Gilat Satellite Networks Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 12, 2025
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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Fourth Quarter twenty twenty four 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, 02/12/2025.

Operator

By now, you should have already received the company's press release. If you have not received it, please view it in the News section of the company's website, www.gilat.com. I would now like to hand over the call to Ms. Mehrabh Sher, Head of Finance and IR. Ms.

Operator

Sher, please go ahead.

Mayrav Sher
Mayrav Sher
Head of Finance & Investor Relations at Gilat Satellite Networks

Yes. Thank you, operator. Good morning and good everyone. Thank you for joining us today for Gilat's fourth quarter twenty twenty four results conference call and webcast. I am Erhard Scheer, Gilat's Head of Finance and Investor Relations.

Mayrav Sher
Mayrav Sher
Head of Finance & Investor Relations at Gilat Satellite Networks

The earnings press release that was issued can be found in the Investor Relations section of our website at www.gillat.com. Also, a recording of this call will be available beginning at approximately noon Eastern Time today, February 12, and webcast on Gilat's website for a period of thirty days. Also, please note 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 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 alter 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.

Mayrav Sher
Mayrav Sher
Head of Finance & Investor Relations at Gilat Satellite Networks

More detailed information about risk factors can be found in Gilat's report filed with the Securities and Exchange Commission. Also on today's call, management will refer to non GAAP measures. The company believes these non GAAP measures assist management and investors in comparing the company's performance across reporting periods on a consistent basis by excluding these non cash, non recurring or other charges that it does not believe are indicative of its core operating performance. The reconciliation of GAAP results to non GAAP measures can be found in the fourth quarter of fiscal year twenty twenty four earnings press release that the company issued and furnished to the SEC earlier today on Form six K. With that, let me turn to introduction.

Mayrav Sher
Mayrav Sher
Head of Finance & Investor Relations at Gilat Satellite Networks

On the call today are Mr. Adi Tsvadia, Gilat's CEO Mr. Gilvin Yamini, Gilat's CFO. I would now like to turn the call over to Adi Tsvadia. Adi, go ahead please.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Merad, and good day to everyone. Thank you for joining us today to discuss our fourth quarter and full year twenty twenty four earnings results. On the call, we will highlight key achievements for the quarter and talk about our opportunities and plans to accelerate revenues in 2025 as we capitalize on the acquisition of Stellar Blue and Datapath and continue to drive innovation. We finished 2024 with a strong fourth quarter, achieving a strong adjusted EBITDA and accelerating our revenue growth. Q4 revenue reached $78,100,000 driving full year revenues to 305,400,000 a 15% increase year over year.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Adjusted EBITDA also saw significant growth with Q4 reaching $12,100,000 and the full year hitting $42,200,000 16 percent growth year over year. This performance highlights Gilat's strong execution, strategic growth and dedication to delivering value. Overall, 2024 has been profitable and successful year for the company. Before we proceed to the business review, I would like to share some information about the organizational change we are undergoing. As part of our ongoing efforts to streamline operations and increase our focus and resources on our main growth engines, we are pleased to announce our new organizational structure and reportable segments.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

This new structure is an outcome of a strategic process, which we identified our main growth opportunities and that also led to our recent acquisition of Datapath and Stellar Blue. Our new organizational structure will allow us to focus more precisely on serving the growing defense market and the increasing opportunities in the commercial NGSO and VHTS markets, specifically the IFC segment. We also believe that this structure will provide investors with greater insight into Gilat's business lines and simplify the understanding of our operations. As of 01/01/2025, the company is divided into three new Gilat Defense, Gilat Commercial and Gilat Peru. Let me take a moment to explain in more detail.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I will start with Gilat Defense. About two years ago, we identified defense as a market with significant potential for our growth. The demand for government and defense Satcom solutions is growing and is driven by macro political dynamics and the increasing needs for multi obvious connectivity strategies. Defense organization require multiple layers of communication, redundancy to ensure high availability, making SATCOM a critical component of mission success. Recognizing these trends, we acquired Datapath in 2023 and now have created Gilat Defense Division specifically to meet these demanding needs.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

