Q1 2022 Gilat Satellite Networks Ltd Earnings Call
Thank you David.
Thank you.
[music].
Ladies and gentlemen, thank you for standing by welcome to <unk> first quarter 2022 results Conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session for operator assistance during the call.
Please press Star Zero as a reminder, this conference is being recorded May 23 2022.
By now you should have all received the Companys press release, if you have not received it. Please contact me lots of 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 get locked dot com I would now like to hand over the call.
All to Mr. Ehud Helft GK Investor Relations Mr. Hal would you like to begin please. Thank you operator, good morning, and good afternoon, everyone. Thank you for joining us today for <unk> first quarter 2022 results conference call and webcast.
And the starting of this call will be available beginning at approximately noon eastern time today May 23, as a webcast on <unk> website for a period of 30 days.
Also please note that investors are urged to read the forward looking statements.
Moody's with a reminder, that statements made on this earnings call.
Not just tariff effects may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Such forward looking statements, including statements regarding future financial operating results.
Involve risks uncertainties and contingencies many.
Many of which are beyond the control of delight, and which may cause actual results to differ materially from anticipated results.
<unk> is under no obligation to update or alter these forward looking statements whether as a result of new information.
Events or otherwise and the company expressly disclaims any obligation to do so.
More detailed information about risk factors can be found in <unk> reports filed with the Securities and Exchange Commission.
And with that Ted said retention interactions on the call today are Mr. <unk>, <unk>, CEO and Mr. <unk> <unk> CFO .
Now I'd like to turn over their culture of D D.
Okay.
Thank you <unk> and good day to everyone I would like to thank you for joining us today for our first quarter of 2022 earnings call. We are pleased with the results of the first quarter of 2022, which showed strong revenue growth and improved adjusted EBITDA profitability.
First quarter revenues were $51 $4 million up 19%.
Adjusted EBITDA was $2 5 million donuts, comparing to an adjusted EBITDA loss of $1 3 million.
Good morning.
More importantly, and as we discussed in the last earnings call. Looking ahead, we expect 2022 to be a strong year and we reiterate our annual guidance and management objective as we announced in February .
I will now focus on some of the business achievements and discuss some of the recent highlights.
I am pleased to do.
So we bought that we havent progressing as planned in the new era of.
Satellite communications, consisting of very high throughput satellite known as V HTS and non geostationary orbit constellation known as in GSO.
Turning to our launch last quarter of Gila next generation platform Skype for we are continuing to see significant increased interest you know multi orbit multi service platform with additional orders and growing pipeline.
<unk> is being well accepted as we are competing on important opportunities for additional major satellite operators. In addition, we encourage by additional Geo software defined satellites launched prints to Skype for was built with an architecture to support these next generation satellites.
In addition to the progress with Skype for I would like to share that we continue as planned with two other major achievements for SBA product lines reported last quarter, we are progressing well with the development as part of the multiyear contract, which has a potential of hundreds of millions of dollars to customize and to provide our live.
<unk> technology Valencia, So constellation's. Furthermore, we have received additional multimillion dollar orders from a leading satellite operator for SBA product line to support low Earth orbit constellation.
He led to solid growth potential in the emerging V HTS and NGL. So satellite communication market and we are on track to meet the goal of capturing a strong position in these mega market. The glass segment market alone is estimated to reach multibillion dollars of over the next few years according to industry analyst NSO.
We see increased activity in the mobility market as orders continue to pick up again.
<unk> made a strategic decision in selected Gila Skyjack vault as a platform to provide IFC services over the North America with the latest Ias 40 high throughput satellite. In addition, intercept expanded its IFC capabilities with Skyjack for operating with Gila tourists Aero modems to service global.
Let's walk with enhanced user experience.
These modems to provide the high quality IFC for commercial aviation regional aircraft and business Jets, while leveraging interoperability with sky fall and sky to see.
In the maritime market segment, we are progressing with a contract to deliver sky's full platform and our Aquarius motives to top cruise lines that will use Ses is also we'd be empower as well as ses's geostationary satellite fleet.
On another front, we achieved an important milestone with our electronically steered antennas for IFC.
This past quarter, we achieved a breakthrough when operating on the Airbus <unk> hundred 95 flight test base.
