Ladies and gentlemen, thank you for standing by, and welcome to Ceragon Networks First Quarter 2021 Earnings Call. Please be advised our call is being recorded today. Following our formal remarks, we will open up the floor for a question and answer session, At which time, if you wish to ask a question, you'll need to click on the raise hand button as part of the Zoom application on your computer. I'd like to hand over the call now to our first speaker today, Ms. Maya Lustig, Investor Relations at Ceragon.
Please go ahead.
Thank you, operator, and good morning, everyone. I am joined by Ira Palti, Ceragon's President and Chief Executive Officer Ron Ferrod, Ceragon's Chief Financial Officer and our incoming Chief Executive Officer, Doron Arasi. 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 therefrom 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 is 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 some 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 Ira. Please go ahead.
Thank you, Maja, and good morning, everyone. It's my pleasure to share with you that we are hosting this call using 5 gs technology. Right now, everyone in Tim Seragon is on their 5 gs smartphones. This is a 5 gs enabled video call, providing first hand That 5 gs is here to stay, it's here to grow, it's here to lead. We are proud to be the ones making this revolution a reality.
We are proud to lead the change. Last quarter, I shared with you my vision for 5 gs world. I presented you with ways Ceragon will be a driver of this new data driven 5 gs power global culture. Now this quarter, I'm pleased to share with you the details of our participation in cutting edge projects, New design wins and POCs, which all show we've already moved from a vision into a successful tangible reality. 2021 is looking to be a good year for 5 gs.
Despite the overall economic impact of the pandemic, The worldwide telecom market is marching forward with robust activity. We are observing A positive trend in the amount of data flowing through the virtual veins of the networks has been a massive cultural shift Toward the digital and more and more people have become more willing to and skilled in using new technologies. To keep up with this new era, operators around the world are rushing forward to upgrade their existing systems or build new networks. This global shift impacts our 4 gs and 5 gs offering positively. In Q1, we achieved new design wins and saw very strong bookings.
In fact, our bookings in Q1 were the highest in 2 years. Our book to bill ratio was way above 1. While this increases our visibility and confidence in market demand For the remainder of the year, it's clouded by global component shortage, which will probably affect our delivery capabilities. Ran will elaborate on this further. In North America, we had a very strong The strongest in terms of bookings since 2016.
We see increasing demand from existing Tier 1 customer to expand its 5 gs network. We are also providing solutions for significant capacity increase for Tier 2 operators and WISPs. Original trend. We see this trend in both direct and indirect channels. In addition, we are increasing our sales effort to critical infrastructure type of customers, such as Public safety and utility providers as they start looking to upgrade the network to 5 gs.
We see a lot of potential in this market, especially for providing value through complete communication solutions and services. In Europe, driven by 5 gs demand, we had a very positive quarter in terms of bookings. I'm proud to say that more than 20% of the region's bookings came from 5 gs related orders. As European operators continue to push 5 gs from initial trials into the field, we are there to provide them with the technology, expertise and the services they need. We are participating in numerous 5 gs proof of concepts and initial rollouts and plans are being finalized for mass rollout.
In Western Europe, especially, we foresee a significant opportunity to grow and take market share. After Western Europe, we expect to see 5 gs momentum built in the rest of Europe. In India, there is massive competition among operators who now invest heavily in strengthening the 4 gs capabilities and planning the POCs for 5 gs. Based on our current relationship with them, we believe we'll be part of those 5 gs POCs. At the same time, there are great efforts to bring the vast population still using 2 gs and 3 gs into the data driven world.
These efforts drive the operators to rapidly expand their current 4 gs networks in both reach and capacity, which creates significant demand for our products. Both trends play to our favor in Q1. Our operations and revenues were strong and stable. In fact, in India, we believe 2021 will be even stronger than 2020, assuming no material impact on operations from the latest COVID outbreak. The Latin America market is showing signs of heating up after a coronavirus induced freeze.
COVID-nineteen continues to hit Latin America severely, yet there is new momentum, especially in new investment towards a stronger 4 gs and readiness for 5 gs. Operators are catching up for time lost last year in implementing the networks. I'm pleased to share that our bookings were more than doubled In Versus Q4 2020, and that 80% of those bookings came from Tier 1 operators, including a multinational Colombian Tier 1 operator whose fame agreement is worth $26,000,000 Overall, there's been very strong momentum in the Andean and Mexico as well. In APAC, after a slowdown in the last few quarters, We signed a follow on frame contract worth $23,000,000 with a Tier 1 Pacific Rim operator, one of our more advanced 5 gs implementations with significant traffic on our equipment. In fact, the majority of the bookings in this region came from Tier 1 operators.
