|
%
|
16
|
%
|
||||||
|
Europe
|
11
|
%
|
14
|
%
|
16
|
%
|
||||||
|
Africa
|
8
|
%
|
7
|
%
|
8
|
%
|
||||||
|
India
|
34
|
%
|
27
|
%
|
30
|
%
|
||||||
|
APAC (excluding India)
|
7
|
%
|
11
|
%
|
11
|
%
|
||||||
|
Latin America
|
13
|
%
|
18
|
%
|
19
|
%
|
||||||
49
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, includes approximately 664 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 2023. System integrators, distributors and resellers accounted
for approximately 14% of our revenues for 2023. We are focusing our efforts on direct sales, which accounted for approximately 82% of
our revenues for 2023. 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.
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.
50
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.
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 and Romania. As
of December 31, 2023, our research, development and engineering staff consisted of 278 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
19 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.
Siklu has 39 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);
|
51
|
|
- |
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.
|
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 an additional strain on our competitiveness.
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 deign 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;
|
|
|
• |
our support and technical service, experience and commitment to high quality customer service, and
|
|
|
• |
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.
|
The Israel Innovation
Authority
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).
52
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.
In December 2006, we
entered into an agreement with IIA (then the Office of the Chief Scientist at the Ministry of Economy) 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 have 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.
53
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 an approval from the IIA for a sum of $3.8
million in the 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.
In the framework of this project we (Ceragon only) received an approval for a grant of approximately $0.6 million for the period from
March 2020 until September 2021. In May 2021 we received, under the second stage of the plan, an additional amount of $0.6 million (and,
in the aggregate, grant of $1.2 million) under the MAGNET consortium. This project ended at the end of February 2023 (we are expected
to receive the remaining payments under this project during 2023).
In 2020, we signed with
Ariel University a Research and License Agreement under a Magneton plan (the “Magneton Plan”). In the framework of this project
the IIA approved to grant us an amount of $0.3 million for the year 2020. In 2021 the IIA approved, under the second stage of the plan,
an additional amount of $0.3 million for the year 2021. This project ended at the end of November 2022 (we are expected to receive the
remaining payments under this project during 2024).
In 2021, we submitted
an application under the Promoting Applied Research in Academia (Nofar). Under this project, we support a development plan of Ariel University
and fund 10% of this plan (the IIA grants the other 90%). Under this plan, we will not get any grant from the IIA.
In January 2023, we submitted an application under the Magneton Plan with the Technion, Haifa Institute of Technology (“Technion”).
This project called “SW Managed Diplexer” was approved and started in January 2024. We are expected to receive an amount of
approximately $0.4 million for the project during the years 2024-2025.
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 $0.4 million in 2023. 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
submitted an application 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 $0.1
million.
In March 2023, we submitted
an application 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 submitted
an application 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 an amount of $0.2 million.
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.
54
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%.
In
addition, between the years 2008-2020, Siklu received grants from the IIA in the total amount of approximately $14.6 million (approximately
$16.0 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 $7.8 million and has paid to the IIA royalties in the amount of approximately $5.0 million. Accordingly, as of
December 31, 2023, Siklu's debt to the IIA amounts to approximately $2.8 million. Siklu has 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 $1,357,173 for three
non-royalty-bearing programs (called “5G-PHOS”, “THOR” and “
5G-COMPLETE”
),
which have ended, and an amount of $661,538 for two non-royalty-bearing programs (called “Int5Gent” and “PARALIA”),
which are still active. An additional amount of approximately $359,280 is expected to be received from the European Commission for the
programs “
5G-COMPLETE”,
“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 the following
space in the United States - approximately 8,200 square feet of office space and warehouse space in Richardson, Texas, expiring 31 March
2024;
We also lease
space for other local subsidiaries to conduct pre-sales and marketing activities in their respective regions, as well as co-working spaces.
| 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.
55
For a discussion of our
results of operations for the year ended December 31, 2022, including a year-to-year comparison between 2021 and 2022, and a discussion
of our liquidity and capital resources for the year ended December 31, 2021, refer to Item 5. “Operating and Financial Review
and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2022, filed with the SEC on May 1, 2023.
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 2023 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.
|
|
|
• |
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.
|
56
|
|
• |
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 endent elements for hardware and software, allowing the use
of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations.
|
|
|
• |
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.
|
57
|
|
• |
Subscriber
growth
continues mainly in emerging markets such as India, Africa and Latin
America, but is getting close to saturation.
|
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, 2022 and 2023, 27.4% 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. 2023 growth is primarily attributed to the increased
demand both for our IP-20 and software solutions by our customers in these regions.
In 2023, the majority
of suppliers returned to normal lead times and standard supply chain status, some critical suppliers continued to suffer from long lead
time of component deliveries and supply chain constrains.
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.
58
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
expenses and others, net.
Our financial expenses and others, net, consists
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 (benefit) 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.
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;
|
59
|
|
• |
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 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.
60
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
|
||||||||
|
2023
|
2022
|
|||||||
|
Revenues
|
100
|
%
|
100
|
%
|
||||
|
Cost of revenues
|
65.5
|
68.5
|
||||||
|
Gross profit
|
34.5
|
31.5
|
||||||
|
Operating expenses:
|
||||||||
|
Research and development, net
|
9.3
|
10.1
|
||||||
|
Sales and marketing
|
11.7
|
12.1
|
||||||
|
General and administrative
|
6.9
|
11.6
|
||||||
|
Restructuring and related charges
|
0.3
|
-
|
||||||
|
Acquisition and integration-related charges
|
0.3
|
-
|
||||||
|
Other operating expenses
|
-
|
1.4
|
||||||
|
Total operating expenses
|
28.5
|
35.2
|
||||||
|
Operating income
(loss)
|
6.1
|
(3.7
|
)
|
|||||
|
Financial expenses and others, net
|
2.4
|
2.1
|
||||||
|
Taxes on income
|
1.9
|
0.8
|
||||||
|
Net Income (loss)
|
1.8
|
(6.7
|
)
|
|||||
Year ended December
31, 2023 compared to year ended December 31, 2022
Revenues.
Revenues totaled $347.2 million in 2023 as compared to $295.2 million in 2022, an increase of $52.0 million, or 17.6%. Revenues in North
America increased to $95.6 million in 2023, from $67.1 million in 2022. Revenues in APAC increased to $35.0 million in 2023, from $33.0
million in 2022. Revenues in India increased to $107.4 million in 2023, from $81.0 million in 2022. Revenues in Europe decreased to $42.4
million in 2023, from $42.9 million in 2022. Revenues in Africa increased to $19.6 million in 2023, from $19.3 million in 2022. Revenues
in Latin America decreased to $47.2 million in 2023 from $51.9 million in 2022.
Cost
of Revenues.
Cost of revenues totaled $227.3 million in 2023 as compared
to $202.1 million in 2022, an increase of $25.2 million, or 12.5%. The increase was primarily due to an increase of $20.6 million related
to material costs, mainly resulted from the higher volume of revenues, an increase of $5.8 million related to inventory write off, an
increase of $2.2 million in services costs, an increase of $1.1 million in salaries and employee-related expenses, and an increase of
$0.9 of million in other production costs, offset by a decrease of $5.4 million related to shipping and storage costs.
Gross
Profit.
Gross profit increased to $119.9 million or 34.5% as a percentage
of revenues in 2023 from $93.1 million or 31.5% in 2022. 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, partially offset by higher inventory write-offs.
Research
and Development Expenses,
Net
. Our
net research and development expenses totaled $32.3 million in 2023 as compared to $29.7 million in 2022, resulting in an increase of
$2.6 million, or 8.7%. The increase was primarily due to an increase of $1.4 million in salaries and related expenses, and one-time loss
from termination of joint development in the amount of $1.2 million.
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 9.3% and 10.1% in 2023 and 2022.
61
Sales
and Marketing Expenses
.
Sales and marketing
expenses totaled $40.6 million in 2023, as compared to $35.8 million in 2022, an increase of $4.8 million, or 13.4%. The increase was
primarily attributed to an increase of $1.9 million in salaries and related expenses, coupled with an increase of $0.7 million in sales
commissions, an increase of $0.7 million in legal services, an increase of $0.6 in trade shows, an increase of $0.5 million in travel
costs and an increase of $0.4 million in other sales and marketing expenses. As a percentage of revenues, sales and marketing expenses
were 11.7% in 2023 compared to 12.1% in 2022
.
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 $23.8 million in 2023 as compared to $34.3 million in 2022, a decrease of $10.5 million, or 30.6%.