The uniform Gilat Defense Division is dedicated to meeting the specific needs of defense integrators, military and government organizations worldwide with a strong focus on the U. S. Department of Defense. By integrating products from the wide portfolio of Gilat waste stream and data path, the Gilat Defense Division delivers secure, rapid deployment solutions and battlefield connectivity. Moving to Gilat Commercial, the satellite industry is rapidly shifting towards multi orbit connectivity, driven by the need for greater resiliency, flexibility and seamless global coverage.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

At the same time, the push for digital inclusion and the growing demand for in flight connectivity are reshaping the commercial market. To address these evolving needs, we established the commercial division. Our acquisition of Stellar Blue serves as one of the cornerstones of this division, strengthening our position in the high growth IFC market and enabling us to provide cutting edge connectivity solutions that meet the demands of passengers, airlines and service providers worldwide. Gilat's commercial division is focused on providing advanced broadband satellite communication network solutions for enterprises and cellular backhaul being the partner of choice for the global and regional satellite operators for HTS, VHTS and NGSO constellations with turnkey solutions for service providers, MNOs, satellite operators and enterprises. The sales division is Gilat Peru.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Latin America in general and specifically Peru faces enormous challenges in terms of connectivity, especially in rural and how to reach geographies. Gilat Perot is focused on digital and social inclusion and end to end telco solutions focusing on government solutions across Peru. Gilat Perot plays a vital role in bridging the digital divide, connecting underserved communities and delivering high quality telecommunication services. More specifically, Gilat Peru focuses on telecom services and the operation and implementation of large scale network projects. Gilat Plug provides terrestrial fiber optic, wireless network and satellite network construction, implementation and operations.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

You can find a link to a dedicated presentation for the matter in the Q4 press release and our website in the Investor Relations section. Now let's move to the business review of the fourth quarter. The first highlight I would like to discuss is the closing of our Stellar Blue acquisition, which completed on 01/06/2025. The acquisition marks a significant milestone in Gilat's strategy to expand our leadership in the IFC market. As discussed before, this acquisition enhanced our capability to deliver advanced multi orbit ESA solutions and strengthened our position in the commercial aviation, making us the market leader in this rapidly growing sector.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Stellar Blue brings unique expertise in satellite communications and system integrations for aviation, complementing our existing solutions and extending our reach to key commercial partners. The addition of Stellar Blue strengthened our position to capture a larger share of the IFC market. In addition, Stellaglue continues to make progress in extending its product line into the defense sectors, aerial applications. We're already seeing strong early results promising partnerships and significant new business opportunities. Building on this momentum, Cerro Blue has made significant strides in the IFC market With over 125 multi orbit ESA aero terminals shipped to date and activation is well underway, Cellablu is leading the way in next generation aviation connectivity.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Our production capacity is scaling to meet this growing demand. During Q4, we received very significant orders of approximately $19,000,000 for network equipment from our IFC partners, successfully expanding our deployments with them. These are very large scale IFC operating networks over multi orbit constellation. Also Gilat WaveStream demonstrate consistent growth and continued success with SSPA and and terminal related avionics products dedicated to the IFC market. Our strong partnership with Intelsat continues to drive growth, expanding beyond commercial aviation into business aviation and maritime.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Leveraging our SkyEdge family of VSAT platforms, Intelsat is enhancing its global Satcom network to deliver seamless high performance connectivity across diverse orbital assets. This expansion reinforced our position as key technology provider and opened new long term revenue opportunities. As we look ahead to 2025, we see significant opportunities for our IFC product portfolio as multi orbit constellations grow in capacity and coverage. In the fourth quarter, we saw strong demand in the NGSO market with Gilat WaveStream LEO Gateway Solid State Power Amplifier product portfolio, a category leader playing a key role in supporting LEO constellations. In 2024, SCS successfully launched its service for O3BM power, a major milestone that underscores the strength and advanced capabilities of our SkyEdge four platform.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

