Alex Henderson. I'm the networking and security analyst at Needham. It's a pleasure to have Ceragon here today. There's been a ton of very good news out of the company over the last week or so. First announcing a major $150 million multi-year contract, and then this morning putting out some numbers which are quite robust, you know, on terms of both the fourth quarter and the guide for 2024 and beyond. A longer-term target was also brought up. Based off of those numbers, looks like there's good upside to our model. We continue to think the stock is significantly undervalued, and think there's good upside to both our revenue and EPS numbers, as well as expanding gross margins and operating margins.
Stock is selling under 10x EV to E on 2024 estimates, and I think that makes it a very attractive name. So with that, we've got the CEO and CFO here, and I'm gonna cede the floor to Doron.
So thank you, Alex. Good morning, everyone. As Alex mentioned, couple of good news coming up, and maybe we should start with a snapshot of where we are, and then we'll dive a little deeper into the story. So first of all, basically, we expect to end Q4 at the high end of our guidance range, which will mean an annual revenue of $346 million. And obviously, this is a great achievement. The Siklu acquisition that was closed just a month ago, more or less, is going already under the integration.
Things look good, and obviously, this is one of the important drivers for us to basically raise our guidance by advancing our target of $500 million revenue from 2027 to 2026, with improved gross margins. I will touch on that later. Outlook for 2024, $385 million-$485 million. Once again, another year of double-digit growth, and obviously leveraging this growth to generate more operating profit. So our plan is to generate at least 10% operating margin in the mid-range of our guidance. Let's talk about the investment thesis, the main highlights, and then we will obviously dive a little bit into some of them.
So first of all, since the crisis of the supply chain is behind us, we are having a very good year and very good quarters, and Q4 is also expected to be a double-digit growth over Q4 of 2022. 2024, if we look at the high end of the range of 2023 and the midpoint of the range we guided for 2024, we're talking about another year of 14% growth, which means that we are continuing with a trajectory of a very nice growth. The way we do it is primarily focusing on a few segments within our space that are the fastest growing, and I will touch on that in more details as we move along in this presentation.
The diversified growth strategy is also very important for us to be successful in this growth trajectory, but also to help us in margin expansion. More managed services or software-led services business, selling and increasing our market share in the private network space, and some other initiatives that we believe can help us continuing the growth trajectory and fueling our growth in the years to come. The recent acquisition of Siklu is obviously something that is helping us in this plan, and I will touch specifically where it helps us and how it basically improves our plans for growth.
Last but not least, before I jump into more details is obviously the chip that we've been developing. Yes, it was delayed, but we are in the final stages. In Mobile World Congress that is coming in the end of February this year, we're already going to present the chip capabilities to some of our potential customers. Many technologists, they are hanging around there, and this is the first opportunity for us to show what this chip is capable of. To whom is, who is not that familiar with our space, so wireless transport is another technology for managing the huge traffic, data traffic from the access point all the way to the core. Some may think that the fiber and wireless transport are competing.
I don't see it this way. I think that most of the optimized networks, whether these are private networks or public networks, need a combination. And the advantage of wireless transport, which is fast deployment and relatively low TCO, has a lot of play in different use cases, and this is where we are. Specifically in this space, the millimeter wave, the E-band, is going to grow in the fastest pace in the coming years, based on analyst's research. And with the acquisition of Siklu, and with the first product of E-band to be launched using our our new chip, we are going to have the, I would say, largest breadth of millimeter wave solutions to the to the market, for the market. I will touch on the chipset in more length later.
I just want to make sure that everybody understands what is the offering in general. So first of all, we have the longest haul implemented in the industry, which is more than 200 km. You need to go over a lot or to get over a lot of challenges in order to get to this kind of stuff. The other side of it is that we can also support Tier One operators, and obviously Tier Two and private networks in operating the network. We have a very strong platform that can do the analysis of the transport part of the network that is multi-vendor, multi-technology, agnostically to the different players in this part of the network, and show a full picture that can help the providers, the service providers, to optimize this part of the network.
