Earnings Call Transcript - CRNT Q4 2021

Operator, Operator

Welcome to the Ceragon Networks' Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Maya Lustig, Head of Investor Relations for Ceragon. Thank you. You may now begin.

Maya Lustig, Head of Investor Relations

Thank you, operator, and good morning, everyone. I am joined by Doron Arazi, Ceragon's Chief Executive Officer, and Ran Vered, Ceragon's Chief Financial Officer. Before we start, I would like to note that this call includes information that constitutes forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations there from will not be material. Such statements involve risks and uncertainties that may cause future results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to, such risks, uncertainties, and other factors that could affect our results, as detailed in our press release published earlier today, and as further detailed in Ceragon's most recent Annual Report on Form 20-F, and in Ceragon's other filings with the Securities and Exchange Commission. Such forward-looking statements represent our views only as of the day they are made and should not be relied upon as representing our views as of any subsequent date. Such forward-looking statements do not purport to be predictions of future events or results, and there can be no assurance that they would prove to be accurate. Ceragon may elect to update these forward-looking statements at any point in the future, but it specifically disclaims any obligation to do so. Ceragon's public filings are available on the Securities and Exchange Commission's website at www.sec.gov, and may also be obtained from Ceragon's website at www.ceragon.com. Also, today's call will include certain non-GAAP numbers. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier today. I will now turn the call over to Doron. Please go ahead.

