Ceragon Networks Ltd. (NASDAQ:CRNT) Q3 2019 Earnings Conference Call - Final Transcript
Nov 04, 2019 • 09:00 am ET
to increase sequentially by a few hundred thousand dollars.
On a GAAP basis, we reported $136,000 in net income and non-GAAP net income of $497,000. This was a decline from Q2 due to slightly lower revenue and lower gross margin due to the revenue mix.
Turning to the balance sheet at September 30, receivables increased approximately to $126 million with DSO of 154 days. The increase was mainly due to a further shift in mix towards customer with more extended payment terms than our average, and two customers paid at the beginning of October, which has also affected our net cash flow.
Inventories decreased from Q2 by approximately $6 million to $67.7 million. Inventories had been unusually high due to our preparation for the final delivery of the large batch of orders expected from India. Given the current outlook in India, we are focusing on bringing down inventories as quickly as possible and on aggressive working capital management, including collection efforts. To meet working capital requirement during Q3, we increased our borrowing under our revolving line of credit by $8.5 million to $17.4 million. We had negative cash flow from operations of $14.4 million in Q3 with cash and cash equivalents at the end of September totaling $20.5 million.
We expect cash flow to turn around in Q4. Since we expect to generate strong positive cash flow next quarter, we are aiming to pay most of our outstanding balance under our revolving credit agreement. This means we would end up the year with minimum debt and close to the maximum of $40 million of unused credit.
Turning to the near-term outlook, with the book-to-bill ratio which was above 1 for the quarter, we believe we can target a run rate of $70 million to $75 million in the near term. To repeat what Ira said, we expect to grow in 2020 compared to 2019 with most of the strength likely to come in the second half of the year. It's too soon to have enough visibility to set specific targets, but our current assumptions for 2020 include an average quarterly run rate somewhere around $75 million with gross margin and OpEx fairly similar to 2019. These assumptions do not lead to the profit growth we have been targeting, certainly not in the short term. In fact, with some year-end items such as expenses related to departing executives, we are probably looking at reporting a small loss in Q4 along with a positive cash flow from higher collections and strong working capital management.
As Ira said, despite recent developments, we are taking the long view and continuing to invest in major programs because our future roadmap is an important aspect of adding new design wins that will turn to revenue next year and beyond. We are the strongest company in wireless backhaul and we expect to maintain that position throughout the transition to 5G and beyond.
Now, I would like to open the call for questions. Operator?