So the last piece.
These are terminal work in conjunction with our Scotch to see platform and the diversity of our modem. The <unk> marks the successful completion of the final space of five European clean Sky to IFC is a project I'm optimistic that the <unk> technology will provide the needed capabilities foggy love to continue to be the leading.
Solution for Internet connectivity.
<unk> driver, India at sea and on land.
In the cellular backhaul segment, we continue to lead the industry with multimillion dollar orders this quarter for network expansions received from Tijuana Msos worldwide.
This is a testament to our proven technology and close working relationship with our partners.
I am happy to report in the second in the second largest country in Africa, the Democratic Republic of Congo, B that was selected by Intelsat in the multimillion dollar deal to provide solar backhaul over satellite.
To a leading mobile network operator, we see good potential to capture additional market share in the D C consisting of $90 million and growing population.
We also achieved a milestone with our partner team in Brazil in reaching 1000 sites of <unk> cellular backhaul over satellite network the largest stocked network in Latin America.
Furthermore, we expect to significantly expand our business in Latin America with thousands of additional research and related services, indicating yet again, our proven leading cellular backhaul over satellite technology.
Looking forward, we expect the additional business with them in those worldwide as these markets significantly grows in the coming years. According to industry analysts tennis dial in in April 2020 to report the motor market revenues are forecasted to grow at a rate of 13%.
On an average over the next any of the faulty market is forecasted to be about 75% of modem shipments in 2020, due as well as the majority of shipments through 2031, five G market expected to start early in 2024 and to pick up in growth only in 2012.
<unk> six <unk>.
We intend to support and lead the market transition to five <unk> with our newest technology.
In the enterprise segment I am pleased to report a multimillion dollar deal to support business continuity for a large U S retailer retail network.
Nice to see housing research support thousands of store fronts.
I'll do an IV state with required gateway pickup to guarantee that each of the stores as they assure us of always being connected.
We are increasing our focus in the defense market and are seeing success with our product line. So unmanned aerial vehicles known as Uavs.
It won't be leaving you review manufactures placed an order for our satellite Domino's as a satellite antenna solutions for its tactical Uavs and we are hoping to close additional such deals soon.
In Peru, we continue to successfully execute our strategy, while making progress in building the terrestrial networks unique Amazon us and providing services and conquer beleaguer goodwill, but we're making good school as well as two local service providers and Msos in 2020, do we expect to turn a corner in Peru.
For our business and be able to become more profitable.
I'd like to conclude by sharing a few more points.
As we said in the last several calls we plan to continue to heavily invest in R&D to maintain our leadership position and to be prepared for the worst of opportunities that we see ahead of us.
We also are carefully monitoring the global supply chain issues and so far we have managed it well and has been able to meet most of our commitments to customers and partners.
Finally, I am pleased to say that we have a strong backlog and a healthy pipeline and good visibility into 2022, we therefore reiterate our management objective for 2022, as we announced in February our revenue guidance is between $245 million to $265 million.
We expect GAAP operating income of between five to 9 million and.
And adjusted EBITDA between $20 million to $24 million.
And with that I'd like to hand over to our CFO Gil.
We are now ready for your report. Please go ahead. Thank you Heidi good morning, and good afternoon to everyone.
I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis, we regularly use supplemental non-GAAP financial measures internally to understand manage and evaluate our business and to make operating decisions.
We believe that 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 incentive.
Litigation expenses or income related to trade secret claims reorganization costs merger acquisition and related litigation costs adjustments of assets that are held for sale.
And settlement and the initial recognition of deferred tax asset.
With respect to carryforward losses, the reconciliation table in our press release highlights of the data and our non-GAAP information presented exclude these items I will now move onto our financial highlights for the first quarter of 2022.
Overall.
As we mentioned earlier, we're pleased with the continued improvement in our results for the quarter.
<unk> showed continued recovery from the Corona downturn and demonstrate that we remain on the right track and we are becoming increasingly optimistic about our prospects in the quarters ahead.
While our performance demonstrates the very solid improvement there remain global macroeconomic headwinds, including ongoing electronic component supply constraints as well as price increases across the board I am pleased to say however that our performance shows that we have been able to mitigate the issues without significant <unk>.
