Q3 2023 Gilat Satellite Networks Ltd Earnings Call
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[noise], ladies and gentlemen, thank you for standing by the conference will begin shortly.
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[noise], ladies and gentlemen, thank you for standing by welcome to be locked third quarter 2023 results conference call. All participants are present in listen only mode. Following management's formal presentation.
Instructions will be there then 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 7th 2023 by now you should have all received the Companys press release, if you have not received it please contact allots Investor relations team at U K Global Investor.
Relations at 16466883559 or view it in the news section of the company's website www Dot dot com.
I'd now like to hand over the call to Mr. Ehud Helft of E. K Global Investor Relations. Mr. Health would you like to begin.
Yeah, Good morning, and good afternoon, everyone. Thank you for joining us today for the last third quarter 2023 results conference call and webcast.
And a recording of this quarter would be a very very good.
At approximately noon eastern time today November nine.
Remember, sending somebody who worked because somebody's got one central appear to 50 days.
Also please note that investors are urged to read the forward looking statement you got anybody would you remind me just stay tuned made on this earnings call.
Joker effects 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 operating results of risks uncertainties and contingencies, many of which are beyond the control of them do not and which may cause actual results to differ materially from anticipated results.
And under no obligation to update or alter these forward looking statements, whether as a result, as new information future events or otherwise.
Company had 50 disclaim any obligation to do so.
Detailed information about risk factors can be found in reports filed with the Securities and Exchange Commission.
But that said Genesis deductions on the call today are you satisfied yagi that field and they gave me I mean, you got the CFO.
I would now like to turn it over to country I described Yankee really picks up.
Thank you and good day to everyone I want to thank you for joining us today for our third quarter of 2023 earnings calls.
I want to take a moment to comment on the tragic events of October 7th in the world and he's right.
So I'm thrilled with the victims and families of this philosophy could tick.
We are very proud of our employees' response to this crisis and their dedication to the company during these times.
I also want to thank our partners customers suppliers and the world community clouds for their food to help it support before I discuss the business results of the quarter I want to emphasize that you don't need a strong global company with operations in development centers worldwide.
Operation remains unaffected by the recent events in these weird.
Continued growth closely monitor the situation and have implemented relevant measures and refreshed our business continuity plans to minimize any potential effect if it all went out of business.
Now, let's move to the business review of the third quarter of 2023.
We are pleased with our results for the third quarter, particularly the continued revenue growth combined with the continued improvement overall profitability.
The good performance was due to growing interest you know solutions as well as advancement in the satellite communications space in general.
Particular, I would mention the in flight connectivity market.
That contributes significantly to our revenue growth and profitability the scorpion.
We report significantly improved profitability and adjusted EBITDA, demonstrating the operating leverage inherent in our business.
In fact, our year to date adjusted EBITDA was $27 million would be exceed the adjusted EBITDA from the all of 2022.
We're very pleased with the progress made this year and we expect this trend to continue.
Looking ahead, we are narrowing our revenue and profitability expectations for the full year 'twenty three we expect revenues of between $265 million to $275 million.
We are increasing our GAAP operating income to between $29 million to $31 million.
Due to one time income net that get opinion anyhow CFO will discuss in his comments and we expect adjusted EBITDA of between 35 to 37 million daus.
<unk>.
Gross or 43% at the midpoint.
He has a very high throughput satellite the ph D S and the non geostationary satellite and GSO constellation business.
Continue to lead in this fall on the multimillion dollar orders from our strategic partner for something like the operators now.
Network expansion and delivery of the last once you open a generation platform discourage for and there's various would be taking place globally you support multiple applications such as in flight connectivity satellite backhaul and enterprise.
In the third quarter, we secured a new win for millions of dogs for a multi application platform to support new high throughput satellite. These satellites will be used primarily for IFC maritime and still a little back when the secondary applications.
Now is this the a product line I'm pleased to report we continue to take bold with a major project with significant potential for a large engine. So constellation we are on track and expect to basketball application process in Q4 this year.
This quarter continues to be a strong quarter for Banco.
Merkel solution August something like a significant award this quarter for approximately $20 million for a contract extension from a tier one <unk> in the United States.
<unk> continued to support this long term deal one customer with a multi year end to end managed services contract for something like they feel a little background and emergency response services.
Furthermore, and most exciting technical milestone was achieved with Skype for Aquarius vis up four five do you feel that backhaul in India with reliance Geo or FCS also to be embarrassed attitude and all.
Outstanding performance, one Gigabits per second was it showcased in India's first started like best Giga fiber service called Geo space five BS a day, India Mobile Congress.