We are also beginning to sell 5 gs technologies to China and continuing to make progress with a new Tier 1 Open RAN customer. Overall, in every region, we are moving into a new future where I believe there will be an increasing number of opportunities for us across the globe. I'm pleased to report that we have 12 5 gs design wins to date, An additional 3 since we last reported. 1 is a new addition to our customer base and the rest, Existing customers. We are working hard to leverage future opportunities and to continue to be a key enabler of a multiyear5 gs evolution.
Allow me to provide you with some statistics regarding the acceleration in the global 5 gs evolution. According to the GSMA latest report, Wireless backhaul evolution and ABI Research, 5 gs mobile subscriptions are expected to grow by more than 41% CAGR in the next 6 years, increasing from 378,000,000 subscribers to 4,200,000,000. Traffic is estimated to increase above 6,000 exabytes annually by 2027, with 5 gs accounting for more than 80% of total traffic. Thus, higher capacity, Backhaul bands, millimeter wave and microwave will be vital in meeting 5 gs traffic demands. They will account for more than 55% of the links in 2027.
Fiber will be next with only 42%. The need to further densify the network to support 5 gs will result in additional macro sale and small sales, in particular being deployed in urban areas to handle the traffic. While fiber will be deployed, not all urban cell sites can be supported by fiber. Instead, Microwave and millimeter wave backhaul links will be used, which are versatile and can handle significant database. Now, 5 gs comes with diverse use cases and requirements.
The growing Open RAN movement provides new avenues of customization and flexibility that meets such requirements, as it offers interoperability among different Open 1 has picked up steam across the globe and is causing a massive disruption and disaggregation in how networks are architected. Today, it isn't just the greenfield tech, but also major market players that turn towards Open 1. As the market in general continues to move from analytic approaches to Open 1, our best of breed open network holding solutions become more and more relevant as they can be seen through our joint project in Brazil, plus various design wins We are working on. Allow me to elaborate on the Brazil project. We are participating in TIP 5 gs Open 1 trials, which test equipment provides for 5 gs Open 1.
It's a joint project TIM Brazil is carrying out with TEP's Telecom Infra Project and the National Telecommunication Institute. Our new generation all outdoor Ultra high capacity IP50e millimeter wave solutions capable of delivering up to 20 gigabits capacity today is being trialed. This type of solution is a must for OpenOne as it provides the connectivity to the Radian units. We are proud to be involved in this project in Brazil's future network deployments, and we see it as an opportunity to prove our technology edge. To meet future 5 gs and Open RAN related technology demand, we are developing a new It is designed to offer the next stage of frontal linking between digital and radio units, And with this solution, we'll be the first ones in the market offering this technology.
We are very excited about this prospect. Ceragon system on chip, will state out its plan for July, will support both microwave and millimeter waves With high bandwidth and low latency, it will support significant expansion of 5 gs networks in addition to supporting all previous Wireless generations. Our existing IP50e and IP50c family of products Successful support now 5 gs deployments. The new system on a chip will enhance our offering with an increased capacity reaching 100 gigabits as well as improved 5 gs and Open RAN compatibility. We are innovating on a disruptive market trend, as we have always done, from 2 gs all the way to today's 5 Ceragon has grown so much in the last decade and a half, and it is a global company to date.
It's been a pleasure serving as the President and CEO of Ceragon for the past 16 years and to lead an incredible progress and the very many accomplishments of the company. In the beginning of July, I'll be transitioning my responsibility to Cervagon's Former Deputy CEO and CFO, Doron de Razi. I will continue serving the company as Vice Chairman Of the Board, throughout my time at Ceragon, I've truly been honored to work with so many talented leaders and visionaries, including our incoming CEO, Doron. With that, allow me to briefly pass the mic to him, Doron.
Thank you, Ira, and hello, everyone. I feel privileged and excited to come back to Ceragon as the new CEO. Under Aira's leadership, Ceragon has competitively enhanced It's 4 gs and 5 gs offerings, and today, it is a global supplier to many of the world's Tier 1 and Tier 2 operators. As you may know, I'm neither new to Ceragon nor to the industry in which it operates. During my many years in the telecom and related industries, I got exposed to a wide variety of strategies and business models For scaling up results, I laid changes that generated stronger, bigger and more profitable businesses.
