Q3 2021 Gilat Satellite Networks Ltd Earnings Call

Ladies and gentlemen, thank you for standing by the conference will begin shortly.

[music].

Sure.

Okay.

You bet.

[music].

Ladies and gentlemen, thank you for standing by welcome to <unk> third quarter 2021 results conference call.

All participants are at present in listen only mode.

Following the managements formal presentation instructions will be given for the question and answer session.

For operator assistance during the conference Please press Star Zero.

As a reminder, this conference is being recorded November nine 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 1646.

6883559 or view it in the news section of the company's website www Dot dot com.

I would now like to hand over the call to Mr. Ehud Helft of Jake F. GQ Investor Relations. Mr. Helf would you like to begin please.

Yeah, Good morning, and good afternoon, everyone. Thank you for joining us today, So we'll give that third quarter 2021 results conference call and webcast and recording of this call will be available beginning at approximately noon eastern time today.

Benign as a webcast on gas website for a period of 30 days.

Also please note any investor urged to read the forward looking statements.

With the reminder, that statements made on this earnings call and are not historical facts may be deemed forward looking statements within the meaning of the private Securities Litigation Act reform also 1995.

Such forward looking statements, including stationary guidance future financial operating results.

Risks uncertainties and contingencies, many of which are beyond the control of <unk>, and which may cause actual results to differ materially from the anticipated results.

He is under no obligation to update any forward looking statements. When they are antibodies out there from new information future events or otherwise and the company expressly disclaims any obligation to do so.

More detailed information about risk factors can be found in reports filed with Securities and Exchange Commission.

And with that it'd be Janssen connections on the car today are Mr. <unk>, <unk> CEO and Mr. Smart happened Gilad CFO.

I would now like to turn the call over to Ids failure at <unk>, we're ready to begin.

Thank you.

And good day to everyone.

I'd like to thank you all for joining us today for our third quarter 2021, earning calls.

I am pleased with our results this quarter, which continued to show progress and recovery with improvement in our gross profitability and a return to operating and net profit.

Revenue by 34% year over here, the $50 million and our adjusted EBITDA was $4 million significantly above the third quarter of last year and about $1 $5 million above the previous quarter.

I'm excited to share this quarter was a very strong quarter.

Strategic focus areas of non geostationary orbit constellation and the very high throughput satellites. Furthermore, during this quarter, we had some substantial strategic games and new customer wins, we continued recovery in progress in all of our markets, including in the IFC Cigna.

These gains will be reflected in our financial performance.

In future quarters.

The global supply issues component scarcity and price increase and affecting the satellite industry as well like others. We are facing some significant headwinds however are making great efforts to overcome these challenges thus.

Thus far we have been mostly successful and we hope that this will continue to be the case until the city is expected towards the second half of next year.

As I explained last quarter in order to materialize the significant opportunities we.

Oh already experiencing and see ahead, we are increasing our R&D investments to better support future growth.

Now I will focus on some of the business achievements in more detail and discuss some of the recent highlights.

In the last few months, we have been experiencing significant activity in the strategic non geostationary orbit satellite constellation and the very high throughput satellite segment, specifically the third quarter was a very strong quarter for gilead in those segments. We continue this quarter to receive all of the approximately $17 million.

From a leading satellite operator for support of a low earth orbit constellation to be delivered later on in 2022 and beyond any.

In addition, we have a major project on our pipeline, which we hope to secure several in the coming quarters. These projects will utilize our next generation platform, New Gill and Energia, So modems and solid state power amplifiers.

We are making additional investments in putting a sufficient airports is R&D.

The supporting major progress with the ground segment for the FCS also to be empower satellite constellation and other projects in our pipeline, we expect to start to start seeing significant revenues from the Ses Empire project in the coming quarters.

A leading provider for this market, we see solid growth potentials comprising of hundreds of millions of dollars in market opportunity that we expect to materialize in the coming years.

Mobility is a major focus area and growth engine for <unk> and the IFC market. We are seeing initial seasonal discovery evidenced by significant all of this selling for more than $15 million from several key players with delivery planned for 2022 and beyond.

We can support our future growth.

