Ceragon Networks (CRNT) Q4 2021 Earnings Call Transcript

Ceragon Networks (CRNT 1.09%)
Q4 2021 Earnings Call
Feb 07, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Ceragon Networks fourth quarter and full year 2021 earnings conference call. [Operator instructions]  As a reminder, this conference is being recorded there. It is now my pleasure to introduce your host, Maya Lustig, head of investor relations for Ceragon. Thank you.

Now may begin.

Maya Lustig -- Head of Investor Relations

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 deviation 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 that was 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 date 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 will prove to be accurate. Ceragon may elect to update these forward-looking statements at any point in the future, but it specifically declaims 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 -- Chief Executive Officer

Thank you, Maya, and good morning, everyone. We had a relatively good end to a highly challenging year. I am pleased to share with you that we delivered at the high end of our projected annual revenue range at $291 million. But 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 maintain 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 come down, and we will see improvements in the second half of 2022.

Until then, we are looking to overcome component shortages, and looking into 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 a break even point for the second half of 2021 if it weren't for higher than expected financial expenses. Ron will elaborate on this further. In 2021, the majority of our business came for 4G. That said, 5G is growing fast, especially in North America, Europe, and to a certain degree in APAC.

I am very pleased with the fact that in these regions, our 5G bookings made up for over 1/3 of all bookings. In two to three years, we expect our business to mostly come from 5G. This past year, we continue to win in our domain by focusing on best in class all outdoor microwave and millimeter wave market segments. Our recent product such as the IP-50E, and the IP-50C with our SD and suite made strides in the market.

We engaged with [Inaudible] tries and orders with an increasing number of prominent market players, and other tier 1s. "When did this year selling quite significant quantities of IP-50E and IP-50C equipment?" This is a great achievement, especially given the relative short-time passed since the launch and given the fact that we don't have all frequencies available yet. We all know core domain, I am pleased to share with you that the 5G era provides us with many opportunities, from open run to this aggregated sense like routers, and to this aggregated wireless transport. The trend toward opening the network is strong.

Our broad strategy for this aggregated the wireless transport with the round software, and layer three routing capabilities position us ahead of the curve. In Q4, we partnered with IP infusion. So with this partnership, we are delivering the industry's first radio where this aggregated cell site router. In parallel, we just launched our IP-50FX, this aggregated cell site gateway solution.

It is now generally available for sale and deployment. Disaggregated routing is an open wireless transport architecture. The 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 cell site elements into a single scalable product and 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 am also proud to share with you that our new IP-50FX has been awarded, the prestigious telecom infra project requirement compliant ribbon, and is listed on TIP Exchange. TIP 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 this aggregated, 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 TIP ribbon, is 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. IP-50FX gives us them first mover advantage, helping us to grow market share in the $4 billion wireless transport, and in 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 with our managed services offering. While smaller carriers and private networks benefit the most from this, large companies tour to us as well to provide them with either partial, or full services for operating the transport network. One example is our recent engagement with Globacom, on which I will elaborate later. We have a presence in 140 plus countries, 50 of them strongly so.

We have served more than 2000 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, giving us more visibility, reduce the lumpiness of our business results, and improve our gross margins. We have just ratified our meet a 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 sell side 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 give you an overview per region. In North America, although bookings in Q4 a little bit lower than in previous ones, overall, 2021 was a record year for us.

Our 5G design win customers generated more than 50% of the booking for this region. In Q4, I am pleased to report that our lab tests with our Q1 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 RFPs. In Europe, we had another strong quarter.

We want two tenders with Railway Italy's national TV and radio network provider to renew, and maintain their wireless transport network infrastructure. We successfully finished IP-50FX, B or C with a leading Q1 operator. We will be undertaking as the enterprise with another operator, and IP-50FX [Inaudible] with a third operator. The future of 5G in Europe is strong, and we feel confident about all these drives.

When we look at our activity in 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 more than 30% of the annual bookings for this region. In APAC, while there have been signs of a 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 remains challenging. The South Cone was adversely impacted by the economic crisis. The rest of Latin America, too, experienced a variety of different challenges, including COVID.

All that said, we have a new customer in Mexico whose 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. We are doing our best to take part in such projects.

In Africa, we had a very strong second half. We receive booking from a tier one operator worth $5 million. We signed and received bills for a multimillion dollar deal with Globacom, a tier one 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 to not only enhance their existing subscribers quality of experience, but also to expand the 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 tier support. With that, let me now turn the call over to Ran to discuss the financials for the quarter. Ran.

