Gilat Satellite Networks Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Second Quarter 2023 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. As a reminder, this conference is being recorded August 8, 2023.

Operator

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 EK Global Investor Relations at 1-six forty six-six eighty eight-three thousand five hundred and fifty nine or view it in the News section of the company's website, www.gelot.com. I would now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr.

Operator

Helft, Would you like to begin, please?

Speaker 1

Thank you, operator. Good morning and good afternoon, everyone. Thank you for joining us today for Gilat's Q2 2023 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern Time today, August 8, with a webcast on Gilat's website for a period of 30 days. Also, please note that investors are urged to read the forward looking statements in Gilat's earnings releases with a reminder that statements made on this earnings call There are not historical facts may be deemed forward looking statements during the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

All such forward looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingency, many of which are beyond the control of Gilat and which may cause actual results to differ materially from anticipated results. Gilat is under no obligation to update or alter these forward looking statements whether as a result of new information, future events or otherwise, and the company expressly disclaims any obligation to do so. More detailed information about risk factors can be found in Gilat's support filed with the with Securities and Exchange Commission. With that said, let me turn to introductions. On the call today are Mr.

Speaker 1

Adi Fadia, Gilat's CEO and Mr. Adi, Mr. Guy Penyamini, Gilat's CFO. I would now like to turn over the call to Adi Sadi Adi. We're ready to begin.

Speaker 2

Thank you, Ewes, and good day to everyone. I want to thank you for joining us today for our Q2 of 2023 earnings call. The Q2 of 2023 was another strong quarter in which we showed strong year over year revenue growth. Our growth was broad across multiple business areas and totaled 22% above the same quarter last year. Adding to that, we significantly improved our stability.

Speaker 2

We more than tripled our GAAP operating income year over year and has an adjusted EBITDA of $9,200,000 which is 74% higher than the adjusted EBITDA of the 2nd quarter last year. As you can imagine, I am very pleased with the results of the Q2 and the first half of twenty twenty three. Looking ahead, We are increasing our revenues and profitability expectation for the full year 2023. We expect revenues of between $265,000,000 $285,000,000 GAAP operating income of between $18,000,000 to $22,000,000 and adjusted EBITDA of between $33,000,000 to 37 $1,000,000 2023 continues to demonstrate a strong and profitable year for Gilat. I will now focus on our business achievements and opportunities in the quarter.

Speaker 2

The massive industry activity in the new era of satellite communications Continues to fuel Elat's growth engines, which revolve around very high throughput satellites and non geostationary satellite constellations. Like in the last several quarters, also this quarter, we received 1,000,000 of dollars of orders from our strategic partners, the satellite operators. Network expansions and delivery of SkyEdge 4 and Aquarius VSATs are taking place globally in support of multiple applications such as In flight connectivity, cellular backhaul and enterprise. In our SSPA product line, I'm pleased to report on continued successful engagement Major project with significant potential for large NGSO constellation. We are on track and moving to production in the Q3 of this year.

Speaker 2

I'm excited to report that in our important growth engine of in flight connectivity, we are making significant progress with 2 important new strategic partnerships. 1st, as we recently announced, we signed an agreement with a new strategic partner, Satcom Direct to develop and supply new ultra low profile electronically steered antennas to operate over OneWeb's LEO constellation. Satcon Direct is a leading provider of fully integrated end to end global satellite communication solutions. Their solutions are in use today in over 7,000 aircraft. They are dedicated to delivering start from connectivity to business and government of the Asia Worldwide, during the quarter, we received the first orders valued of tens of 1,000,000 of dollars.

Speaker 2

This agreement has additional potential of several tens of 1,000,000 of dollars over the next few years. The development of an ultra low profile ESAT terminal will enable ILAT to increase its presence by entering new market segments such as IFC for business jets as well as connectivity for government and military aviation. This first ESA project is an important turning point and an important future growth engine as we enter the new promising and growing ESA market. 2nd, we are expanding our ISV business with another strategic partnership, Receiving this quarter the 1st multimillion dollar orders from Tier 1 Aerospace System Integrator. We will support next generation IFC equipment to reinforce our industry leading position as the premier supplier of SSP8 for the IFC marketplace.

Speaker 2

Following the signature of the agreement to acquire DataPath Inc. At the end of the previous quarter, we are progressing in obtaining the necessary Regulatory approvals. Together with DataPath, we submitted the required notices with CFIUS and other U. S. Agencies And we already received an answer of several sets of questions.