Doron Arazi, CEO

Thank you, Maya, and good morning everyone. We had a relatively good end to a highly challenging year. I'm pleased to share with you that we delivered at the high end of our projected annual revenue range at $291 million. However, our best efforts and success in delivering revenues were overshadowed by the many challenges the business world experienced in 2021. As I mentioned in our previous calls, the global component shortages, supply chain disruptions, and shipping bottlenecks have rattled many industries, including ours. They led to increased prices. As such, our financials have been materially impacted throughout 2021. Our gross margin for the fourth quarter was 29%. It is our belief that if it weren't for such strong turbulence in these industries, our gross margin would have been around 3% higher. We maintained our strong position in the market, but it came at a cost. Looking ahead, we have an optimistic view. We believe the crisis will eventually subside and we will see improvements in the second half of 2022. Until then, we are looking to overcome component shortages and exploring new ways to improve the cost competitiveness of our products without compromising on quality and performance. We are also working on optimizing our shipping costs. This is all part of our delivery through margin expansion strategy. Looking at our overall financial results for Q4, I am pleased to report that we have been on track with our expectations, all the way down to the operating income on a non-GAAP basis. In fact, we would have been at breakeven for the second half of 2021 if it weren't for higher-than-expected financial expenses. Ran will elaborate on this further. In 2021, the majority of our business came from 4G. That said, 5G is growing fast, especially in North America, Europe, and to a certain degree in APAC. I'm very pleased with the fact that in these regions, our 5G bookings made up over 1/3 of all bookings. In two to three years, we expect our business to mostly come from 5G. This last year, we continued to win in our domain by focusing on best-in-class all outdoor, microwave, and millimeter wave market segments. Our recent products such as the IP-50E and IP-50C, with our SDN suite, made strides in the market. We engaged with new POC trials and orders with an increasing number of prominent market players, including several Tier 1s. We ended this year selling quite significant quantities of IP-50E and IP-50C equipment. This is a great achievement, especially given the relatively short time passed since the launch and given the fact that we don't have all frequencies available yet. Beyond our core domains, I'm pleased to share with you that the 5G era provides us with many opportunities. From OpenRAN to Disaggregated Cell Site Routers to Disaggregated Wireless Transport, the trend towards opening the network is strong. Our product strategy for Disaggregated Wireless Transport with the RAON SW software and layer 3 routing capabilities positions us ahead of the curve. In Q4, we partnered with IP Infusion. Through this partnership, we are delivering the industry's first radio-aware disaggregated cell site routers. In parallel, we just launched our IP-50FX disaggregated cell site gateway solution. It is now generally available for sale and deployment. Disaggregated routing is an open wireless transport architecture that decouples the hardware and the software elements of routers. The IP-50FX uses best of breed software, as well as best-in-class hardware. Beyond that, it also integrates two essential same site elements into a single scalable product: a cell site router and radio indoor unit. It provides mobile service providers and private networks a faster, more cost-effective way to deploy and upgrade 4G and 5G cell sites. I'm also proud to share with you that our new IP-50FX has been awarded the prestigious Telecom Infra Project Requirements Compliant Ribbon and is listed on DIP exchange. DIP is a diverse global community of communication solutions and service providers, whose goal is to advance high quality connectivity worldwide. They do so by accelerating the deployment of open disaggregated and standards-based solutions. The IP-50FX is the only wireless transport equipment that has received this award so far. The market timelines of IP-50FX and its DIP Ribbon are a testament to our technological leadership, our passion for innovation, as well as our understanding of the industry's direction and the adjustments we need to make to maintain our technological edge. The IP-50FX gives us the first mover advantage, helping us to grow market share in the $4 billion wireless transport and the $2 billion cell site routing markets. As 5G brings more network complexity, more and more companies are turning to us to manage their wireless transport through our managed services offering. While smaller carriers and private networks benefit the most from this, large companies turn to us as well to provide them with either partial or full services for operating their transport network. One example is our recent engagement with Globacom, on which I will elaborate later. We have a presence in over 140 countries, 50 of them strongly so. We have served more than 2,000 customers throughout the years. So, you see, on top of our technological capabilities and software tools, we have the resources and the experience to become a one-stop-shop for our existing customers, as well as new ones. Our decision to focus on strengthening our managed services offering, leveraging our software tools, will strengthen our relationship with our customers, increase our recurring revenue, give us more visibility, reduce the lumpiness of our business results, and improve our gross margins. We have just ratified our mid and long-term strategy with our Board of Directors. This strategy, which is comprised of increasing our traditional business and expanding into managed services business, as well as new markets such as the cell site routing market, is designed to guide us to a new phase of growth through margin expansion. With our now more optimistic view about the main challenges we faced in 2021, we expect our revenue for 2022 to range between $305 million and $320 million. Let me now give you an overview by region. In North America, although bookings in Q4 were a bit lower than in previous quarters, 2021 was a record year for us. Our 5G design win customers generated over 50% of bookings for this region. In Q4, I'm pleased to report that our lab tests with our Tier 1 operator customers continued and have been successful so far. We expect the testing process to continue during the first half of the year. Looking ahead, in North America, we see significant federal investments to expand networks to rural North America. We see the region's critical infrastructure markets grow. Our goal is to leverage these developments, and to that end, we are restructuring our organization in this region. In India, Q4 was a healthy quarter for us. On an annual basis, we had a very strong year surpassing our record since 2018. This industry performed strongly as post-COVID recovery continued. We saw sustained demand for network upgrades and expansions. We believe the future of 5G in India is bright. As 5G corridors are developed in the region, we will be there to participate in the RFP processes. In Europe, we had another strong quarter. We won two tenders with RAI WAY, Italy's national TV and radio network provider, to renew and maintain their wireless transport network infrastructure. We successfully completed the IP-50FX PoC with a leading Tier 1 operator. We will be undertaking SDN trials with another operator and IP-50FX trials with a third operator. The future of 5G in Europe is strong, and we feel confident about all these wins. When we look at our activity in the European continent on an annual basis, 2021 was a record year, surpassing the last eight years in terms of bookings. Our 5G design win customers generated over 30% of the annual bookings for this region. In APAC, while there are significant signs of new momentum, 2021 was a difficult year. Many business decisions were pushed to 2022. That said, we continued building a solid pipeline for potential future partnerships. In Latin America, the macro environment remained challenging. The South Cone was adversely impacted by the economic crisis. The rest of Latin America has also experienced various challenges, including COVID. All that said, we have a new customer in Mexico who is expected to evaluate our IP-50FX in Q1 2022. We also built a solid pipeline of government-funded projects in Mexico and Peru. There are initiatives to close the digital divide between different communities, and we are doing our best to take part in such projects. In Africa, we had a very strong second half. We received bookings from a Tier 1 operator worth $5 million. We signed and received POs for a multimillion dollar deal with Globacom, a Tier 1 Nigerian telecom operator. We will be providing Globacom with a customized solution that covers long-haul rural areas, high capacity metro, as well as the access network. We will help them not only enhance their existing subscribers' quality of experience but also expand their reach to further grow their market share. We will also be providing them with deployment services and managed services for monitoring the health of their network as well as first-year support. With that, let me now turn the call over to Ran to discuss the financials for the quarter. Ran?