I also built solid relationships with operators, vendors, banks and investors. I am now bringing this extensive experience Back to Ceragon. I see a lot of potential and opportunities in leveraging Ceragon's core competencies to build a stronger, bigger and more profitable company. It's my plan to keep our technological leadership, which is the foundation of Ceragon's success and develop more and more innovative ways to fulfill the world's Growing 5 gs needs and beyond. I look forward to furthering our commitment to our existing customers As they navigate the new 5 gs realm and continue to enhance their 4 gs networks, I also look forward to finding new ways to scale our technology and to open new doors in existing and new verticals.
Back to you, Ira.
Thank you, Doron. Once again, congrats and good luck in your new position. I would now like to turn the call over to Ran to discuss our financials in more details. Ran?
Thank you, Ira and 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 Ira mentioned, during Q1 2021, we saw very strong bookings coming from Europe, North America, Latin America and India. In fact, Q1 was the strongest in terms of bookings in the last 2 years.
Our book to bill ratio was way above 1. Our revenues were at a strong level and at the high end of our projections for the quarter. During the Q1, we made further progress moving back towards normal operations, accelerating the positive trend that began in Q3 2020. Let me now review the actual Q1 numbers with you. Revenues for the quarter were $68,300,000 up 22% compared with Q1 last year.
Our revenues rose from region to region, in line with the effect that COVID has had on local business operations and network build out plans. Our strongest revenue for the quarter were from India, reflecting ongoing deliveries to Baraty. Europe had a strong quarter continuing its positive momentum for 2020. In fact, it is the strongest first quarter since 2015, reflecting some initial revenues from 5 gs projects. Revenues in North America were strong, reflecting continued positive momentum with our Tier 1 customer, other ISPs And smaller carriers.
Latin America had a slightly lower quarterly revenue than its normal run rate, driven by the low bookings in the second half of twenty twenty. However, we are starting To see a new momentum in the telecom market there and we're starting the year with very strong bookings. Revenue in Africa reflects the completion of the Orange Ginger project we announced in August 2020, as well as another customer we won in Q4 2020. Revenues in APAC were at a low level in conjunction with low bookings in the last two quarters. We had 1 above 10% customer in the Q1.
The booking to revenue ratio for the Q1 was way above 1. The strong bookings give us confidence for the remainder of the year, though clouded by the global component shortage crisis, which might affect our deliveries. I will elaborate on this more shortly. Gross profit for the quarter on a non GAAP basis was $20,200,000 giving us a non GAAP gross margin of approximately 30% compared with 25% for the Q1 of 2020. Our relatively low gross margin reflects The continued high supply chain costs that we have had to deal with in the COVID environment, with a major increase in air freight costs, higher material costs and more.
This is likely to continue to fluctuate over the next few quarters until there is a full recovery. Operating expenses on a non GAAP basis for the Q1 were $19,500,000 lower than our expectations. Research and development expenses for the Q1 on a non GAAP basis were $7,400,000 a slight increase from Q1 2020, mainly due to our progress with chip development. As planned, these expenses will continue to stay high until we reach tapeout in July 2021. Sales and marketing expenses for the quarter on a non GAAP basis were $8,200,000 same as Q1 2020, reflecting the reduced travel and variable compensation that have come with COVID.
We expect to gradually increase our sales and marketing expenses throughout the year as markets opened post COVID. General and administrative expenses for the Q1 on a non GAAP basis were $3,900,000 lower than our expectations and down from $4,200,000 in Q1 2020. Going forward, we expect To return to our 2020 run rate. Financial and other expenses for the Q1 on a non GAAP basis were $1,200,000 in line with our expectations and have returned to the normal regular levels in Q1 2021. Our tax expenses for the Q1 on a non GAAP basis were $300,000 lower in Q1 lower than in Q1 2020 and in line with our expectations.
Net loss On a non GAAP basis for the quarter was $900,000
or 0 point
0 $1 per diluted share. On GAAP basis, Net loss was $1,200,000 or $0.01 per diluted share. We reduced our inventory to $48,500,000 down from $59,700,000 in Q1 2020. Our receivables are now at $106,700,000 up from $104,200,000 in Q1 2020. Our DSO now stands at 141 days, which is almost the same as in Q1 2020.