Speaker 2

Conditioned upon the process satisfactory conclusion, we anticipate that the closing The transaction will occur during Q4. During the Q2, we booked multimillion dollars of orders in defense market. This includes an additional order of our antennas demonstrating confidence in our strategic partnership with the leading UAV customer. Furthermore, we received initial orders for our SkyEdge 4 Aquarius modems from 2 leading defense system integrators in the U. S.

Speaker 2

These are the first steps in establishing a significant channel for Gilat's next generation modems based on the U. S. Government demand. In Cellular Beckol, another strategic growth engine, we continue expanding our global presence with multimillion dollar orders. I am pleased to say that the skies for our next generation platform is continually chosen by the satellite operators to provide cellular vehicle services.

Speaker 2

This is in addition to receiving orders from new and existing mobile network operators that are expanding their network based on Skyche to see our current leading cellular backhaul platform over satellite. An important example is in Mexico, Gilat was awarded 1,000,000 of dollars to connect 100 of 4 gs sites in the CFE, Telecommunication and Internet for All initiative led by a Mexican federal agency. Within this framework, global satellite operators I'm working with Gilat to provide the best available solution. Gilat cleaning technology and local presence are instrumental in addressing the special deployment requirements of the federal agency. In Peru, we made progress this quarter in the Amazonas region, We concluded the construction of about 75% of the access network nodes.

Speaker 2

We are moving towards finishing the construction of the networks this year in line with the recent extension that we received from Ponatel for the implementation of this project. In the ICA region, we passed acceptance and moved To the operational phase, this is the 5th region in operation out of 6 awarded to Gilat. To conclude, We had a strong quarter in which we showed strong revenue growth and significantly improved profitability, demonstrating the leverage in our business model. In addition, we had a strong booking with some very important strategic deals, especially with our IFC business, which is one of our key growth areas. The recent significant achievements are not only important achievements for this quarter, but they're a huge stepping stone For further expansion in the existing exciting IFC market as we embark on future growth engine and enter into the new promising Easter market.

Speaker 2

I'm optimistic about our ability to continue our growth and improved profitability path in the coming quarters as reflected in our increased revenues and profitability guidance. And with that, I hand over to Gil Biniamini, our CFO. Gil, please.

Speaker 3

Thank you, Adi. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented on both 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 these non GAAP financial measures provide consistent and comparable measures to help investors understand our current Non GAAP financial measures mainly exclude the effect of stock based compensation, Amortization of purchased intangibles, lease incentive amortization, litigation income or expenses, Income related to trade secrets claims, restructuring and reorganization costs, merger acquisition and related litigation income or Expenses, impairment of held for sale assets, other expenses, income tax effect on adjustments, One time changes of deferred tax assets and one time tax expense related to the release of historical Truck Draft earnings.

Speaker 3

The reconciliation table in our press release highlights this data and our non GAAP information presented excludes these items. I will now move to our financial highlights for the Q2 of 2023. Overall, as Adi mentioned earlier, we are very pleased With a strong Q2 of 2023, we reported a 22% year over year growth in revenue And an improvement in profitability. Non GAAP gross margin was 38% and our adjusted EBITDA reached $9,200,000 higher by 74% compared to Q2 last year. Given the strong performance in H123 And the robust pipeline we see ahead of us, we decided to increase our revenue targets for the year as well as our GAAP operating profit and adjusted EBITDA guidance, which I will cover later.

Speaker 3

In terms of our financial results, revenues for the Q2 were $67,600,000 22% higher than those of the Q2 of last year. The improvement was driven by growth in the satellite network segment, mainly from the in flight connectivity, solar backhaul and enterprise verticals. In terms of revenue breakdown by segment, Q2 2023 revenues of the Satellite Networks segment were $40,700,000 compared to $26,900,000 in the same quarter last year. The significant increase mainly resulted from large deals delivered this quarter to our strategic customers in the in flight connectivity market as well as a high volume with our enterprise Estella Decol customer base. Q2 2023 revenues of the Integrated Solutions segment were $12,700,000 compared to $15,700,000 in the same quarter last year.