Year to date.
In terms of our financial results.
Revenues for the first quarter, we were at 51 $4 million up 19% when compared to $43 4 million in the first quarter of 2021 the.
The improvements were mainly driven by growth from <unk>, So in flight connectivity and terrestrial network operation services.
In terms of revenue breakdown by segments as <unk>.
Scribed in our annual report commence in Q1 2022 in order to reflect our new managements approach managing the operations organizational alignment customer base and end markets. We're now operating three new operating segments satellite networks integrated solutions and network.
In infrastructure and services.
Q1, 2022 revenues of the satellite network segment, which provides advanced broadband satellite communication network and associated professional services turnkey solutions and managed services in the cellular backhaul enterprise IFC and defense markets were $24 8 million compared.
$25 6 million in the same quarter last year.
Q1, 2022 revenues of the integrated solutions segment, which provides products and solutions for mission critical defense and broadcast satellite communication systems advanced on the move in on the call satellite communications equipment system solutions, including Airborne ground mobile.
Like systems and solutions were $13 7 million compared to $6 7 million in the same quarter last year.
The improvement in this segment was primarily driven by strong revenue growth from Engie, So and defense market as well as initial recovery within the in flight.
And acuity market.
Q1, 2022 revenues of the network infrastructure and services segment, which provides terrestrial and satellite network construction and operation services were $12 9 million compared to $11 million in the same quarter last year. The improvement was mainly due to higher revenues during the open.
Writing phase.
Partially offset by a decrease in revenues during the construction phase.
I would now like to summarize our first quarter GAAP and non-GAAP results are.
Our GAAP gross margin in Q1, 2022 improved to 31, 9% compared to 28, 8% in the same quarter last year.
Operating expenses in Q1, 2022 were $17 4 million in the quarter compared with $16 million in the first quarter of last year.
GAAP operating loss for the quarter improved to $1 million compared to an operating loss of $3 5 million in the same quarter last year.
GAAP net loss in the first quarter was $2 5 million or diluted loss per share of <unk>. This is compared with net loss of 5 million or a loss per share of <unk> in the same quarter last year.
Moving to non-GAAP results, our non-GAAP gross margin in Q1, 2022 improved to 32% compared to 28, 9% in the same quarter last year.
non-GAAP operating expenses in Q1, 2022 were $16 7 million in the quarter compared with $16 2 million in the first quarter of last year.
non-GAAP operating loss for the quarter improved to zero point $3 million compared with an operating loss of $3 6 million in the same quarter last year.
non-GAAP net loss in the first quarter was one 8 million or diluted loss per share of <unk>. This is compared with net loss of $5 5 million.
The loss per share of <unk> <unk> from the same quarter of last year.
Adjusted EBITDA for the quarter improved to $2 5 million compared with an adjusted EBITDA loss of $1 3 million in the same quarter of last year.
Moving to the balance sheet as of March 31st 2022, our total cash and cash equivalents, including short term deposits and restricted cash was $77 3 million compared with $86 6 million on December 31 2021.
We do we do not hold any debt in terms of cash flow. We used about seven 4 million for operating activities during the first quarter of 2022.
Out of which about $4 2 million used for our Peru operating activities as some payments from the government were delayed I note that we do not expect to get we do expect to get them in the upcoming two quarters.
DSO, which exclude receivables and revenue of our terrestrial infrastructure projects segment.
293 days compared to 60 days in the previous quarters due to lower revenues and higher volume of sales in the second half of the quarter. The company Hasnt changed credit terms with customers and we do not see an unfavorable change in our collection.
We expect the DSO to decrease during the next quarters.
'twenty two.
Our shareholders equity as of March 31st 2022 totaled about 247 million compared with $248 million at the end of 2021.
Looking ahead as I already mentioned.
We reiterated our guidance for the year, our expectations remain for a strong 2022 with revenue between 245 and $265 million and an adjusted EBITDA of between $20 million to $24 million.
This 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. If 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 currently with the handset before pressing the numbers questions will be pulled in the order. They are received please standby while we poll for your question.
Yes.
Yes.
First question is from Chris Quilty of Quilty analytics.
<unk> go ahead.