Something that is, I would say, very rare at this point, and that is getting a lot of traction recently. In our specific network management system, we have entered into AI capabilities that can help managing congestion and traffic, predictive maintenance, and also managing the network to save on energy. The other side of the coin is obviously the technology and how fast it can help the service providers. So obviously, as I said, usually it's the fastest way to get ultra-high capacity. Ceragon specifically have the widest channel capability, 224 MHz channel, that is usually used predominantly in Western countries, and this is something that is unprecedented, and no one else in the industry have that.
That means that for the same frequency, you can actually pass much, much more traffic. And last but not least, there's a lot, a lot of discussions about the Open RAN concept, open network concept. And in this regard, we are the only vendor in the wireless transport space that have an indoor unit, a box that can serve both as the manager of radios, but at the same token, could be also a cell site router. That can save a lot of money and a lot of headache to the operators, and this is one of the things that we are very proud of, and it's something that the industry or the competition has not reached to the stage where they have this kind of solution yet.
So let's talk about the Siklu acquisition for a second and what it adds. As I said, first and foremost, with the Siklu acquisition, we have the widest breadth of millimeter wave solutions to our space. It means that on the one hand, we have low-cost products that are very suitable for small ISPs and private network use cases. At the same token, we have probably the most robust products that are all about capacity and total cost of ownership. And obviously, with the new product, the first product that we launch with our new chip, we will have the strongest E-band product in the industry. Siklu also adds to our ability to sell fixed wireless access.
This is something, this is new technology for Ceragon that we did not have in the past, and that creates a situation where we can augment our offering, not just with the wireless transport, but also helping on the access side. And this is exactly in line with our strategy to expand our offering primarily to private networks that need end-to-end solutions, and usually tend to go with a one throat to choke approach. Geographical-wise, the Siklu acquisition is going to increase our footprint in North America and also in Western Europe. Just going back to the market for a second and understand the growth catalyst and the trajectories that we see.
So first of all, it's quite clear that 5G brings more capacity and enable more capacity, and we can see on the left-hand side of the slide how big it is going to come, and what is the 5G portion of the capacity out of the total other technologies that are out there, primarily the 4G. Specifically in the U.S., but not only in U.S., and as I think as a derivative of the COVID, we see more and more investment in rural broadband. In U.S., it's very imminent, and we are participating in different grants, plans, and helping different service providers to come up with plans and to basically deploy or enhance networks. But we see also this phenomena in other regions in the world.
So I think that obviously, the essence is that there is a increasing or growing need for more capacity. The concept of open networks, that is bringing more flexibility and better TCO, is also a market, shift that is going on, although in lower pace than people were anticipated originally. The fact that you have so many technologies, is creating an increased need for outside service provider, and not in the term of service provider, but in terms of technology, that can help the operators, primarily the smaller ones, to run the network and to make sure that the operation is optimized. This is why we are embarking on the, what we call, managed services journey.
And as there are more devices and more consumers, and there's IoT of things, things are getting more and more complex, and we find that as a great opportunity for us, not just to continue supplying very strong radios for the infrastructure, but also moving up the chain and providing with some operation services that are software-led to our customers. So to summarize, this is the strategy in essence. Yes, we are very strong in the Tier One, Tier Two operators. We are perceived as one of the strongest radio vendor in the industry for many years.
But we also identify that with the 5G era and the different trends that we see in the need for more and more capacity and more and more private networks, we have an opportunity to expand our business to take a bigger piece of the pie in the private networks and small ISPs. And at the same token, also to provide not only strong radios, but also very strong tools and services to help the different operators to run their network. I will touch the chip issue for a second. So look, Ceragon is known for picking this strategy of developing their own modem chip for many years.
I will start by saying that this is a defensive strategy, because if MaxLinear, that is the only chip manufacturer nowadays, as a merchant chip manufacturer to the industry, if they decide to stop this business, maybe for Ericsson, maybe for Huawei or Nokia, it's not going to be a big deal. Maybe they can fund developing their own chip. But as a specialist, that this is what we do for our life or for our business, it's critical. And while other, so to speak, specialists are saying that they have different collaborations to overcome this topic, we put our destiny in our own hands... Now let's talk about the benefits.
