Q2 2022 Gilat Satellite Networks Ltd Earnings Call

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

The.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's second quarter 2022 results conference call.

All participants are present in listen-only mode. Following the management's 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 August 9, 2022. By now, you should have all received the company's press release.

If you have not received it, please contact GILAT's Investor Relations team at GK Investor and Public Relations at 1-646-688-3559 or view it in the News section of the company's website www.GILAT.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin please?

Thank you operator. Good morning and good afternoon everyone. Thank you for joining us today for the last second quarter 2022 results conference call and webcast.

A recording of this call will be available beginning at approximately noon Eastern Time today, August 9, as a webcast on Gilad website for a period of 30 days.

Also, please note that investors are urged to read the forward-looking statements in glass earning release, with a reminder that statements made on this earning call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995.

All such forward-looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingencies, many of which are beyond the control of GILAD and which may cause actual results to defer material from anticipated results?

Gilad is under no obligation to update or alter these four looking statements.

whether as a result of new information, future events or otherwise, and the company expressly disclaims any obligation to do so.

More detailed information about which sectors can be found in GIRAT's report filed with the Securities and Exchange Commission.

With that let me turn to introductions. On the call today are Mr. Adis Fadiad Giladzio and Mr. Gibini Amini Giladzifou.

I would now like to turn the call over to Adi Sadiya. Adi, we are ready to begin.

Thank you, Ehus, and good day to everyone. I would like to thank you for joining us today for our second quarter of 2022 running call.

We are pleased with our results for the second quarter.

We are particularly happy with our solid improvement in profitability and with a strong growth in our adjusted EVDA.

Second quarter revenues were $55.5 million, slightly above the second quarter of last year. Adjusted EBITDA improved to $5.3 million, more than double compared to an adjusted EBITDA of $2.4 million a year ago. Adjusted EBITDA represents a margin of 9.5% of revenues compared to 4% a year ago. More importantly, looking ahead, we are well on track with our expectations for 2022.

which is turning to be a strong recovery year for Gilad. We are therefore reiterating our 2022 Annual Guidance of Revenues, Operating Income and Adjustability Bida.

I will now focus on some of the business achievements and discuss some of the recent highlights.

I'm excited to share that we had a strong quarter in the current new era of satellite communication.

Gilad is expanding its strategic relationship with satellite operators and has received during the second quarter about $20 million in additional orders for our next generation platform SkyH4.

SkyTron continues to show strong market acceptance for multi-orbit, multi-service applications.

Skych4 was designed and built to capitalize on the large opportunities of the launch of geo very high suit with satellite and NGSO constellations.

We have a growing pipeline and we continue to compete on important geo-VHTS opportunities for additional major satellite operators.

We see solid growth potential in this new era of satellite communication and we are on track to meet our goal of capturing a strong position in this mega market. The ground segment market alone is estimated to be a multi-billion dollar market opportunity over the next few years according to industry analyst Enesav.

In our SSBA product line we continue as planned with two previously reported major projects

with the potential of hundreds of millions of dollars for large NGSO constellations.

We saw a strong quarter for the mobility market, including both for the IFC and maritime segments.

As the business continued to pick up, we received multi-million dollar orders from key customers for both our Sky is 4 platform and our SSPA product line.

As the current demand for air travel is booming, Interstat Commercial Aviation has expanded its strategic partnership with GILAT.

Additional orders were received to expand Intelsat service and increase user experience for air travelers in Asia Pacific.

In addition, multi-million dollars ordered were received from key customers for IFC SSPI Solutions.

On the maritime front, we are working hand in hand with SCS to introduce premium maritime service to cruise lines, and we expect the first ship to go online this quarter.

The service will operate initially over geo-satellite and the plan is that next year it will also include MPAR and GSO constellations.

This is an example of Gilad's unique advantage with SkySpore as it prefers to support both geo

and meal constellations.

The mobility market is strategic market for Gilad. I'm optimistic that Gilad technology will provide the needed capabilities.

for us to continue to be the leading solution for Internet connectivity during travel in the air and increase our penetration into the maritime market.

In the Sierra al Bekol segment, Gilad continued to lead with the growing business of more than $10 million in orders in the second quarter to expand existing projects in Latin America and Asia Pacific. For more information, visit www.sia.gov.

Tier 1 mobile operators continue to rely on Gilad's leading cellular backup solution to increase their coverage to thousands of new sites providing a reliable, excellent 4G user experience.

Gilad's technology is ready and proven to facilitate the market transition to 5G. As the transition from 4G to 5G is expected to take place in the coming years, we are optimistic that this will create new business opportunities for Gilad.

Giladis continues to focus on the defence business and I am excited to share that we are making good progress with a very large defence program. In addition, we received follow-on orders to expand the defence force outcome network business in Asia. We explained how compliance has changed our highway to anyone who has vision loss, lifts up or releases risk to someone you have ever met.

