Gilat Satellite Networks Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Second Quarter 2024 Results Conference Call. All participants are at present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session.

Operator

As a reminder, this conference is being recorded, August 7, 2020 4. By now, you should have all received the company's press release. If you have not received it, please contact Elat'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.gilot.com. I would now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations.

Operator

Mr. Helft, would you like to begin, please?

Speaker 1

Yes. Thank you, operator. Good morning and good afternoon, everyone. Thank you for joining us today for Girat's Q2 2024 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern Time today, August 7, as a webcast on Gilat's website for a period of 30 days.

Speaker 1

Also, please note that investors are urged to read their forward looking statements in Gilat's earnings release with the reminder that statements made on this earnings call that are not historical facts 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 and operating results involve risks, uncertainties and contingencies, 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 update these forward looking statements whether as a result of new information, future events or otherwise, and the company explicitly disclaims any obligation to do so. More detailed information about which sectors can be found in Gilat's report filed with the Securities and Exchange Commission. With that, let me turn to introductions.

Speaker 1

On the call today are Mr. Adith Fadia, Gilat's CEO and Mr. Gil Benjamini, Gilat's CFO. I would now like to turn the call over to Adith Fadia. Adith, go ahead, please.

Speaker 2

Thank you, Ehud, and good day to you. Thank you for joining us today for our Q2 of 2024 earnings call. The Q2 of 2024 was a good quarter for Gilat in which we showed year over year revenue growth. This was primarily due to the strong momentum in our defense business with a significant contribution following the acquisition of Datapast. We expect this strong momentum to continue in the quarters ahead.

Speaker 2

In addition, another key achievement was our ability to increase our adjusted EBITDA by 10% year over year, exceeding $10,000,000 Most importantly, during the Q2, we took a major strategic step and announced the acquisition of Stellar of New Solutions, a leader and first to market in delivering electronically steerable antenna for the in flight connectivity market. The closing of the acquisition is on track and expected around the beginning of Q4 this year. In a minute, Gil will discuss the financial elements of the deal in more detail. And but before that, I want to discuss why I'm so excited about this acquisition and why this acquisition carries significant potential for Gilat. The acquisition of CELABLUE culminated many months of deep due diligence looking at all aspects of the IFC market, the company, its long term growth potential and potential synergies with Gilat's existing business infrastructure.

Speaker 2

This deal has the potential to unlock new strategic customers and create additional significant revenue for Gilan. Just recently, Steremablu completed qualification and earned supplemental type certification on the multi orbit Sidewinder aeroterminal. We have a vision to broaden this product line with a more comprehensive suite of products for the IFC market. I can share that the company has started delivering the 1st ESA terminal units to its customers. As such, we expect Stelaglut to add between $120,000,000 to $150,000,000 in revenues in 2025 and be accretive to our non GAAP results.

Speaker 2

Furthermore, we estimate that once Stella Blue reaches its target manufacturing capacity during the second half 2025, its EBITDA margin will be above 10%. Assuming closing will happen at the beginning of Q4, we estimate Stellablu revenues to be between $25,000,000 to $35,000,000 in Q4 of 2024. I'm confident in Stella View's team, its leadership, its offering and its go to market strategy. This acquisition will position us as a market leader for aviation ESA, a market that we believe is set to explode in the coming years. In the longer term, we can leverage the technology portfolio into other large adjacent markets.

Speaker 2

Overall, I believe this acquisition can transform Gilat into a high growth company for the years to come, and I look forward to welcoming Stellar Blue's team to Gilat once we close. As for 2024 outlook, we are reiterating the guidance we gave earlier this year in February 2024. I would note that once we close the Stelar Blue acquisition, we will provide updated guidance to account for the contribution from Stelar Blue in 2024. Now let's move to the business review of the Q2 of 2024. In the very high throughput satellite, the VHDF and the non geostationary satellite, the NGSO constellations market, we continue to lead the market and grow our business with full on multimillion dollar orders from our strategic partner, the satellite operators, which mainly include SES and Intelsat among others.