Ran Vered -- Chief Financial Officer

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, will refer you to today's press release. Like the 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 one. Let me now review the actual numbers with you. Revenues for the quarter were $77.8 million up 5.1%, compared with $74 million in Q4 last year. This was achieved despite the highly challenging environment we find 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 many customers in the region, and the line with the strong demand we are seeing 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 Colombian tier one operating customer whose agreement we announced back in March 2021, with two above 10% customers in the first quarter. For the year, our revenues will almost $291 million, up almost 11% from 2020.

This reflects our ability to keep up with the strong winds to demand while experiencing even during such challenging times. Gross profit for the first quarter on a non-GAAP basis was $22.6 million, giving us a non-GAAP gross margin of 29%, similar to the first quarter of 2020. As Doron mentioned, if it wasn't for the component shortages, and surging shipping costs, a 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 an non-GAAP basis for the first quarter was $21 million in line with our expectations. Research and development expenses for the first quarter on a non-GAAP basis was $7.7 million similar to Q4 2020. Selling and marketing expenses for the first quarter on a non-GAAP basis worth $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 administrative expenses for the fourth quarter on an ongoing basis with four point six million dollars slightly lower than our expectations. Financial and other expenses for the first quarter on a non-GAAP basis were $2.7 million. In the first 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 focus. Our tax expenses for the first quarter on a non-GAAP basis was $0.9 million. This is in line with our early expectations. I would now like to spend a couple of minutes on our tax line, in our GAAP numbers as this 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 assets 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 that reflected tax benefit we anticipated as a result of utilizing our annuals against taxable income in Israel in the following years. This also meant that we were expected to record higher tax expenses on a GAAP basis in the following years.

This was an indication of our strong performance back in the day, as well as all expectations for continued strength. However, since in the past three years with a [Inaudible] net losses on a GAAP basis, according to the [Inaudible] guidelines, we now have to write off the tax offset. Net loss on a GAAP basis for the quarter was $2 million or $0.2 per diluted share. That's our balance sheet of inventory in the end of 2021 was $61.4 million, up from $50.6 million at the end of 2020.

The increase reflects our need to stock long lead items in strategic items as a result of increased customer orders, as well as ongoing component shortages. We strive to keep our inventory levels at the lower level, but given the current environment, sometimes the need to stock key and long lead item arises. Our trade receivables are now at $118.3 million, up for $107.4 million at the end of 2020. Our DSOs now stands at 149 days same year in Q4 2020.

Net cash used in operating and investing activities for the first 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 cooperative demand alongside continued uncertainty. Although, the situation remains volatile, we believe that we are maintaining good control in the 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 in shipping issues will come down, we expect yearly revenue to be between $305 billion to $320 billion with the improvement in the gross margin. Our the long-term non-GAAP gross margins remain in the range of 33% to 34%. With that, I now open the call for questions.

Operator

Questions & Answers:

Operator

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

Alex Henderson -- Needham and Company -- Analyst

Oh. Yep. A couple of questions. The first is, on the book-to-bill for '21, you characterized it as a "strong".

Most companies year end because of the unusual circumstances are giving a little bit more granularity to what that their backlog looks like. And I was hoping you could provide us a little bit more granularity as well. 

Doron Arazi -- Chief Executive Officer

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

Alex Henderson -- Needham and Company -- 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 was 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 expectation, the 5% to 10% growth?

Doron Arazi -- Chief Executive Officer

I will try to give you an answer about the supply chain, and then I will turn to the answer to Ran, to be more specific about Q1 Q2. The supply chain environment, it's very turbulent. 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 vagueness or unclarity cloud over our projection for the year. Now, based on the orders that we have put up to cover for the need of our components, and the current messages coming from the very 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 I would say, more smooth and flawless a way that the challenges we have faced so far. Said that, it's not that we are back to what we have seen prior to this crisis in terms of irregular supply, prices, and a commitment, and reliability of timelines. And therefore, we're taking a cautious approach, saying that the level of severeness 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 -- Needham and Company -- Analyst

Well, just to be clear, are you assuming that there's 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 -- Chief Executive Officer

We don't assume that there will be no supply constraints on the second part of the year. We believe that based 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 on the second part. We are not back to normal situation on the second part of 2022. It's just going to calm down a bit.  

Alex Henderson -- Needham and Company -- Analyst

OK. One one last question, I'll see 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 the 100 get product? 

Doron Arazi -- Chief Executive Officer

Yeah. We didn't mention it because there's no significant change relative to our discussions in Q3. So we're moving forward with productizing the chip itself. And, as we said, assuming timelines are kept by the supply chain industry of the chip, we believe that we'll have the chip ready and productized by the end of 2022.