This launch cements our leadership in next generation satellite networking, demonstrating our ability to support highly flexible software defined satellite services. At the same time, Intelsat expanded its multi service network choosing ELAP technology for its maritime and business aviation sector. This highlights the confidence that the leading satellite operators have in our solutions and reinforce our growing role as a key technology provider across multiple verticals. These achievements further validate our strategy of delivering cutting edge future proof satellite communication solutions. As we look ahead to 2025, we are well positioned to secure very significant orders for our LEO Gateway products, while also anticipating growth with SCS and Intersat's multi orbit and cloud strategy.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

In addition, the recent award of the Iris Square constellation by the EU to the SpaceRise consortium that includes Euzelsat, SES and Ishpassat is a positive development with significant opportunities and potential. Turning to defense, we concluded the year with significant wins for Gilat Datapath securing key deals for our portable and transportable products. This success includes contracts with both the U. S. DoD and international defense organizations, further solidifying our position in the critical market.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Specifically, in the fourth quarter, we received approximately $9,000,000 in orders from the U. S. DoD and other international defense organizations. 2024 was the first full year of DataPath operating under Gilat and we couldn't be more pleased with the results. Gilat Datapas transportable and portable products have gained success with various defense organizations all over the globe.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

At the same time, we have been advancing our defense strategy by adopting Sky's forward to meet military requirements and developing our next generation GLT software defined radio modem tailored to the evolving needs of the defense market. As we look ahead to 2025, we are planning significant investments in Gilat Defense, substantially increasing our R and D efforts to introduce more product solutions and features. Additionally, we will increase Gilat Defense sales and marketing investment to approach the defense market channels and customers. We see significant opportunities for Gilat Defense unified solutions seamlessly integrating the expertise and technologies of Gilat, Data Pass and WaveStream to provide a comprehensive mission critical offering for the defense government customers worldwide. In Peru, we experienced solid growth this year, securing $20,000,000 in orders from major players in the country's communication sector.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

A key highlight was our partnership with IPT Internet Paratodos, a consortium of Telefonica and Facebook that is expanding and expanding its network reach to more communities. Our efforts remain focused on bridging the digital divide, enabling underserved communities to gain access to high quality internal connectivity. Looking forward, we have a robust pipeline for 2025 with large opportunities emerging such as the progression of significant RFPs with Bonatero and the Peruvian government along with several upcoming project extensions and extensions. Given our expanding opportunity set in 2025, we expect another year of top line and profit growth. We expect 2025 revenues of between $415,000,000 and $455,000,000 We expect an adjusted EBITDA of between $47,000,000 and $53,000,000 Looking ahead, Gilat is well positioned for continued growth, driven by strong market tailwinds, including increasing satellite size, declining launch costs and growing data transfer demand.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Our SkyS4 platform, particularly with VHTS and NGSO technologies is ideally suited to capitalize on these trends. Our commercial business bolstered by Stellar Blue is poised for significant expansion as we establish our leadership in the expanding ESA for IFC market. Our portfolio of ESA products and multi orbit solutions will be instrumental in capitalizing on the increasing demand for IFC by airlines and passengers. Our defense business also maintains strong momentum with increased orders and awards as Gilat Datapas leverage our expertise in supporting operations in most challenging environments. The Defense segment represents a significant growth opportunity and we are pleased with our progress in meeting government and military customer needs with innovative satellite solutions.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

And with that, I will hand over the call over to Gil Bin Yamini, our CFO. Gil, please go ahead.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Thank you, Adi. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented both on GAAP and non GAAP basis. I will now walk through our financial highlights for the fourth quarter of twenty twenty four followed by a review of the full year performance. As Adi mentioned earlier, we are very pleased with our performance this year.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