GLAS equipment will be used to expand tactical SATCOM solutions as well as address mission-critical C4I needs. Furthermore, we are making significant progress with our product line for unmanned aerial vehicles.

in cannot be

Gilad received an expansion of a large contract with Internet Paratodos, a consortium consisting of Telefónica and Facebook, among others, to expand Internet connectivity in Latin America. The contract with Gilad is for 4G server backup services over the Internet being deployed at more than 100 new sites and more than 800 sites in total to provide coverage to rural areas through Gilad's access network.

This extension demonstrates our ability to execute our vision to profitable recurring revenues in Peru.

In the Enterprise segment, we signed an agreement to enable a Central Asian government to provide digital services over satellites.

GILAT will facilitate the connection of rural villages to the government network and will enable access to citizens to remote digital services, thus assisting in bridging the digital integrate.

Finally, I am pleased to say that we continue to have a strong backlog and a healthy pipeline and we have good visibility into the reminder of 2022.

We expect to show in the second half of the year significant growth both in revenue and profitability.

We therefore feel comfortable reiterating our 2022 annual guidance.

This is even as we consider the challenges such as the supply chain turmoil and our continued strong investment in R&D that enable us to prepare for the wealth of opportunities we see ahead.

And with that I'd like to hand over to our CFO Gil Biniemini. Gil, please go ahead. Thank you, Eddie. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented both on a GAAP and a 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 comfortable 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 purchase in tangibles, amortization of fleas incentives, litigation expenses...

I will now move to our financial highlights for the second quarter of 2022.

Overall, as Adi mentioned earlier, we are pleased with the continued improvement in our results for the quarter.

The results show continued recovery in the revenue and strong improvement in the growth margin and profitability.

The demonstrates that we remain on track. We're optimistic about our prospects in the quarters ahead and there and we reiterate our guidance for 2022.

While our performance demonstrated very solid improvement, there remain global macroeconomic headwinds including ongoing electronic components supply constraints as well as price increases across the board. I'm pleased to say, however, that our performance in the quarter shows that we have been able to mitigate these issues without significant impact to date.

in terms of our financial results.

Revenues for the second quarter were $55.5 million, slightly above those of the second quarter of last year, which were $54.8 million. In terms of the revenue breakdown by segments, Q222 revenues of the satellite network segment, which provides advanced broadband satellite communication networks and associated professional services, turnkey solutions, and managed services for the satellite network.

enterprise, IFC and defense markets were $26.9 million compared to $34.4 million in the same quarter last year. The reason for the decline was mainly due to large deals delivered in Q2 2021.

Q222 revenues of the integrated solution segment which provides equipment, product systems and solutions for the mission critical defense broadcast advance on the move and on the post-satellite communication solutions including for airborne and ground mobile were $15.7 million compared to $12.1 million in the same quarter last year. The improvement in this segment was primarily driven by higher revenues from the NGSO and in...

projects

partially offset by a decrease in revenue during those construction phase, as well as operation revenues from new projects.

I would now like to summarize our second quarter gap and non-gap results.

Our gap gross margin in Q222 improved to 35.6% compared to 30.3% in the same quarter last year. The strong improvement in the gross margin was due to favorable products and services mix recognized this quarter.

Gap operating expenses in Q222 were $18.3 million in the quarter compared with $17 billion in the same quarter last year.

The increase is mainly due to investment in R&D efforts that will support our current table in summary.

GAAP operating income for the quarter improved to $1.5 million compared to an operating loss of $0.4 million in the same quarter last year. GAAP net income in the second quarter was $0.5 million or diluted income per share of one cent. This is compared with net loss of $0.2 million in the same quarter last year.

Moving to non-GAAP results, our non-GAAP growth margin in Q222 improved to 35.8% compared to 29.8% in the same quarter last year.

non-GAAP operating expenses in Q222 were $17.4 million compared with $16.6 million in the same quarter last year.

non-GAAP operating income for the quarter improved to $2.4 million compared to an operating income of $0.1 million in the same quarter last year.

non-GAAP net income in the second quarter was $1.4 million or diluted income per share of 3 cents. This is compared with a net income of $0.3 million or income per share of 1 cent in the same quarter last year.

Adjusted EBDAV for the quarter improved to $5.3 million compared with an adjusted EBDAV $2.4 million in the same quarter of last year.

Moving to our balance sheet, as of June 30, 2022, our total cash and cash equivalents, including short-term deposit and restricted cash, were $71.4 million, compared with $77.3 million on March 31, 2022. We do not hold any debt.

In terms of cash flow, we used $3.3 million for operating activities during the second quarter of 2022.

DSO, which excludes receivables and revenue of our terrestrial infrastructure project segment, remained at the same level similar to the previous quarter and were 95 days compared to 93 days in the previous quarter.