The decrease was primarily due to a decrease of $12.1 million in credit loss expenses, a decrease of $0.3 million in legal services, offset
by an increase of $1.2 million in salaries and related expenses, an increase of $0.3 million in software maintenance, and an increase
of $0.4 million in other general and administrative expenses. General and administrative expenses in 2022 included
credit loss expenses of $12.3 million from a single customer in Latin America. Following several unsuccessful attempts to collect the
debt from this customer, including an attempt to settle on debt payment terms with the customer, and as a result of recent changes in
the interaction with the customer, which became contentious, and additional difficulties in other measures taken by the Company to collect
the debt, the probabilities to effectively collect the outstanding debt in the near term or in full, have reduced.
As a percentage
of revenues, general and administrative expenses were 6.9% in 2023 compared to 11.6% in 2022.
Restructuring
and related charges.
Restructuring and related charges totaled $0.9 million
in 2023, as compared to $0.0 million in 2022. 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 $1.1 million in 2023, as compared to $0.0 million in 2022. The increase was primarily attributed to the acquisition and integration
expenses associated with the acquisition of Siklu, 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 Siklu, such as third-party consulting and other third-party services related to merging Siklu’s systems and processes.
Other
operating expenses.
Other operating expenses totaled $0.0 million in 2023,
as compared to $4.2 million in 2022, related to
the hostile takeover attempt against the Company by
Aviat
.
Financial
expenses and others, Net.
Financial expenses and others, net totaled $8.5
million in 2023 as compared to $6.3 million in 2022, an increase of $2.2 million, or 34.3%. The increase was mainly attributed to an increase
of $1.8 million in interest on loans and an increase of $0.8 million in factoring fees, offset by a decrease of $0.4 million in exchange
rate differences and other financial expenses. As a percentage of revenues, financial expenses and others, net, were 2.4% in 2023 compared
to 2.1% in 2022.
Taxes
on income
. Tax expenses were $6.5 million in 2023, compared to $2.4 million
in 2022, resulting in an increase of $4.1 million. The increase was mainly attributable to an increase of $1.6 million in current tax
expenses due to increased profitability in 2023, an increase in deferred taxes of $1.5 million, and an increase of $1.0 million in uncertain
tax positions.
Net
Income (loss)
.
In 2023, the
Company had $6.2 million in net income as compared to net loss of ($19.7) million in 2022. As a percentage of revenues, net income was
1.8% in 2023 compared to a net loss of (6.7%) in 2022.
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.
62
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 this currency
exposure by entering into hedging transactions. 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 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. In 2022, the U.S. dollar appreciated in relation to
the NIS at a rate of 13.2%, from NIS 3.110 per $1 on December 31, 2021, to NIS 3.519 per $1 on December 31, 2022.
The
annual rate of inflation in Israel was 3.0% in 2023 and 5.3% in 2022.
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
and grants from the IIA.
In March 2013, the Company
was provided with the revolving Credit Facility (as defined in Exhibit 4.1 of ITEM 19) by four financial institutions.
The Credit Facility has
been renewed and amended several times during the past years according to the Company’s needs and financial position.
In June 2023, the Company
signed an amendment to the Credit Facility in the frame of which the Credit Facility was extended by an additional 1 year, till June 30,
2024. This amendment included an increase of $9,800 thousand to $72,000 thousand to the Credit Facility for loans and a decrease of $11,914
thousand to the bank guarantees credit lines to $45,886 thousand. In December 2023, in connection with the acquisition of Siklu, the Company
signed the latest amendment to the Credit Facility in which it obtained the approval of the syndication of banks to carry out Siklu's
acquisition, added additional bank to the syndication agreement and increased the Credit Facility for loans by $5,000 thousand to $77,000
thousand with no change in the guarantees credit lines so that the total credit facilities for bank guarantees and for loans will be $122,886
thousand.
63
As of December 31, 2023, the Company has utilized
$32,600 thousand of the $77,000 thousand available under the Credit Facility for short-term loans. During 2023, the credit lines carried
interest rates in the range of 7.8% and 8.1%.
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, 2023 and 2022, the Company met all of its covenants.
As of December 31, 2023, we had approximately
$28.2 million in cash and cash equivalents.
In 2023, our $30.9 million
in cash provided by operating activities was affected by the following principal factors:
|
|
• |
Our 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
|
In 2022, our $4.9 million in cash used by
operating activities was affected by the following principal factors:
|
|
• |
Our net loss of $19.7 million
|
|
|
• |
$11.2 million increase in inventories;
|
|
|
• |
$6.2 million increase in trade payables, other accounts payable and accrued expenses;
|
|
|
• |
$5.9 million decrease in operating lease liability; and
|
|
|
• |
$0.4 million accrued severance pay and pensions, net.
|
64
These factors were offset mainly by:
|
|
• |
$18.1 million decrease in trade and other accounts receivable and prepaid expenses;
|
|
|
• |
$11.0 million of depreciation and amortization expenses;
|
|
|
• |
$3.6 million decrease in operating lease right-of-use assets;
|
|
|
• |
$3.6 million share-based compensation expenses; and
|
|
|
• |
$2.2 million increase in deferred revenues paid in advance;
|
Net cash used in investing
activities was approximately $20.9 million for the year ended December 31, 2023, as compared to net cash used in investing activities
of approximately $12.4 million for the year ended December 31, 2022. In the year ended December 31, 2023, our investing activities were
comprised of $8.0 million of cash paid as cash consideration for Siklu’s acquisition, $10.0 million paid for purchases of property
and equipment and $2.9 million paid for intangible assets. In the year ended December 31, 2022, our investing activities were comprised
of $10.5 million paid for purchases of property and equipment and $2.0 million paid to purchase of intangible assets.
Net cash used in
financing
activities was approximately $4.9 million for the year ended December 31, 2023, as compared to approximately $23.1 million net cash provided
by financing activities for the year ended December 31, 2022. 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. In the year ended December 31, 2022, our net cash
provided by
financing activities was primarily due to proceeds of bank credits
and loans of $22.7 million and proceeds from share options exercise of $0.4 million.
Our material cash requirements as of December 31, 2023, 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 $10.0 million in 2023, $10.5 million in 2022 and $9.4 million in 2021. We will continue to make capital
expenditures to meet the expected growth of our business.
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 $4.0 million in 2023, $4.5 million in 2022 and $5.0 million in 2021.
Our purchase obligations consist primarily of commitments for our
operating activities and working capital needs. Our operating expenses were $98.7 million in 2023, $104.0 million in 2022 and $83.6 million
in 2021. As of December 31, 2023, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $22,892.
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 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
|
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.
65
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, 2023, our research, development and engineering staff consisted of 278 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.
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.
66
| 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)
|
56
|
Director
|
||||
|
Rami Hadar
(1)
|
60
|
Director
|
||||
|
David (Dudi) Ripstein
(1)
|
57
|
Director
|
||||
|
Ira Palti
|
66
|
Director
|
||||
|
Yael Shaham
(1)
|
|
54
|
|
Director
|
||
|
Doron Arazi
|
60
|
Chief Executive Officer
|
||||
|
Ronen Stein
|
56
|
Chief Financial Officer
|
||||
|
Oz Zimerman
|
60
|
Chief Marketing Officer EVP Corporate Development
|
||||
|
Hadar Vismunski Weinberg
|
50
|
Chief Legal Officer Corporate Secretary
|
||||
|
Michal Goldstein
|
52
|
Chief People Officer
|
||||
|
Ulik Broida
|
56
|
Chief Product Officer
|
||||
|
Alon Klomek
|
54
|
Chief Revenue Officer
|
||||
|
Dima Friedman
|
55
|
Chief Operating Officer
|
||||
|
Ronen Ben-Hamou
|
52
|
Chief Growth Officer
|
||||
|
|
(1) |
Independent Director.
|
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 Directoes 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. 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 has extensive telecom and public company director experience. 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, iSPAC 1 Ltd. and Anchiano Therapeutics Ltd. Previously, she served as the CFO of Alvarion, an Israeli-based global provider
of autonomous wi-fi networks, and as the CFO of Aladdin Knowledge Systems. Formerly, she served as Vice President of Finance at Check
Point Software Technologies. Between 1993 and 2000 Ms. Makov worked in public accounting for 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.
67
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.
Ira Palti
has served as
a Director since June 2018 and served as President and Chief Executive Officer from August 2005 to July 2021. From January 2003 to August
2005, Mr. Palti was Chief Executive Officer of Seabridge Ltd., a Siemens company that is a global leader in the area of broadband services
and networks. Prior to joining Seabridge, he was the Chief Operating Officer of VocalTec Communications Ltd., responsible for sales, marketing,
customer support and product development. Among the positions he held before joining VocalTec was founder of Rosh Intelligent Systems,
a company providing software maintenance and AI diagnostic solutions and one of the first startups in Israel. Mr. Palti currently serves
as a chairman of the board of Bladeranger Ltd. and GigaSpaces Technologies Ltd. and as board member in PriorTech Ltd. and Kipat Maim Ltd.
Mr. Palti received a B.Sc. in mathematics and computer science (magna cum laude) from the Tel Aviv University.
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.
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.
68
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, 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’s degree in Business Administration Industrial Engineering 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.