In parallel, we will start developing the products that will be based on this chip, and we hope to start presenting or launching these products to the market toward the end of 2023 or beginning of 2024. That has not changed relative to my previous discussions in the announcements.

Alex Henderson -- Needham and Company -- Analyst

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

Operator

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

George Iwanyc -- Oppenheimer and Company -- Analyst

Hello, Doron and Ran. Can you hear me now? 

Doron Arazi -- Chief Executive Officer

Yes, George, hi.

George Iwanyc -- Oppenheimer and Company -- 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 -- Chief Executive Officer

First of all, you know, the nature of the backlog is that you consume it, but it is actually filled up by new orders on your booking. We believe that our booking for next year is going  to be at least as strong, if not even stronger than the booking this year. So obviously, we are going to consume this backlog, but because customers are expecting us to deliver. But all in all, we expect to see a 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 -- Oppenheimer and Company -- Analyst

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

Doron Arazi -- Chief Executive Officer

So it depends on the more traditional and the available products such as the 50E, 50C. We've seen as I said on 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 the 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 more customers or potential customers that are now starting to roll out; and secondly, because obviously there are some regions that have not started yet the 5G rollout. So the combination of these two elements gives us optimism about increased demand for our 50E and 50C. Said that obviously, the trials and especially when we are talking about a very prominent tier one operators of the world is not something that you can kind of underestimate. It takes time, it takes at least six months, sometimes even nine months, until the product has been tried in the labs and in the field before we get the final approval to start working with the procurements, and with the different circles of markets.

So that's a lengthy process. I believe that at least for the North America, [Inaudible] we will start seeing orders in the second part of 2022. In Europe, they've just -- tried our IP-50FX, which is actually a brand new product, and we just initiated the launch the first version, and they are looking into a second version that will come within a couple of months, and that will even be more robust. And it's a a lengthy process, but from my perspective, it's a very good sign for the longer future.

George Iwanyc -- Oppenheimer and Company -- Analyst

And drawn 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 amount of business with them? 

Doron Arazi -- Chief Executive Officer

I think that, generally speaking, all opportunities are open for us in this domain. And I will refer to the sense like router, and the managed services separately. In the sense like 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 our new prospects, and we have a very nice list of potential prospects that we have started discussions.

Some of them are in more advanced stages, some of them are in less advanced stages. some of those are in trials. some of them have finished trials, and they want to move to the next to the next stages. It will take us some time.

I don't think that 2022 will have a very, very significant amount of revenue coming from this business. But I do expect us to have a nice ramp up in booking. 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 basically 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 a trial for a few months, and they are very happy with us, and I expect us to get the business in a multimillion dollars in the upcoming quarter or two quarters. Some of them are in the private network domain, and then 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, I would say details, we will be announcing them. But generally speaking, I feel that the star is obviously coming from existing customers. But there's many opportunities that we see with some new prospects.

George Iwanyc -- Oppenheimer and Company -- Analyst

And Ran, just a couple 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 low 30%?

Ran Vered -- Chief Financial Officer

So, let me first answer the first question about increasing prices to customers. Yes, we have succeed a increase our prices to some of customers. We actually launch a very detailed and specific plan every region in some of the cases, and we've been quite successful in some of the cases. I would say it's more challenging, but this is going to contribute a for the gross margin for 2022.

And coupled, I would say, a some relief in the supply chain and a in the component shortages, which have been a toll for us in the past a few quarters. As I mentioned, in my prepared remarks, if it would have been a would these constraints, a loss margin would have been better by 3%. So I don't expect that all of this will ease in 2022. I do expect a some ease in the gross margin [Inaudible] and better gross margin.

I would say about 1% compared to 2021 in 2022.

George Iwanyc -- Oppenheimer and Company -- Analyst

And my last question is on the opex side. With the effects impact that you're seeing and the type of 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 -- Chief Financial Officer

So I think that actually Q4 represent a relatively a what we expect or a little bit higher in 2022 because of the, I would say two factors; first, is indeed a salary pressure on engineers on Israel; and the second one, is a the foreign exchange here in Israel that although it's been a rebound a little bit in the past months, according to our forecast, we do expect a negative impact on it in 2022. So all in all, we do expect the opex to be higher than in 2021 on the average, and to be more close to what we have in Q4 of a little bit more than that.

George Iwanyc -- Oppenheimer and Company -- Analyst

Thank you very much.

Ran Vered -- Chief Financial Officer

Thanks, George.

Operator

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

Rommel Dionisio -- Aegis Capital -- Analyst

Good morning, Doron and Ran. 