Speaker 2

This is driven by increasing demand for Gilat's SkyEdge platform as satellite operators expand their networks and deliver a wider range of application to a growing number of users. Recently, we announced that the company was awarded over $9,000,000 in cumulative orders from multiple satellite operators to expand their global Satcom networks by utilizing Gilat's innovative and field proven solutions. Gilat's solutions will enable a wide range of services and applications over Jiro, MEO and LEO, including in flight connectivity, maritime, land mobility, cellular backhaul, enterprise services and more. Also during the quarter, we announced that SCS O3B M Power launched its services via Gilat's SkyEdge 4 platform. SkyEdge 4, the industry first multi orbit MEO system is enabling SCS OCB Empire software driven constellation to deliver services with unparalleled flexibility and scale.

Speaker 2

Our increased focus on the defense market is already bearing fruits. During the Q2, we announced that Nicole Robinson has been appointed President of Datapast. Ms. Robinson is an international satellite industry executive a proven record of driving growth, managing global sales and operational teams and deploying next generation technology for the benefit of government and defense organizations, businesses and communities globally. Q2 was also our 2nd full quarter of consolidating revenues from Datapas into the defense sector under the satellite network segment.

Speaker 2

Furthermore, we recently announced several new projects that were awarded to Datapas and WaveStream. Datapas received over $9,000,000 in orders in support of the U. S. Department of Defense and other agencies participating in field service and technical service program worldwide. Terabas is deploying technical services and field services in Europe, the Middle East and the United States to support U.

Speaker 2

S. Defense end users' critical connectivity requirements. These orders include both contract extensions and new contracts from various partners and agencies. Datapas was also awarded a multiyear contract of over $5,000,000 from National Defense Organization to upgrade their DECT, transportable SATCOM network hubs. DataPath's multi band tactical ticket terminals deliver the operation flexibility, capacity, connectivity, rapid deployability and controls required to support demanding communication in remote locations.

Speaker 2

DECT terminals deliver secure, reliable communication anywhere needed to establish network connectivity to support a mission with minimal manpower. In addition, WaveStream, 1 of our U. S.-based subsidiaries, received a significant order from a Tier 1 U. S. Global military terminal provider for the MicroStream solid state power amplifier for satellite communication terminals sold to militaries throughout the world.

Speaker 2

We continue to make a great progress in the mobility sector, demonstrating solid year of NGL growth, developing more products, adding more customers and supporting more verticals. During the Q2, we received over $14,000,000 in orders from several prominent service providers and system integrators for the IFC products and solutions. This includes network equipment, VSAT, HUB, solid state power amplifier and additional IFC auxiliary products. These orders from new partnership and existing customers demonstrate the company's leadership position in the growing IFC market for commercial and business aviation. During the quarter, SCS announced its Open Orbit initiative, which will allow the use of Ka Networks for global IFC connectivity.

Speaker 2

I'm optimistic that this initiative will be part of our significant growth in this market. In Peru, we are progressing faster than planned in implementing the Amazonas region $17,000,000 expansion project. We expect to finish the implementation of this expansion before the end of the year. In addition, we expect to move to the operational phase in the 6 regions project of Buonatell in the Amazonas region during the Q3. This follows the completion of the acceptance process, which is currently underway.

Speaker 2

During the quarter, we received the follow on orders from over $10,000,000 from Internet Paratordos IPT, a consortium comprised of Telefonica and Meta Facebook to deliver several backhaul services across rural areas in Peru. IPT is a global collaborative initiative to bridge the digital divide in Latin America under a sustainable model that would allow to overcome the obstacles of bringing connectivity to overall and geographically complex areas. Gilat will provide access to high speed terrestrial connectivity to over 1,000,000 more people living in rural areas. Furthermore, in Peru, we are expecting additional progress in the next few months. This includes the maturity of several large RFPs with Bonatel and the Peruvian government as well as several project extensions.

