Q4 2020 Gilat Satellite Networks Ltd Earnings Call
Okay.
Thank you.
EBIT.
Good day.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the last fourth quarter and full year 2020 result conference call.
Disappoints are at present in a listen only mode.
Following the managements formal presentation instructions instructions will be given for the question answer session.
Burgers defense during the conference Please press Star Zero.
As a reminder, this conference is being recorded February 16th 2021.
By now you should have all received the Companys press release, if you have not received it please contact <unk> Investor relations team at GK, Investor and public relations at 16466883559 or view it in the news section of the company's website at Www Dot Gila.
Dot com.
I would now like to hand over the call to Mr. Atwood at HUD health of GK Investor Relations. Mr. Hu would you like to begin please.
Thank you operator from wanting and good afternoon, everyone. Thank you for joining us today from the last fourth quarter and full year 2020 results conference call and webcast.
A recording of this call will be available beginning at approximately noon eastern time today February 16, and we'd be available telephone replay until February February 19th.
And we've got it will be archived on gas websites from a period of 30 days.
Also please note that investor extra read the forward looking statements in yesterday's release.
A reminder, that statements made on this earnings call that are not historical facts may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
All such forward looking statements, including statements regarding future financial reported operating results.
Involve risks uncertainties and contingencies many.
Three of which are beyond the control of peanuts, and which may cause actual results differ materially from anticipated results.
Your line is under no obligation to update or alter these forward looking statements, whether as a result of new information future events or otherwise and the company expressly disclaim any obligation to do so.
More detailed information about risk factors can be found in <unk> reports filed with the Securities and Exchange Commission.
With that said, let me turn to interactions on the call today.
Let me share this idea the CEO and Mr does not happen.
Fearful.
I would like to turn the call over to identified yet.
We're ready to begin.
Yes.
Thank you and good day to everyone I would like to thank you for joining us today for our quarterly earnings calls.
I'm happy to report our fourth quarter 2020 results as well as to provide a summary of our performance in 2020.
During 2020, and especially during the second half a day, we've made major technological achievements and close from very significant deals.
All of which position us very well for 2021 and onward, we reduced our operating costs by close to 20% to better align our costs with the 2020 revenue levels, which allowed us to maintain a positive EBITDA over the past three quarters as you know in the fourth quarter of 2020.
Our merger with <unk> was terminated with the settlement that was reached on all pending litigation for a payment of $70 million to be lost by Comtech.
We recently shared approximately $55 million with dividend with our shareholders derived from disease from this termination fee net of transaction and litigation costs.
Moving ahead, we are continuing its full force to implement our strategy, which we believe will generate long term value for our shareholders.
In Q4, we continued the trend of recovery that started in Q3, we closed a multimillion dollar deals in our strategic growth areas that will go into shortly.
On the financial front in 2020, we saw a decline in our revenues to $165 $9 million from $263 $5 million in 2019 due to the COVID-19, pandemic, which was primarily because of the absence of travelers and therefore, a sharp decline in the IFC business.
Yes.
Taking a closer look at the fourth quarter of 2020 over all our revenue showed improvement over the previous quarter with a 14% quarter over quarter increase to $42 $6 million.
This recovery demonstrates that we are heading back in the right direction.
While improved versus the previous quarter. The mobility segment remains weak, reflecting the pandemic continued effect on the international travel and the IFC vertical.
As of our sales continue to be rolled out globally, and hopefully largely returned to normal we believe the IFC market will have a strong recovery and hold much growth potential foggy lapped in the coming quarters any loans on the bottom line, our adjusted EBITDA in Q4 was $1 $1 million and improve it.
One of the previous quarter of about $600000.
As our revenues continue to recover in 2021 would expect much of this growth to benefit our bottom line.
Looking ahead, our recent strong booking levels in the last two quarters is a good sign and we expect the financial improvements to be continued into 2021.
The quarter over quarter progress.
We hope and expect that air travel will resume in the second half of 2021, and therefore, the need for IFC product and solution will return and even increase with that we will return to the profitability level that we saw in years prior to the pandemic.
The non geostationary orbit satellite constellation and the very high throughput satellite continue to be a major strategic focus area for Gilead.