Doron Arazi -- Chief Executive Officer

Hi, good morning. 

Ran Vered -- Chief Financial Officer

Morning.

Rommel Dionisio -- Aegis Capital -- Analyst

As you mentioned, Doron, you talked about reengineering, or maybe it was Ran. You're talking about reengineering some of the products to help improve gross margins going forward. Is that a factor that could impact 2022? Or will that take a little bit longer to see the benefit of some of those initiatives? Thanks. 

Doron Arazi -- Chief Executive Officer

It depends because this initiative is a wide spread of the effort. Some of them are relatively small in terms of time that need to be invested. And immediately after that and enjoining 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, we'll have a very nice impact on 2023 and beyond that.

But the short answer is at least partially, we expect these kind of [Inaudible], so to speak, redesign to have a partial contribution into their gross profit and gross margin, obviously of 2022 as well.

Rommel Dionisio -- Aegis Capital -- Analyst

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

Doron Arazi -- Chief Executive Officer

Yeah. Then, in North America, our traditional business was focused on the tier one operators. And yes, we had a very fruitful partnership with some partners in this particular region to basically sell our product for the smaller, higher speeds and to a certain degree, private networks. But the the focus was primarily on the tier one operators.

Now, what we want to do is to increase our focus on the tier three, tier four, ISPs, and private networks by coming with a slightly different strategy in places where they are seeking for a one stop shop. We want to provide them with the full a network solution using the great ecosystem that we have with the access vendors, with the 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 in a very high I would say sensitivity so that we will continue also the strong partnerships that we have. But we see this, I would call it, unserved market of smaller players who do not have one throat to choke in terms of one is stop so that can serve them.

And either they don't have the knowledge if it's coming from the private networks or they don't have the capacity to have the expertise inhouse. And we believe that this target market also have a good opportunity for many services. And for that, we've actually changed our sales organization and obviously, also the technical people so that we can really focus on this unserved part of the market, and win a business that. 

Rommel Dionisio -- Aegis Capital -- Analyst

Right. Thanks very much. 

Operator

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

Alex Henderson -- Needham and Company -- Analyst

Great. Thanks. A couple of questions since we start, you're just we're talking about the U.S. private networks in tier two, three or four.

Can you update us on your relationship with Cambium and whether that's growing or how that's how that business is doing?

Doron Arazi -- Chief Executive Officer

We have great relationship with Cambium and we are having recurring calls, and discussions about continuing our partnership and strategizing or actually finalizing our strategy in light of what we see in the market. I'm speaking with a tool almost every month, at least every at least once a month, and we intend to continue this collaboration because basically 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 augmenting our offering with their product, so this partnership is fruitful and will continue for sure.

Alex Henderson -- Needham and Company -- Analyst

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

Doron Arazi -- Chief Executive Officer

The short answer is yes. The longer answer is that, the nice thing about our partnership between us and Cambium, is that they decided that they don't want to be involved in providing goods 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 a very robust services. And therefore, in many cases where they come across opportunities for their funnel, where the value added reseller cannot provide with the services that the end-customer is expecting them to provide.

And it happens. We are getting into the picture and they're taking responsibility. And we have seen a couple of such opportunities just recently and I hope that this stream of opportunities will continue, and I'm sure that we will be able to collaborate with them further.

Alex Henderson -- Needham and Company -- Analyst

Well, [Inaudible] should drive Cambrian business excluding that services fees would assume that would also drive acceleration in demand for your products through that channel. 

Doron Arazi -- Chief Executive Officer

Yeah. That's true. But for me, that's natural, and it's part of my anticipation for further growth in North America --

Alex Henderson -- Needham and Company -- Analyst

When do you think that will kick in?

Doron Arazi -- Chief Executive Officer

Sorry?

Alex Henderson -- Needham and Company -- Analyst

When do you think that will kick in as a driver?

Doron Arazi -- Chief Executive Officer

I believe that we can see more business coming probably toward the second part of the year, because let's not forget the process is filing applications, 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 a microwave and this amount of equipment of a unlicensed. It's a process, and I've seen a lot of activities of different a ISPs filing for grants. It takes time.

It's not something that happens within a second. But I do believe that we have a good chance to start seeing an increase toward the second part of 2022.

Alex Henderson -- Needham and Company -- Analyst

You mentioned service a number of times. Is it additive to the growth rate in '22 in a meaningful fashion? Can it out a percentage point to the growth rate? or is it more of a '23 '24 contribution to growth?