Speaker 2

We are very pleased with the strong pipeline in Peru for the rest of the year. To conclude, the Q2 has been very valuable for Gilat. Our acquisition of Stelaglue Solutions has been has the potential to be significant growth engine for Gilat and it will establish us as a market leader for aviation ESA, a market that we believe is set to explode in the coming years. I am pleased with our 2nd quarter results, which include the contribution of our acquisition of Datapas and strong momentum in our defense business. We continue to lead with our next generation platform, the Skies 4, which support multiple orbits, verticals and applications, including our strategic markets of mobility, cellular record and defense.

Speaker 2

We are particularly proud commercial aviation, including the SCS Open Orbit Initiative. We have a strong pipeline and expect the materialization of important deals over the coming months. With that, I will hand over to Gil Biniamini, our CFO. Gil, please.

Speaker 3

Thank you, Adi. Good day 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 that these non GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance.

Speaker 3

Non GAAP financial measures mainly exclude, if and when applicable, the effect of non cash stock based compensation expenses, amortization of purchased intangibles, lease incentive amortization, other non recurring expenses, other integration expenses, one time changes of deferred tax asset, other operating income, net and income tax effect on the relevant adjustments. The reconciliation table in our press release highlights this data and our non GAAP information presented excludes these items. Before moving to the financial highlights, I would like to review the Stella Blue acquisition and provide you with more financial information on the consideration components of the deal. The initial consideration at closing is $98,000,000 This will be financed from both internal with incentives to deliver accelerated growth with focus on 3 main areas. Parts 12 of the earn out, which totals to $48,000,000 covers the ability of the company to successfully execute its plans for the near future and requires that Stella Blue ramp up its production line and deliver a great number of ESA terminals not less than specific margin and that Cerro Blue brings additional new orders at the grid margins equivalent more or less to its existing backlog.

Speaker 3

These conditions combined with the existing backlog support our expectations of between $120,000,000 to $150,000,000 outlook for revenues for 2025 and provides further grounds for future growth within the existing markets and customers. Parts 12 of the earnouts are expected to be paid if due 12 18 months post signing, respectively. Part 3 of the earnout, which totals an additional up to $99,000,000 is conditioned upon engaging in new strategic customer agreements with enhanced product offerings both in and beyond the IFC both in and beyond the IFC market. These envisioned agreements would build upon Stellar Blue's proven multi orbit platform, but applied to new service providers and mobility markets with an opportunity for significantly higher margins, all within 2 years from signing of the purchase agreements. As Adi mentioned, we believe that this acquisition transforms Gilat to a high growth company for the years ahead.

Speaker 3

I will now move to our financial highlights for the Q2 of 2024. Overall, as Adi mentioned earlier, we are very pleased with the strong start of 2024. We reported a 13 percent year over year growth in revenue. This was driven mainly by our current recent acquisition of Datapas. Non GAAP gross margin was 37% and our adjusted EBITDA reached 10,100,000 dollars 10% growth over Q2 of last year.

Speaker 3

We are optimistic about our prospects in the quarters ahead and we reiterated our guidance for 2024, which I'll cover later. In terms of our financial results in more detail, revenue for the Q2 was $76,600,000 13% higher than those of Q2 of last year, which was $67,600,000 The improvement was driven by growth in the Satellite Network segment. In terms of the revenue breakdown by segment, Q2 'twenty four revenues of the Satellite Network segment were $50,600,000 compared to $40,700,000 in the same quarter last year. Q2 'twenty four revenues of the Integrated Solutions segment were $13,000,000 compared to $12,700,000 in the same quarter last year. And q222revenues of the Networks and Services segment was $13,100,000 compared to $14,200,000 in the same quarter last year.

Speaker 3

The decrease was due to lower service revenue this quarter. I would now like to summarize our Q1 our 2nd quarter, both GAAP and non GAAP results. Our GAAP gross margin for Q2 'twenty four was 34.7 percent compared to 37.8 percent in the same quarter last year. The reduction in our gross margin was mainly due to Datapath's gross margin, which are lower than the Gilat average and the depreciation of the backlog intangible assets associated with the acquisition of Datapath. This was partially offset due to a favorable product and services mix in the current quarter compared to Q2 of last year.