Alon
Klomek
has served as Chief Revenue Officer since January 1, 2023.
Before
joining Ceragon, Mr. Klomek spent ten years at Cellebrite, where he successfully led the company’s transformation from selling hardware
to services, and spearheaded the company’s business growth, initially in its international business group and later as Chief Business
Officer. Prior to that, Mr. Klomek led a technology start-up, as CEO, and spent ten years at NICE systems where he relocated to the US
with his family for multiple years. Mr. Klomek brings a fresh dynamic leadership style, long-term vision, and business excellence. Mr.
Klomek holds a BA in Economics and Management, an MBA from the Tel-Aviv College of Management, and an MBA from NYU.
69
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.
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 2023, 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 2023, including Mr. Ariel Milstein, who ceased to serve in his position on April
14, 2023, Mr. Guy Toibin, who ceased to serve in his position on April 16, 2023, Mr. Muki Burla, who ceased to serve in his position on
May 14, 2023, Mr. Zohar Zisapel who passed away on May 19, 2023, and Yael Shaham who joined the Company’s board of directors on
September 6, 2023, consisted of approximately $3.8 million in salary, fees, bonuses, commissions and directors’ fees and approximately
$0.4 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, 2023).
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.
Cash
Compensation
Our directors 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 68,505 (approximately $19,162) (based on the NIS/USD exchange ratio as published
by the Bank of Israel on March 4, 2024 (the “
Exchange Ratio
”) as an annual fee, the
sum of NIS 2,550 (approximately $713, based on the Exchange Ratio) as an in-person participation fee, NIS 1,530 (approximately $428, based
on the Exchange Ratio) for conference call participation and NIS 1,275 (approximately $357, 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
”).
These cash amounts are subject to an annual adjustment for changes in the Israeli consumer price index and to an annual adjustment in
accordance with the classification of the Company according to the size of its capital. 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.
70
Equity
Compensation.
During 2023, we granted to our directors and members of our
senior management detailed in Section 6.A and other directors and executive officers who served as such during the year 2023, in the aggregate,
options to purchase 960,065 ordinary shares, with an exercise price that ranges from $1.68 to $2.09 per share. During 2023, we granted
to our directors and members of our senior management detailed in Section 6A, in the aggregate 375,030 restricted share units (“
RSUs
”).
As of December 31, 2023, there were a total of 2,924,448 outstanding options to purchase ordinary shares and 512,048 RSUs that were held
by our directors and senior management, including Mr. Zisapel’s equity consideration, which was vested in 2023, detailed in Section
6A.
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 on September 6, 2023, the date
of the Company’s 2023 Annual General Meeting of Shareholders (the “
2023 AGM
”),
as follows:
(i) each of Shlomo Liran,
Ilan Rosen, Rami Hadar and David Ripstein, directors of the Company, received options to purchase 50,000 Ordinary Shares, one-third of
which (16,667 options) were granted on the date of the 2021 AGM, an additional one third (16,667 options) were granted upon the first
anniversary of the 2021 AGM (i.e., on July 19, 2022), and the remaining 16,666 options were granted on the second anniversary of the 2021
AGM (i.e., on July 19, 2023);
(ii) Efrat Makov, director
of the Company, received options to purchase 33,333 Ordinary Shares, half of which (16,667 options) were granted on the date of the 2022
AGM, and an additional half (16,666 options) were granted to her upon the first anniversary of the 2022 AGM (i.e., on October 3, 2023);
(iii) Ilan Rosen, our
Chairman of the Board of Directors, received additional 43,334 options to purchase 43,334 Ordinary Shares, which were granted on the date
of the 2023 AGM;
(iv) Efrat Makov, Shlomo
Liran, Mr. Hadar, and Mr. Ripstein, received options to purchase 16,666 Ordinary Shares, which were granted on the 2023 AGM (the “
2023
Equity Grant
”);
(v) Ira Palti received
33,333 options to purchase Ordinary Shares, which were granted on the date of the 2023 AGM, comprised of one-third of the non-executive
directors’ equity grant approved in the 2021 AGM (16,667 options) (the “
Remaining 2021 Grant
”),
and the 2023 Equity Grant; and
(vi) Yael Shaham,
director
of the Company, received 33,333 options to purchase Ordinary Shares, which were granted on the date of the 2023 AGM.
71
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, 2023. 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, 2023, 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, 2023, 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, 2023, with respect to equity-based
compensation granted in 2023 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 - $368,200; Performance Bonus Costs - $296,262; Equity Costs - $380,673.
|
|
|
• |
Alon Klomek – Chief Revenue Officer: Salary Costs - $317,487; Performance Bonus Costs - $324,307;
Equity Costs - $248,866.
|
|
|
• |
Ronen Stein – CFO: Salary Costs - $301,310; Performance Bonus Costs - $122,189; Equity Costs - $106,017.
|
|
|
• |
Ulik Broida – Chief Product Officer: Salary Costs - $245,247; Performance Bonus Costs - $107,903;
Equity Costs - $128,226.
|
|
|
• |
Michal Goldstein – Chief People Officer: Salary Costs - $234,314; Performance Bonus Costs - $100,440;
Equity Costs - $87,458.
|
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.
72
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.
| 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.
73
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 2021 AGM, Messrs. Rami Hadar, Ilan Rosen and David Ripstein were elected to serve as directors. At the annual
general meeting held on October 3, 2022 (“
2022 AGM
”), Ms. Efart Makov was elected to
serve as director
in order to fill the vacancy created by the resignation of Ms. Yael Langer, which
became effective on the date of such meeting.
At the 2023 AGM, Ms. Yael Shaham was elected
to serve as a director
for a term of approximately one (1) year ending on the date of the
next annual general meeting that will be held in 2024.
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 a 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.
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 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, six of our
serving directors – Ms. Makov, Ms. Shaham and Messrs. Liran, Rosen, Hadar and Ripstein – qualify and serve as independent
directors under the Nasdaq Rules.
74
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 t
hat 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, each of
Ms. Makov, who chairs the Financial Audit Committee, and Mr. Liran, both independent directors, is considered a “financial expert”
for the purposes of the Nasdaq Rules. Each of Ms. Makov and Messrs. Liran, Rosen, Hadar and Ripstein, satisfy the qualifications set forth
for “accounting and financial expertise” as defined under the Companies Law.
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.
75
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.
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 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 with a “controlling shareholder” (where
such are not extraordinary transactions), which may include, where applicable, the establishment of a competitive process for such transaction,
under the supervision of the audit committee, or individual, or other committee or body selected by the audit committee, in accordance
with criteria determined by the audit committee; (iv) determining procedures for approving certain related party transactions with a “controlling
shareholder”, which were determined by the audit committee not to be extraordinary transactions, but which were also determined
by the audit committee not to be negligible transactions; (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; and (x) 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.
76
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.
77
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 having taken 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 a 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 a 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.
78
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:
|
|
• |
transactions with office holders and third parties, where an office holder has a personal interest in the transaction;
|
|
|
• |
employment terms of office holders; and
|
|
|
• |
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:
|
|
• |
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
|
|
|
• |
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”.
79
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.
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.
80
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.
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:
|
|
• |
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;
|
|
|
• |
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.
|
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.
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:
|
|
• |
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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81
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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.
|
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
.
|
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.
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.
82
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.
D.
Employees
As of December 31, 2023,
we had 1,046 employees worldwide. Among our employees, 278 were employed in research, development and engineering, 664 in sales and marketing
including services and supporting functions, 28 in management and administration and 76 in operations. Out of our employees, 353 were
based in Israel, 66 were based in the United States, 257 were based in EMEA (not including Israel), 164 were based in Latin America and
206 were based in Asia Pacific (including India).
In addition, as of December
31, 2023, we employed 361 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.
83
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.
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, 2024. The percentage of outstanding ordinary shares is based on 85,556,663 ordinary shares outstanding as of March 4, 2024, 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 21, 2024.
|
Name
|
Number of Ordinary Shares Beneficially Owned
(1)
|
Percentage of Outstanding Ordinary Shares Beneficially Owned
|
Number of Stock Options Held
(2)
|
Exercise price of Options
|
Number of RSUs Held
(2)
|
|||||||||||||||
|
All directors and senior management as a group consisting of 16 people
(3)
|
1,664,807
|
1.91
|
1,659,807
|
$
|
1.68 – 4.21
|
463,084
|
||||||||||||||
|
|
(1) |
Consists of 5,000 ordinary shares and 1,659,807 options to purchase ordinary shares which are vested or shall become vested within
60 days of March 21, 2024.
|
|
|
(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 1,659,807 options are vested or shall become vested within 60 days of March 21, 2024 for senior management as a group. No RSUs
are expected to vest within 60 days of March 21, 2024.
|
|
|
(3) |
Each of the directors and senior management beneficially owns less than 1% of the outstanding ordinary shares as of March 21, 2024
(including options held by each such person and which are vested or shall become vested within 60 days of March 21, 2024) and have therefore
not been separately listed.
|
Stock
Option Plan
The
Amended and Restated Share Option and RSU Plan
In September 2003, our
shareholders approved and adopted our 2003 Share Option Plan for a term of ten years, which was extended for an additional ten-year period
by our Board of Directors in December 2012, and further extended by our Board of Directors until December 31, 2024 (the
“Amended
and Restated Share Option and RSU Plan
”). The Amended and Restated Share Option and RSU Plan has been approved by the Israeli
Tax Authority as required by applicable law but not as an Incentive Stock Option “qualified plan” as defined by U.S. tax law.