Net cash used in operating activities for the Q1 was $1,700,000 Net cash used this quarter for investing activity was $2,000,000 Looking ahead, our strong bookings in Q1, which are significantly better than expected, along with a very healthy funnel and positive booking forecast for Q2 reflect increasing business activity in most regions. Now all that said, the growing component shortage In different industries all across the globe, we started to have an effect on the supply chain of our components as well as operators' 5 gs rollout plans. Compounding the problem is panic buying of chips in certain industries, leading to further bottlenecks. In Q1, we were able to manage the Without material impact on our deliveries and in turn our revenues, we've been working with our suppliers looking for additional ones and taking other measures to increase our supply chain capabilities, efficiency and resilience.
We
We continue to expect Erie revenue to be between $275,000,000 to $295,000,000 Now all that said, the growing component shortage may have a negative impact on the timeliness of our Q2 and rest of the year deliveries and may lead To probable push of revenues between quarters until the shortage is resolved, we remain confident in our mid and long term prospects and deliveries. With that, I now open the call for your questions. Operator?
Thank you. In order to ask a question, you'll need to raise your hand on the Zoom application. In the center of your application, you have a hand icon. Please feel free to click on it. Please bear with us while we update.
Our first question today comes from the line of Alex Henderson. Alex, you will be prompted to unmute yourself. Please go ahead.
Hello. Can you hear me?
Yes, Alex, we can hear you.
Perfect. A couple of questions, if I could. First, I wanted to talk a little bit about the tape down in July What I think is probably one of your most important products in a very long time. One, do you have any risks around the tape down timing based on capacity constraints in the supply chain Maybe causing deferrals on timing of taping down new products?
At least what we See right now is no. What we get from the people who needs to do the tape out And the manufacturing and what's on there is that in general, the processes for new chipsets On time, although there is a question, but that will come a little bit further down the road On capacities to manufacture it. And that's what we are. Tape out, We need simples quickly. I think we'll be on time with simples to build the products and then probably further down the year by mid 2022, when we'll have to ramp up the production, might then we'll have to see.
By then, I do expect the shortages of Chipsets will be over.
And relative to the tape down, obviously, there's always risk that tape downs will come back with The need for another turn, when do you think you'll have a sense of when that product is When do you expect to have the takedown results back?
Close to the end of the year.
Perfect. And wanted to go back to the comments around India. I mean, to be honest with you, I'm a little surprised at how strong it is, Not so much because of the need, but rather because of the COVID conditions there. Frankly, we were bracing for much weaker results out of India Then what you obviously have come in with very good results. Now the question is, if you had those products, Can you get them in and install them given what's going on there?
The answer The answer is yes with a maybe. Let's remember on India In general, what we see as a demand is plans the operators put as their plans for 2021. Plans were done somewhere in January, February before the very heavy hit of the COVID. Yes, So I think I said on my script and Ron indicated that we are a little bit hesitant on the capability to install all of those under the current COVID. Although experience from the last time, about a year ago when we had those issues, we were able to install even under the COVID.
Although this time, I expect it might be a little bit more difficult and that might create some differences and holes in there. But In general, yes, I think the India market is built to work under the COVID.
Yes. Just to Alex, just to add on that, we also indicated in your prepared remarks that 2021 Can be even better than 2020 because we already see a strong bookings in Q1 and we also see very strong funnel In the remainder of the year for India. So we feel confident about it with the question of COVID and the impact on that.
The question on the supplies constraints, just to dig into that a little bit, Obviously, hitting every industry, you guys are certainly not alone on that. But it does beg the question of whether companies will choose to go with companies that can get chips Versus ones that can't and companies like Nokia may not have best in breed product, but They have bigger scale and therefore more clout. Are you able to get your customers to help you Get a little bit more cloud and therefore make sure that you're staying in the right positioning and they're not going to Choose to go with other people because of the lack of availability at a Ceragon.
My feeling is We do have the cloud in the areas where we need to and which is the let's remember that some of the issues we have is with Dedicated chipsets and there we are bigger than Nokia in requirement for some of the vendors. And in some of the other Places which are more general, I think there, the opposite happens. Because we are smaller, it's much easier to Flow in between the current on those things. So yes, it's a fight out there. I'm seeing progress on a lot of those things and a lot of the front that's taking place there.