The benefits is eventually being ahead of the curve with the strongest radio, and even if competition will catch up eventually, and that has happened in the past as well, so it's not a new story for us. The fact that we are there ahead of the curve, with much stronger radio and a TCO per gigabit per second, that is getting better, this is putting us in a much better position for the years to come. So a bit about financials. The trajectory, obviously, is a trajectory of growth, and once the supply chain issues are behind us, and we see a very strong demand, we truly and strongly believe that this trajectory will continue with obviously India and North America as the leading regions in our business.
In 2024, by the way, we expect the other regions to be stronger than 2023, and that will definitely fuel our growth. I don't want to touch the financials. The presentation is basically on our website, so that you can use it. I want to kind of land for a second on the long-term trajectory. So as I said this morning, we announced that we are actually advancing our target for $500 million revenue company from 2027 to 2026. Obviously, with the help of the acquisition of Siklu. I think the most important thing is that it's not just the growth in top line.
We believe that we have all the ingredients to also increase our gross margins in parallel, and if in the past we are talking about gross margins that were between 34-36, now we are talking about gross margins that will be between 35%-38%. This is a very important message for us because this will create even a bigger operational leverage that can drive our bottom line from 10% operating margin that we anticipate and target, at least, for 2024, to percentages that are well beyond that in 2026. I don't want to touch the valuation. I just want to go back to the investment highlight, highlights or thesis. So trajectory is a growth trajectory. It's a profitable growth trajectory.
The strategy is to focus on the areas in our space that are growing, fast. And technology-wise, we're talking about millimeter-wave or E-band. Market-wise, we see the evolution of more and more private networks as one of the growth fuel in the market, and we are targeting these growth drivers. And obviously, moving from an infrastructure provider to supporting the operators in running their network, this could help us create a bigger portion of recurring revenue in our business and better gross margins.
With the recent acquisition of Siklu and some other stuff that we are looking at, and with the fact that we are going to have the next generation chip, probably first one in the industry, with a very robust products to come, we believe that our story is very compelling. Obviously, as Alex said, I'm not sure about the valuation of the company relative to this ingredients of the investment thesis at this point. I will stop here and obviously give the opportunity for questions.
Any questions? Please.
So I'm not that familiar with the next-gen chip, but where exactly are we? Is it included in any of the product sales that you booked in this large contract, and who's the founder?
Yeah. So, first of all, foundry is going to be TSMC. They're going to manufacture our chip. The chip is in the final stages of post-silicon validation, and because it's in final stages, we'll be able to demonstrate its capabilities in Mobile World Congress. The first product that will be based on this chip is probably going to be launched towards the end of 2024. It's the next generation E-band product, and the product we just launched and won the business for us in the recent deal in India are not having this chip, but some of the technologies that we developed over the years, that we developed this chip, are already embedded in these new products. And because of that, we're able to reduce-...
our BOM cost for very similar performance, and even better, of existing products by 30%.
So is the long-term plan to come, to be 100% your own chip by 2026? Or to what extent are you gonna balance merchant chips?
So the idea is as follows: first of all, the fact that we have our own chip that can serve all frequencies end-to-end is actually putting our destiny in our hands. Now, based on the changes in the demand for the different frequencies in the market, we will decide whether it makes sense to us to use this chip for, for example, the next microwave product generation, or to continue using a merchant chip. It's up to us to decide, and we'll basically make the decision based on the trends and the demand that we will see in the market, and the BOM cost that we can generate.
One of the products that most probably will come after the E-band product, the first product, is a multi-band product, where in the same box, you can run two or three frequencies in parallel without the need to put two separate or three separate boxes. So this is something that I believe will come after the E-band, but as I said, it's subject to the trends of the demand that we'll be seeing in the market.
So the last part on the chip. So you expect the chip to contribute by accelerating top line and/or margin expansion together? Can you just give me a sense of what you think the financial... Is it a growth drivers? Is it margin drivers, or both?
It's both. It's both. Because once we launch the first product, in terms of total cost of ownership per gigabit per second, it is probably going to be the cheapest one, and we want to use that for both purposes. First of all, we want to expand and get a bigger market share, but at the same token, we think that there's still room also for improving our margins.
I think it's baked in into the numbers that Doron just mentioned before about the expectations to the growth of the gross margins.