Ran Vered, CFO

Thank you, Doron, and good morning, everyone. To help you understand the results, I will be referring mainly to non-GAAP numbers. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's press release. Like Doron mentioned, during Q4 2021, we saw strong bookings coming from India and Europe. When we look at the trailing 12 months, we see a strong book-to-bill ratio above 1. Let me now review the actual numbers with you. Revenue for the quarter was $77.8 million, up 5.1% compared with $74 million in Q4 last year. This was achieved despite the highly challenging environment we found ourselves in. We are proud of this achievement and the fact that most of our customers' demands were fulfilled. Our strongest region in terms of revenue for the quarter was India, reflecting ongoing deliveries for our main customers in the region, which is in line with the strong demand we see in this region. Our second strongest region in terms of revenues for the quarter was Latin America, mainly thanks to the progress we made with the deliveries and deployment for our Colombian Tier 1 operating customers, whose agreement we announced back in March 2021. We had two above 10% customers in the fourth quarter. For the year, our revenues were almost $291 million, up almost 11% from 2020. This reflects our ability to keep up with the strong industry demand we experienced even during such challenging times. Gross profit for the fourth quarter on a non-GAAP basis was $22.6 million, giving us a non-GAAP gross margin of 29%, similar to the fourth quarter of 2020. As Doron mentioned, if it weren't for the component shortages and surging shipping costs, our gross margin would have been around 3% higher. For the full year, the non-GAAP gross margin was 30.3%, compared to 28.7% in 2020. We are pleased with this achievement, especially given the challenging macro environment we are in. Operating expenses on a non-GAAP basis for the fourth quarter were $21 million, in line with our expectations. Research and development expenses for the fourth quarter on a non-GAAP basis were $7.7 million, similar to Q4 2020. Selling and marketing expenses for the fourth quarter on a non-GAAP basis were $8.7 million, compared to $8.5 million in Q4 2020, still reflecting the reduced travel and variable compensation that have come with COVID. General and administrative expenses for the fourth quarter on an ongoing basis were $4.6 million, slightly lower than our expectations. Financial and other expenses for the fourth quarter on a non-GAAP basis were $2.7 million. In the fourth quarter, we incurred $600,000 in financial repatriation expenses as we repatriated a significant amount of cash collected earlier than expected from a large customer in a developing country to Israel. In addition, the exchange rate was not in our favor in Q4, which is something we can't control or forecast. Our tax expense for the fourth quarter on an ongoing basis was $0.9 million. This is in line with our yearly expectations. I would now like to spend a couple of minutes on our tax line in our GAAP numbers, as this has caused a big drop in our net income and EPS for Q4 and for the full year on a GAAP basis. In Q4, we wrote off a tax asset of $8.5 million. Let me explain why. If you recall, back in 2018, we recorded income on the tax line, primarily due to the need to recall the tax assets of $7.2 million in our balance sheet. This reflected tax benefits we anticipated as a result of utilizing our NOLs against taxable income in Israel in the following years. This also meant that we would be expected to record higher tax expenses on a GAAP basis in the following years. This was an indication of our strong performance back then, as well as our expectations for continued strength. However, as in the past three years, we recorded net losses on a GAAP basis, according to government guidelines, we now had to write off the tax assets. The net loss on a GAAP basis for the quarter was $2 million, or $0.02 per diluted share. As for our balance sheet, our inventory at the end of 2021 was $61.4 million, up from $50.6 million at the end of 2020. The increase reflects the need to stock long-lead items and strategic items as a result of increased customer orders as well as ongoing component shortages. We try to keep our inventory levels at a lower level, but given the current environment, sometimes the need to stock key and long-lead items arises. Our trade receivables are now at $118.3 million, up from $107.4 million at the end of 2020. Our DSO now stands at 149 days, the same as in Q4 2020. Net cash used in operating and investing activities for the fourth quarter was $17.1 million. Net cash provided in financing activities for the fourth quarter was $2.9 million. Looking forward, we continue to expect strong operative demand alongside continued uncertainty. Although the situation remains volatile, we believe that we are maintaining good control and are well positioned to take full advantage of long-term opportunities. We are targeting revenue growth in 2022. Assuming the global component shortages, supply chain disruption, and shipping issues will calm down, we expect yearly revenue to be between $305 million to $320 million with improvement in our gross margin. Our long-term non-GAAP gross margins will remain in the range of 33% to 34%. With that, I'll now open the call for questions.