Speaker 3

Q2 'twenty three revenues of the Network Infrastructure and Services segment were $14,200,000 compared to $12,900,000 in the same quarter last I would now like to summarize our 2nd quarter both GAAP and non GAAP results. Our GAAP gross margin in Q2 2023 Grew to 37.8% compared to 35.6% in the same quarter last year. The improvement in our gross margin was mainly The high level of revenue. Please be aware that the revenue margins and profitability may fluctuate between quarters as an outcome of the actual revenues, Volume and deal mix. GAAP operating expenses in Q2 2023 were $20,100,000 in the quarter or 30% of revenue compared with $18,300,000 or 33 percent of revenue in the same quarter last year.

Speaker 3

GAAP operating income for the quarter improved to 5 point $5,000,000 compared to $1,500,000 in the same quarter last year. GAAP net income in the 2nd quarter was $4,300,000 or diluted earnings per share of $0.08 This is compared to a GAAP net income of $500,000 or diluted earnings per share of $0.01 in the same quarter last year. Moving to the non GAAP results. Our non GAAP gross margin in Q2 2023 improved to 37.9% Compared to 35.6 percent in the same quarter last year, non GAAP operating expenses in Q2 2023 were $19,600,000 compared with $17,400,000 in the same quarter last year and non GAAP operating income for the quarter improved to 6 point $1,000,000 in the same quarter last year. Non GAAP net income in the 2nd quarter was $4,900,000 or diluted earnings per share of $0.09 This is compared with a non GAAP net income of $1,400,000 or diluted earnings per share of $0.03 in the same quarter last year.

Speaker 3

Adjusted EBITDA for the quarter was $9,200,000 an improvement of 74% compared with an adjusted EBITDA of 5 point Excluding restricted cash were $87,800,000 compared with $89,700,000 on March 31, 2023 and compared to $71,500,000 as of June 30, 2022. We do not hold any debt. The decline in cash compared to the previous quarter was due to a voluntary payment of $10,300,000 for the release of historical Tax draft earnings, which completed a total one time payment of approximately $12,500,000 for that purpose. The company chose to take advantage of the temporary Israeli tax relief that expired in November 2022 And to pay significantly reduced tax rate to allow in the future certain actions such as distribution of dividends, Shares buyback or acquisition of foreign companies without paying an additional substantial corporate tax. In terms of cash flow, we generated $2,000,000 From operating activities during the Q2 of 'twenty three, excluding the mentioned $10,300,000 one time tax We generated about $12,300,000 from operating activities this quarter.

Speaker 3

DSOs, which exclude receivable and revenue of our terrestrial network construction projects in Peru, were 63 days, Lower than previous quarter DSO, which were of 77 days. The decrease was impacted by an increase in revenues alongside decrease in receivables due to a higher collection in the quarter. Our shareholders' equity as of June 30, 23 totaled about $255,000,000 compared with $250,000,000 at the end of March 23. Looking ahead, as I already mentioned, we've increased guidance, GAAP operating income and EBITDA guidance for the year. Our expectations are even stronger than previously anticipated and show a strong 23 With revenue of between $265,000,000 to $285,000,000 representing a year over year growth of 15% at the midpoint, GAAP operating income of between $18,000,000 to $22,000,000 representing year over year growth of 101% at the midpoint and adjustment EBITDA of Between $33,000,000 to $37,000,000 representing year over year growth of 39% at the midpoint.

Speaker 3

That concludes my financial review. I would now like to open the call and would be happy to take your questions. Operator, please.

Operator

Thank Your questions will be posed in the order they are received. Please stand by while we poll for your questions. The first question is from Ryan Coons of Needham and Company. Please go ahead.

Speaker 4

Hi, congrats on the nice quarter. It's nice to be on the call. I

Speaker 1

Wanted to

Speaker 4

ask you about the strength in the satellite networks segments, obviously really great results there. And thanks for the color on the prepared remarks. It sounds like IFC was a big contributor there. But can you help us understand maybe what's going on inside that IFC Segment there at SUN, is this primarily driven by the ESAs or the amplifier business? And what sort of customers are driving the strength here in the second quarter?

Speaker 2

Hi, Ryan. The strength in the IFC is mainly related To the baseband and modems that goes to Intelsat Commercial Aviation. The Eisai agreement, It's a very strategic and important agreement, but it's a, I would say, future growth engine. It requires, It will take a year and a half, 18 months of development and then certification. So I won't expect significant revenues before 2025.

Speaker 2

We also have decent revenues from SPA. This is mainly It goes to companies like Honeywell, but this quarter, it was mainly the basement equipment.