Upon an industry category, we expect that the mobility segment do we tend to be substantial part of our business as passengers increasingly demands reliable high speed Internet connections doing travel and the expectation of connectivity all the time and anywhere it's only strengthen during the pandemic.

That is highly committed to the strategic market and we viewed the pandemic impact over the past this temporary issue.

We do believe it will still take some time for the IFC industry do we talk to return to its pre COVID-19 levels and Formula IFC segment, do we caveat to its full potential.

Even though we were awarded approximately $28 million in multiyear service agreements by point of sale for operating the regional transport networks to support broadband connectivity and services across the forgery just of a good job, but we must wonka velika in Cusco, whereas this way as we are meeting our stated.

So a little bit about $50 million in annual recurring revenue run rate from the who is head of the stated objectives.

During the quarter <unk> continued to lead the Ford you feel a little backward over the satellite market segment is still wide global mobile operators expand their networks.

Orders totaling multi millions of dollars.

Do you like where the recognized solution supports leading mobile operators worldwide with applications, such as emergency response and coverage to remote regions and at times, it's an obligation to ask their local government mandates.

This market segment and strategic value for <unk> and as such we see great potential to expand our leadership as market adoption or five G is going.

In the enterprise segment is a significant win with Ses for a multi million dollar contracts for multiple blood with applications in Latin America.

Multi service platform was chosen to support this yes, you can fill a backhaul.

Enterprise and you Universal service obligation projects in the regions of.

I mean, the world of Argentina.

In addition, we continue to secure orders totaling multi millions of dollars. So long as a variety of enterprise applications throughout the world, including in the United States, Russia, India, Australia, and the Philippines.

Overall, when I'm looking into the future with the recent wins and the strong momentum we are seeing across our business I'm increasingly confident that we will show significant top line growth and double digit growth in adjusted EBITDA in 2022.

And I'm sure that this is only the beginning of a long growth that Ed of us in the years to come.

And with that I'd like to hand over to Bill Smith with <unk>.

We are now ready for your report. Please go ahead.

Thank you Andy 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 internally to understand manage and evaluate 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 Asian, 70 litigation expenses or income related to trade secret claims reorganization costs merge acquisition and related litigation costs and settlement and in Asia.

Technician of deferred tax assets would you expect to carry forward losses.

Yeah.

The reconciliation table in our press release highlights this data and our non-GAAP information presented exclude these items.

I will now move to our financial highlights for the third quarter of 2021.

Overall as Jim mentioned earlier, we are pleased with the results and we're increasingly positive about our prospects in the future in the quarters ahead.

Early results showed solid year over year improvement in both revenue and margins and profitability, while we face some short term headwinds given the electronic component supply constraints affecting the global economy, which I will discuss in a few minutes on improving performance. So far this year demonstrates that we are moving in the right.

Direction.

In terms of our financial results revenues for the third quarter were $49 $9 million up 34% when compared to $37 3 million in the third quarter of 2020.

In the prior quarter revenues were $56 $9 million.

The year over year increase was driven by revenue growth from cellular backhaul and yourselves defense and enterprise broadband market.

In terms of revenue breakdown by segment.

Fixed networks segment revenues were $22 $3 million compared to $22 8 million in the same quarter last year, and <unk> 8 million in the previous quarter.

Mobility solutions segment revenues were $21 $6 million compared to $9 2 million in the same quarter last year and $19 9 million in the previous quarter.

The improvement in this segment was primarily driven by strong revenue growth from Engie is selling defense markets, while in flight connectivity all ISC remains weak.

Terrestrial infrastructure projects segment revenues, which include the construction revenues for projects for <unk>, two were $6 million compared to $5 3 million in the same quarter last year and $6 2 million in the previous quarter.

Now looking at our quarterly results on a GAAP basis GAAP.

GAAP gross margin improved to 35% compared to 25% in the same quarter last year and 29% in the previous quarter.

GAAP operating income for the quarter was $918000 compared with an operating loss in the same quarter last year of $10 $9 million, which included costs related to the comtech merger deal of $8 $2 million in the previous quarter. The operating loss was 300.

$37000.