Operator, Operator

Thank you. Our first call today comes from the line of Alex Henderson from Needham. Alex, please go ahead.

Alex Henderson, Analyst

A couple of questions. The first is on the book-to-bill for 2021. You characterized it as 'strong.' Most companies year-end, because of the unusual circumstances, are giving a little bit more granularity on what their backlog looks like, and I was hoping you could provide us a little more granularity as well.

Doron Arazi, CEO

I would just say that overall our backlog has increased. If we compare our situation to the beginning of the year, this obviously gives us a higher level of confidence in delivering in 2022.

Alex Henderson, Analyst

All right. The second question I'd like to ask is, relative to the outlook, you gave a full year, but no commentary on the first quarter. Can you give us any sense of how you think the growth over the course of the year will progress? I assume it's supply constrained in the first half of the year and therefore lower growth in the first half, with a little higher growth in the back half? And could you give us a better qualification of what you mean by the supply conditions becoming more normalized? What do you mean by that exactly? Your language is a little bit imprecise. It's hard for us to understand. Are you saying that you're now expecting the supply conditions by year-end to be normal, or are you saying that you'll still be constrained through year-end in your expectations of 5% to 10% growth?

Doron Arazi, CEO

I will try to give you an answer about the supply chain and then I will turn the answer to Ran to be more specific about Q1, Q2. The supply chain environment is very turbulent, and while we were able to resolve some of the component issues we had during Q4, there are still other component issues that we are not able to resolve yet. And that, obviously, creates some sort of vagueness or unclarity cloud over our projection for the year. Now, based on the orders that we have put in to cover for the need of our components and the current messages coming from the different vendors, we believe that the supply of these components will become steadier during the second half of the year, and that will enable us to deliver in a more smooth and flawless way than the challenges we have faced so far. That said, it's not that we are back to what we've seen prior to this crisis in terms of regular supply, prices, and commitment and reliability of timelines. And therefore, we are taking a cautious approach, saying that the level of severity that we've seen so far will probably be with us for the upcoming quarter or two, and we believe that it will start easing up during the second half of the year.

Alex Henderson, Analyst

But just to be clear, are you assuming that there are no supply constraints in the back half of the year, or are you assuming that you can get what parts you need, and therefore no backlog issues in the back half of the year? It's an important distinction.

Doron Arazi, CEO

We don't assume that there will be no supply concerns in the second part of the year. We believe that base on the current demand we see for our products and the components that we have challenges with, these items will probably be able to resolve within the upcoming six months, and beyond that, it makes us feel more confident about the second part. We are not back to a normal situation in the second part of 2022. It's just going to come down a bit.

Alex Henderson, Analyst

Okay, one last question and I'll cede the floor and then I'll get back in queue for additional questions later. But you didn’t mention the IP-100 at all. Can you give us an update on where you are on your 100 Gig product?