Speaker 4

Got it. And as far as your comment that's really helpful. Thank you. And as far as your commentary around Kind of moving down into the smaller plane market, is that again, is that a near term driver that's driving This year's results or is that also more of an opportunity for the future? I guess that your small form factor ESAs sound like maybe that's a 2025 opportunity?

Speaker 2

It's mainly the 2025 revenue, the opportunity It's already fruitful. We just need to develop and then start to deliver, but It's a 25 revenue stream, but this is the first step into the business We have other solutions that we expect to see and to sell, but it will take time.

Speaker 4

That's great. I'm sure that's a market that's lightly penetrated with high performance systems. So it sounds like a great opportunity.

Speaker 2

Indeed. Based on NSR, There is a potential of more than 15,000 aircraft for broadband connectivity on the business jets. And it's a from our perspective, it's a huge opportunity. Satcom Direct has more than 7,000 aircraft Connected not only to broadband, but in general. So I think the opportunity with Satcom Direct is very high And also the overall market opportunity is very big.

Speaker 4

That's great. Thanks for that. And Sounds like that call is also pretty strong in the quarter and you had some new agreements signed, some new orders coming in. Is this primarily a Systems business that you're selling there with SkyEdge that's driving that strength?

Speaker 2

Correct. Cellular backhaul is an Important growth engine for us. We are the partner of choice for both STS, Intelsat and other Large satellite operators that are using our equipment, both on SkyH 2C and soon also over SkyH 4. And we are working with the largest MNOs worldwide. Today, we have about 40% market share on the overall cellular backhaul market.

Speaker 2

And if you exclude 2 gs and 3 gs and focus on 4 gs and above, we have more than 75% market share.

Speaker 4

Great. And specifically going back to your comments circling back in the last previous topic around IFC and what you're doing with SATCOM there. Can you remind us where OneWeb is in their rollout of IFC today?

Speaker 2

I think OneWeb is starting to provide global Service. On the IFC, they are not a service provider, rather provide the capacity and some Services 2 service providers. I know that several service providers bought capacity from OneWeb. So Satcom Direct is engaged with them, Intelsat is engaged with them and also H and S is engaged with them. So it seems like that their IFC capacity sale is going to increase in the next few quarters.

Speaker 4

It's great to hear. And lastly, just on the gross margin, We've real great progress year over year and a step down sequentially. Can you remind us maybe some of the product mix that's driving the gross margin change there, both year over year and sequentially?

Speaker 3

Yes. So first, hi, Ryan. You have to remember that our gross margin fluctuates according to the product mix and volume. Naturally, IFC related products Higher gross margin and then we have the solar backhaul Downer in the list, we have the enterprise related products And we almost don't sell any consumer related products and they have lower Gross margins associated with them. If you look at the gross margin trend, Over time, you can see an overall increase in the last few years in the gross margin of the company.

Speaker 3

On top of that, We have the Peru business, where we are shifting from construction to operation and the operation Revenues are associated with higher gross margins than the construction that we're expecting to end sometime in the next few quarters.

Speaker 2

Brian, I would add that the SkyEdge for the next generation Platform is more software based and hardware based, and we expect that it will drive our margins Higher in the next few quarters once we will see more and more deployment of Sky Sports. So we provide the Initial hardware and later on most of the operator expansions will be done by software only Without the need of additional expensive hardware.

Speaker 4

Got it. Really helpful. Thanks, Adi. Thanks, Gil, and nice quarter.

Speaker 2

Thank you, Ryan. See you soon.

Operator

The next question is from Chris Quilty of Quilty Analytics. Please go ahead. Hey, OD, just to follow-up on that question.

Speaker 5

Can you remind me, is Intelsat rolling forward with the 2C or the 4?

Speaker 2

Both. Intercept, when they acquired Clogor, they got the largest Global network of SkyEdge 2C. And for IS-4E, they acquired our SkyEdge 4 system. In addition, we are providing them our torus modem that can reach to 400 megabit per second That can serve both platform. So it's backward compatible with SkyH2C And they can move it between the systems.

Speaker 2

So from their perspective, it's the one management system and one model that can shift Between the systems, we hope that the SkyEdge 4 will be active very soon Over North America.

Operator

Got you.

Speaker 5

And so they've got 4 software defined satellites Do you feel good about your position on there? Are they still making a decision about what they're doing with the new satellites?