GAAP net income in the quarter was $168000 or zero cents per diluted share in the same quarter last year, we reported net loss of $11 $6 million or 21 cents per share which included costs related to the contact merger deal in the previous quarter.

Put at a net loss of $129000.

To summarize the quarterly non-GAAP results.

Non-GAAP gross margin improved to 35% compared to 25% in the same quarter last year and 29% in the previous quarter.

We had $16.2 million in non-GAAP operating expenses in the quarter compared with $11 4 million in the third quarter of last year and $16 $6 million in the previous quarter I note that last year due to COVID-19 pandemic were to make temporary cost reduction.

<unk>, which mainly consisted of a reduction of our global workforce to 80%, which scope in December 2020, where they turned our employees back to 100%.

But I would like to note that this quarter, we benefited from cost related grants.

We increased investment in R&D to ensure timely delivery of the existing large projects. We've been awarded mainly in Mg So constellations.

And also to capture other up in opportunities, we see ahead of us non.

Non-GAAP operating income was improved to $1 $5 million compared to an operating loss of $1 9 million in the same quarter last year and operating income of $183000 in the previous quarter.

Non-GAAP net income in the third quarter was $712000 or earnings of one cents per diluted share.

This is compared with a net loss of $2 $6 million or a loss of five cents per share in the same quarter last year in.

In the previous quarter, we reported a non-GAAP net income of $391000 or earnings of one cents per diluted share.

Adjusted EBITDA for the quarter improved to $4 million compared with an adjusted EBITDA of $562000 in the same quarter of last year in the previous quarter, we reported an adjusted EBITDA of $2 $5 million.

Moving to our balance sheet as of September 30th 2021 our total cash and cash equivalents, including short term deposits and restricted cash were $85 $4 million compared with $82 million as of June 32021.

In terms of cash flow, we generated about $5 million from operating activities.

Dsos, which include our fixed networks and mobility solutions segments, and exclude receivables and revenues of our terrestrial infrastructure projects segment were 66 days compared to 65 days in the previous quarter.

Shareholders' equity at the end of the third quarter totaled about $229 $2 million compared with $228 7 million at the end of the previous quarter.

Similar to other companies, we are experiencing the global shortage of electronic components and materials, which has been intensifying since early 2021 across many of our suppliers.

Confidence lead times continue to increase and Sky D. G is increasing the component prices.

The extent of these shortages is unprecedented and is expected to proceed persist for the immediate future.

It's just that this is a global life issue affecting everyone in the market.

Given our careful planning and prudent inventory management, we have been mostly able to manage the impact so far and I hope that we will be able to maintain this and we'll of course keep you updated.

All I know.

We are encouraged by our return to growth and profitability.

And the strong backlog and pipeline momentum, which cause us to believe that 2022 will be a very strong year for gilead with significant growth both in revenue and in adjusted EBITDA.

That concludes my financial review I would like now to open the call for questions operator. Please.

Thank you.

Ladies and gentlemen at this time, we will begin the question and answer session.

You have a question please press star one.

If you wish to cancel your request please press star two.

If you are using speaker equipment kindly lift the handset before pressing the numbers.

Your questions will be pulled in the order they are received.

Please stand by while we poll for your questions.

The first question is from Chris Quilty of Quilty analytics. Please go ahead.

Thank you and congratulations on the strong bottom line results, especially in light of the sequential downtick in the fixed network business can you help us understand what component of that business were down sequentially and.

Were those issues sort of temporary contract delays or timing and should we expect Q4 to move back towards the sort of run rate you were at earlier in the year.

Yeah, Hi, Chris I suppose Smith, so yeah. The sequential decrease that we see you know as you know get a lot is very difficult to measure it quarter over quarter. The way. Our business is Ron is that are we may have very large projects, which are deep.

Floyd in one quarter and then the next quarter may be a bit lower so usually it is better to look at them year over year basis.

When we look at the fixed networks segment this quarter.

Hum.

We had some significant deployments in Q2 with GBH and enterprise in Latam and Asia and.

Some of the deployments are going to do this quarter were delayed to next quarter. We do believe that next quarter is going to be the strongest quarter of the year and we will see these going back up in Q4.

Got it so it mostly just timing related issues.

Exactly.