Speaker 3

GAAP operating expenses in Q2 2024 were $23,800,000 an increase of $3,700,000 versus the same quarter last year. This quarter, we have the impact of approximately $2,400,000 of amortization of purchased intangibles and other acquisition related expenses. These impacts are included only in the GAAP numbers. I also note that this quarter we have the operational expenses related to DataPath, which we didn't have in the Q2 of last year. GAAP operating income for the quarter is $2,800,000 compared to 5 point $4,000,000 in the same quarter last year.

Speaker 3

GAAP net income in the 2nd quarter was $1,300,000 or $0.02 per diluted share. This is compared to a GAAP net income of $4,300,000 or diluted earnings per share of $0.08 in the same quarter last year. Moving to the non GAAP results. Our non GAAP gross margin in Q2 'twenty four was 36.8% compared to 37.9% in the same quarter last year. As I mentioned earlier, this difference is mainly due to DataPath lower gross margin compared to Gilat's average.

Speaker 3

Non GAAP operating expenses in Q2 2024 were $20,900,000 compared with $19,600,000 in the same quarter last year, primarily due to the consolidation of data path expenses. Non GAAP operating income for the quarter improved to 7.3 dollars 1,000,000 compared to $6,100,000 in the same quarter last year. Non GAAP net income in the quarter was $5,600,000 or diluted earnings per share of $0.10 This is compared with $4,900,000 or diluting earnings per share of $0.09 in $9 in the same quarter last year. Adjusted EBITDA for the quarter improved to $10,100,000 an increase of 10% compared with adjusted EBITDA of 9.2 $1,000,000 in the same quarter of last year. Moving to the balance sheet.

Speaker 3

As of June 30, 24, our total cash and cash equivalents and restricted cash, net of short term debt were $94,600,000 compared with $98,500,000 on March 1, 'twenty four, and compared to $87,800,000 as of June 30, 'twenty 3. In terms of cash flow, we used $3,500,000 by operating activities during the Q2 of 'twenty four. Due to changes in working capital, we expect an operating cash inflow in the next quarter. We also made a net repayment of loans of $4,600,000 this quarter. DSOs, which excludes receivables and revenues of our terrestrial network construction project in Peru were 88 days higher than previous quarter's DSO, which was 76 days.

Speaker 3

This KPI is within our normal range of up to 90 days. Our shareholders' equity as of June 30, 2024 increased to $283,000,000 compared with $281,000,000 at the end of March 20 4. Looking ahead, we reiterate our guidance for the year. Our expectations remain for revenue of between $305,000,000 to $325,000,000 representing year over year growth of 18% at the midpoint, GAAP operating income of between $15,000,000 to $19,000,000 and adjusted EBITDA of between $40,000,000 to 44 $1,000,000 representing year over year growth of 15% at the midpoint. That concludes my financial

Operator

at this time, we will begin the question and answer The first question is from Ryan Coons of Needham and Company. Please go ahead.

Speaker 4

Hi, good morning. Nice quarter. Thanks for the opportunity on the questions. Can you update us maybe on what your view is of cross selling the DataPath? You made some comment in the prepared remarks, I think, but I didn't quite capture what the intention of your commentary was.

Speaker 4

I know that was something that you're working on and sounded like more of a 'twenty five type opportunity, maybe can

Speaker 2

you update us on that? Yes. Thanks, Ryan, for popping on the call. Indeed, the cross selling Datapas equipment, it goes both ways. Datapas to bring Gilat's equipment into the DoD and Gilat to sell Datapas equipment worldwide.

Speaker 2

We are progressing. We are starting to have a dialogue both with some of the DoD agencies and promoting data bus equipment worldwide. To be honest, we are more optimistic these days. We see much more potential than we thought we'll see at the 1st year from signing. The first collaboration was between WaveStream and DataPath.

Speaker 2

It's a 12,000,000 dollars order that we received last quarter. Other than that, there is a pipeline that is developing. And I hope that we'll be able to announce several awards soon.

Speaker 4

Great. That makes lot of sense. Thanks for that. On the infrastructure business, sounds like you're progressing there with your customer approvals. How should we think about the gross margin outlook there post approval of the Amazonia region?