The amazing success demonstrates high speed back calling services over satellite to deliver the highest throughput connectivity to previously inaccessible geographic within India I couldn't be prouder of our team who made this happen.
During the quarter, we build upon our ongoing activity with intercept within.
With an additional multi million dollar deal.
The global network endorsed modems deployment that operate both on Sky is falling and Sky suite.
In addition, we engaged you know as SBA business, several new opportunities for next generation IFC equipment.
Which we hope will mature in the next few months.
This success in addition to our ongoing business with another large aerospace integrate two longtime partner in the IFC market. We have continually relies on July 10 seasons.
In March this year, we signed an agreement to acquire data published in a leading U S defense satellite integrate them.
This is a major step in our initiative to increase our presence in the strategically growing defense market there.
The acquisition is an important step in the extension of the life business into the U S Vod and government sector as well as into other international government and defense markets. We are progressing very well towards the closing of the transaction. We expect our revenues in the defense sector to increase by approximately $50 million.
Daily basis, following the imminent closing of this acquisition.
Now waiting final regulatory approval, which by recent indication should arrive soon for.
And on which we expect closing to happen this quarter.
I expect that the forthcoming clothing.
Acquisition will provide a tailwind for a major defense opportunities.
And as I've mentioned in the past, we are putting a greater focus on the defense market and we are seeing slow but good progress in this area and expect these extra focus will bear fruits.
In the same quarter, we already advanced the project with the Ministry of Defense of the country in Southeast Asia, We continue to grow our pipeline and are working on several exciting deals, which we hope will materialize in the near future.
Furthermore, our enterprise customers worldwide continue to depend on us to enhance the business and new opportunities continue to arise. For example, we received the managed service contract extension from a large government Corporation in Asia Pacific to provide connectivity for multiple application across the nation.
This includes but not limited to enterprise applications with a strong opportunities for cellular backhaul emergency response, and mobility applications, such as causes them to move and comes in the polls.
Providing social inclusion is a big part of our strategy.
As exemplified also a new deal in the Philippines, and your global network will deploy to provide connectivity to the unconnected leveraging our Scotch the ZIP platform in Germany recently.
In parallel we are progressing towards completing the construction of the Amazon region, which is the sixth region awarded to be locked back in 2018, we expect to enter acceptance wassa soon enabling us to deliver the network when I tell them.
And to move into the operational phase in the first half of 2024.
Furthermore in people.
We are expecting additional brokers and you in the next few months.
This includes the maturity of several large rfps when they've been in the Peruvian government as well as several project extensions.
We are most pleased with the strong pipeline, we Havent bill.
To conclude I am pleased with the ongoing support of our partner as well as our ability to capture significant new opportunities. We continue to lead with our next generation platform Skype for the support multiple orbits and verticals, including our strategic markets of mobility sort of Becker and defense.
We also secured new opportunities for ice SBA business, especially in the IFC segment and are seeing increased opportunities in that line of business. We have a strong pipeline and expect the materialization of important these over the coming months and with that I hand over to <unk> CFO.
Gil please.
Thank you.
Morning.
To everyone I would like to remind everyone that our financial results are presented on both GAAP and non-GAAP basis.
Regularly used 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 noncash stock based compensation expenses amortization of purchased intangible amortization of intangible assets related to acquisition transactions lease incentive amortization impairment of held for sale assets.
Tax effect adjustments onetime changes of deferred tax assets and other operating income or expenses. The reconciliation table in our press release highlights this data and our non-GAAP information presented exclude it.
Exclude these items.
Now move to our financial highlights for the third quarter of 2023 overall.
Overall as I mentioned earlier, we are very pleased with our strong results this quarter.
We reported a 6% year over year growth in revenue and the solid improvement in profitability non-GAAP gross margin was 41% and our adjusted EBITDA reached nine $5 million higher by 30% compared to Q3 last year.
Given the strong performance to date alongside with the expected timing of Q4 deliver both.
And our proximity to the end of the year, we know that our revenue and adjusted EBITDA guidance and increased our GAAP operating income guidance, which I will cover later.
Turning to our financial results revenues for the third quarter was $63 9 million, 6% higher than those of third quarter last year.
This was driven by growth in satellite network segment, mainly from the cell backhaul enterprise mobility verticals.
In terms of revenue breakdown by segments.
Q3, 2023 revenue of the satellite network segment were $47 million compared to $32 $4 million in the same quarter last year.