Speaker 2

I feel confident in our relationship with Intelsat. Today, we are Probably the largest network that we own, if not the largest together with ST Engineering, we have the 2 largest networks. ST is mainly the Flex solution and us is a cellular, backhaul and enterprise. I feel comfortable that in the next satellite, they were Gilat is a Very strong candidate. Nothing is guaranteed, but I feel very comfortable with our relationship And the solution that we are providing for Intelsat, the fact that they have our solution deployed globally, it's In a way, it show a high stickiness going to that.

Speaker 2

And are you at this point, is there the baseband equipment

Speaker 5

And you're simply doing a per aircraft deployment or is there still more baseband to roll?

Speaker 2

So Almost every quarter, there is more basement to hold. Every time they buy more capacity, The new transponder, new satellite, new gateway, they need to increase their baseband Every time or every airline that offer free Wi Fi, they need to acquire more capacity and need to increase the ground equipment. In parallel, they are rolling our 1st modems and replacing our Capricorn Aero modems From 200 megabit per second to 400 megabit per second. And we expect that every few years, there will be a new rollout of the modems.

Speaker 5

Great. And where are you in the process? I mean, I think SkyEdge 2C is going to be around for a while, but in terms of new orders and existing sales, Where is that trending? I think the SkyEdge 4 has only been on the market for what a year, year and a half. I mean, Are you still kind of like at 90%, 10% with old versus new?

Speaker 5

Or are you seeing a much quicker shift?

Speaker 2

No, the shift is not that fast. The large satellite operators are shifting to Sky H4, although In some cases, continue to buy Sky H2C, but we see a lot of interest in the market and a lot of Regional satellites that are going to be launched and we are talking with satellite operators and all the carriers about the Sky H4. As of Sky 2C is here and kicking and we have continued to develop features and provide service. So It will take several years until SkyEdge to see will disappear. I remind you that Empower is based on SkyEdge 4, and this is a new rollout.

Speaker 2

We That tends to start providing service towards the end of the year during Q4. So we are seeing a very large deployment of Scratch 4, but still the majority of the business today is Scratch 2C. Usually, it takes 3 to 4 years to shift between the new platform from the old platform to the new one.

Speaker 5

Great. I know STS has come out and publicly said they're still planning deployment for the Launch of MPOWER by the end of the year, but given the problems you're having with the first four satellites, Have you guys sort of backed off your assumptions? I mean, in this industry, these problems don't tend to get solved as quickly as Companies would like?

Speaker 2

To be honest, currently business as usual, we have a list of gateway To deploy together with SDS, so it doesn't affect our plan. When making forecast, we factor a lot of upside and downside. So at the end, at this Everything is factored to our updated guidance. Okay.

Speaker 5

Joe, question for you and you may just say like it's the normal ups and downs of the quarter, but there was a lot of moving pieces on the balance sheet that That were a little bit unusual. You're just kind of looking through the contract assets that are continuing to bleed down. The trade payables were down Significantly, sequentially, you got a nice bump up in advance from customers, your other current liabilities were cut in half. Is there a single simple explanation or is this just sort of the normal comings and goings of a quarter?

Speaker 3

So the one thing hi, Chris. The one thing that we had this quarter, which was a This, I would say, unique was the payment of the tax that I mentioned, the $10,300,000 That completed our $12,000,000 tax payment for trust profits and This affected our other short term liabilities. I would say that all other changes are in the normal course of business. We had a very, very strong Collection this quarter and this affected the AR and DSO in a positive way And other than that, everything is in

Speaker 5

the normal course. Got you. And maybe just Continuing that thought in terms of working capital trends through the balance of the year and the impact on cash flow, Do you expect any kind of a significant drawdown or build up of working capital for contracts Customer rollouts or relatively unchanged from current levels?

Speaker 3

I think that in general, Looking at the results this year, you can see quite a good correlation between the EBITDA And the cash flows from operating activities, sometimes in Peru, we have milestones Of payments, which are not 100% correlated to revenues, which are recognized according to percentage of Completion, so there might be some bumps either way. But other than that, it should be pretty much correlated.

Speaker 5

Great.

Speaker 6

I've got the I

Speaker 5

think you did state in the announcement around The ESA and the Satcom direct relationship, is that initial antenna Ku or Ka? And are there plans for both flavors?

Speaker 2

This specific flavor is a KU for OneWeb. We also have The demo unit of our KA solution and for the future, we can offer any flavor that the customer wants. As a reminder, I said several times in the past, there is so much you can progress with the development of an IFC It really depends if it's commercial or business jet, if it's What is the band you want? What is the baseplate that you already had with the existing installed base? So you need the customer in order to Tailored solution.