The company has not changed its credit terms with its customers and we do not see an unfavorable change

of our collection.

We expected the DSO to decrease during the next quarter as substantial milestones correlated to our collection schedule will be achieved.

Our shareholders' equity as of June 30, 2022, totaled to $246 million, compared with $247 million in March 31, 2022.

Looking ahead, as I already mentioned, we reiterated our guidance for the year. Our expectations remain for a strong 2022 with revenues between $245 million to $265 million and adjusted EBITDA between $20 to $24 million.

That concludes my financial review. I would now like to open the call for questions. Operator, please.

Okay.

That's it.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order that I received. Please stand by while we poll for your questions.

The first question is from...

Chris Quilty from Quilty Analytics. Please go ahead.

Thanks, congratulations on the orders for the SkyEdge 4. Can you give us an idea of what applications you're seeing demand from?

Hi Chris, nice to talk to you again. Actually the main application from the beginning of the year was in-flight connectivity, maritime and solar vehicle.

Of course enterprise and consumer is also applicable because the platform is a multi-application platform. But right now the main demand is IFC, maritime and cellular backwards.

And can you remind me, is Intel sat one of the customers?

is Intel sat one of the customers for SkyEdge for

Yeah, Intelsat is one of the largest customers, SES and others.

Great. And speaking of IFC, obviously your business is highly leveraged to Intelsat. Can you give us a sense of how you feel about their deployment of new hardware this year and opportunities outside of Intelsat that you're pursuing?

As we announced at the beginning of the year, the main orders we received from Intel's satellites earlier there was for IFC, especially for the IS-40E, the new satellite, and the deployment is currently on plan. In addition, we increased…

expand our deployment for Intel Start worldwide this quarter in Asia.

Great. So a high level question here, obviously, in first order, we had the UDL-SAT OneWeb merger announcement. Can you give us your thoughts on how that may impact your company?

First of all, mergers in our business and the market is, we see more and more. It's not a surprise for us this kind of merger and we thought something like this could happen because Utah was a large investor in OneWeb. We made a pretty Sisters people because I thought the businesses were really big fans because we wanted to build them somewhere where we wanted to go.

Generally I can say that we are seeing continued consolidation in the satellite market.

We have a good relationship with you two, sir, and we hope that Mérida can open...

opportunities for us also with OneWeb Basement. I think that one point in time they will need Geo, Leo, switchover and they will need a dedicated network for that and I think a lot of SkyH4 can be the optimal network for them. But of course this is just at the beginning we are far from seeing this mature.

Great, and speaking of GEO LEO switchover hybrid networks, any progress to report on the electronically steered antenna in terms of development or customer testing?

Great, and speaking of GeoLeo switchover hybrid networks, any progress to report on the electronically steered antenna in terms of development or customer testing?

Last quarter we announced that we finish our program with Airbus.

And now that we finish our program with Airbus.

development is continuing but we see a lot of demand in the market but right now there is no customer who is willing to order or...

support the finishing the design at the end you can develop those kind of antennas up until a specific point where you need a customer to make sure that it fits the exact radium and the aircraft so we have

We will continue to progress but not as we wanted.

On the defense market, you talk about both the UAV market and mentioned a large defense opportunity in this call.

Can you clarify are those opportunities primarily around the SSA SSPA product line or are the some of these You know larger programs that would include more of a managed communication suite.

In general, defense is becoming a strategic segment for Gilad. We do see a lot of business in the SSPA line of business, but we are competing on several programs. One of them is very large, that is mainly modem and network products. And we see more and more demand.

for both SkyH2C and SkyH4 platform for defense organization worldwide.

Great, and final question on Peru. It sounds like you've picked up some additional add-on contracts there. How do you see the demand environment there, or perhaps better to ask the funding environment for some of the programs, I think most of which are government access programs? Right, so in Peru we have a very good business. We are already in operation in four regions.

We recently announced that we finished the fifth region and we are waiting for Puanatel, which is the government entity that we are working with, to inspect the network and hopefully we'll be able to start operation probably towards during Q4. And the sixth region is expected to be announced done during 2023. Thank you.

We reached to our target of $50 million recurring revenues. Most of it is already in backlog, and we'll see this run rate from mid next year mature to our top line. As for government funding, the fact that there is instability in the Peruvian government Schedule animal vehicle payment.

Let's say either hard or significantly slow in the new RFPs that we are seeing over there. The deal with LPT is with the private sector.

in Peru. So over there we continue to see the regular demand that we saw in the past.

Great, thank you for the update.

Thank you, Chris. Looking forward to speak with you.

with you in the future.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2.

Please stand by while we poll for more questions.

There are no further questions at this time. Mr. Bini Amini, would you like to make your concluding statement?

Thank you. I want to thank you all 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 GUAD's second quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.