Thank you I wanted to start with maybe a bit of a macro overview of the environment, obviously a bit of a turbulent start to the year here and Youre clearly.
Forecasting good growth in a pretty strong order book.
Can you give us a sense of how the orders or book to Bill shaped up during Q1 and did you change see any changes over the course of the quarter.
And has the current environment in any way.
Impacted your outlook for the full year.
Yeah, Hi, Chris This is a D.
The book to Bill ratio is our is the data that we have not.
Publicly providing and it's a bit misleading this ratio because I remind you that in 2015 and later on in 2018, we booked close to $550 million backlog.
From the projects in Peru.
If you are.
And offset this a huge backlog.
We need to recognize over the period of 13 to 15 years, depending on the project.
In most of the quarters, our book to Bill ratio is above one so we are generating.
Regenerating backlog.
From.
Satellite networks and integrated solutions.
Business.
As for the macroeconomic.
We had a very strong quarter this quarter, especially with.
All of those from Intel start both to the <unk>.
There were more of them and to the skies for for the <unk> satellite.
The new satellite.
And we continue to see a very strong pipeline.
Mainly large orders with satellite operators, some of whom we are working with and some which.
Which we have a very.
Good pipeline for new <unk>.
And obviously as it's all in process. So we see a lot of it.
Good vibe.
As I said in my script.
The Sky's phone is well accepted and is designed.
To meet the John just on the very high throughput on the NGL. So constellation. So we believe we are well positioned to take.
A decent market share.
Great and.
Specifically with the IFC market.
As familiar with I think it's the integrated solutions segment, where that falls now it.
It looks like you had really good year over year growth.
Where do you think that market is in terms of its recovery do you feel like we're back in the 50% point or 80% point.
In terms of.
The ordering activity that youre seeing in that market.
So.
First IFC is today basically in two segments in it depends on the.
Exactly which product lines.
So.
And does that business to the satellite net book and.
L modems is under a satellite networks and that's just VA product line is under integrated solution.
The growth in the grade solution is mainly <unk>.
I have not necessarily from IFC rather from.
Gateway solutions that we're providing.
As for your question and I have seen.
We do see more traction in the market, we do see more network extensions the needles strongly other than modems on the aircraft.
One of the reasons.
While we believe interest or decided to replace the 200 megabit per second modem to 400 megabit per second modem.
We believe.
Current plan is to start delivering towards the second half or towards the end of the year through 2023.
Great and.
It sounds like the progress in Peru continues and I think you had indicated in prior quarters, a significant improvement in profitability.
Obviously, that's forecasted into.
Or embedded into your current forecast excuse me, but can you give us a sense of.
The degree of.
The improvement that you expect this year and is that.
Even throughout the course of the year or is it in any way back ended or front ended.
So.
As we said several times in the past we expect to reach are expected to reach $50 million in recurring revenue per year. So we reach.
It is in backlog.
We still have too.
Two large projects that we need to finish the construction in order to start recognizing the revenues from the services.
So I believe that.
Affecting Q1 news you start to see the profitability in Peru, and it's give or take a spread along the way.
I think in Q4, we will see it.
Additional projects and some each.
Each project is.
In some cases as part of the services services.
Unique to Q4, so I expect a bit more profitability in Q4, but we are going to see the very nice profitable every quarter.
Once we finish the network construction the margins will increase because.
The next near the construction phase Karl with relatively low margins.
Great and.
I know another big contributor this year is some gateway rollouts with SCS on the empower they've had some delays in terms of timing a relatively minor but.
Have you seen a subsequent delay in your orders or planned rollout for that program.
No actually we are working very closely with US yes, most of the orders for the rollout.
Today, we already received in 2019.
Which also affect the book to Bill ratio, because it's part of our backlog do.
We started the deliveries from Q4 last year.
<unk>.
Until the end of deal so.
So now we don't see any delay in terms of gateway rollout in fact, we see a lot of opportunities with Ses.
Sure.
Right now there.
In order for them.
And global deployment and we expect.
To see increased business from our in country gateways, which will include also our equipment and it's a huge potential for us.
Great.
A final question on the U S. S. P. A business can you give us a sense of where you're seeing the mix there in terms of major end markets.
Or not as much mix, but the growth.
Of IFC versus sort of traditional defense applications.