I'm excited to reported at the end of the fourth quarter of 2020, we secured an award estimated at over 50 million dog for a contract to provide gateways solid state power amplifiers for a low earth orbit satellite constellation.
The award was granted by a leading satellite operator, 40 gateway sba's to be supplied by dealer subsidiary waste stream.
<unk> shipment together with a major win last year to provide the growth segment for the SCS also maybe Empire satellite constellation has further solidified our position as a phone from them and providing the ground segments Valencia So constellations.
As reported last quarter, we expanded there also may be Empire partnership with SCS. It was a multimillion dollar follow on all day for high speed modems. The models will deliver multi gigabit throughput targeting high end services over cost, although the constellation mainly for maritime and government applications. Furthermore, ph D S.
And then just so market holds significant growth potential fogey lot comprising of hundreds of millions of dollars of market opportunities. We believe that we are well positioned to win these additional NGL. So on the ph D S business as opportunities mature.
Centered on backhaul over satellite is a strategic gross agent for Gilead.
And we all had notable achievements during the second half of 2020, both from major deals that we closed as well as from technology leadership perspective, our managed service strategy of providing end to end services continued to be successful, bringing in larger contracts with recurring revenue at.
At the end of 2020, we closed a multimillion dollar contract extension was globe, Philippines largest mobile network operator gloves.
Globe chose Gila through boost end to end solution, providing high quality service to quickly expand the nationwide coverage as things are rapidly growing connectivity demand.
This day to follow three major managed service achievements reported last quarter from leading my nose, one in Mexico and doing the United States.
The last strategy to supply them and those with managed services programs to be most successful.
And enhanced with our significant local presence and support.
When is strengthened by our proven delivery capabilities.
I would like to share an event that most recently demonstrated excellent service capabilities you may recall that in massive explosion took place in downtown Nashville, Tennessee on Christmas day. This explosion caused a major communication disruption from 219, salt and link sites that could not fast vital.
Traffic to both communications and utility monitoring southern living is a new customer, which we reported last quarter and I'm proud to share that excellent intervention supported by its regional team and Global Network Operation Center Brookdale site back online in record time in it.
Addition to managed service deal with close to a low backhaul equipment is of national importance in Mexico Gila.
Good luck to work closely with each longtime partners the satellite operator <unk> Prasad.
And the service provided access.
You'll have to supply them with network equipment and visa to enable them to provide services to the M. A nose in Mexico.
Supporting both of these partners will extend the service of a ton of leverage compared to either the share of telecommunication network in Mexico that is built to supply connectivity to over 3 million people.
Mexico is underserved rural population will benefit from $4 five G LTE coverage enjoying high quality mobile broadband voice and data services.
In addition, he loves to assess is providing the satellite network and equipment in Mexico to Lockdowns largest ever know to bring connectivity to all Mexico.
These deals in Mexico or in addition to other important total of backhaul equipment deals close earlier in the year in Africa in Kazakhstan.
On the technology readiness side, we Couldnt, we conducted in the second out from 2020, our most successful delivering five G traffics with outstanding performance over the tack on Gill HTS satellite thus providing.
But we are ready to implement in the fight to implementation and the five G architecture.
Before moving on the mobile segment I would like to share with you because we are making additional headway with our support of five G networks with the upcoming launch of our next generation family of visits this ultra high performance multi orbit vs subs provide the required performance and provide the support for seamless satellite handover.
Satellite communication is essential to materialize the five G vision and he's an essential enabler to provide the scale and scope from connectivity everywhere.
<unk> is a recognized leader in the cellular backhaul over satellite is well positioned to become a major participant in the evolving five G ecosystem.
His proven multiple times that the technology is ready to support the five five <unk> experience, which will directly influence the way people live and work I am confident that with our achievements in the five important market.
We'll continue to lead the industry with innovative solutions.
And controlling Lagerfeld Deco section I want to share with you that continue to be a global leader for <unk> LTE cellular backhaul over satellite with more than 80 per cent market share in such installations worldwide. We believe that the five G adoption. It initially in cities will drive additional soldier deployment over the satellite backhaul and <unk>.
And what areas.
They're actually all the coverage is this feasible.
And the second stage five.
All I meant over satellite will spread to rural areas as well.
Answering the promise of Universal coverage in closing did you did digital divide.