Speaker 3

So usually that the construction phase is associated with a lower gross margin than the service or operation part of this business. So we expect to finish the construction or almost all of it by the end of this year. And naturally, this will push up the gross margin of this segment to be higher next year.

Speaker 4

That's great. Thanks for that. And on your progress in the LEO market, I wonder if you could share any anecdotes whether they're customer specific or general. Obviously, OneWeb has begun their commercial launch. How should investors think about your current mix of business relative to the LEO market?

Speaker 4

And how do you see that market developing over the next 18 months from Gilat's perspective? So

Speaker 2

up until today, most of the business constellation gateways. We are not allowed to name names, but we are working with big players in this segment. We are right now, we see 2 very large opportunities from our perspective on the LEO segment, which include SSPA, networks, modems and also antennas. One of them is 1WebGen2 and the other one is Iris Square, which is a European initiative to launch a LEO constellation. We are 1 of 2 finalists in OneWeb, and I believe that they should take a decision in the coming quarter or so.

Speaker 2

Iris, we answered the RFIs and we expect them to launch the RFPs soon. And we are eligible to participate because we have a large operation in Europe. In addition, what we see on the LEO side that it drives a lot of IFC business. For example, Intelsat bought from OneWeb capacity and it will drive a lot of business in the IFC, especially in the electronic steerable antenna, which is part of the main motivation and rationale for the Stellar Blue acquisition. So to summarize, I think that we are expecting a lot of business from LEO in the coming few quarters.

Speaker 2

I forgot to mention that also the SATCOM direct antenna development award that we got about a year ago is also related to the OneWeb constellation over there. We are developing a ESA terminal for business aviation over OneWeb. So all in all, we are seeing very nice business and with the 2 opportunities, they are very significant for Gilat.

Speaker 4

That's great, Adi. Great update there. Going to step follow-up on that and your Stellar Blue comments, what should we think of as the key milestones that you're tracking and what are the greatest challenges with getting the production capacity going on Stellar Blue? It sounds like with their terrific backlog, it's really just a matter of execution here and what do you view as the biggest challenges there?

Speaker 2

So execution is always the name of the game. And indeed, Stellar Blue is now in the midst of moving from development phase to execution delivery phase. I can share that they already delivered first unit to the customers. They passed certifications and in the midst of ramping up production. And since we have much more confidence today, we even a bit upgrade the initial forecast we gave for next year from $100,000,000 to 1 $50,000,000 to $120,000,000 to $150,000,000 It's still preliminary, of course, and not guidance.

Speaker 2

I think that as every company to execute and bring more orders, those are the 2 main challenges of StellarBlue.

Speaker 4

Got it. And in terms of that ramp, in terms of supply chain and these sorts of things, are there real challenges there with sourcing or is it more challenges with regards to any new products ramping through the production process?

Speaker 2

No, it's we don't see any supply chain specific issues. It's just ramping up new product introduction into the market, which usually take time. It's not something that is unique to Stellar Blue. It's within every company, including with Gilast. When we launched a new product, at the beginning, there are challenges on the manufacturing line.

Speaker 4

Okay. Perfect. That's all I got. Thanks for the commentary.

Speaker 2

Thank you, Ryan. See you soon.

Operator

The next question is from Chris Quilty of Quilty Space. Please go ahead.

Speaker 5

Thank you. Nice results guys. Just a follow-up on that last question. Maybe it sounds like the supply chain in the manufacturing is going well, but can you touch on the SDC process? I think you did mention you're making progress there, but how broadly are you targeting STCs on different airframes?

Speaker 5

And who is leading that effort? Is that happening internally at Stellar Blue? Or do

Speaker 4

you have partners working on

Speaker 2

It's a combination of StellarBlue and the responsibility of the customers and it's progressing as we expected. Recently, Stella Blue announced that they got several certifications and we see it on track. And I think it's not halting any deliveries. The only thing is ramping up production and starting to deliver more units per month. Now we are talking about few units per month.

Speaker 2

Soon, we are talking about 10 units, tens of units. Hopefully, by the second half of next year, we'll be able to deliver more than 100 units per month.