The Amended and Restated Share Option and RSU 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 Amended and Restated
Share Option and RSU Plan expire between six to ten years from the date of grant. In addition, our Board of Directors has sole discretion
to determine, in the event of a transaction with another corporation, as defined in the Amended and Restated Share Option and RSU Plan,
that each option shall either: (i) be substituted for an option to purchase securities of the other corporation; (ii) be assumed by the
other corporation; or (iii) automatically vest in full. In the event that all or substantially all of the issued and outstanding share
capital of the Company shall be sold, each option holder shall be obligated to participate in the sale and to sell his/her options at
the price equal to that of any other share sold. As of September 2010, the Amended and Restated Share Option and RSU Plan also enables
the grant of RSUs (see below under “
Amendment of the Amended and Restated Share Option and RSU
Plan
”).
84
Amendment of the Amended
and Restated Share Option and RSU Plan
Subject to applicable
law, our Board of Directors may amend the Amended and Restated Share Option and RSU Plan, 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.
In December 2009, our shareholders approved an amendment to the Amended and Restated Share Option and RSU Plan, b
y
adding a new subsection intended to extend the exercise period for fully vested and unexpired options to directors who have ceased to
serve, from 6 months to 18 months.
In September 2010, our Board of Directors amended the Amended and Restated Share Option and
RSU Plan so as to enable the grant of RSUs. Our Board further amended the Amended and Restated Share Option and RSU Plan in August 2014
to extend the authority originally granted to our Compensation Committee to provide grantees, in their notice of grant, with a “Double
Trigger” acceleration mechanism upon the occurrence of certain events. “Double Trigger” under the Amended and Restated
Share Option and RSU Plan means that following a Corporate Transaction and during a one (1) year period starting from completion of the
Corporate Transaction (i) the Grantee's employment with the Company (or the surviving entity following merger) is terminated not for Cause
or for Serious Cause; or (ii) there is a change in the Grantee's position in the Company (or the surviving entity following merger) and
the Grantee is not offered to continue to be employed in a comparable or more senior position and/or on comparable or more favorable terms.
The terms “Corporate Transaction”, “Grantee”, “Cause” and “Serious Cause”, have the meanings
ascribed to them in the Amended and Restated Share Option and RSU Plan.
The following tables present information regarding options and
RSU grants under the Amended and Restated Share Option and RSU Plan. All additional options and RSUs from former plans have expired as
of December 31, 2023.
|
Remaining Reserved Shares
Available for Option and
RSU Grants *
|
Options and
RSUs
Outstanding
|
Weighted Average
Exercise Price
|
||||||||
|
324,620
|
(1)
|
8,247,677
|
(2)
|
$
|
2.71
|
(3)
|
||||
|
|
(1) |
Total under all grants approved by the Board under the Company’s existing Share Option and RSU plan as of 2014.
|
|
|
(2) |
Total of 2,622,195 relates to RSUs outstanding and 5,625,482 relates to options outstanding, under all the Company’s Share
Option and RSU plans.
|
|
|
(3) |
Weighted average price refers only to options.
|
The following table
presents certain option and RSU grant information concerning the distribution of options and RSUs (granted under all Company’s Share
Option and RSU plans and under the Amended and Restated Share Option and RSU Plan) among directors and employees of the Company as of
December 31, 2023:
|
Options and RSUs Outstanding
|
Unvested Options and RSUs
|
|||||||
|
Directors and senior management
|
3,236,496
|
1,756,531
|
||||||
|
All other grantees
|
5,011,181
|
3,308,341
|
||||||
85
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Major Shareholders
The following table sets
forth stock ownership information as of March 21, 2024 (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)
|
||||||
|
Zohar Zisapel Estate
(3)
|
7,117,174
|
8.32
|
%
|
|||||
|
Joseph D. Samberg
(4)
|
8,280,000
|
9.68
|
%
|
|||||
|
|
(1) |
Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of
March 21, 2024.
|
|
|
(2) |
Based on 85,556,663 ordinary shares outstanding as of March 4, 2024, excluding options to purchase ordinary shares which are
vested or shall become vested within 60 days of March 21, 2024.
|
|
|
(3) |
(i) 3,694,986
ordinary shares held by Zohar Zisapel Estate; (ii) 200,000 ordinary shares issuable upon the exercise of options granted to Mr. Zisapel
exercisable as of March 21, 2024 or within 60 days thereafter; (iii) 1,101,245 ordinary shares are held of record by Lomsha Ltd., an Israeli
company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares are held by RAD Data Communications Ltd., an Israeli company of which Mr.
Zisapel is a principal shareholder and a director. Mr. Zisapel and his brother, Mr. Yehuda Zisapel, and Ms. Nava Zisapel, have shared
voting and dispositive power with respect to the ordinary shares held by RAD Data Communications Ltd.; and (v) 2,102,226 Ordinary Shares
are held by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zisapel.
The number of ordinary shares beneficially held by Zohar Zisapel is based on a Schedule 13D/A filed by Mr. Zisapel with the SEC on February
16, 2021.
|
|
|
(4) |
Joseph D. Samberg’s address is 1091 Boston Post Road, Rye, NY 10580.
|
86
As of March 4, 2024,
approximately 96.6% of our ordinary shares were registered for trade and held in the United States and there were 29 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 96.5% of our outstanding ordinary shares
as of said date).
Related Party Transactions
Zohar Zisapel, our late
Chairman of our Board of Directors and a principal shareholder of our company, has passed away in May 2023. Mr. Zisapel, Yehuda Zisapel
(who passed away in March 2024), and Ms. Nava Zisapel, have shared voting and dispositive power with respect to the ordinary shares held
by RAD Data Communications Ltd.
Members of the RAD-BYNET
Group a group of independent companies founded by Mr. Zisapel, sometimes share expenses with us, on an as-needed basis, for information
systems infrastructure, administrative services and medical insurance, as well as in connection with logistics services, such as transportation
- all by arm’s length transactions. In addition, the Company purchases certain equipment, other services, software and licenses
from members of the RAD-BYNET Group. The aggregate amount of such purchases and shared expenses in 2023 was approximately $0.9 million.
In addition, in 2023,
the Company marketed and sold some products of other members of the RAD-BYNET Group, which are complementary to our products, while some
members of the RAD-BYNET Group marketed and sold part of our products, which are complimentary to their products. Certain products of
members of the RAD-BYNET Group may be used in place of (and thus may be deemed to be competitive with) our products.
All of our related-party
transactions with members of the RAD-BYNET Group were approved in accordance with the Company’s Related Party Policy and applicable
law. Such 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 a result, we believe that the terms of the transactions in which we have engaged, and are currently engaged with other members of the
RAD-BYNET Group are beneficial to us and no less favorable to us than terms, which might be available to us from unaffiliated third parties.
Any future 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.
Supply Arrangement
We purchase products
from certain RAD-BYNET Group companies, which we integrate into our products or product offerings. The aggregate purchase price of these
components in 2023 was approximately $0.1 million.
Sales Arrangement
We sell products through
RAD-BYNET Group companies, which they integrate into their products or product offerings. The aggregate selling price of these components
in 2023 was approximately $0.08 million.
| 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.
87
Export Sales
In 2023, our sales to
end users located outside of Israel amounted to $343.1 million, or 98.8% of our $347.2 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.
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.
88
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 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 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, until February 18, 2024. It was also decided that if no agreements
are reached concerning these documents, the court will make a decision on the matter.
As was held in the judgement
rendered in the Rehearing Motion, U.S law presents a higher bar for Plaintiffs in comparison to Israeli law in proving claims regarding
misleading representations to investors. However, given that the class action is being adjudicated under U.S law and that the Court has
yet to address the parties’ pleadings, the Company’s attorneys cannot assess at this preliminary stage, the chances of acceptance
of the class action.
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.
89
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.
A date for the first
pre-trial hearing was set for July 15, 2024.
Due to the preliminary
stage of the process, the Company’s attorneys cannot assess the chances of acceptance of the claims. However, based on the advice
of the Company’s attorneys, the Company believes it has strong claims against Station Enterprises Ltd.
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.