Michigan increase mainly resulted from some large deals which were delivered this quarter to our strategic customers in the mobility market as well as the high volume with our enterprise and cellular backhaul customer base.
Q3, 23 revenues with integrated solutions segment were $11 million compared to $15 $7 million in the same quarter last year.
The decline was mainly due to a transition period between strategic and larger projects you just said.
Okay.
Q3, 23 revenues of <unk>.
Infrastructure and services segment were $12 2 million compared to $12 3 million in the same quarter last year.
I'd now like to summarize our third quarter, both GAAP and non-GAAP results.
Our GAAP gross margin in Q3, 23 improved to <unk> 40.
4% compared to 38, 2% in the same quarter last year.
Movements, you know gross margin was mainly due to a favorable product and services revenue mix recognized this quarter and the higher level of revenue I noted with revenue margins and profitability may fluctuate between quarters as an outcome of the actual revenue volume and mix.
GAAP operating expenses in Q3, 23 were $13 1 million in the quarter or 20% of revenue compared with $19 6 million or 33% of revenue in the same quarter last year.
The significant decline in GAAP operating expenses was due to a win of our Philippines lawsuit, which will set up this quarter and resulted in a onetime other income as well as the sale of real estate in Bulgaria, and therefore, a reduction in GAAP opex of seven 4 million.
GAAP operating income for the quarter improved to $12 7 million compared to $3 4 million.
Third quarter last year Gulf.
GAAP operating income in Q3 23, excluding the onetime other income was $5 3 million higher by 55% compared to Q3.
GAAP net income in the third quarter was $10 2 million or diluted earnings per share of <unk> 18 cents. This is compared to a GAAP net income of $2 1 million.
Earnings per share of <unk> in.
In the same quarter last year.
GAAP net income in Q3 23, excluding the onetime other income was $3 $8 million almost double that over the third quarter last year.
Moving to the non-GAAP results, our non-GAAP gross margin in Q3, 23 improved to 45% compared to 38, 3% in the same quarter last year.
non-GAAP operating expenses in Q3, 23 were $19 $8 million compared with $18 $7 million in the same quarter last year.
non-GAAP operating income for the quarter improved to $6 1 million compared to $4 $4 million in the same quarter last year.
non-GAAP net income in the third quarter was $4 6 million or diluted earnings per share of <unk>. This.
This is compared with a non-GAAP net income of $3 million.
Diluted earnings per share of <unk> <unk> in the same quarter last year.
<unk> EBITDA for the quarter was $9 5 million, an improvement of 30% compared with an adjusted EBITDA of $7 3 million.
Quarter last year.
Moving to our balance sheet as of September 32023, our total cash and cash equivalents, including cash was $103 million compared with $87 8 million.
On June 30, 'twenty, three and compared to $69 9 million.
As of September 32022, we do not hold any debt in terms of cash flow, we generated $13 8 million from operating activities. During the third quarter of 2023, which also includes the collection of the lawsuits award in the Philippines.
As I mentioned earlier.
<unk>, which excludes receivables and revenue from our terrestrial network construction projects in Peru, with 75 days higher than the previous quarter due so which were 63 days.
<unk> was impacted by an increase in receivables, partially offset with increased revenue and is in line with our credit policy.
Our shareholders' equity as of September 32023, total about $265 million compared with $255 million at the end of June 23.
Looking ahead as I already mentioned due to our proximity to year end, we have narrowed our revenue guidance and adjusted EBITDA guidance range for the year.
Given the onetime other income as mentioned before we are updating our GAAP operating income target for the year, our updated expectations show a strong 2023 with revenue between $265 million to $275 million representing year over year growth of 30% at the midpoint.
GAAP operating income of between $29 million to $31 million representing year over growth of around three times at the midpoint and adjusted EBITDA of between 35% to $37 million representing year over year growth, 43% at the meeting.
All in all as a dimension, we're very pleased with our performance to date and we expect to conclude 23 is a strong year for dealer.
That concludes my financial review I would now like to open the call and we'd be happy to take your questions. Operator. Please.
Thank you ladies and gentlemen at this time, we will begin the question and answer session.
Have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment congruent with the handset before pressing the numbers.
Questions will be pulled in the order they are a seat please standby while we poll for your questions.
The first question is from Ryan Koontz of Needham and company. Please go ahead.
Thanks for the question and I'm glad to hear.
Denise.
Yes.
Can we start maybe with gross margins and maybe talk through some of the puts and takes on gross margins looks like a nice step up sequentially in September, but maybe I'm wrong.
Leading into the implied guidance for December it will be another step down maybe because there is some product mix issues there.