So in the integrated solution that has three main market. He says he said defense.
<unk> and gateways.
I think that.
We expect we expect our IFC two to increase to be just to return to.
Give or take normal number that we used to see in the past.
Defense.
Really depend on budget and on projects that we got the award.
Several.
Decent projects that we are now in a development phase and we expect to deliver to start delivering those at the end of the year in 2023, and I think today.
Large part of the growth will come from the solution for the gateways, especially for the <unk>.
Leo gateways and later on also.
As Gio gateways.
Great. Thank you very much and I'll circle back in the queue.
Thank you Chris.
Okay.
The next question is from Gunther Karger of Discovery group.
Please go ahead.
Thank you and good morning first off congratulations on an outstanding performance hobby in Southern company.
Secondly, the Eddie.
Any relationship to the.
Evolving starlink space X.
<unk> continues to sign out.
Many.
Low orbit satellites is there anything that.
It has to do with this thing of both competitive they will may be noncompetitive.
So no doubt the styling today.
Disruptive.
Solution in the market.
Start with consumer and now they are aiming.
Other market segment.
We are not competing head to head with styling because the.
They would like to provide also the service itself. So they are competing with our customers.
To be honest right now we've done yet.
The pressure.
From them probably.
They will grow in the future. So we will make.
We might feel it but right now.
Our main focus is in the consumer market and.
Consumer is not our focus we do have a solution for consumers because it's a must have when you sell.
Multi application platform.
The HTS satellite and it also to have a consumer solution with all main growth will come from.
Similar backhaul in flight connectivity maritime and enterprise solution and less from consumers. So as of today, we don't we don't feel any competitive pressure from foreign styling.
I think you actually it appears that that's all.
Ross that's a spacex develops installing from Theyre actually may generate interest in the non consumer area, which could benefit you kill off possibly in the last.
And I have is regarding the structure of the board.
During this past year.
Board Oh.
Sure representation by CME has dropped from nearly 50% to the last report of 9%, which is a big drop.
That's what any plans.
Plans or consideration of of realigning the board to better reflect the.
The ownership.
It's a good question, which I don't have and then sell the bold is getting elected Phil.
A period of time, we have.
As far as I remember remember.
Coming AGM some of the board members will be up for election again, and then you will see it and then right now it's not something that we can.
Have they inform can discuss with.
With the public.
Thank you aarti and continuing the good wishes.
Thank you Gunther.
If there are any additional questions. Please press star one if.
If you wish to cancel your request. Please press star two please standby, while we poll for more questions.
Okay.
The next question is a follow up question from Chris Quilty of Quilty analytics. Please go ahead.
Thanks, guys. One other question just on the IFC antennas.
New developments, but that product has been in development for several years and I think I read a recent trade interview, where you are.
The normal path Youre looking at another two to three years for that thing to get fully certified where where it could be operationally installed.
Meanwhile, in reading news stories, where space.
To your point is now making overtures in certain enterprise markets and in the IFC market.
Your name has been showed up and associated with both Delta and Alaska and so I guess the question is is.
Is there anything that you know of that would enable spacex.
Spacex to move it at some sort of a.
Right.
Relation beyond what you're anticipating for a multiyear period to go through all the certification.
Yes, if I remember correctly, Spacex announced something with Hawaiian Airlines.
And.
First of all.
As far as we know.
Spacex is developing their own product in most of the cases.
Very good and unique.
Electronically steered antenna solution, but there is the.
We are not developing the antenna.
Off the shelf product at the end it needs to fit.
In most of the cases to existing base split.
You need to have a customer in order to have the maybe its specifications. So we reached to a point that.
We won't be able to progress significantly without.
Customers.
Ordering and the exact.
Specification of the antenna.
And finally, we are thinking out to utilize this technology in other in other places and once we have something to announce we'll share it with you.
Great. Thank you very much thank you Chris.
There are no further questions at this time, Mr being Amini would you like to make your concluding statement.
I want to thank you all for joining us this call and for your time and attention. We hope to see you soon and speak with you in our next call. Thank you very much and have a great day.
Yeah.
Yeah.
This concludes <unk> first quarter 2022 results conference call. Thank you for your participation you May go ahead and disconnect.
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