Also I think this is the best gross margin.

<unk> posted in quite a while and are again in light of a little bit of a revenue shortfall in the quarter can you.

Detail for us what.

<unk> was it simply a mix related issue.

The the margins.

Sure. So yeah as you know our margins are always a very volatile between the different deals are in region and segment. So it's also you know quarter over quarter. It changes a lot.

The different revenue mix significantly shifts our margins are we added this quarter more favorable mix of deals which contributed to our gross margin and as I said, we also benefited from a COVID-19 related grants, which Oh the margin and also the mobility segment.

Revenue, where are higher which usually contributes more to our our margins.

Yeah.

Great and can you remind us you know within the fixed networks segment.

You know the general margin profile of the sub segments of the markets.

Within fixed network, how they rank.

Yeah sure. So so so what we mostly have a we talk about the cellular backhaul to cellular backhaul is the highest our margin are all of those are.

Sub segments, if you call it.

It's about the average of the fixed we have enterprise and by the way enterprises, and the Peru operations, which are about.

The.

Average margin of the fixed segment and then we have the consumer which is a lower.

Lower of lots of business, which is a the lower margins of all of those sub segments.

Great Thanks for that detail.

I think you mentioned during the call and I didn't I.

Missed the number but a significant orders in the IFC market was it.

<unk>, one 5 billion slightly above $15 million.

And we are seeing.

Slightly more traction in this segment.

Segment.

You know I guess, we all understand that are returning to pre COVID-19 level will take you are probably only on the second half of <unk> over the next year only this week the international flight to the U S. Open. So it will take some time, but we do see some more.

Traction and received some are large orders to be delivered in 2022 onwards, so which will affect on the revenue and growth.

Next year.

Great and where those orders with existing legacy customers or new customer wins.

Mainly with our existing legacy customers.

Great and.

Another question on the script I think you mentioned orders for Leo.

Constellation to be delivered in 2022, what was that number.

I'd like to see about 17, one seven.

I understand it those are existing those are orders under your existing contracts that you have not a.

Correct.

Correct.

Those all are on existing contract.

Good.

And then I guess final question on Peru, you indicated that you hit the $50 million run rate and presumably that is at the exit of Q3. So it should be reflected in Q4.

You know a higher higher revenue moving forward Q4 and into next year.

Correct, a $50 million, but beta on the way so we wouldn't see a run rate of slightly above.

14, Q4, and you know you need to take one fourth of it and once we will get into operational phasing eat Guy and Amazon US really the 50 million are barriers, so but in terms of backlog, which we have about.

About $50 million.

Great and actually one final question can you give us a sense of the the book to Bill in the quarter, either either corporate wide or you know if there was any significant outliers amongst the segments.

It was significantly above one.

We call it book to revenue because the billing and revenue in <unk>.

He's tied together.

But it was significantly above one.

Great. Thank you.

Thank you Chris.

Right.

The next question is from Gunther Karger of Discovery Group. Please go ahead.

Oh, yes, Oh, congratulations on very good Oh, a question as well.

Could you make some comments on the military or the defense business to see how that's going.

Yes sure.

As we said in the last several.

In closing, we are investing more and more in the defense segment, which we haven't invested a four in the last several years.

We saw.

Very nice wins in.

In Asia Middle East and some in Latam we have.

Trying to duplicate it in other places in the world mainly for.

Full baseband sales and and.

Ted.

It's not something that we won't be able to measure quarter over quarter because to penetrate a new defense organization takes a lot of time and require a lot of investments in some cases, a specific development and.

Security measures, but in general we expect a lot from.

From from this segment in the coming Uh Huh.

Thank you.

Thank you.

Okay.

If there are any additional questions. Please press star one.

If you wish to cancel your request please press star two.

Please stand by while we poll for more questions.

Yeah.

Yeah.

There are no further questions at this time.

This helped <unk> would you like to make her concluding statement.

Yeah, I want to thank our.

Everyone for joining us on this call and for your time and attention. We hope to see you soon or speak to you in our next call. Thank you very much and have a great day.

Thank you. This concludes <unk> third quarter 2021 results conference call. Thank you for your participation you May go ahead and disconnect.

[music].