This market size is expected to be come at around $200 million per annum for satellite equipment, only and more than 6 billion a year for satellite equipment services and capacity in a few years those holding a huge potential for good luck.
And it's well known.
And it was mentioned in our previous conference call. The mobility segment was most.
Heavily hit by the COVID-19, pandemic, saying that we continue to view this segment as a strategic foggy and grew the pandemic effect is temporary.
One day in industrial recovery, we expect this segment to grow in importance as he had a passenger increasingly demand reliable high Internet I speed Internet connection doing travel we expect this trend to be further strengthened with the introduction of free Wi Fi, So IFC, which will significantly increase take up rates and.
We will provide a strong tailwind to the industry and to be like.
In addition, we closed the deal to equip hundreds of boats and vessels and cruise ships, we satellite communication dial up modems and from Sirius was successfully deployed on maritime vessels in Asia, providing an excellent user experience operating over China, Satcom HTS cable network.
Adding multiple switch overs between the satellite beams.
What are you seeing the light at the end of the tunnel of the pandemic, we expect the maritime market to pick up and force to materialize additional opportunities and will support our future revenue growth.
Nissan Dana progress was achieved as reported in recent announcements, we completed a successful integration with inmarsat.
Channel Global Express network.
Was the first time, a live demonstration over in Asia.
Reformed on Inmarsat operational Gx satellite.
This integration further emphasize the last thing is our leadership in readiness for commercial deployment.
Uh huh.
This project require significant development resources, we are seeing delays in market adoption due to the pandemic, we expect that the availability of new Leo constellation.
Services will expedite adoption.
The new driver for user adoption is business aviation.
With thousands of smaller aircrafts, which cannot strip the day Lamont antenna.
He brings a significant opportunity to do some market that mechanical antennas cannot bring.
Therefore, our focus is a short term business jet opportunities, which require a smaller form factor.
Yeah.
Now moving to the defense segment.
We saw significant achievement from our subsidiary waste stream throughout the western closed multiple multimillion dollar contract with U S Department of defense. So we see our trusted suppliers, providing high quality military communications products.
These awards the total approximately $9 million due during 2020 are the continued Sino phase in waves team ability to execute at high level in support of the dod's needs for years to come.
In addition, I would like to share that we are seeing a growing opportunity for DFAST product solutions and applications worldwide. Therefore, we have hired the retired brigadier general from the Israeli defense forces to it he loves defense business to maximize these opportunities.
And as we have reported in the past our business into a low in the first three regions awarded in early 2015 moved into operational phase.
And I will now and we are now delivering services to Alpha 1 million people.
Also we are in acceptance process regarding the force regionals. It's awarded in late 2015 due to the recent COVID-19 restriction in Peru that Dev test may be further delayed from the end of Q1 to Q2 2021, allowing us at that time to add them to the operational phase and start recognizing the really.
To be getting service revenues.
We are progressing with the additional two regions, which were awarded in 2018 slower than expected due to the pandemic restrictions infill. We have also made significant progress doing day in implementing our strategy of profitability getting revenues.
As reported in the past we are we were awarded a substantial five year expansion contract by IPD.
Insults from consisting of Telefonica and Facebook among others.
In addition, we secured this quarter a large multimillion dollar deal with core Fox the Peruvian incorporation of commercial airports in aviation, we are providing mission critical telecom system to 29 airports.
<unk> follows Gila proven execution capabilities towards large scale government projects and we expect that it will open the door for additional LNG.
Dale.
In closing I would like to reiterate in Q4, we continued our past due recovery that began in Q3. During Q4, we closed a multimillion dollar deals in our strategic growth areas and achieved strong booking levels. We have a strong pipeline supported by innovative technology, a dedicated management team and excellent employee.
Which gives me the confidence that the financial improvement will continue into 2021.
We further expect that we'll continue to see quarter over quarter progress with a return to higher profitability in the second half of 2021.
In flight connectivity plays a major role in attracting are traveling customers as such I am confident that as air travel resumes and continues to be its recovery. It will bring a significant interest in demand of our product and solutions, allowing us to return to the profitability. We saw in years prior to the Covid now.
Pandemic.
But smart we are ready now for your people. Please go ahead.