So I mean gross margin around.
Yeah, Hi, Ryan.
So.
As you know gross margin gross margin sorry.
Active mainly.
By volume and mix the changes are doing.
This year.
Between quarters were mainly due to mix.
Changes of all of our products.
While delivering.
Some of the product.
For instance in the <unk> so.
With higher prop.
With margin.
Other.
Lower ones plus we have the.
The real effect.
Which was more a stronger.
In Q2 and lowered the gross margins would be so it fluctuates, but I think that what we see now.
Is the trend throughout the year so.
I would also say that you know looking at the last one.
Quarter by quarter basis, maybe.
A bit.
Sleeping.
Look on the year to date basis or trailing 12 months.
This would give a better.
Better picture.
Okay. That's fair enough. Thanks, thanks for that clarification.
And on your recent win in the backhaul it sounds like with the with a large U S. Operator, any any timing around your expectations for when you might start to see revenue from that.
I line.
Actually we haven't seen revenues already it's the extension of this project.
So we are entering actually we already enter the seventh seal.
<unk> doing business with that customer.
And it's a long one and a half million dollar per quarter of slightly more than that with some upside.
Every quarter.
Nice grades.
It sounds like IFC was strong in the quarter any more color you can share with us on your progress.
IFC market here in the near term the next either in Q3 over the next few quarters.
In the IFC, what we see is a lot of the.
So lots of interest we have said that our main customer was the main one is the Intelsat and we have.
A large very large U S integrated bundles, our SBA with is tell me now.
And this does this continue.
And see almost every quarter additional orders may be.
Madame network extensions all of additional SBA.
We do have some small customers for baseband modems and other customer for with SBA.
We are seeing.
Seeing a lot of interest.
Oh, no interest VA product line and we saw a.
More awards that soon will become a very large customers.
So we expect to have a.
A strong year in 'twenty three in general and also.
A strong year in 2020 following the IFC.
Great that's really helpful.
The types of clients. These are going onto this more going down market kind of business jets.
Also business just yes.
Right now the main focus is on the commercial but also on the business Jets.
Got it.
Helpful.
Alright, that's all I had I'll pass the call today.
Uh huh.
With that I would like to mention another thing if you remember last quarter, we announced our satcom direct.
The deal developed electronically steered antenna. So we are in a in the development process and we expect to see revenue within let's say 18 months from today.
So 2025, we expect.
Additionally growth in the sector.
Great and that's S for transplant.
<unk> business just yet.
Yes. This is for business jets.
Got it alright, great. Thanks for that.
Thank you.
The next question is from Chris Quilty of Quilty analytics. Please go ahead.
Thank you.
Chad.
You guys were the new entrant last quarter with the Satcom direct announcements this quarter.
Got the announcement that Hughes has now jumped into the range.
The order.
I'm, assuming that's something you couldn't address timing wise because of.
New product, but you know.
From what you know competitively.
Yes.
Satcom direct.
Product, you're developing stack up.
Yeah.
Yeah, So first of all.
It's.
That's H N S is getting into the <unk>.
Service provider in IFC.
<unk> focus is on the regional jets and they're using it.
<unk> standalone, they're not.
The fee income.
Satcom direct.
<unk> focus is on business Jets and.
Military jets.
Yes.
And we are developing for them the Isa electronically steered antenna.
So it says it's a completely different type of Dominion.
I understand.
Yeah.
Do you see any other product line extensions.
Starting at the Biz jet novel Satcom direct product is at scale.
Commercial aircraft.
The business just has a smaller antennae and satcom direct antennae is focused on the.
On the one with constellation for G O we need to.
A bigger antenna.
And.
This is part of our roadmap.
Well.
This antenna for commercial.
<unk> will be for a geo and Leo.
Not only for June.
Gotcha.
Switching gears.
<unk> wasn't.
Product line, you talked about much I think you did.
Relaunch with Sky edge for.
'twenty, one or 'twenty two is that correct.
Yeah.
No.
Has that product line caught on in the way that.
<unk> four has.
Or is it just.
Altra high performance.
Product line.
It just takes much longer for it to gain traction in the market.
So.
The Aquarius.
Well the portfolio is the.
He is a new product portfolio.
Dedicated for Skype for.
We do have has setup.
Our skies to see.
Modems that also work on Sky is full but the clarity the new line of product.
So.
It started with cruise with FCS empower, but not only we are now seeing it on the cellular backhaul and we see more.
In the future.
Mentioned in my notes.
We recently.
And the demo.
One gigabyte per second.