We closed the year with strong momentum delivering sustained improvements in our results including significant year over year growth in both revenue and profitability. 2024 was a pivotal year for Gilat, marked by the strategic acquisition of Stella Blue, which we expect to further accelerate our growth. Notably, the acquisition was completed after the balance sheet date and is therefore not reflected in our 2024 financials. In terms of our financial results, revenue for the fourth quarter were $78,100,000 3 percent increase compared to $75,600,000 in Q4 twenty twenty three. For the full year, revenues totaled $305,400,000 reflecting 15% growth from $266,000,000 in 2023.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

The increase was primarily driven by growth in the defense vertical. In terms of revenue breakdown by segment, Q4 twenty twenty four revenues for the satellite network segment were $49,100,000 compared to $53,500,000 in the same quarter last year. The decline was primarily due to termination of our activity in Russia. Q4 Twenty Twenty Four revenues of the Integrated Solutions segment were $17,300,000 compared to $9,500,000 the same quarter last year. The increase was primarily driven by higher revenues from the different verticals.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Q4 twenty twenty four revenues of the Network Infrastructure and Services segment were $11,800,000 compared to $12,600,000 in Q4 twenty twenty. I would now like to review our fourth quarter results starting with GAAP basis before moving to the non GAAP numbers. Our GAAP gross margin in Q4 twenty twenty four improved to 39.7% compared to 38.2% in Q4 twenty twenty three. GAAP operating expenses in Q4 twenty twenty four were $18,300,000 compared to $26,000,000 in Q4 twenty twenty three. The decrease is primarily due to proceeds from arbitration in Peru, which were recorded as other operating income in Q4 of twenty twenty three.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

'20 '4. GAAP operating income in Q4 twenty twenty four was $12,800,000 compared to $2,900,000 in Q4 twenty twenty three. The increase was driven by proceeds from the arbitration in Peru as previously mentioned. GAAP net income in Q4 twenty twenty four was $11,800,000 or a diluted income per share of $0.21 compared to $3,400,000 or a diluted income per share of $0.03 in Q4 twenty two. Moving to non GAAP results, our non GAAP gross margin in Q4 'twenty four improved to 40.4% compared to 39.1% in Q4 'twenty three.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Non GAAP operating expenses in Q4 'twenty four were $21,900,000 compared to $23,400,000 in Q4 'twenty three. Non GAAP operating income in Q4 'twenty four was $9,700,000 compared to an operating income of $6,100,000 in Q4 'twenty three. Non GAAP net income in Q4 'twenty four was $8,500,000 or a diluted income per share of $0.15 compared to a net income of of $6,500,000 or income per share of $0.11 in Q4 twenty twenty three. Adjusted EBITDA in Q4 twenty twenty four was $12,100,000 compared to an adjusted EBITDA of $9,400,000 in Q4 twenty twenty three. For the full year, adjusted EBITDA was $42,200,000 compared with an adjusted EBITDA of $36,400,000 in 2023.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Moving to our balance sheet. As of 12/31/2024, total cash, cash equivalents and restricted cash net of loans were $118,000,000 compared to $106,000,000 on 09/30/2024 and compared to $95,000,000 in 12/31/2023. The increase was mainly driven by our ongoing operations as well as from our arbitration process in Peru. In terms of cash flow, we generated $16,300,000 from operating activities in Q4 twenty twenty four. DSOs which exclude receivables and revenues of our terrestrial network construction projects in Peru were seventy one days, down from eighty three days in previous quarter due to both increased revenues and higher production.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Our shareholders' equity as of 12/31/2024 totaled $3.00 $4,000,000 compared with $275,000,000 at the end of twenty twenty. Looking ahead, as Adi mentioned, we expect a strong 2025 with projected revenues between $415,000,000 and $455,000,000 In addition, we expect adjusted EBITDA to range between $47,000,000 and $53,000,000 We do not provide forward looking guidance on GAAP basis because we are unable to reasonably provide forward looking guidance for certain financial data such as amortization of purchased intangibles and earn out based expenses related to recent acquisitions. As a result, we are not able to provide a reconciliation of GAAP to non GAAP financial measures for forward looking data without unreasonable efforts. That concludes my financial review. I would now like to open the call for questions.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Operator, please.