Thank you Heidi good morning, and good afternoon to everyone I.
I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis.
Supplemental non-GAAP financial measures generally tend to spend managing our business and to make operating decisions. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance.
Non-GAAP financial measures, mainly exclude the effect of stock based compensation amortization of purchased intangibles amortization of lease incentives trade secret and other litigation expenses and reorganization costs.
The acquisition and related litigation expenses or income net and initial recognition of deferred tax assets with respect to K forward losses.
Reconciliation table in our press release highlights this data and our non-GAAP information presented exclude these items.
And now our financial highlights for the fourth quarter of 2020, followed by our full year 2020.
Overall, our quarterly results showed an improvement over the prior quarter with strong quarterly bookings.
We believe they represent a stabilization in our end markets with the exception of the in flight connectivity or IFC vertical which has yet to show signs of meaningful recovery revenues for the fourth quarter with $42 $6 million compared to $78 3 million in the fourth quarter of 2019.
The year over year decline, primarily reflects the continued impact of the COVID-19 pandemic on revenue from I've seen our mobility solutions segment.
However, when compared to the previous quarter revenues increased by more than 14% compared to $37 $3 million.
Fixed networks segment revenues were $25 $1 million compared to $33 2 million from the same quarter last year. The decrease year over year is mainly due to the COVID-19 pandemic, we sign improvement compared with the previous quarter with fixed networks revenues were $22 $8 million.
Mobility solutions segment revenues were $11 $8 million compared to $34 $1 million from the same quarter last year, the decrease reflecting the effects of COVID-19 on the travel industry and ultimately on the IFC market. However, we did see an increase compared with nine point to me.
In the previous quarter.
Terrestrial infrastructure projects segment revenues, which include the construction revenues for our projects from partners.
Telling pool was $5 $8 million compared to $11 1 million in the same quarter last year and $5 3 million in the previous quarter.
COVID-19, and the <unk>.
Local lockdowns in total caused the slower than expected progress.
In general as we have discussed previously during the construction phase revenue from trying to tell it will vary quarter over quarter, depending on the percentage of the come off the project completion.
To summarize the quarterly GAAP results, our GAAP gross margin was 31% from about 35% in NAV in the same quarter last year and 25% in the prior quarter.
Change in gross margin is mainly due to the revenue mix from change in revenue volume as it is a portion of our expenses is fixed and does not change the full correlation with the revenue volume.
GAAP operating income was $62 $7 million compared to operating income of $9 2 million in the same quarter last year and operating loss of $10 $9 million in the previous growth.
We recorded net income of $64 $8 million in Q4 is a termination fee from comtech for the cancellation of the merger agreement.
GAAP net income in the fourth quarter was $62 $4 million or $1.04 per diluted share compared with a net income of $24 million or 43 cents per diluted share in the same quarter last year in the fourth quarter of last year, we recorded a tax benefit.
Oh $15 $5 million.
Net loss in the previous quarter was $11 $6 million or a loss of 21 cents per diluted share.
Now looking at our quarterly results on a non-GAAP.
Non-GAAP gross margin was 31% compared to 35% in the same quarter last year and 25% in the previous quarter.
Operating loss for the quarter was $1 $6 million compared with an operating income in the same quarter last year of $9 $9 million.
We saw an improvement compared with the previous quarter's operating loss of $1 $9 million.
Q4, operating expenses were $15 million compared with $17 3 million in the fourth quarter of last year and $11 $4 million in the previous quarter.
Throughout 2020, we have put significant efforts matching our ongoing operating expenses with the reduced revenue levels those reductions, including reductions in force temporary salary and FTE reduction and other cost reduction initiatives and our success is clear given the significant reduction in <unk>.
Fences Q.
Q4, operating expenses were higher than those of the previous quarter, mainly due to the fact that we tender stops per full time, starting December increased sales and marketing expenses as a consequence of yet.
Sales commission expenses due to higher level of bookings and to the fact that in the previous quarter, we benefited from collection doubtful debt.
Net loss in the quarter was $1 $9 million or three cents per diluted share in the same quarter last year, we reported net income of $9 $1 million or 16 cents per diluted share.
Versus the previous quarter.
We reported a net loss of $2 $6 million or five cents per diluted share.