Speaker 5

Got you. That was a dumb question because you did say one less, so it was Ku. But the form factor like the original ESA you guys were developing was more of a commercial aviation Aperture, how much of that original development is just being parlayed Into this, which I'm assuming is a smaller form factor for regional guests?

Speaker 2

Yes. It's a significantly smaller form factor than Commercial aviation and the know how and the experience that we have for years will help us to accelerate the development And we have a very tight schedule. Everyone wants the terminal yesterday.

Speaker 5

Got you. And who pays for and handles all the SPCs for the different aircraft types? Is that you or Satcom Direct?

Speaker 2

This is Sartcon Direct. We provide the antennas and they are responsible for all the relevant certifications.

Operator

Great.

Speaker 5

Two final questions. One is, am I correct that I think you were originally hoping to get DataPath down in Q3 and it looks like it's slipping a little bit. Are there any major issues you're seeing there or just normal Questions and answers coming back from the government?

Speaker 2

I think it's a normal answer to the questions. It took us some time to file all the relevant documents to CFIUS because we had to gather a lot of information from shareholders That all more than 5% and it's not an easy exercise for private investors to provide such information about themselves and their executive and director. So it took us a bit more time than initially expected. And because we are a public company, we couldn't start the process before we announced. But once we submitted The files we are getting timely response from the CFIUS and other U.

Speaker 2

S. Agencies and we are answering almost in a matter of 48 hours. So it seems like progress as expected, and we want to close as soon as we can.

Speaker 5

Great. Final question in integrated networks, I think you said in your script that you expect Initial delivery, I think, in Q3 for your NGSO customer to start shipping them power Is that correct? And can we get some sort of well, I guess it's reflected in the guidance, but order of magnitude of where we expect Integrated Networks to move maybe not for this year, but as we look out to next year, that starts to scale?

Speaker 2

Yes. I think it will start to Scale mainly towards the second half of next year. We are moving to production. So up until now, we delivered some units, but it's mainly, I would call it handmade unit, not for real production units. So we are moving to production.

Speaker 2

And the real scale, it depends on the customer deployment. And I would expect it to be second half of next year with much larger Deliveries over 2025 onwards.

Speaker 5

Great. Thanks, guys. I forgot to say, great quarter.

Speaker 2

Thank you, Chris.

Speaker 3

Thank you, Chris.

Operator

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

Speaker 6

Yes. Thank you for taking the call. A couple of questions and a comment. Question one is, regarding the data based Path to acquisition, any comment on how this is going to be paid for, stock, cash or combinations?

Speaker 2

The DataPath acquisition It's paid mainly in stock. We are taking on upon ourselves about $15,000,000 of Debt to banks and shareholders, and we are paying upon closing about $3,000,000 in Gilat shares. And then there is an earn out mechanism of up to additional $27,000,000 that will be paid mostly with Gilat shares, About 10% or 20% can be paid in cash. It depends on some tax Requirements of Databas shareholders in the U. S, but I would say that it's mainly going to pay with Gilat shares.

Speaker 2

Thank

Speaker 6

you. Second question, any comment on the defense and military sector?

Speaker 2

Yes, this is very it's becoming more and more strategic. We are waiting For the closing of the acquisition, but we are making progress. We have several very large RFPs that we are bidding And we expect to get awards during the year. We increased our business with 1 of the Our UEV strategic partner were order additional units and we have an agreement With 2 U. S.

Speaker 2

Local integrators, we ordered our various models to start integration. This is one of our channels into the DoD. We had a decent quarter. Still the numbers are relatively low And we expect that once the acquisition of Datapart will close, we will increase significantly our defense presence.

Speaker 6

Thank you. And my comment is we followed the get out since the day. So I'm Eran Levinson and I forgot to tell you, You should be congratulated on growing the company and leading into the right direction. And thank you very much, Hamid.

Speaker 1

Thank you

Speaker 2

for the compliment, Hunter. Looking to talk to you soon.

Speaker 6

Thanks,

Operator

Please stand by while we poll for more questions. There are no further questions at this time. Mr. Biniamini, would you like to make your concluding statement?

Speaker 3

Yes. Thank you. I want to thank you all for joining us on this call and for your

Operator

Thank you. This concludes Gilat's Q2 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

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