Doron Arazi, CEO

Yes, we didn't mention it because there's no significant change relative to our discussions in Q3. So we are moving forward with productizing the chip itself, and as we've said, assuming timelines are kept by the supply chain industry for the chip, we believe that we will have the chip ready and productized by the end of 2022. In parallel, we'll start developing the products that will be based on this chip, and we hope to start presenting or launching these products to the market towards the end of 2023 or beginning of 2024. That has not changed relative to my previous discussions and announcements.

Alex Henderson, Analyst

I'll cede the floor and get back in queue. Thanks.

Operator, Operator

Thank you, Alex. Our next question today comes from the line of George Iwanyc from Oppenheimer. George, go ahead.

George Iwanyc, Analyst

Hello, Doron and Ran, can you hear me now?

Doron Arazi, CEO

Yes, George, hi.

George Iwanyc, Analyst

Thank you. So, just maybe following up a little bit about the supply chain and the backlog, when you look at your guidance for the full year, are you anticipating actually starting to burn down your backlog, or do you expect it to be relatively flat and that the inventory you have on hand gives you some confidence in being able to grow, and then if things change, either positively or negatively, that’s where you move within the range?

Doron Arazi, CEO

First of all, the nature of the backlog is that you consume it, but it is actually filled up by new orders or new bookings. We believe that our bookings for next year are going to be at least as strong, if not even stronger than the bookings this year. So, obviously we're going to consume this backlog, but because the customers are expecting us to deliver, but all in all, we expect to see growth in our business and in our bookings. So, if you look at the end of 2022, we believe that our backlog will be at the same value or even higher.

George Iwanyc, Analyst

With the 5G activity that you’re seeing, it looks like you added two new design wins. Are you starting to deliver on the base that you have there either in North America or Europe? And what type of momentum do you have on actually starting to deliver on 5G?

Doron Arazi, CEO

So, it depends. For the more traditional and available products such as the IP-50E and 50C, we are seeing, as I said in the script, a strong demand, and actually for at least 50C, less than a year since launch and the 50E slightly longer than that. The amounts that were basically ordered, and obviously delivered are quite significant, but obviously just to start, we believe that these amounts will increase further as we move into 2022 for two reasons. First of all, we see more demand coming from a broader range of customers or potential customers that are now starting the rollout, and secondly, because there are some regions that have not started yet their 5G rollout. So, the combination of these two elements gives us optimism about increased demand for our IP-50E and 50C. That said, obviously the trials, especially when you are talking about very prominent Tier 1 operators of the world, is not something that you can underestimate. It takes time; it takes at least six months, sometimes even nine months, until the product has been trialed in the labs and in the field, before we get the final approval to start working with the procurement and with the different circles or markets. So, that's a lengthy process. I believe that at least for the North America trials we will start seeing orders in the second part of 2022. In Europe, they’ve just experienced our IP-50FX, which is actually a brand-new product and we just initiated and launched the first version, and they are looking into a second version that will come within a couple of months that will be even more robust, and it's a lengthy process. But from my perspective, it's a very good sign for the longer future.

George Iwanyc, Analyst

Okay, and Doron, one more question for you. On the managed services and the disaggregated routing, the new efforts that you're putting in, how quickly do you think that becomes a meaningful part of your overall revenue mix? And does this offer an opportunity to reengage with some customers that you may not have been either selling to recently or maybe driving incremental amounts of business with them?

Doron Arazi, CEO

I think that generally speaking, all opportunities are open for us in this domain. I will refer to the cell site router and the managed services separately. In the cell site router domain, I can tell you that we are getting a lot of interest. Some of this interest is coming from existing customers. Some of it is coming from new prospects. And we have a very nice list of potential prospects that we have started discussions with. Some of them are in more advanced stages; some of them are in less advanced stages; some of them are in trials, and some of them have finished trials and they want to move to the next stages. It will take us some time. I don't think that 2022 will see a very, very significant amount of revenue coming from this business, but I do expect us to have a nice ramp-up in bookings. As to the managed services, I think that the more we talk with our existing customers, the more we see their needs for more sophisticated tools to run and operate the transport network after deployment. So, on the one hand, we have a very nice list of existing customers whom we have already engaged with partially or fully. At the same token, there is a very nice list of new customers. Some of them we have just finished trials for a few months, and they are very happy with us. I expect us to gain multimillion-dollar business in the upcoming quarter or two quarters. Some of them are in the private network domain, and there we also are in a position to win the first win, but the potential is huge. So generally speaking, it's a combination. Obviously, when we will be able to announce these wins in more detail, we will be announcing them. But generally speaking, I feel that the start is obviously coming from existing customers, but there are many opportunities that we see with some new prospects.