Adjusted EBITDA for the fourth quarter of 2020 was $1 $1 million compared with $13 1 million.
Same quarter of last year, and then improvement compared with 600 thousands of dollars in the previous quarter.
To summarize our full year results.
Revenues were $165 $9 million versus $263 5 million in 2019 did decline as explained earlier was due to the impact of COVID-19 on our business mainly in IFC.
GAAP gross margin was 25% versus 36% last year GAAP operating income, which includes $53 $6 million from the context termination fee net of transaction and litigation expenses was $37 $6 million versus $25 6 million last year.
And GAAP net income was $34 $9 million versus net income of $36 5 million last year GAAP.
Earnings per diluted share was 63 cents versus <unk> 65 last year.
On a non-GAAP basis gross margin was 25% versus 37% last year.
Operating loss was <unk> $7 million versus operating income of $29 $2 million and net loss was $16 four.
$4 million versus net income of $24 7 million last year.
Loss per loss per diluted share with study sales versus earnings per diluted share a 44 since last year adjust.
Adjusted EBITDA loss was $3 $3 million in 2020 compared to adjusted EBITDA income of $42 million in 2019.
Moving to our balance sheet as of December 31st 2020, our total cash and cash equivalents, including restricted cash were $160 million, an increase from $38 7 million from the previous quarter.
During the fourth quarter, we received $17 million from contract termination fees and stayed expenses related to the merger and litigation in the amount of $9 $5 million. In addition to $4 2 million paid in previous quarters, bringing the net cash proceeds from contract termination payment to <unk>.
$6 $3 million in the full year of 2020.
In addition in the fourth quarter, we paid $20 million is a special dividend to our shareholders. An additional 35 million dollar dividend to shareholders was paid on January 14th 2021. This represents a total special dividend payment to shareholders a $55 million equivalent.
299 cents per share.
Dsos, which include our fixed networks and mobility solutions segments, and exclude receivables and revenues of our terrestrial infrastructure projects segment decreased to 76 days compared to 84 days in the previous quarter.
Our shareholders' equity at the end of the year totaled $233 $8 million.
Compared with $225 3 million at the end of the previous quarter.
Looking at it.
We are encouraged with the stabilization in our end markets, which enabled us to show quarter over quarter improvements in our results. We're also pleased with the strong booking levels in the quarter and we expect the improvements to continue into 'twenty and 'twenty one.
As a D mentioned, we view 2021 is a year of transition and recovery and which we will emerge from the COVID-19 crisis.
We hope and expect that towards the second half a day, yes, we will see the regional air travel and we lead ICT related revenue. We look forward to your revenue growth along with improved profitability, mainly in the second half of 2021.
That concludes my financial review I would now like to open the call for questions operator. Please.
Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two.
Speaker equipment tightly lift the headset before pressing the numbers your questions will be pulled in the order. They are receipts. Please stand by while we poll for your questions.
Okay.
Yeah.
Okay.
The first question is from Chris Chris Quilty of Quilty Analyst. Please go ahead.
Yeah.
Hi, good morning, actually good afternoon, and congratulations on the results a question for you on the wave stream Leo Gateway contract Award.
Can you give us a sense of what you think the determining factor was in that award and secondarily.
Are there opportunities with that same customer on the modem side or was this just simply a bid on the the amplifier.
Hi, Chris good to hear from you.
I think are the main factors that are.
Yeah, Matt.
Take a waste stream.
Third is the technology and the ability to supply with high quality.
And we use them as a proven the bus that they have those day capabilities.
Capabilities.
In this specific.
Constellation I don't think we have our opportunity on the modem side.
And are there other modem opportunities that you're still pursuing.
Definitely there are several.
Opportunities in day.
And GSO, both Leo and meal.
We are pursuing and I hope that we'll be able to report some progress during the coming few months and quarters.
And do you have an update on our progress where you stand with Ses on the empower program.
Yeah sure. So we were awarded us about a year ago for the ground equipment the baseband.
It was a large.
Award we are in the development efforts too.
Be able to provide at a one.
On time.
By the end of.
2000.
21. In addition about a quarter ago three months ago, we were awarded.
<unk> mental point to point.
The modem, especially for the maritime.