Operator

Thank you. The first question is from Sergey Gleimyamov of Freedom Brokers. Please go ahead.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Yes. Hello, everyone. And I would like to start from Micah and the excavations with another successful year with Gilat. And, yes, my first question is related to STAAD Stellar Blue. And previous guidance was roughly 120,000,000 to 150,000,000 per 2025.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Is that guidance still relevant?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Sergey, yes, this guidance is still relevant and it is included in the overall guidance.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Great. Thank you. Will this segment divided regarding the new organizational

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

structure?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Standard Blue is not a reportable segment. Is managed part of the commercial division with a lot of synergies between Gilat, old IFC sub segment in Stellar Blue. So the overall results will be tied will be consolidated under the Gilat commercial division.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay, got it. Could you provide with any details about any cost related in your organizational structure that will be incurred?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

In our website, we added a short presentation about the segment change that we made and we also provided unaudited high level financial results for 2023 and 2024, which I believe can help analysts and investors to rework their model.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay, got it. And my final question is, there was a little improve of EBITDA margin in 2024. As we can look at your EBITDA 2025 guidance, there is a little decrease in margin in the midpoint and it's around two percentage points. Is it primarily because of Stellar Blue and R and D and marketing spendings, right?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. In general, Stellar Blue has a lower gross profit than Gilat usual gross profit and of course it's affected EBITDA. We need to remember that Stellar Blue are in its production ramp up phase. So So we do expect them to be EBITDA positive for the year and we do expect them to be more than 10% EBITDA in the second half of the during the second half of the year. In addition, we are planning to increase significantly our investment in the defense division, especially in R and D and sales and marketing.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So if you combine all of these, this is the main reason why the overall EBITDA ratio for 2025 is slightly lower than 2024. But we do expect significant improvement in 2026 onwards.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Great. Thank you. That's all for me.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Sergey.

Operator

The next question is from Louis de Palma of William Blair. Please go ahead.

Louie Dipalma
Research Analyst at William Blair

Adi, Gil and Anira, good afternoon.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Hi, good afternoon.

Louie Dipalma
Research Analyst at William Blair

Have the discussions, the very early discussions with IRIS2 been positive? And what is the expected timeline for contracts associated with IRIS2 and the deployment?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So the initial discussion with the consortium are in a very friendly way, but and the Iris Squared consortium issued some RFPs at the beginning of mid twenty twenty four. Now with the awards, we expect them to issues either additional set of RFPs or set of RFPs. Probably towards the mid half of the year or probably Q3 this year. Based on what they said, they say based on what they are saying, they expect to provide awards before the end of the year and sign agreements during early twenty twenty six. But I think it's a very aggressive timeline.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So I would expect a bit delay in those timeframes.

Louie Dipalma
Research Analyst at William Blair

Great. That makes sense. And can you talk about trends within the Defense vertical? With the new reporting segments, you forecast pretty strong growth in defense? And what does the pipeline look like in terms of future contract awards and opportunities with your different products?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. So I can share slightly more light on this exciting new Gilat Defense. So I think that the cornerstone is our acquisition of Datapath that in 2024 did slightly more than $50,000,000 and we expect them to grow in twenty twenty six twenty twenty five as well. So we are seeing both business with the U. S.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

DoD, but also international. We are seeing a lot of synergies with Gilat Salesforce worldwide trying to sell Datapath solutions and the pipeline is increasing for both portable and transportable solutions. On the other side, Datapath is leveraging their relationship with the DoD and The U. S. Army to bring Gilat networking and modem solutions into the DoD.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We are seeing a lot of excitement there. We starting to engage with meetings that we haven't been able to engage for years. In parallel, we are trying to leverage our relationship with the global satellite operators like SCS and INTERSAT and that they already have a huge network of Gilat to leverage this network and to penetrate with Gilat modems into the DoD, again leveraging the networks that they already bought. We recently announced that we are far and default compliant with our products, so they are eligible to be sold to The U. S.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

DoD. And in addition, we are able to manufacture them locally in The U. S. So we are slightly, but promising jumping on every barrier that we had in the past. And we are seeing a lot of excitement both internally and externally about this.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We are trying to beat for very large programs that will include also development efforts. And I think that 2025 will see a significant booking increase and the outcome in revenues will come in 2026 onwards. We said several times in the past that growth in this segment won't be linear because it's a project and program based and we are aiming to get at least one or two very large awards to support future growth.