George Iwanyc, Analyst

All right. And Doron, just a couple of questions to finish up with you. On the gross margin side, are you seeing any success with maybe raising your own prices to offset some of the pressure there? And you talked about having confidence in returning to the 33% to 34%, 35% type of area long term. Do you expect much relief this year on the gross margin side, maybe below 30%?

Doron Arazi, CEO

Let me first answer the first question about increasing prices to customers. Yes, we have succeeded in increasing our prices to some of our customers. We actually launched a very detailed and specific plan per region. In some cases, we've been quite successful. In some cases, I would say it's more challenging, but this will contribute to the gross margin for 2022. Coupled with, I would say, some relief in the supply chain and the component shortages, which have taken a toll on us in the past few quarters. As I mentioned in my prepared remarks, if we didn't have these constraints, our gross margin would have been better by 3%. So I don't expect that all of this will ease in 2022. I do expect some easing in the gross margin, about 1% compared to 2021 and 2022.

George Iwanyc, Analyst

Great. And my last question is on the OpEx side. With the FX impact that you're seeing and the tight hiring market as well, and how attractive engineers are and all that, do you anticipate having your OpEx level go up to $22 million a quarter, or how do you see it on a quarterly basis through the year?

Ran Vered, CFO

I think that actually Q4 represents relatively what we expect or a little bit higher in 2022 because of two factors. First, is indeed the salary pressure on engineers in Israel, and second, is the foreign exchange here in Israel that, although has rebounded a little bit in the past months, we do expect a negative impact on it in 2022. All in all, we do expect the OpEx to be higher than in 2021 on average, and to be closer to what we had in Q4 or a little bit more than that.

George Iwanyc, Analyst

Thank you very much.

Doron Arazi, CEO

Thanks, George.

Operator, Operator

Thank you. Our next question comes from the line of Rommel Dionisio from Aegis Capital Corp. Please go ahead.

Rommel Dionisio, Analyst

Good morning, Doron and Ran.

Doron Arazi, CEO

Hi, good morning.

Ran Vered, CFO

Hi, good morning.

Rommel Dionisio, Analyst

You mentioned reengineering some of the products to help improve gross margins going forward. Is that something that could impact 2022, or will it take a little longer to see the benefits of those initiatives? Thanks.

Doron Arazi, CEO

It depends because this initiative is a widespread effort. Some of them are relatively small in terms of time that need to be invested, and immediately after that, we can enjoy the new design. So in this regard, a portion of it will also impact positively our gross margins in 2022. Some of them are much bigger initiatives, and obviously, will have a very nice impact in 2023 and beyond that. But the short answer is, we expect this redesign to have a partial contribution to the gross profit and gross margin in 2022 as well.

Rommel Dionisio, Analyst

Okay. During your prepared comments, as you were going through the geographies, you talked about, I think, a restructuring in North America. I wonder if you could just give us a little more granularity on the rationale and the plans for that, please?

Doron Arazi, CEO

Yes. In North America, our traditional business was focused on Tier 1 operators. We had a very fruitful partnership with some partners in this particular region to sell our products to smaller ISPs and to a certain degree, private networks. But the focus was mainly on Tier 1 operators. Now what we want to do is to increase our focus on the Tier 3, Tier 4 ISPs and private networks by implementing a slightly different strategy. In places where they are seeking for a one-stop shop, we want to provide them with a full network solution using the great ecosystem that we have with access vendors, with core vendors, and the fact that we have been doing that for a while in other regions. Obviously, we are going to handle this strategy with high sensitivity so that we will continue also the strong partnerships that we have, but we see this as an unserved market of small players who do not have a single vendor that they can rely on for all their needs, whether they lack the knowledge in private networks or do not have the capacity to have the expertise in-house. We believe that this target market also has a good opportunity for managed services, and for that, we have actually changed our sales organization and also the technical staff so that we can really focus on this unserved part of the market and win business there.