The Company objected
to its inclusion in the arbitration process, however, on December 1, 2023, the arbitration tribunal resolved that both the Company and
its subsidiary be party to that arbitration request and a sole arbitrator was appointed during December 2023. The parties filed a joint
proposal to the sole arbitrator which included, among other requests, the bifurcation of the proceeding, in order to deal firstly with
the participation of the Company and secondly with the merits of the case. On February 9, 2024, the arbitrator accepted the parties’
suggestions and bifurcated the proceeding.
As established in
the final arbitration rules, the Company submitted its allegations regarding the opposition to its incorporation to the arbitration on
March 8, 2024.
Due to the early stage
of the process and the fact that no formal arbitration claim has been submitted so far by the claimant, which makes it difficult to reasonably
estimate the prospects of success of the procedure, the Company’s attorneys cannot assess the chances of acceptance of the claims.
However, based on the advice of the Company’s attorneys, the Company believes that its arguments, from a legal perspective, appear
to be solid and well-founded.
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.
90
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”.
ITEM
10.
ADDITIONAL INFORMATION
Memorandum and Articles
of Association – General
In July 2014, we revoked
our Memorandum pursuant to procedures provided by Israeli law; a detailed description of such procedure was previously provided in our
annual report on Form 20-F for the year 2014 and is incorporated herein by reference.
Our Articles of Association
- as amended in October 2007, September 2011, December 2012, July 2014 and September 2016 - were previously provided in our annual reports
on Form 20-F for the years 2007, 2011, 2012, 2014 and 2016, respectively, and are incorporated herein by reference.
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 the Company’s Annual Report on Form 20-F for the year ended December 31, 2016
.
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 pertaining
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 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.
91
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 2023 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 Law for the Encouragement of Capital Investments, 1959” (the “Investment Law”)
below.
The Law for the Encouragement of Capital Investments,
1959
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%.
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.
92
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;
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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);
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the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies;
and
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accelerated depreciation rates on equipment and buildings.
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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 2023 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 2023).
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.
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.
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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.
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.
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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, 2023. However,
there can be no assurances that the IRS will not challenge this conclusion. If we were not a PFIC for 2023, U.S. Holders who acquired
our ordinary shares in 2023 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”).
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The U.S. federal income
tax consequences to a U.S. Holder if we were to be classified as a PFIC in 2023 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.
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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, 2023, a 10% strengthening of the U.S. dollar versus other currencies would have resulted in a decrease of approximately
$2.6 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 $3.2 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, 2023, we had outstanding forward
like contracts in the amount of $19.5 million for a period of up to twelve months.
We do not invest in interest
rate derivative financial instruments.
| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
|
Not applicable.
PART
II
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
|
None.
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
|
None
| ITEM 15. |
CONTROLS AND PROCEDURES
|
|
|
(a) |
Disclosure Controls and Procedures
|
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, 2023
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.
|
|
(b) |
Management’s Annual Report on Internal Control Over Financial Reporting
|
The Company’s management
is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
100
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, 2023 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, 2023, 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.
(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, 2023, 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
In November 2003, the
Company’s Board of Directors 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. 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). In addition, it is also available on the Internet
at www.ceragon.com. However, information contained on our website does not constitute a part of this Annual Report.
101
| 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,
|
||||||||||||||||
|
2023
|
2022
|
|||||||||||||||
|
Services Rendered
|
Fees
|
Percentages
|
Fees
|
Percentages
|
||||||||||||
|
Audit Fees
(1)
|
$
|
742,500
|
88
|
%
|
$
|
706,142
|
91
|
%
|
||||||||
|
Audit-Related Fees
(2)
|
$
|
26,000
|
3
|
%
|
$
|
5,000
|
1
|
%
|
||||||||
|
Tax Fees
(3)
|
$
|
79,400
|
9
|
%
|
$
|
59,644
|
8
|
%
|
||||||||
|
Total
|
$
|
847,900
|
100
|
%
|
$
|
770,786
|
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
|
Policies and Procedures
Our Financial Audit Committee
is in charge of a policy and procedures for approval of audit and non-audit services rendered by our independent auditors. The policy
requires the Financial Audit Committee’s 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 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 by affiliates during the year ended December 31, 2023.
| ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
102
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
: We have opted out of 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%, and in lieu follow our home country practice and Israeli law, according
to which the quorum for any shareholders meeting will be the presence (in person or by Proxy) of two or more shareholders holding at least
25% of the voting rights in the aggregate - within half an hour from the time set for opening the 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.
|
| ITEM 16H. |
MINE SAFETY DISCLOSURE
|
Not Applicable.
| ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
Not Applicable.
Item
16J
.
INSIDER
TRADING POLICIES
Not applicable.
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 comp
uter 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.
103
We have established comprehensive
governance routines that convene relevant parties at regular intervals, ensuring constant vigilance and strategic oversight in our cybersecurity
efforts.
Under the leadership
of our Chief Information Officer (CIO), Vice President of Information Technology (VP IT) and Chief Information Security Officer (CISO),
we conduct daily, quarterly, and annual forums designed to address and manage cybersecurity threats. These forums serve as platforms for
cross-functional collaboration and decision-making, integrating cybersecurity considerations into our corporate governance framework.
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.
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.
Governance
Our Corporate Audit Committee
is our corporate organ designated by the Board to be charged with the continual monitoring and supervision of our Company's strategic
cybersecurity work plan and operational status. In such matters the Corporate Audit Committee shall convene with the attendance of two
additional Board members, Messrs. Rami Hadar and Ira Palti, both having extensive cybersecurity experience. The Corporate Audit Committee
in this extended composition is poised to respond promptly to emerging cyber threats through ad-hoc engagement when necessary, according
to the Company’s relevant policies.
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.
For a description of
the risks from cybersecurity threats that may materially affect the Company and how they may do so, see our risk factors under Part 1.
Item 3D. Risk Factors in this Annual Report on Form 20-F, including under
“Increased breaches of
network or information technology security could have an adverse effect on our business”, and “Cyber-attacks on our customers’
networks involving our products could have an adverse effect on our business”
.
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-52 hereof.
|
Index to Consolidated Financial Statements
|
Page
|
|
Reports of Independent Registered Public Accounting Firm
|
F-2 - F-6
|
|
Consolidated Balance Sheets
|
F-7 - F-8
|
|
Consolidated Statements of Operations
|
F-9
|
|
Consolidated Statements of Comprehensive Income (loss)
|
F-10
|
|
Consolidated Statements of Changes in Shareholders’ Equity
|
F-11
|
|
Consolidated Statements of Cash Flows
|
F-12 - F-13
|
|
Notes to Consolidated Financial Statements
|
F-14 - F-52
|
104
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 |
| 4.14 |
| 4.15 |
| 4.16 |
| 4.17 |
| 4.18 |
| 4.19 |
| 4.20 |
| 8.1 |
| 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)
|
(1) Previously filed as exhibit 1.2 to the
Company’s Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.
(2) Previously filed as exhibit 4.4 to the
Company’s Annual Report on Form 20-F for the year ended December 31, 2012 and incorporated herein by reference.
(3) Previously furnished as exhibit 99.3
in a Report on Form 6-K which exhibit was incorporated by reference into the Company’s Registration Statement on Form F-3 (No. 333-183316),
and incorporated herein by reference.
(4) Previously filed as exhibits 4.6, 4.7
and 4.8 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2014 and incorporated herein by reference.
(5) Previously filed as exhibits 4.9 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2015 and incorporated herein by reference.
(6) Previously filed as exhibit 4.10 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.
(7) Previously filed as exhibit 4.11 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.
(8) Previously filed as exhibits 4.12 and
4.13 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2017 and incorporated herein by reference.
(9) Previously filed as exhibit 4.13 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 and incorporated herein by reference.
(10) Previously filed as exhibit 4.12 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 and incorporated herein by reference.
(11) Previously filed as exhibit 4.12 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 and incorporated herein by reference;
(12) Previously filed as exhibit 4.13 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 and incorporated herein by reference
(13) Previously filed as exhibit 4.14 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 and incorporated herein by reference;
(14) Previously filed as exhibit 4.13 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 and incorporated herein by reference.
(15) Previously filed as exhibit 8.1 to
the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 and incorporated herein by reference.
(16) Previously filed as exhibit 4.15 to the Company’s
Annual Report on Form 20-F for the year ended December 31, 2023 and incorporated herein by reference.
(17) Previously filed as exhibit 4.16 to the Company’s
Annual Report on Form 20-F for the year ended December 31, 2023 and incorporated herein by reference.