So relative to the last question and I'll cede the floor to the next guy. But relative to the guidance, I assume at the low end of the guidance, you're probably assuming a lack of availability of components. And at the high end of the guidance, you're assuming that kind of the best case scenario of availability relative To a reasonable expectation of supply on the components that you've been hearing from people. What would be the circumstances that would get you to the low end? Is that a situation where people basically back off on deliverables that they
I think that's what we indicated on the call. We still believe in the guidance that we gave in there. I do not know exactly On the range and the impact of the supply chain issues as they come across, At least in Q1 and what we're seeing in Q2, we're able to mitigate most of the risks and things on the table, Not all of them, but a lot of those, time will tell. And it's an issue that will fall So across the year, where I think that's longer term, it's there. I think Customers see the same issue from all suppliers.
And I think it will make the, as we said, probably push out of deliveries in between quarters As we move forward, in longer range, we are very, very confident that this is once the Supply chain constraints are reduced. We are in an excellent positions to expand.
Just to add on that, Alex, My view, as we also indicated on the call, we saw very strong demand in Q1, and we also See very strong demand and funnel for Q2. So in that sense, Our backlog is very healthy in that sense. The question is, How can we deliver it with the shortages? And what will be the push between quarters that we will face. That is yet unclear.
But as we indicated, we feel at this point Confident with the guidance that we provided 3 months ago.
Okay. Well, in closing to this question, Doron, thank you for joining It's good to see you and look forward to working with you. And Ira, congratulations. You've had a great run and really done a good job of positioning the company Going forward, and I really appreciate working with you over the years and certainly hope to keep in touch even in your longer term post Chairman of the position.
Thank you very much, Alex.
Alex, first of all, thank you for your warm words. And Ara is not literally leaving us. So let's not make this separation that dramatic. Looking forward to working with you, Alex.
Great. Thank you, guys.
Thank you. Our next call is going to come from the line of George Iwanyc. George, you will be prompted to talk. Please do so now.
Hello, can you hear me?
Yes. Hi, George.
Hi, George.
Thank you for Taking my questions. And yes, I'd just like to start off with thanking you, Ira, for your perspective on the industry over the years and The relationship and Doran, congratulations on coming back and coming on board. So with that, maybe digging into the guidance a little bit more, with the visibility Having to the supply chain right now, is there any risk that revenue could decrease quarter over quarter because of the tightness? Or is this just an amount that you can't deliver to the demand and you're kind of keeping expectations kind of close to the vest for the near term?
Hi, George. This is Ram. So yes, revenues might go down quarter over quarter. But as I said earlier, It's not at all a matter of demand. The demand is very strong.
The backlog is very strong. It's a matter of delivery, How we can deliver with the supply with the shortages and convert this very strong backlog into revenue. So we feel very confident with the backlog and where the demand is just the supply constraint, the shortages That will impact us.
All right. And then when you look at the potential for Maybe not being able to deliver in India, is the demand in North America, Latin America where you're seeing the improvement At a level where it could offset how strong India was in the Q1?
Well, India generates roughly on an average 25% of our revenue. So and we our experience from the last year with COVID in India was actually A positive one, if I may say so, because we will manage and we're able to deliver and execute despite the COVID situation. I think that at this point, the outbreak in India is more severe and something that we didn't Had the experience in the past. At the moment, and as we said also in Q1, despite The fact we were able to deliver, deploy and install very strong in India, but this At this point of time, we want to be a little bit more cautious on that.
All right. And then just I guess one more related to The supply chain tightness, when you look at your gross margins for the near term, is it comfortable around this 30% level or do you think there is a bit of risk of having to pay expedition costs and Some extra expenses that way.
So I will say the following. The gross margin just That we all keep in mind is may fluctuate from various reasons, geographies, Timing of revenues and the revenue levels as well, because if you remember, At the Q1 and Q2 of last year, we had very low gross margin because the revenue were lower because we have some Portion of our costs in the cost of revenues that are fixed costs. At this Level of revenues, we feel pretty confident on this figure. But again, it's dependent Of whether the revenue will go down or if they will go up, we do think it should be improved. Keep in mind that on a pre COVID world, we would expect the gross margin to be better.
We do face Some expedite costs and some changes, dramatic changes in the air freight costs that impact us, We do try to balance that by an operational efficiency, doing some more See deliveries and some other measures that we are taking, not all of that will have the near future impact Positive impact, but we are very focused on operational excellence, Including on the supply chain and airfreight. But back to your questions, at this level of revenue, we do expect The gross margin to be as it is.
All right. And are you comfortable at the OpEx level that you're at, Hold that for a quarter or 2 before starting to increase again.