Rommel Dionisio, Analyst

Great, thanks very much.

Doron Arazi, CEO

Thank you, Rommel.

Operator, Operator

Thank you. Our next question comes from the line of Alex Henderson from Needham. Please go ahead.

Alex Henderson, Analyst

Great, thanks. I have a couple of questions. You mentioned the U.S. private networks and Tier 2 through 4. Can you provide an update on your relationship with Cambium and how that business is progressing?

Doron Arazi, CEO

We have a great relationship with Cambium, and we are having, I would say, recurring goals and discussions about continuing our partnership and strategizing our strategy in light of what we see in the market. I'm speaking with Atul almost every month, at least once a month, and we intend to continue this collaboration because they are augmenting the needs of their customers with our products and in some cases, by the way, not only in North America but also in other regions. We are enhancing our offering with their products, so this partnership is fruitful and will continue for sure.

Alex Henderson, Analyst

Do you expect them to benefit from RDOF and therefore see a meaningful acceleration in that business, as well as potential for your strategy here to capture some of the RDOF business?

Doron Arazi, CEO

The short answer is yes. The longer answer is that the nice thing about our partnership between us and Cambium is that they've decided they don't want to be involved in providing services; they just want to sell their products. We have a different strategy, and we believe that with our experience and software tools, we can provide very robust services. Therefore, in many cases, when they come across opportunities for their funnel, where the value-added reserves cannot provide the end customer with the services they expect them to provide, we step in and take responsibility. We have recently seen a few such opportunities and I hope this stream of opportunities will continue, and I'm sure that we'll be able to collaborate with them further.

Alex Henderson, Analyst

Well, the RDOF stuff should drive Cambium's business. Excluding that services base, I would assume that would also drive acceleration demand for your products through that channel?

Doron Arazi, CEO

Yes. Yes, that's true, but for me, that's natural, and it's part of my anticipation for further growth in North America.

Alex Henderson, Analyst

When do you think that will kick in?

Doron Arazi, CEO

I believe that we can see more business coming probably towards the second part of the year because let's not forget, the process is filing applications and asking for grants. It's not a process where you just make your decision and go to the next value-added reseller and ask for this amount of equipment of microwave and this amount of unlicensed. It's a process, and I've seen a lot of activities from different ISPs filing for grants. It takes time. It's not something that happens overnight. But I do believe that we have a good chance to start seeing an increase towards the second part of 2022.

Alex Henderson, Analyst

You mentioned service a number of times. Is it additive to the growth rate in 2022 in a meaningful fashion? Can it add a percentage point to the growth rate, or is it more of a 2023, 2024 contribution to growth?

Doron Arazi, CEO

I don't think that a huge increase in our services beyond the traditional business is baked into our projections. Since we are aiming to manage services, the ramp-up is usually reflected in the revenue later on. So I think it's a buildup for further growth in 2023 and beyond.

Alex Henderson, Analyst

And will the gross margin benefit or be hurt by services, Doron?

Doron Arazi, CEO

Our assumptions and our use cases are showing that eventually this could help our gross margins. Remember, managed services is not just about replacing humans with humans. It's also about bringing sophisticated software tools that can be used remotely to add real value for the customers. In this regard, for software and for software that provides value to customers, especially in North America and Europe, customers are willing to pay. So all in all, we believe it will contribute positively to our gross margins.

Ran Vered, CFO

But just to add on that, Alex, I share the same view as Doron that it will positively contribute to the gross margin. Although usually in the first period, six months to nine months, we do require to have some more, I would say, incremental investment that will pay off over time. We have actually been seeing this in the managed services agreement we announced approximately a year ago, nine months ago with a U.S. provider. So we see an improvement, and we also see opportunities in this engagement for upsell, which also contributes positively to the gross margin.