Louie Dipalma
Research Analyst at William Blair

Sounds good. And as it relates to Peru, Gil, you guided for a decline for revenue in 2025, but going forward beyond 2025, should there be stability or will Peru continue to trend lower?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

So first of all, looking forward, we believe that Peru is going to grow. In 2025, we see some delays in renewal of some of the recurring contracts. So this might push revenues down a little bit, but overall most of Peru's revenues are for longer term and we definitely see a long term growth trajectory for Peru.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Corupe.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I would like to add that in 2024, we had some construction revenues, some leftovers from past transaction and some extension that we got an award at the beginning of twenty twenty four and we are expecting to start seeing operational revenues from this project in 2020 and 2025. So I think that it's a bit misleading if you reduce the construction revenues on operation side, you will see growth year over year.

Louie Dipalma
Research Analyst at William Blair

Thanks. And also, Adi, you indicated that you have shipped 125 of the ESA antenna systems with Stellar Blue. And I was wondering, could you provide an update in terms of where Stellar Blue stands in terms of the contingent payments?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I think it's really in early stages right now. The first milestone is to deliver several hundreds of units in a grid margin. The first units usually are more costly than the production ramp up units because as part of the ramp up, you learn and fix issues. I think we are in a good position to reduce the terminal costs, but it's really too early to talk about the earn out. The first earnout will be end by mid year.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So I guess that during the second quarter we'll be able to give some more light on it.

Louie Dipalma
Research Analyst at William Blair

Great. Thanks, everyone.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Louis.

Operator

The next question is from Ryan Coons of Needham and Company. Please go ahead.

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

Great. Thanks. Most of my questions have been answered here. But with regard to the production ramp there at Stellar Blue, can you refresh us on where the company was in Q4? And and what you anticipate that volume ramp to look like as we go through the first half of twenty twenty?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. So Q4 was the initial production ramp up of production. They delivered around 75 units in Q4. They have several terms of active systems that already been installed and activated on aircraft. And until now, I think the customers are very happy.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

The systems performed very well. So I think we are on the right direction.

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

That's great. Great to hear. Those are installed and performing well. And on the commercial side, relevant to your historical numbers there and the decline you saw in 2024, can you remind us if there was some Russia impact there exiting Russia? Can you remind us of that impact in 2024 versus 2023?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Russia is used to be around $20,000,000 give or take per year. In 2024, I guess we had slightly around 50% out of it. And in 2023, we've been I don't remember the exact number. Gil, maybe you remember?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

The decline was about $10,000,000 a year ago. This is more or less the number.

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

Got it. All right, great. And just in terms of the competitive environment, maybe going back to IFC here, what's that competitive environment like for you now post StoneBlue deal closing? And how do you see this market developing versus the opportunities and competitors out there? Thanks.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So there is a direct and indirect effect. On the direct effect, I think that today with TeleBlue, we have the leading multi orbit ESA terminal, but has the best swap and cost. Swap is size, weight and power and cost that is available today in the market. We have a lot of opportunities with several service providers and aircraft manufacturers. I think that that being a line fit in one of the large aircraft manufacturers is one of our top objectives for 2025 and 2026.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

About the indirect competition, about the indirect competition, it's always there. Our customers compete against each other and against Starlink. But overall, the fact that the industry is shifting to free Wi Fi significantly increased potential growth in this market in general and for Gilat.