And our government application and I think that the potential for us with SCS and empower is still significant and we are working on several opportunities with low.
Will mature in the coming few months.
One other question on wave stream I think you mentioned in the press release, some ongoing U S government or military program wins.
Now that the the the win T program is dead and maybe not fully dead.
Still living in a zombie state.
Where are those new orders coming from I mean, what what type of programs or specific programs, where you're seeing demand from you.
Some of them are still going to this.
When the program and some in.
In some cases, even I don't allow to know exactly where they are going to do but.
Vod programs that.
We cannot.
Disclose the names.
Okay, and you mentioned our initial five G demonstrations.
On the modem side, where are we in that process.
Great market share on the <unk> side do you expect to see sizable five G related orders.
In the next year or couple of years poor or most of the deployments at this time being done more in the urban core where satellite is not needed.
So.
I think you already answered it.
We demonstrated our <unk> capabilities and.
We're going to launch additional.
Products and solutions for the <unk> architecture and market.
But what we see right now is that <unk> deployed maybe mainly in urban areas, where fiber is available.
But the one.
One thing that we do see on a lot of license requirements worldwide is that are there.
The <unk> required to cover with <unk>, a lot of rural areas that it will take them a little time to a five <unk> and this is a enormous potential over <unk>.
Later on I guess, the second stage, we will see.
Five G back calling over satellite deployed in rural areas. I think you know based on some market analysis that we.
We are getting from our analysts to cover the market Jim.
The equipment part of the <unk> alone can be in few years more than $200 million per year.
And today based on MSR.
Holds more than 40 per cent of the overall satellite.
And it's still a big low market to <unk> and if you are low.
Quarterly on the <unk>, we have more than 80% market share so.
With a significant increase in the market plus our.
Market share I think it's really represent a huge opportunity for growth.
I'm not taking into accounts that we are also selling managed service, including reselling capacity, which provide us also a significant opportunity to increase our top line and also the bottom line.
Understand and a final question for you on the maritime market, that's a new market entry for galore.
I guess in recent years it sounds like the one win right now is in China, but do you have a strategy.
To broaden that on a more global basis and given the fact that theres already you know very embedded suppliers in that market.
I direct and PVH proprietary and Inmarsat has its ecosystem.
What would be your approach to that market.
So first of all.
Indeed, you are correct that the maritime is a segmental vertical that we haven't played.
And it wasn't a significant player.
We had recent.
Success in our Asia, and China, and then and also as I said the point to point modem that we are developing for empower is also.
Targeting the maritime market and I think that with that we can take significant market share too.
Together with the <unk> on that and we have other opportunities and they think that the.
It's a it's a very large market and these are strong players, but I think with our next generation of research that we will.
And non soon I think we have a fair share to take a decent market share in the Maritimes.
Very good. Thank you. Thank you Chris.
Yeah.
The next question is from Gunther Karger of Discovery Group. Please go ahead.
Yeah. So good morning, and good afternoon first of all congratulations.
Long ways and secondly, a question.
On the high speed train segment of the market.
High speed train was a promise several years ago, we made a lot of progress in China, but since then it's a bit.
A bit on hold it's mainly.
Depend on the end user needs.
Like.
Additional add ons that are we can we can add there.
Train manufacturer can add we have some success in Spain of selling all the antennas do.
Two trains and are.
Several opportunities worldwide, but it is not going to be a significant significant growth engine as well as a few million dollars.
Thank you Alex.
Thank you.
Is there any additional questions. Please press star one if you wish to cancel your request. Please press star two please stand by while we poll from more questions.
There are no further questions at this time before I ask Mr. Mark Halperin to go ahead with her closing statement I would like to remind participants that a replay of this call is scheduled to begin two hours. After the conference in the U S. Please call.
One E eight three to 693, one in Israel. Please call <unk> nine to 559 O. Four internationally. Please call nine seven to three nine to 559 O four is helping.
Would you like to make your concluding statement.
Yeah.
Yes. Thank you I want to thank you all for joining us from this call and for your time and attention and we hope to see you soon or speak to you in the next call. Thank you very much and have a great day.
Thank you. This concludes your lot.
Fourth quarter and full year 'twenty 'twenty results conference call.
For your participation you May go ahead and disconnect.
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