Questions? Well, let me just throw some numbers out at you, because a lot of people, you know, hearing the guidance that we were thrown out, just doesn't... You gotta do the calculation on it. So based on our estimates, for 2024 and 2025, the stock is currently selling at 9.1 times EV/EBITDA on 2024 numbers, 6.7 on 2025 numbers. And if you use the $500 million target for 2026, a gross margin that improves slightly towards the 36% range and about a 12% operating margin. Based on some improvement in the interest line as cash generates, the EPS runs up into the $0.55-$0.70 range for 2026, and that takes the stock down to a very low multiple.
That would put it at 4.8x 2026 numbers and 3.8x the high end of those, that band. So obviously, a very cheap stock on 2026 numbers, if those numbers play out the way they described. With a $150 million contract, just one here, you know, that put that in context, that's on a base of just under $400 million in revenue guidance for 2024. So there's... The bulk of that will land in 2025, with a tail out into 2026. And the company continues to expand its presence in the U.S., which has a higher-than-average margins.
The new products should allow the company to deliver not only increased penetration of India, which is a lower margin category, but offset that with the expanded margins on the new products, so that they can continue to have margin expansion. So you're looking at a company that, probably is gonna expand margins at the gross level by 200-300 basis points and the operating margin level, more than that. So, any other questions?
Can you just talk to us in competitive bake-offs? Do you use the software as a, you know... Is it a competitive advantage against an Aviat? I mean, how do you use the software? Is it a freebie to help manage the network, or is it margin-enhancing? What determines when you win or lose in these larger RFPs?
So you are talking about, software, and you're talking about, win and lose in large RFPs. I'm not sure it's a single question. I think it's two questions. So look, our recent focus on more software is in, I would say, is happening in two avenues. One is a software or a platform that we developed together with one of our biggest customers, that enables improved, network optimization. And this platform is basically vendor agnostic. So it doesn't matter if it's radios coming from Ceragon, from ZTE, from Aviat, and it doesn't matter even if it is also fiber, which is a different technology....
and that is actually for probably the first time, enables the operators to really understand what's going on in the transport part of the network, agnostically to the different technologies and vendors, and for the first time, they see the full and complete picture. That's one part, and we have a few, so to speak, POCs happening as we speak with very large operators, and we believe that it will become a, a, some sort of a deals of managed services that could generate $ millions per year for us. That's one piece. The other piece is the software that comes on top of our own products.
It's called Insight, just for the sake of discussion, if you get into the system, in the or into our web, and there we're coming with some sophisticated AI capabilities, as I mentioned in my prepared comments, and that is, I would say, another factor in winning RFPs, when the main RFP purpose is to sell our radio. Now, is that a critical factor?
I would not say it's critical, but I would say that it, it really helps us because the operators always look into the ability of maximizing the ROI on their investment in CapEx, and by providing with this kind of software capabilities, they know that the next time they will have to go and buy more boxes, is probably going further in terms of distance, if they have these tools to optimize the network before they just go and dump and buy more boxes to serve the needs of their subscribers.
Have you ever tried to sell the network optimization software independent of the box, or is there a strategy there or you don't want to?
So the vision is as follows: as I said, there's two avenues. One is software that is capable of providing different features and capabilities on our proprietary hardware. That's, I would say, more of an augmenting our proprietary hardware capabilities. The other avenue is creating software capabilities that can support the operators, no matter what the vendor of the hardware is. And if you ask me, in the long run, I think that these two avenues will basically cross and consolidate into one avenue that says, "Dear customer, I don't care if you have my boxes or other boxes. I don't care if you have fiber or you have wireless transport.
What I'm giving you is a platform that can help you optimize your network." That's the vision, but at this point, there's two initiatives going in parallel within Ceragon.
Any other questions? Doron, you want to give a one-minute elevator pitch on the things that we should be taking away from this meeting?
Yes. First of all, company is in a very good period. We see a very strong demand. I think that if I need to compare our visibility to last year, same time visibility, the visibility has improved. The strategy could create a much better company with higher recurring revenue, with improved gross margins, and obviously with the right control over the OpEx, with a very nice leverage model leveraging the growth and the gross margin into increased operating profit. The move from just hardware to more and more software will definitely help us to maintain the growth trajectory and better visibility for the years to come.
Well, with that, we'll call it a wrap. Thanks so much for joining us,