So actually with the on the OpEx, Some very low G and A that will probably be higher, as I also indicated, More like in the 2021 rates. R and D probably at the same rates. We do expect, because we are continuing to invest in the chipset in the Q2, to be at the same level and sensor marketing Probably a little bit higher. So I do expect that our Q2 OpEx will be higher.
And a little bit.
A little bit higher.
And just one last kind of area questions. This one for you, Eirik. When you look at taping out your 5 gs SoC chipset, how quickly do you see productizing that? Is that something that you'll see a few products by the end of the year? Is it First half of next year.
And as you put that in front of your customers, does that accelerate your pipeline generation? Do you feel that You're going to see a step up in demand as the portfolio expands?
We'll see step up in demand as a portfolio expense Expense. We already put it up in front of customers. We do, by the way, expect to see products only towards the end of next year Beginning of 2023, let's remember between tape outs and I think then having the chipsets here and then turning into products, There's usually an 18 months type of period at least on products out there. But I think that the story there is part of the continuous innovation we are doing with the different products that we have on the table in really creating the demand and keeping our leadership position in the market versus all the competitors. Again, I think we discussed last time when we were on the call that we are disruptive.
We have done again and again the disruptions in the markets and putting it on the table. Even our current product The IP50e I mentioned on the call and the IP50c are disruptive in the market and enable capabilities no one else has like the 20 gigabit In the 50 in the 50E product or the VIBE wide channels we have in the 50C, All of those are required today for 5 gs. And that's what's building the 5 gs design wins and the thing that we are doing. The chipset is built for The next step out there, again disrupting because let's remember, 5 gs is not a one time event. It's probably over the next 6 or 7 years As we move forward and that's where the next SoC comes in with 40, 50, 100 gigabits in the air in capabilities when we see things coming in on the table and doing the disruption again.
And it's a continuum that we drive the company. Now going back to your questions, you're 100% right, because the operators are looking for someone who will do the long term ride with them. It's yesterday we vote with them. New ones, they are on with us. They want the best technology, best of breed Today, but they want to make sure that that best of breed stays with them for the next step as well.
So that's where the whole story sits on the table. And this guy here needs to make this a reality and a delivery, right?
Yes.
Well, with that, thank you very much, Ira. And again, Duran, congratulations.
Thank you very much. Thanks. Thanks, George.
Hi, can you hear me? Hi.
Hi, Lance.
Hey, Ira and Ron, hi. And Doran, Congratulations on the quarter. It seems like you guys are executing really well in a challenging environment. And by the way, thank you for doing this call on Zoom, I think this is so much easier than doing the dial in and then waiting for the operator and everything. So kudos on that.
My question is actually just on the balance sheet. I saw that cash increased a little bit despite the fact that you guys are burning a little cash. So Presumably, you have some sources of liquidity, but $33,000,000 of cash doesn't sound like a lot of money to me. And so I'm just wondering if you could speak to your additional sources of liquidity. Capitalized given what I think we all agree is a pretty meaningful opportunity here at the advent of 5 gs.
Hi, Lance. So just also to comment on the Zoom call, it's not only Zoom call. All the call was done by 5 gs handsets on the 5 gs network. So This is really exciting. So just to begin with, so yes, we have $33,000,000 Cash available, but we also have almost $40,000,000 Of available cash revolver that you can utilize for anything that you would like to.
The banks are really just a reminder, we had $14,000,000 of Credit with the banks, which we increased during the corona crisis from last June to $50,000,000 And we utilized just $11,000,000 out of that. It's more than enough for working capital needs. You can see that we also improved Working capital for the last year pretty dramatically. We reduced our inventory levels. We improved our AR and DSO.
We reduced some of the payables. So I think that the balance sheets and the working capital is Pretty strong and we have the sufficient liquidity to operate.
Great, guys. Thanks and congratulations again.
Our next question is from the line of Alex Henderson. Alex, please promote yourself and unmute it.
Great. Thank you. I just wanted to go back to the new system on a chip. I assume that you've shown this technology to your service providers, and I'm sure that they are very excited about it. So as we're thinking about the timing of availability, I would think that the question then would become To what extent the technology that you're implementing on this product would be directly tied into the IP-fifty and to that And capable of being upgraded in the field As part of that deployment that may go on in front of the availability of that.