Speaker 5

Great. Can you just ask a housekeeping questions? I know last quarter you kind of gave us the breakdown of the DataPath contribution, the organic growth versus

Speaker 4

acquired growth.

Speaker 5

Can you share that this quarter?

Speaker 3

Yes, sure. So this quarter, as I mentioned, most of the growth came from Datapath. If we look on a quarterly basis, the organic growth was negative 4%. On a 6 month basis, it was plus 4% as expected. And I remind everyone that we like to analyze Gilat not on a quarterly basis, but on a longer period kind of analysis due to timing of specific deliveries that might shift a bit to the right or to the left.

Speaker 3

So generally, we're on

Speaker 2

track. Great.

Speaker 5

And is the run rate for the amortization reported in the quarter consistent with what we should expect on a go forward basis now that DataPath is rolled in and excluding Stellar Blue obviously?

Speaker 3

Yes. So in general, and as I said in my script, it's about $2,400,000 per Q in these quarters. Usually, there are, I would say, 2 components that might affect this number. First is the amortization or net income at the end of the day is also affected by Gilat share price due to the fact that part of the payment is in shares. So it may fluctuate up or down.

Speaker 3

The second thing is that part of the amortization is associated with backlog, which is usually amortized over up to 18 months. So you can expect a drop in this €2,400,000 around 18 months after closing, which will be middle of next year.

Speaker 2

I think there is a schedule in the 20 F of the amortization.

Speaker 3

Should be, yes. But it wouldn't cover the change in the share price.

Speaker 5

Right. And you mentioned backlog, so I'll ask and I know you don't provide backlog, but excluding the data path, what are you seeing in overall trends in terms of order pipeline this year relative to your expectations? And are there any factors? We're not on the defense market, we're not dealing with a continuing resolution in the U. S.

Speaker 5

In the aviation market, we are dealing with Boeing and late deliveries. Are any of those macro factors impacting your outlook? Or is it more just company and deal specific?

Speaker 2

In Gilat, in most of the cases, it's company and deal specific. And but what we do see is strong momentum in the IFC tied to Intelsat and SCS Open Space Initiative. We do see a lot of headwinds in the defense, not only through data pass, also through WaveStream and the satellite networks at Gilat. But overall, if you look at the blended forecast, we haven't changed our guidance. That means that we are on track with our expectations.

Speaker 5

Great. And specific to the backhaul market, you were running really hot, I think a year ago or so with a lot of orders. It feels like that market has sort of slowed down a bit. Is that a correct perception? And

Operator

do you see any

Speaker 5

discrete large opportunities or reasons that the market might pick up a little bit on a go

Speaker 2

I agree that the last quarter on sale or backhaul was a bit slower than usual. But we don't think it's a trend. We think it's a one off in the industry Based on the analysts who cover the market, everyone expect that this market will grow from $150,000,000 down to date to around $350,000,000 $400,000,000 in 7 years or so. So we share the same expectation. We see a nice pipeline.

Speaker 2

So we really hope that it will return. We do see or starting to see a lot of 5 gs opportunities. The 5 gs will drive significant growth in years to come.

Speaker 5

Remind me, is the SkyEdge 4 fully 5 gs compatible or is that a new platform upgrade?

Speaker 2

No, the 5 gs is fully Sky Sports is fully 5 gs compatible. I remind you that about a quarter ago in India, we demonstrate together with SCS and one of the largest Indian operators, more than 600 megabit per second into the handset, which is all Sky H4 together with the SCS M Power. So from speed perspective and latency, we are already there. Of course, no one will get 600 megabit per second to the handset, but this is up to the operator, not up to us.

Speaker 1

You can't

Speaker 5

put a special mode in there for me?

Speaker 2

I can't hear you.

Speaker 5

All right. So a follow-up question just on you had talked about the Gallant ISA. A, when are you guys coming up with a name for that product so we don't have to call it the Galat ISA? And any update there? Obviously, you have that as a project with Satcom Direct.