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

That's great. Thanks for

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

those comments and look forward to P

Ryan Koontz
Managing Director - Research Analyst at Needham & Company

and A 25 unfold. Thanks.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Ryan.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Thank you.

Operator

The next question is from Chris Quilty from Quilty Analytics. Please go ahead.

Chris Quilty
Co-CEO & President at Quilty Space

It's Quilty, Stacy. I got it wrong. Apologies for the background noise I'm driving. Gil, quick question or follow-up on the top line guidance just to make sure I have the pieces. You're still looking for order of 120 to 150 in the Stellar Blue.

Chris Quilty
Co-CEO & President at Quilty Space

I think we're talking about a 10,000,000 headwind from Russia. And I guess the sort of order of magnitude on the Fluids business in terms of a headwind. Once we back that out, what are we looking at for and again, I don't want to look necessarily on the traditional businesses the way you had it organized by segment. But if I did and looked at sort of amplifiers versus modems in those buckets, where are you seeing growth and or the faster growth in the business lines?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Yes. So obviously in the IFC with acquisition we see the highest growth. We also see growth in our defense vertical now becoming a segment and we provided some guidance under this segment to grow from 98% in 2024 to 110 in 2025. We have some headwinds in Peru as mentioned. And at the end of the day our focus area in the IFC, in the defense and in the VHTS and NGSO these are the areas that we believe that most growth will come from.

Chris Quilty
Co-CEO & President at Quilty Space

Understand. And maybe just specifically on the power amplifier side of the business, are you still chasing large opportunities there on the NGSO side?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Yes, definitely, definitely we do. And we also on the overall SCA business, we also project growth next year.

Chris Quilty
Co-CEO & President at Quilty Space

Great. Back to Stellar Blue, I think you've got two sizable customers there and I think some of the earn out is related to bringing on other large customers. Where do you sit in that process in terms of negotiations? Is it still looking like that twenty twenty five event or does it get pushed further out?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I think we are pursuing it in 2025. Right now, we believe it will be closed before end year end, but of course it can slip later on. But we have a very large backlog and a lot of opportunities and when Intisat and Panasonic gets more and more awards, we expect them to place additional orders. And with the large aircraft manufacturers, we are aiming to close as soon as possible in 2025.

Chris Quilty
Co-CEO & President at Quilty Space

Gotcha. Follow-up on Peru, even with the lower revenues, is it fair to assume profitability is even or up as you shift down to the hardware business and into service?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

So the service revenues are associated with higher profitability. So it compensates the decrease in revenue.

Chris Quilty
Co-CEO & President at Quilty Space

Got you. And Gil, you mentioned higher R and D spending in the defense area. What sort of order of magnitude and spending and are there specific areas where you see more opportunity?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

So most of the investments is aimed towards new modems and family of terminals and other large projects that we aim to participate in. That at the end we will have to see how much of the overall R and D will be allocated to the defense, but it's in the magnitude of a few million dollars. And in the overall, we expect R and D to be more or less at the same level that it is this year. So it's mainly internal allocation.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

On top of that, it's the R and D of Stellar Blue. So at the end, you will see a significant In general, we are aiming to add more features for SkyEdge four to support defense applications. The main focus is on security features, adding transit and fixed capabilities, developing our next generation G and T and highly secured modem and also some flat panel and electronically steered antennas with a focus on the UAV market. So all in all, you will see a significant increase in the in the R and D, most of the additions.

Chris Quilty
Co-CEO & President at Quilty Space

Adi, speaking of SkyEdge four, you guys had a great year in '23 growth there. '24 seems like it was sort of flat. And I'm talking about the commercial side, sort of five gs cellular backhaul. What's the outlook? Do you see programs picking back up in 'twenty five or is it another sort of flattish year on the commercial side?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I think that right now there is as long as the large satellite manufacturers are keep on delaying the launch of new satellites, the new SDF satellites,

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I think

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

it will be a bit flattish in terms of new networks, because usually the large networks that we sell are touching with new satellite launch. But we do expect to see revenues of next generation SkyEdge for shifting to virtual platform and cloud based solution where the SkyEdge four will run on native cloud. So we do expect to see some new wins over there. But again, once the satellite manufacturers will start launching new satellites, we will return to significant growth on the network side.