With SCS and reliance <unk> in India.
These are robust.
Achievement and those modems.
Opposed to be with the very high speed.
Performance.
Close to.
So the five G requirements.
Okay.
Switching gears again, I think you mentioned well first of all could you just repeat the data path.
Revenue contribution for next year, but.
I think you indicated that is all classified as Sam.
Or maybe very small commercial sliver of marathon.
On a reporting perspective can you remind us Gil.
All land.
It works or does it get spread.
You know across multiple segments.
So the data path.
Revenues.
At around the $50 million plus.
Plus minus 10%.
It's a <unk>.
Notably we learned on the satellite networks, but it's still under.
Under the accounting review so.
Italy due to say.
Alright fair enough.
And.
In general how I mean.
I know you don't provide.
Orders per se.
In terms of an order book, but what have you seen or as you look through look back I guess over 2023.
Have you seen in the trend line towards order strength or weakness over the course of the year.
Sort of what are you baking in.
Q4.
So it's really.
And on the segment, but in general I would say is that our bookings are all believing or give or take as expected at the beginning of D and when we put the guidance.
We're seeing a little traction in IFC and cellular backhaul.
In the defense, we are developing a pipeline.
I'm sure you know that the sales cycle is very long and the defense.
So we are seeing slow, but very good progress and we hope to have it.
Tailwind once we close the data acquisition.
We are seeing some.
Slowness in integrated solution order, but we expect to ramp up in the next quarter or two and in Peru.
It really depends on the local.
Local rfps and we know that the government plan too.
Launched several other very large rfps.
Next our next.
And we also expect some.
Contract.
Then Sharon and extension so we expect a.
Strong close for the year in Peru.
Gotcha you mentioned.
Payment solutions, and obviously, there's been a lot of weakness this year.
Can you remind us I mean is that certainly most of the defense companies that idea would have talked about orders slowed this with the government.
Do you think it is more related to the macro government purchasing environment.
Or is it specific to the programs that you're working on that you've seen some delays.
I think it's a combination of the two.
<unk>.
But I would say that the majority of the slowness is the shift that we're seeing between say there are large projects.
<unk> ended.
During 'twenty two early 'twenty, three and the other large projects that we awarded.
Them too.
The uplift towards the mid or end of next next year. So it seems like a transition transitioning.
Oh got you that's good color I wasn't aware of it.
And then I guess.
Anil question and sorry, this is a little esoteric but gil.
It looks like your.
Ah crap.
Phosphate in the model.
Ill catch you on that one offline.
No problem.
Thank you Chris.
The next question is from Doug Burkheiser.
Discovery. Please go ahead.
Yes, thank you excellent quarter congratulations to all.
I didn't hear any comment on Peru could you give us update on polo, Please and also the size.
Question yesterday, and I may have missed.
Do you expect to close on the data path.
Sure.
So.
Can you repeat your question again about the room.
Yes, just in.
A general update on Peru I missed.
Sure.
In Peru, our business as usual.
Close to the end of Oh, finishing the fixed region, the Amazonas region with awarded back in 2018.
Expect to.
Started the acceptance plus features with the with the government.
Before the end of the quarter and two five.
Final acceptance towards mid of next.
Yeah, and then to switch to operation Phase.
In parallel we see a lot of the.
A lot of bids that are coming up soon in the quarter and we are also expecting says contract expansion and extension. So we expect to have a strong.
With strong bookings.
For Peru.
As for data past you did we.
All guessing towards closing this quarter, we already received CPUC approval.
<unk>.
We still are waiting one lost government approval, which by recent indication we expect to get it in the next.
You should not days and weeks.
And there are some less bogo customary closing condition, which we.
We expect to achieve as well in the next few weeks. So indeed, we are expecting to close.
The transaction is working.
Thank you ultimately go out and go down a path.
Anticipate keeping that operation that's a separate subsidiary or do you expect to integrate that into your no.
Military and defense operations.
Combination of the two.
The other part.
They're going to be.
An important leg in our defense strategy, but we do expect them to continue to work.
Independently.
And to grow their business, while using a lot in the waste stream.
The resources and the defense in order to increase the overall defense presence of the Gila worldwide.
Thank you very much David.
Thank you.
Yes.
Yes.
Yes.
If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
Yeah.
There are no further questions at this time.
How many would you like to make your concluding statement.
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 next call. Thank you very much and have a great day.
Thank you. This concludes the last third quarter of 2020 results Conference call. Thank you for your participation you May go ahead and disconnect.
Yes.
[music].
Sure.
Okay.