So is this technology therefore Already impacting the demand and therefore, there shouldn't be a kink in the curve as it becomes available or should We think of it as there's good demand for what we have today, but they're going to wait for this thing and there might be a little bit of a dip As it becomes almost available in the first half of twenty twenty two, how do you think the customers are going to behave Relative to the availability of this product? Because
of the way and experience in the past of moving those, I don't expect a dip. Let's remember that we are usually with technologies about 12, sometimes 18 months ahead of the curve on the need with the customers. So what will happen is the same way that we saw. Most of our sales today With our IP-twenty C product, which is 6, 7, 8 years old and driving the networks, yes, we advanced the product. We came out with the 50 c with additional capabilities towards the edge of 5 gs, which meets the current and probably the next three 4 years of main deployment of 5 gs and it's creating the demand there.
The next set of products, which will not be the IP-fifty, Pick a name for it. We have internal names for it, but what doesn't matter, which will come out, we'll be ahead of the curve for requirements of 50 100 gigs in the air as 5 gs base stations of macro small cells and others will require those. So I see those as layering on top and really pulling the demand through out there. I don't expect to dip.
So the second question is, I remember very distinctly getting very excited about the 4 gs upgrade cycle years back, and you guys had the most advanced product with all of the bells and whistles. And What ended up happening was people didn't want to buy the bells and whistles and it put gross margin pressure on the company, which you then Had to convince them that they weren't going to get the discounts and it caused a big dip in your business temporarily as People, we've tried to gain your availability. And the result of all of that was a little bit of a disappointment on that product cycle Launched for about a year and a half before the customers determined that you weren't going to give way. And by the way, that was the right decision not to give way. But That point aside, are we comfortable here that the 5 gs cycle is one that needs these functionality capabilities And that they're willing to pay for it.
The answer is yes, because and that's why I said, I think, A minute ago that we still sell a lot of IP-twenty C. If a customer does not need the functionality, they want to stay with Less of a functionality, IP20C is an excellent horse to ride. And I think the people who want the sources for 5 gs are attaching themselves to the IP-fifty. And I see that in different places around the world, and that's what we said.
Your next question is coming from the line of Gunther Karger. Please go ahead.
Hunter, you're on? Yes. Can you hear me?
Yes. Great. First of all, Ira, thank you for outstanding service getting the company through difficult times. And Doron, welcome again. Hello, how are you?
Very well, thanks.
The question I have is regarding the cash, It was mentioned before, somewhat of a $10,000,000 reduction. I'm a little unclear as to where that reduction came from.
There is no $10,000,000 reduction, Gunther. On the Q1, We had a cash breakeven. If you take the cash from investing and operation activities, It was down $3,700,000 which was offset by $3,700,000 cash from financing activities. All in all, Net cash position of cash minus the loans that we have stayed the same in Q1 as in Q4.
Thank you. And the other question is the verticals. Do you see you mentioned this actually in your presentation. Do you see a growth in the verticals and various markets going forward? Yes.
The answer is yes. We focus on in the conversation, mainly on the mobile, but we do put a huge effort Around the verticals, we are putting a huge effort in verticals also mainly in the North American market, but in other places. Look at we announced last quarter a deal in Africa and we're announcing in other places. The market in verticals, by the way, behave differently. What we sell in the verticals is Our equipment, but with a lot of integration services and capabilities to really provide a walking network.
And the interesting part that we start seeing, although verticals are not there yet, they have started talking about 5 gs and being ready for 5 gs and the capabilities and our experience with the mobile operators on 5 gs put us in a good position To start taking markets, they're mainly in the U. S. Market.
All right. Thank you. And finally, The question regarding 5 gs, you see an early movement toward Applications in the IoT area?
The mobile operators that we work with Today, we are investigating all areas of 5 gs. Pick the operator, you'll see different things that they do with the 5 gs. Some of them will go for mobile and a lot more broadband. Some of them do play with IoTs. Some of them play more enterprise and industrial In the way they approach the market, at the end of the day, similar technology, A little bit of different way you spread the network and you do things, but it was all of them drive the 5 gs requirements.
Thank you, and pass the block.
Thank you very much, Hunter. Okay. I would like to close the call. First, I'd like to thank Ron for being with me, for Doron being with me, for both of them for learning new tricks and doing it on 5 gs And mobile and video was not easy to do that transition. I look forward to hearing from all of you next quarter with us.
And in between, if anyone wants to ask
That That does conclude our call for today. Thank you very much for attending. Have a great rest of your day.