105
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 21, 2024
106
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
IN U.S. DOLLARS
INDEX
|
Page
|
|
|
Reports of Independent Registered Public Accounting Firm
(PCAOB ID:
|
F-2 – F-6
|
|
F-7 – F-8
|
|
|
F-9
|
|
|
F-10
|
|
|
F-11
|
|
|
F-12 - F-13
|
|
|
F-14 - F- 52
|
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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), change in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 21, 2024 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
T
he critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as whole, and we are not, by communicating the critical audit matters below, providing a separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
|
Valuation of technology acquired in the acquisition of Siklu Communication Ltd.
|
||
|
Description of the Matter
|
As describe in Note 3 to the consolidated financial statements, on December 4, 2023, the Company completed its acquisition of Siklu Communication Ltd. for total consideration of approximately $ 10.9 million. The transaction was accounted for as a business combination. The Company recognized technology ( “the Intangible Asset”) at its estimated fair value as of the date of the acquisition. This valuation required management to make significant judgments, estimates, and assumptions.
Auditing the Company’s determination of the fair value of the Intangible Asset was complex due to the significant estimation required by management. The complexity was primarily due to the sensitivity of certain of the significant underlying assumptions. The Company used discounted cash flow model to measure the fair value of the Intangible Asset. The significant assumptions used to estimate the fair value of the Intangible Asset included, among others, discount rates, projected financial information revenue growth rates and profit margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
We identified auditing the valuation of the intangible Asset of Siklu Communication Ltd. as a critical audit matter. An extensive audit effort as well as a high degree of subjective auditor judgment was required to evaluate the significant estimation in determining the fair value of the Intangible Asset.
|
|
|
How we Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for accounting for the acquired intangible asset. For example, we tested controls over management's review of the valuation model and the significant assumptions used, as discussed above, to develop the prospective financial information. We also tested management's controls to validate that the data used in the valuation was complete and accurate.
To test the estimated fair value of the Intangible Asset, we performed audit procedures that included, among others, evaluating the Company’s selection of the appropriate valuation methodology, testing prospective financial information, evaluating the significant assumptions used by management and testing the completeness and accuracy of the underlying data. For example, we compared the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant factors. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and certain assumptions included in the fair value estimates. For example, our valuation professionals performed independent comparative calculations to estimate the discount rate used in the model. We have also evaluated the Company’s disclosures regarding the business combination.
|
|
F - 3
|
Inventory valuation
|
||
|
Description of the Matter
|
The Company’s inventories totaled $ 68.8 million as of December 31, 2023. As explained in Note 2 to the consolidated financial statements, the Company assesses the value of all inventories, including raw materials, finished goods and spare parts, in each reporting period. Reserves for potentially obsolete inventory are made based on management's analysis of inventory aging, future sales forecasts, and market conditions.
Auditing the valuation of obsolete inventory reserves involved subjective auditor judgment because management’s estimate relies on significant assumptions such as the future salability of the inventory, the assessment by inventory age, future usage 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 obsolete inventory reserve process. This included management’s assessment of the assumptions and data underlying the obsolete inventory valuation.
Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data that management used to value obsolete inventory. We performed inquiries of appropriate non-financial personnel including operational employees, regarding obsolete inventory items and other factors to corroborate management's assertions regarding qualitative judgments about obsolete inventories. We also 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.
|
|
KOST FORER GABBAY KASIERER
A Member of EY Global
We have served as the Company's auditor since 2002
Tel-Aviv, Israel
March 21, 2024
F - 4
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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), change in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023 and the related notes and our report dated March 21, 2024 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 - 5
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.
A Member of EY Global
March 21, 2024
F - 6
Ceragon Networks Ltd. and Subsidiaries
Consolidated Balance Sheets as o
f December 31
|
2023
|
2022
|
|||||||||||
|
Note
|
$ thousands
|
$ thousands
|
||||||||||
|
Assets
|
||||||||||||
|
Current assets:
|
||||||||||||
|
Cash and cash equivalents
|
|
|
||||||||||
|
Trade receivables (net of allowance for credit losses of $
|
||||||||||||
|
and $
|
11
|
|
|
|||||||||
|
Other accounts receivable and prepaid expenses
|
4
|
|
|
|||||||||
|
Inventories
|
5
|
|
|
|||||||||
|
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
|
7
|
|
|
|||||||||
|
Other non-current assets
|
|
|
||||||||||
|
Total long-term assets
|
|
|
||||||||||
|
Total assets
|
|
|
||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
|
F - 7 |
Ceragon Networks Ltd. and Subsidiaries
Consolidated Balance Sheets as of December 31
|
2023
|
2022
|
|||||||||||
|
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
|
|
|
||||||||||
|
Long-term liabilities:
|
||||||||||||
|
Accrued severance pay and pensions
|
|
|
||||||||||
|
Deferred revenues
|
17
|
|
|
|||||||||
|
Operating lease liabilities
|
14
|
|
|
|||||||||
|
Other long-term payables
|
|
|
||||||||||
|
Total long-term liabilities
|
|
|
||||||||||
|
Commitments and contingent liabilities
|
13
|
|
|
|||||||||
|
Shareholders’ Equity:
|
15
|
|||||||||||
|
Share capital -
|
||||||||||||
|
Ordinary shares of NIS
|
|
|
||||||||||
|
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 - 8 |
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Operations
|
Year ended December 31,
|
||||||||||||||||
|
2023
|
2022
|
2021
|
||||||||||||||
|
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
|
3c
|
|
|
|
|
|||||||||||
|
Other operating expenses
|
1b
|
|
|
|
|
|||||||||||
|
Total operating expenses
|
|
|
|
|||||||||||||
|
Operating income (loss)
|
|
(
|
)
|
|
||||||||||||
|
Financial expenses and others, 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 - 9 |
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of
Comprehensive Income (Loss)
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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 - 10 |
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, 2021
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
Exercise of options and vesting of RSUs
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss, net
|
-
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Net loss
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Balance as of December 31, 2021
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
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
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
*) Represent an amount lower than $1 thousand
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,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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
|
|
|
|
|||||||||
|
Decrease in accrued severance pay and pensions, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease (increase) in trade receivables, net
|
(
|
)
|
|
(
|
)
|
|||||||
|
Decrease (increase) in other accounts receivable and prepaid expenses (including other long-term assets)
|
|
(
|
)
|
(
|
)
|
|||||||
|
Decrease (increase) in inventories
|
|
(
|
)
|
(
|
)
|
|||||||
|
Decrease in operating lease right-of-use assets
|
|
|
|
|||||||||
|
Increase (decrease) in trade payables
|
(
|
)
|
(
|
)
|
|
|||||||
|
Increase (decrease) in deferred revenues
|
(
|
)
|
|
|
||||||||
|
Decrease in deferred tax assets, net
|
|
|
|
|||||||||
|
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
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sale of property and equipment
|
|
|
|
|||||||||
|
Purchase of intangible assets
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
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 - 12 |
Ceragon Networks Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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
|
(
|
)
|
|
|
||||||||
|
Translation adjustments on cash and cash equivalents
|
|
|
(
|
)
|
||||||||
|
Increase (decrease) 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
|
|
|
|
|||||||||
|
Cash paid for interest on bank loans and factoring fees
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
|
F - 13 |
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. |
In the summer of 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").
| 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 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.
F - 14
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| 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 expenses and others, 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 equivalents
|
Cash equivalents include short-term unrestricted, highly liquid investments that are readily convertible to cash and with original maturities of three months or less at acquisition.
| 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.
F - 15
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| F. |
Inventories
(cont’d)
|
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
|
| H. |
Leases
|
The Company has operating leases for corporate offices. Operating leases are reported separately in the Company's consolidated balance sheets on December 31, 2023 and 2022. The Company has no finance leases as of December 31, 2023 or 2022.
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. 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. 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.
F - 16
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| I. |
Intangible assets, net
(cont’d)
|
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).
| 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 the quantitative 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 2023 no goodwill impairment losses have been identified.
F - 17
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| 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 2023, 2022 and 2021, 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.
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.
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 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 and 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. 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, 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.
| 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, 2023, 2022 and 2021 in the amounts of $(
293
) thousand, $
290
thousand and $(
417
) thousand respectively. As of December 31, 2023 and 2022, the warranty provision was $
1,694
thousand and $
1,401
thousand respectively.
F - 19
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| 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 2w). 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.
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. 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 expenses and others, 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 and rent payments during the year. 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.
F - 20
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| 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 sale. The transfers of financial assets are typically performed by the factoring of receivables to four financial institutions.
As of December 31, 2023, and 2022, the Company sold trade receivables to several different financial institutions in a total net amount of $
30,902
thousand and $
29,070
thousand, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860.
During the years ended on December 31, 2023, 2022 and 2021, the Company recorded amounts of $
2,038
thousand, $
1,262
thousand and $
905
thousand, respectively, as financial expense related to its factoring arrangements.
| 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 2023 and 2022, accrued severance pay amounted to $
7,422
thousand and $
7,284
thousand, respectively. Severance expenses for the years ended December 31, 2023, 2022 and 2021, amounted to approximately $
3,449
thousand, $
2,859
thousand and $
1,906
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.