Doron Arazi -- Chief Executive Officer

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

Alex Henderson -- Needham and Company -- Analyst

And with the gross margins benefit or be [Inaudible] by services gross?

Doron Arazi -- Chief Executive Officer

Our assumptions and our use cases are showing that eventually this could help our gross margins. Remember, the idea behind managed services is not just to replace human beings by human beings, it's also to come with sophisticated software tools that can be used remotely to really bring value to the customers. And for software that provides value customers primarily in North America, Europe developed countries are willing to pay. So all in all, we do believe that it will contribute positively to our gross margins. 

Ran Vered -- Chief Financial Officer

But just just to add on that, Alex, I see the same view as the Doron that it will be positively contribute to the gross margin, although usually in the first period, six months, nine months we don't required to have some more, incremental investment that would pay off over time. We actually have been seeing it in the managed services agreement. We announced, I think a year ago, or nine months ago with the U.S a provider. So we see actually an improvement, and we see also some opportunities in this engagement for upsell, which also contribute positively to the gross margin.

Alex Henderson -- Needham and Company -- Analyst

Can you talk about next as we go forward. One of the biggest swings in the mix, your gross margins is the geography that you're selling into. India has been strong in 2021. You've had very strong wins in both Europe and the U.S., which I think carry much higher margins, and take every feature you make available.

Will we see a mix shift from a geographic perspective to higher margin geographies in '21 and '22 and then to '23? 

Doron Arazi -- Chief Executive Officer

We believe that in North America and Europe that the trend up 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 converted into our 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 will come down partially as we expect, we do expect that the revenue of Europe, and the revenue of North America to become a bigger portion as opposed to India are less.

The growth we are seeing or planning for in India will be even bigger. In that case, we'll see absolute numbers go in both or in the three regions, which will obviously make us very, very satisfied because maybe we will be able to exceed their guidance we just gave.

Alex Henderson -- Needham and Company -- Analyst

Just a couple of quick ones, the Peru build out, is that now completed? 

Doron Arazi -- Chief Executive Officer

Not yet. There were some challenges due to the COVID. That basically had held this project progress, and also due to some changes in the government. There are some, some delays.

at least one of the regions is about to be finished very shortly. And the other two regions will follow a obviously pending discussion with the government and in how they want us to continue with this project, given the situation of the COVID and the impact on the economy there. So it's not ended yet, but we believe that probably it will end up toward the end of 2022, maybe will slip also into the first half of 2023.

Alex Henderson -- Needham and Company -- Analyst

Last question and then I'll see see the floor. The IP-50FX, I heard you say three trials in Europe, one trial in Latin America. You think you said, do you expect trials in the U.S. in the second half of '22? Is that all of the trials or if 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 -- Chief Executive Officer

We're talking. All in all, we are talking about a list of the tens of trials across the globe. North America is a not there yet, because they are focused in what we call 4G plus and which is actually expanding the capacity. And by the way, that the tier one operators in the region were already introduced to this product in the past, so they know that it exists.

But in terms of priorities, at this point, there are approaches slightly different. But we are seeing numerous trials or stages of trials; Europe, Asia, Latin America. I don't think I missed any significant one. I think that even in Africa, there is a lot there's a trial starting now. 

Alex Henderson -- Needham and Company -- Analyst

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

Doron Arazi -- Chief Executive Officer

Yes. We have a list of 20 plus trials. Some of them were not even able to start because we didn't have so much equipment available for trials were going were speeding up and we intend to catch up in in this quarter if you want. 

Alex Henderson -- Needham and Company -- Analyst

Last two points on that question. One, was the gross margin impact of these this product once it ramps, is it a I assume it's a lot of software and therefore it's accretive to gross margins? And does it pull your other products into your line as well? Thanks. 

Doron Arazi -- Chief Executive Officer

So yes, we expect gross margins to be higher. Obviously, a region by region, we're now analyzing region by region. And 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. And not only that in one of the future versions, this software of the regular ware would be able also to contact a third party radios, and that will hopefully give even much higher flexibility to potential customers to buy something that is much more cost efficient. 

Alex Henderson -- Needham and Company -- Analyst

Perfect thanks. 

Operator

You have no further questions. Please proceed.

Doron Arazi -- Chief Executive Officer

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. Well, in the short run, we expect to be dealing with the same issues, continued strong demand by 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.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Maya Lustig -- Head of Investor Relations

Doron Arazi -- Chief Executive Officer

Ran Vered -- Chief Financial Officer

Alex Henderson -- Needham and Company -- Analyst

George Iwanyc -- Oppenheimer and Company -- Analyst

Rommel Dionisio -- Aegis Capital -- Analyst

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