Alex Henderson, Analyst

Could you discuss the mix going forward? One major factor affecting your gross margins is the geography of your sales. India performed well in 2021, and you've had significant success in both Europe and the U.S., which typically offer much higher margins. Will we observe a shift towards higher-margin geographies in 2022 and 2023?

Doron Arazi, CEO

We believe that in North America and Europe, the trend of stronger business and higher business than in the past will continue. Just for you to remember, actually, the strong year we had in Europe and North America unfortunately, due to the component issues, was not fully converted into our revenues yet and obviously, this is a very nice part of our backlog to be consumed next year. Generally speaking, if the issues of the supply chain calm down partially as we expect, we do expect the revenue of Europe and the revenue of North America to become a larger portion as opposed to India unless the growth we are seeing or planning for in India will be even bigger. In that case, we'll see absolute numbers increase in both or in the three regions, which will obviously make us very satisfied because we may even be able to exceed the guidance we just provided.

Alex Henderson, Analyst

Just a couple of quick ones. The Peru build-out, is that now completed?

Doron Arazi, CEO

Not yet. There were some challenges due to COVID that basically held this project back. And also due to some changes in the government, there are some delays. I would say that at least one of the regions is about to be finished very shortly, and the other two regions will follow, obviously depending on the discussions with the government and how they want us to continue with this project, given the COVID situation and its impact on the economy there. So it's not ended yet, but we believe that probably it will conclude towards the end of 2022, possibly slipping into the first half of 2023.

Alex Henderson, Analyst

Okay. Last question, and then I'll cede the floor. The IP-50FX, I heard you say three trials in Europe, one trial in Latin America. I think you said that you expect trials in the U.S. in the second half of 2022. Is that all of the trials, or can you aggregate them and give us a totality of your trial expectations so that we have a little bit better feel for it? It's a little bit disjointed.

Doron Arazi, CEO

We are talking about a list of tens of trials across the globe. North America is not there yet because they are focused on what we call 4G Plus, which is actually expanding capacity. By the way, the Tier 1 operators in the region were already introduced to this product in the past, so they know that it exists. In terms of priorities, at this point, their approach is slightly different. We are seeing numerous trials or stages of trials happening in Europe, Asia, and Latin America. I don't think I missed any significant ones. I think that even in Africa, there's a trial starting now.

Alex Henderson, Analyst

So tens of trials implies 20-plus trials kind of thing?

Doron Arazi, CEO

Yes, we have a list of over 20 trials. Some of them we weren't even able to start because we didn't have much equipment available for trials. We are speeding up, and we intend to catch up in this quarter, Q1.

Alex Henderson, Analyst

I have two final points regarding that question. First, what is the gross margin impact of this product once it matures? I assume it involves a significant amount of software and thus enhances gross margins. Also, does it influence your other products as well? Thank you.

Doron Arazi, CEO

So yes, we expect the gross margins to be higher. Obviously, region by region, we're analyzing it. Generally speaking, the idea is that this product can also connect with our all-outdoor solutions as an indoor unit and serve the market that is still seeking for split mode solutions. Furthermore, in one of the future versions, this software of the radio-aware product will also be able to connect to third-party radios, giving even much higher flexibility to potential customers, making it a much more cost-effective solution.

Alex Henderson, Analyst

Perfect, thanks.

Operator, Operator

We have no further questions. Please proceed.

Doron Arazi, CEO

In closing, allow me to reiterate that in 2021, we enjoyed strong bookings and healthy revenues. We were able to contain the impact of the crisis around us. I sincerely thank our employees for the enormous endurance and creativity they showed in these extraordinary times. While in the short run, we expect to be dealing with the same issues, the continued strong demand from our customers brings us optimism. We expect market share growth and margin expansions in the mid and long run. Our goal is to create equal digital opportunities for all people around the world, whether they are in an urban setting or in a rural area. We work to bring reliable communication capabilities everywhere. I look forward to updating you further on our next call. Have a good day, everyone, and thank you.

Maya Lustig, Head of Investor Relations

Goodbye.