F - 21
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| U. |
Accounting for stock-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 2023, 2022 and 2021:
|
December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
Dividend yield
|
|
|
|
|
||||||||
|
Volatility
|
|
|
|
|||||||||
|
Risk-free interest
|
|
|
|
|||||||||
|
Early exercise multiple
|
|
|
|
|||||||||
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.
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 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.
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 |
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.
F - 23
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Significant Accounting Policies (cont’d)
| W. |
Comprehensive income (cont'd) |
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, 2023
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other comprehensive income (loss) before
|
||||||||||||
|
reclassifications
|
(
|
)
|
|
(
|
)
|
|||||||
|
Amounts reclassified from AOCI
|
|
|
|
|||||||||
|
Other comprehensive income
|
|
|
|
|||||||||
|
Balance as of December 31, 2023
|
|
(
|
)
|
(
|
)
|
|||||||
The effects on net loss of amounts reclassified from AOCI for the year ended December 31, 2023 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.
| 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
5,164,222
,
5,599,666
and
1,695,149
for the years ended December 31, 2023, 2022 and 2021, respectively.
| Z. |
Recently issued but not yet updated 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 guidance will be effective for the Company for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact on its financial statement disclosures.
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 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 expenses and others, 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
|
(
|
)
|
||||||
|
|
||||||||
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
F - 25
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 3 - Acquisitions (cont'd)
| 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, 2023, 2022 and 2021 were as follows:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Acquisition-related professional and services fees
|
|
|
|
|||||||||
|
Integration-related expenses
|
|
|
|
|||||||||
|
Total acquisition- and integration-related expense
|
|
|
|
|||||||||
The acquisition-related professional and services fees recorded in the year ended December 31, 2023 related to the Siklu Acquisition.
Note 4 - Other Accounts Receivable and Prepaid Expenses
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Government authorities
|
|
|
||||||
|
Deferred charges and prepaid expenses
|
|
|
||||||
|
Deposits receivable
|
|
|
||||||
|
Advances to suppliers
|
|
|
||||||
|
Hedging asset
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
F - 26
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 5 - Inventories
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Raw materials
|
|
|
||||||
|
Work in progress
|
|
|
||||||
|
Finished products
|
|
|
||||||
|
|
|
|||||||
During the years ended December 31, 2023, 2022 and 2021, the Company recorded inventory write-offs for excess inventory and slow-moving inventory in a total amount of $
7,731
thousand, $
1,980
thousand and $
1,907
thousand, respectively that have been included in Cost of revenues.
As of December 31, 2023, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $
22,892
thousand. The commitments are due primarily within one year.
Note 6 - Property and Equipment, Net
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ 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, 2023, 2022 and 2021 were $
9,335
thousand, $
10,620
thousand and $
11,845
thousand respectively.
Changes of property and equipment not resulted in cash outflows as of December 31, 2023, 2022 and 2021 amounted to $
1,499
thousand, $
586
thousand and $
1,058
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
|
2023
|
2022
|
||||||||||
|
$ 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, 2023:
|
$ thousands
|
||||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029 and thereafter
|
|
|||
|
Total expected amortization
|
|
Amortization expenses for the years ended December 31, 2023, 2022 and 2021 amounted to $
632
thousand $
420
thousand and $
401
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,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Employees and payroll accruals
|
|
|
||||||
|
Provision for warranty costs
|
|
|
||||||
|
Government authorities
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Advanced payments from customers
|
|
|
||||||
|
Hedging Liability
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
Note 9 - Credit Lines
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 June 2023, the Company signed an amendment to the Credit Facility in the frame of which the Credit Facility was extended by an additional 1 year till
June 30, 2024
. This amendment included an increase of $
9,800
thousand to $
72,000
thousand to the Credit Facility for loans and a decrease of $
11,914
thousand to the bank guarantees credit lines to $
45,886
thousand. In December 2023, in connection with the acquisition of Siklu, the company signed the latest amendment to the agreement in which it obtained the approval of the syndication to carry out Siklu's acquisition, added additional bank to the syndication agreement and increased the Credit Facility for loans by $
5,000
thousand to $
77,000
thousand with no change in the guarantees credit lines so that the total credit facilities for bank guarantees and for loans will be $
122,886
thousand.
As of December 31, 2023, the Company has utilized $
32,600
thousand of the $
77,000
thousand available under the Credit Facility for short-term loans. During 2023, the credit lines carried interest rates in the range of
7.8
% and
8.1
%.
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, 2023 and 2022, 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, 2023 and December 31, 2022 were as follows:
|
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
|
|
|
||||||
|
Other accounts receivable and prepaid expenses
|
Other accounts payable and accrued expenses
|
|||||||
|
December 31, 2022
|
||||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Derivatives designated as hedging instruments:
|
||||||||
|
Currency forward contracts
|
|
(
|
)
|
|||||
|
Derivatives not designated as hedging instruments:
|
||||||||
|
Currency forward and option 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,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Derivatives designated as hedging instruments:
|
||||||||
|
Currency forward contracts
|
|
|
||||||
|
Derivatives not designated as hedging instruments:
|
||||||||
|
Currency forward and option 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, 2023, 2022 and 2021 was as follows:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Balance, at beginning of period
|
|
|
||||||
|
Provision for expected credit losses
|
|
|
||||||
|
Balance added in business combination
|
|
|
||||||
|
Amounts written off charged against the allowance and others
|
(
|
)
|
(
|
)
|
||||
|
Balance, at end of period
|
|
|
||||||
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 that administers 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, 2023, 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.
The defined benefit scheme was stopped for admission from December 1, 2007, and persons who 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, 2023 and 2022, and the statement of funds status as of December 31, 2023 and 2022:
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Change in projected benefit obligation
|
||||||||
|
Projected benefit obligation at beginning of year
|
|
|
||||||
|
Interest cost
|
|
|
||||||
|
Expenses paid
|
(
|
)
|
(
|
)
|
||||
|
Exchange rates differences
|
(
|
)
|
(
|
)
|
||||
|
Actuarial loss
|
|
|
||||||
|
Projected benefit obligation at end of year
|
|
|
||||||
The assumptions used in the measurement of the Company's benefits obligations as of December 31, 2023 and 2022 are as follows:
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
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 2023 net periodic benefit cost and the 2023 benefit obligation, the Company has used a discount rate of
3.10
%. The rate of compensation increase is determined by the Company, based upon its long-term plans for such increases.
The following table provides the components of net periodic benefits cost for the years ended December 31, 2023, 2022 and 2021:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Components of net periodic benefit cost
|
||||||||||||
|
|
|
|
|
|||||||||
|
Net periodic benefit cost
|
|
|
|
|||||||||
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
|
||||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028 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 the statement of operations.
Interest cost and actuarial gain or losses are presented in financial expenses and others, net.
For the years ended December 31, 2023, 2022 and 2021, an actuarial loss of $
105
thousand, $
26
thousand and $
219
thousand, respectively, was recognized in Finance expenses and others, net.
Note 13 - Commitments and Contingent Liabilities
| A. |
Leases |
See Note 14 “Leases” for lease-related commitments as of December 31, 2023.
| B. |
Liabilities for Royalty Payments to the IIA
|
During 2023, 2022 and 2021, 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, 2023, 2022 and 2021 in the amount of $
542
thousand, $
460
thousand and $
691
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, 2023, the Company's maximum possible future royalties commitment, including $
3,268
thousand of unpaid royalties accrued, was $
11,004
thousand, based on grants received from the IIA and not yet repaid.
F - 34
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Commitments and Contingent Liabilities (cont’d)
| C. |
Charges and guarantees |
As of December 31, 2023 and 2022, the Company provided guarantees in an aggregate amount of $
26,686
thousand and $
28,737
thousand respectively, with respect to tender offer guarantees, financial guarantees, warranty guarantees and performance guarantees to its customers.
| 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 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.
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 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 28, 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.
As was held in the judgement rendered in the Rehearing Motion, U.S law presents a higher bar for Plaintiffs in comparison to Israeli law in proving claims regarding misleading representations to investors. However, given that the class action is being adjudicated under U.S law and that the Court has yet to address the parties’ pleadings, the Company’s attorneys cannot assess at this preliminary stage the chances of acceptance of the class action.
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) |
|
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.
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, 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.
A date for the first pre-trial hearing was set for July 15, 2024.
Due to the preliminary stage of the process, the Company’s attorneys cannot assess the chances of acceptance of the claims. However, based on the advice of the Company’s attorneys, the Company believes it has strong claims against Station Enterprises Ltd.
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) |
|
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 $
12.3
million credit loss provision in 2022. In its request, the customer stated that its claims amount to $
10.8
million, which is less than its outstanding debts to the Company.
The Company opposed to its inclusion in the arbitration process, however, on December 1, 2023 the arbitration tribunal resolved that both the Company and its subsidiary shall be a party to that arbitration request but deferred the final decision on this matter to the sole arbitrator that will be appointed subsequently.
A sole arbitrator was appointed during December 2023.