Speaker 5

Hughes has sort of come into that market with OneWeb compatible ESA. What is that business jet market looking like? And what do you think the opportunity size for that product is relative to Stellar Blue?

Speaker 2

So first of all, our ESI solutions are called in general ESR

Speaker 3

family.

Speaker 2

We see a lot of players are getting into the market. But at the end, usually each and every service provider has its own unique terminal. Usually, it's one terminal. In rare cases, you see them working with more than one terminal. I know that H and S is cooperating with Gogo on the BA side.

Speaker 2

But give or take, this is what we see right now. The business aviation is a very large market with a lot of potential and I think that there is room for several players over there to grow. Got you.

Speaker 5

And I guess maybe final question here, when you look at the defense market opportunity, clearly you're still working the data path angle, but have they historically had international exposure for that business or was it overwhelmingly U. S.-based? And do you have sort of the sales channel within Galat to move those products or does that take some investment in sales and marketing in overseas distribution for some of those projects?

Speaker 2

So historically, give or take about 10% of database business was internationally. They have some channels worldwide, especially in Europe, and they work direct in some of the Asian countries. But now where Gilat has put on the ground on those countries, we think we can accelerate the penetration and increase the business. We are already seeing some opportunities in Asia and in Latin America and in other places. And I think that there is a potential to double the Aeropass revenues both in the U.

Speaker 2

S. And internationally.

Operator

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

Speaker 6

Yes. Thank you for taking the question. Regarding the question with Aviation Communications, concerning the recent shutdown, new shutdown of the commercial air transport system because of

Speaker 2

between? Our terminals sales the passengers. Of course, they can sell also the crew, but it's not built in a way to have a secure communication between the traffic control and the crew. Of course, that emergency or if something doesn't work, they can try and use our equipment, but it's not built for them.

Speaker 6

It seems like, okay, that could be an enormous opportunity because that's a archaic system, which is creating the problem they've had.

Speaker 2

Yes, it's definitely opportunity. We are trying to focus right now on delivering our commitments to the customers, but when reviewing adjacent markets and future growth engines, it's something that we definitely going to explore.

Speaker 6

Thanks very much. Good luck.

Speaker 2

Thank you. The

Operator

next question is from Sergey Lukianov of Freedom

Speaker 7

5. Maybe at least proud figures, any thoughts?

Speaker 2

The only figures right now that we can share is what I said earlier that we expect assuming we close at the beginning of Q4, we expect Stella Blue revenues to be between $25,000,000 to $35,000,000 and 20.15 revenues are between $20.25, sorry. Revenues will be between $120,000,000 to $150,000,000 And once Stellar Blue reaches its capacity milestone on the second half of the year, we expect them to be at above 10% EBITDA.

Speaker 7

Okay. The second, if you look at the operational expense line, there is some decrease of R and D amount as a percentage of sales for lots of quarters. Will such situation be stable for next time or R and D increasing after the Stavodil acquisition?

Speaker 3

So R and D changed a bit comparing to last quarter. There's some fluctuation due to the consumption of equipment and so on and the portion of R and D, which is classified to cost of goods sold in NRE projects. So it might fluctuate a bit. Another thing that affects R and D is grants, which were higher this quarter than last quarter, not materially, but to some extent higher. So all in all, this was the reason for R and D to decrease a bit.

Speaker 7

Thanks. And finally, as it was mentioned several minutes ago, we have already had PSR 20302040, the portfolio of ESA for business aviation education. What is the future of this, if the family could be replaced by the blue products? And if yes, how could it affect the consolidated sales of the bank?

Speaker 2

Those are 2 separate projects. We have no intention to replace neither of the technology. Each one is designed for its own or specific customers, and we plan to keep it as is.

Speaker 7

Okay, thank you. Thank

Speaker 2

you. Thank you.

Operator

If there are any additional questions, concluding statement?

Speaker 3

Yes, thank you. I want to thank you all for joining us on this call and for your time and attention. We to see you soon or speak to you in our next call. Thank you very much and have a great day.

Operator

Thank you. This concludes Gilat's Q2 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.

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Earnings Conference Call
Gilat Satellite Networks Q2 2024
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