Chris Quilty
Co-CEO & President at Quilty Space

Great. Thank you. Last question and sorry, I'm all over the back here. But back to Stellar Blue, I wonder and this is kind of a high level thought in the market. Obviously, SpaceX has made a mark in IFC.

Chris Quilty
Co-CEO & President at Quilty Space

Hughes, I think, is shipping their single beam antenna. But flat panel antenna is still relatively new in the market.

Chris Quilty
Co-CEO & President at Quilty Space

Where do you see the

Chris Quilty
Co-CEO & President at Quilty Space

trends going in terms of the single beam, dual beam, multi beam, multi orbit, Ka band, Ku band, multi band in terms of where the customers are asking for

Chris Quilty
Co-CEO & President at Quilty Space

solutions?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So I think that right now, Stellar Blue is the best technology available. But all the antennas today are supporting single beam. The next generation will support dual beam on the receive side. KuKa Kuka antennas is also something that I think that the industry is considering, but up until now it wasn't that of a big success. As for KA, I think that there is a lot of opportunities over there once we'll see Telesat constellation is ramping up.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So I think we might see some new development over there.

Chris Quilty
Co-CEO & President at Quilty Space

Very good. Thank you and appreciate the details there and good luck on the year ahead.

Chris Quilty
Co-CEO & President at Quilty Space

Had a busy one to go.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Chris.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Thank you.

Operator

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

Gunther Karger
Hedge Fund Manager at Discovery Group

Yes. Thank you. Very good results. Congratulations. A technology question, can you hear me all right?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes, we can.

Gunther Karger
Hedge Fund Manager at Discovery Group

Great. Great. It's a technology oriented question. Regarding Stella Blue, the IFC market traditionally is the passenger area.

Gunther Karger
Hedge Fund Manager at Discovery Group

What about the operational area? Will the Stella Blue acquisition enable encroachment into the operational communications, air ground communications, avionics and things of this type?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Stella Blue is focused on delivering the electronically steered antenna. They have no intention of going to air to ground. And in terms of operation, I'm not sure I fully understand your question. So I'll refer to two parts. Of course, Stelro do provide services and maintenance services on the platform that they are selling, but they have no intention to compete with the service provider, meaning their customers, if this is what you asked.

Gunther Karger
Hedge Fund Manager at Discovery Group

Yes. Thank you. I was thinking more of the operational communications, which is currently a primarily HFVHF ground. And as the systems move to the satellite area and you have an onboard antennas and communication facilities. I'm just wondering if the Stellar Blue would allow the movement of operational communications to that area away from the traditional HF, PHF systems.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

On the aircraft side, theoretically, it's doable, but it's today it's regulated communication. So I don't have details if they can change this regulation to allow the use of this antenna for the aircraft operation.

Gunther Karger
Hedge Fund Manager at Discovery Group

Thank you very much.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

you, Gunther.

Operator

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

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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

Operator

Thank you. This concludes Gilat's fourth quarter twenty twenty four results conference call. Thank you for your participation. You may go ahead and disconnect.

Executives
    • Mayrav Sher
      Mayrav Sher
      Head of Finance & Investor Relations
    • Adi Sfadia
      Adi Sfadia
      Chief Executive Officer
    • Gil Benyamini
      Gil Benyamini
      Chief Financial Officer
Analysts
    • Sergey Glinyanov
      Investment Research Analyst at Freedom Broker
    • Louie Dipalma
      Research Analyst at William Blair
    • Ryan Koontz
      Managing Director - Research Analyst at Needham & Company
    • Chris Quilty
      Co-CEO & President at Quilty Space
    • Gunther Karger
      Hedge Fund Manager at Discovery Group
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Earnings Conference Call
Gilat Satellite Networks Q4 2024
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