On January 19, 2024, the appointed arbitrator proposed a preliminary version of the procedural rules and the procedural calendar for comments of the parties. The parties discussed the rules and calendar and filed together a joint proposal to the sole arbitrator, which included, among other requests, the bifurcation of the proceeding in order to deal firstly with the participation of the Company and secondly with the merits of the case.
On February 9, 2024 the arbitrator issued the final procedural rules and accepted the parties’ suggestions and, therefore, bifurcated the proceeding.
As established in the final arbitration rules, the Company submitted its allegations regarding the opposition to its incorporation to the arbitration, by March 8, 2024.
Due to the early stage of the process and the fact that no formal arbitration claim has been submitted so far by the claimant, which makes it difficult to reasonably estimate the prospects of success of the procedure, the Company’s attorneys cannot assess the chances of acceptance of the claims. However, based on the advice of the Company’s attorneys, the Company believes that its arguments, from a legal perspective, appear to be solid and well-founded.
We are not a party to any other material legal proceedings.
F - 38
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
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, 2023, 2022 and 2021 were as follows:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Components of lease expense
|
||||||||||||
|
Operating lease cost
|
|
|
|
|||||||||
|
Short-term lease
|
|
|
|
|||||||||
|
Total lease expenses
|
|
|
|
|||||||||
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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
|
|
|
|
|||||||||
For the year ended December 31, 2023, the weighted average remaining lease term is approximately
seven years
, and the weighted average discount rate is
5
percent. 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, 2023 were as follows:
|
$ thousands
|
||||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028 and thereafter
|
|
|||
|
Total operating lease payments
|
|
|||
|
Less: imputed interest
|
|
|||
|
Present value of lease liability
|
|
|||
F - 39
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. To date, the plan that is currently in effect is the Amended and Restated Share Option and RSU Plan as amended on August 10, 2014 (the “Plan”). Under the Plan, options and RSUs may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. The options vest primarily over
|
| 2. |
The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2023:
|
|
Year ended December 31, 2023
|
||||||||||||||||
|
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
|
|
|
|
|
||||||||||||
F - 40
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Shareholders' Equity (cont’d)
| B. |
Stock options plans (cont’d) |
|
The weighted average fair value of options granted during 2023, 2022 and 2021 was $
1.02
, $
1.32
and $
2.25
, respectively.
The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $
6
thousand, $
117
thousand, and $
5,519
thousand, respectively.
The following table summarizes the activities for the Company’s RSUs for the year ended December 31, 2023:
|
Year ended December 31, 2023
|
||||||||
|
Number of RSUs
|
Aggregate intrinsic
value
|
|||||||
|
$ thousands
|
||||||||
|
Unvested at beginning of year
|
|
|
||||||
|
Granted
|
|
|||||||
|
Vested
|
(
|
)
|
||||||
|
Forfeited
|
(
|
)
|
||||||
|
Unvested at end of the year
|
|
|
||||||
The weighted average fair value at grant date of RSUs granted during 2023, 2022 and 2021 was $
2.01
, $
2.56
and $
4.07
, respectively.
As of December 31, 2023, the total unrecognized estimated compensation cost related to non-vested stock options and RSUs granted prior to that date was $
4,396
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, 2023, 2022 and 2021, was comprised as follows:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Research and development, net
|
|
|
|
|||||||||
|
Sales and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Total share-based compensation expenses
|
|
|
|
|||||||||
F - 41
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Shareholders' Equity (cont’d)
| 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.
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, 2023, 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.
F - 42
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
| A. |
Israeli taxation
(cont’d)
|
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 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.
| 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 2023, 2022 and 2021.
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 2017 tax year are considered final.
F - 43
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
| 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, 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. |
||
| D. |
The income tax expense for the years ended December 31, 2023, 2022 and 2021 consisted of the following:
|
|
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ 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 - 44
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 $
103,409
thousand and $
93,529
thousand as of December 31, 2023 and 2022 respectively.
| F. |
Net operating loss carry forward and capital loss
|
As of December 31, 2023, the Company and Siklu have accumulated net operating losses and capital loss for Israeli income tax purposes in the amount of approximately $
246,052
thousand and $
8,126
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, 2023, the Company's Norwegian subsidiary had a net operating loss carry forward of approximately $
15,506
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, 2023, the Company's Brazilian subsidiary had a net operating loss carryforward of approximately $
32,468
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,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Domestic
|
|
(
|
)
|
(
|
)
|
|||||||
|
Foreign
|
|
|
|
|||||||||
|
|
(
|
)
|
(
|
)
|
||||||||
F - 45
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,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ 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 $
466
thousand due to interest and penalties related to uncertain tax positions as of December 31, 2023.
F - 46
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 $
7,253
thousand a
nd $
12,302
thousand,
as of December 31, 2023, and 2022, 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, 2023 and 2022:
|
Year ended
|
Year ended
|
|||||||
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ 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.
Remaining performance obligations represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable contracts that will be invoiced and
recognized as + revenue
in future periods. The following table represents the remaining performance obligations as of December 31, 2023, which are expected to be satisfied and recognized in future periods:
|
2024
|
2025 and thereafter
|
|||||||
|
Unsatisfied performance obligations
|
|
|
||||||
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.
F - 47
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 18 - Segments, Customers and Geographic Information
| A. |
The Company applies ASC topic 280, "Segment Reporting", ("ASC 820"). The Company operates in
|
| B. |
The following tables present total revenues for the years ended December 31, 2023, 2022 and 2021 and long-lived assets as of December 31, 2023 and 2022:
|
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Revenues:
|
||||||||||||
|
North America (*)
|
|
|
|
|||||||||
|
Europe
|
|
|
|
|||||||||
|
Africa
|
|
|
|
|||||||||
|
Asia-Pacific and Middle East
|
|
|
|
|||||||||
|
India
|
|
|
|
|||||||||
|
Latin America
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| (*) |
As of December 31, 2023, 2022 and 2021,
|
|
December 31,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
$ 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 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. In 2021, the Company had revenues from two customers that represent two groups of affiliated companies, equaling
18.8
% and
11.4
% of total revenues.
F - 48
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
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"). The Company recorded contractual and termination severance pay and other related costs for the impacted employees.
The liabilities related to the 2023 Restructuring Plan as of December 31, 2023 amounted to $
80
thousand.
The Company does not expect to incur additional costs related to the 2023 Restructuring Plan.
| B. |
Financial expenses and others, net
|
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Others
|
(
|
)
|
|
(
|
)
|
|||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
F - 49
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 19 - Selected Statements of Operations Data (cont’d)
| C. |
Net loss per share
|
The following table sets forth the computation of basic and diluted net earnings per share:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ 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 - 50
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 $
941
thousand, $
1,662
thousand and $
2,677
thousand in 2023, 2022 and 2021, respectively.
The Company leased its offices in Israel from real estate holding companies controlled by Yehuda and Zohar Zisapel. The leases were expired by the end of 2021.
The aggregate amount of rent and maintenance expenses related to these properties were approximately $
0
thousand, $
0
thousand and $
894
thousand in 2023, 2022 and 2021, 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 $
104
thousand, $
122
thousand and $
305
thousand for the years ended December 31, 2023, 2022 and 2021, respectively.
The Company purchases certain property and equipment from members of the RAD- BYNET group, the aggregate purchase price of these assets was approximately $
37
thousand, $
180
thousand and $
175
thousand for the years ended December 31, 2023, 2022 and 2021, respectively.
As part of the operating agreements with Orocom for the Pronatel project in Peru, the Company had two seats in Orocom’s board of directors out of four seats, as well as other protective rights in Orocom. As a result, Orocom and its shareholders were defined as “related companies” of Ceragon. As of December 31, 2021, the Company has no seats in Orocom’s board of directors and following the return of the guarantees in the beginning of 2020, the Company’s protective rights in Orocom were revoked. As a result of the above Orocom and its shareholders are not defined as “related companies” of Ceragon.
F - 51
Ceragon Networks Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 20 - Related Party Balances and Transactions (cont’d)
Transactions with related parties:
|
Year ended December 31,
|
||||||||||||
|
2023
|
2022
|
2021
|
||||||||||
|
$ thousands
|
$ thousands
|
$ thousands
|
||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Research and development expenses
|
|
|
|
|||||||||
|
Sales and marketing expenses
|
|
|
|
|||||||||
|
General and administrative expenses
|
|
|
|
|||||||||
|
Purchase of property and equipment
|
|
|
|
|||||||||
Balances with related parties:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
$ thousands
|
$ thousands
|
|||||||
|
Trade Receivables
|
|
|
||||||
|
Trade payables, other accounts payable and accrued expenses
|
|
|
||||||
F - 52
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 - Credit LinesNote 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 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 19 - Selected Statements Of Operations DataNote 19 - Selected Statements Of Operations Data (cont D)Note 20 - Related Party Balances and TransactionsNote 20 - Related Party Balances and Transactions (cont D)