Gilat Satellite Networks Ltd. (NASDAQ:GILT) Q1 2024 Earnings Call Transcript May 8, 2024

Gilat Satellite Networks Ltd. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Gilat's First Quarter 2024 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. [Operator Instructions] As a reminder, this conference is being recorded May 8, 2024. 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 (646) 688-3559 or view it in the news section of the company's website, www.gilat.com. I would now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin please.

Ehud Helft: Yes. Good morning, and good afternoon, everyone. Thank you for joining us today for Gilat's first quarter 2024 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, May 8, as a webcast on Gilat website for a period of 30 days. Also, please note that investors are urged to read the forward-looking statements in Gilat's earnings release with a reminder that statements made on this earnings call are not historical facts and may be deemed forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements regarding 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 expressly disclaims any obligation to do so. More detailed information about risk factors can be found in Gilat's reports filed with the Securities and Exchange Commission. With that said, let me turn to introduction. On the call today are Mr. Adi Sfadia, Gilat's CEO; and Mr. Gil Benyamini, Gilat's CFO. I would now like to turn the call over to Adi Sfadia. Adi, we're ready to begin.

Adi Sfadia: Thank you, Ehud, and good day to everyone. I want to thank you for joining us today for our first quarter of 2024 earnings call. We are pleased with the results of the first quarter, which start 2024 well and is in line with our expectations for the year. The first quarter of 2024 showed strong 29% year-over-year revenue growth, including the contribution of the revenues from our recent acquisition, DataPath and a solid level of organic growth, which was brought across multiple business areas. The broad interest and good performance was due to continued growing market interest in our solution and advancement in the satellite communication space. I also want to highlight, in particular, that our strategic partnership with the major satellite operators also strongly supported the growth in our business during this quarter.

We are pleased with DataPath's contribution to the quarter's results. DataPath contributed about 17% to the top line growth and positive adjusted EBITDA. We are already demonstrating our ability to leverage the capabilities of DataPath and Wavestream, our two U.S.-based subsidiaries, which I will explain further when discussing our recent activities in the defense sector. In terms of overall bottom line, we improved our adjusted EBITDA profitability over Q1 of last year, which itself was a very strong quarter with a favorable revenue mix by 11% year-over-year. Looking ahead, we are very much on track and as such, we are reiterating the guidance we gave at the beginning of the year, which Gil will summarize shortly. Now let's move to the business review of the first quarter of 2024.

In the very high throughput satellite, the VHTS and the non-geostationary satellite, the NSO Constellation business segment, we continue to lead the market and grow our business with follow-on multimillion-dollar orders from our strategic partners, the satellite operators, which mainly includes SES and Intelsat among others. This is driven by increasing demand for Gilat SkyEdge platforms as satellite operators extend their networks and deliver a wider range of applications to a growing number of users. During the last few months, we have been awarded more than $13 million in community orders from several satellite operators to extend their global networks, utilizing Gilat SkyEdge II-c and SkyEdge IV multi-orbit multi-service capabilities. Overall, we are enjoying an increase in the pace of deployment and installation for both gateway hubs and terminals across Empower and all other LCS geo satellites.

In addition, our wholly owned subsidiary in the United States, Wavestream is successfully delivering SSPA to a new NGSO operator for its gateway deployments. We believe this success positions us well as the main SSPA supplier to this operator and potentially to receive the large share of the future business, which is worth tens of millions of dollars. Additional orders from this NGSO operator are expected during 2024. Our increased focus on the defense market segment is already bearing fruit. The acquisition of DataPath was completed in November of last year, and Q1 was the first full quarter of consolidating the revenues into our defense sector under the satellite network segment. We recently announced several new projects that were awarded to DataPath and Wavestream.

DataPath has received multiple orders during the first quarter, totaling more than $15 million from the U.S. Department of Defense for DKET 3421 terminals. This market-leading solution is a transportable Satcom hub that delivers the operational flexibility, capacity, connectivity and control required to ensure connectivity anywhere in the world. Following last quarter announcement that the U.S. Army awarded Wavestream a $20 million contract for the sustained anytime, anywhere satellite connectivity program, we've already received the follow-on orders for more than $12 million. We are providing a 51 Ka-band SSPA for the long-term sustainment of thousands of mobile satellite transportable terminals which enables a continuous communication on the port solution across diverse climates and hard conditions around the globe.

This order demonstrates Gilat's ability to leverage the capabilities of our two U.S.-based subsidiaries. We also received a multimillion-dollar defense satellite connectivity project order from a leading governmental defense organization. This order included Gilat's SkyEdge IV platform and towers and modems to augment the defense organizations advanced satellite communication capabilities. In addition, a leading defense organization selected Gilat to develop a next-generation software-defined modem for Satcom on the move and Satcom on the post military applications valued at millions of dollars. We continue to make great progress in the mobility sector demonstrating solid year-over-year growth, developing more products, adding more customers and supporting more verticals.

During the first quarter, we made significant progress in developing our electronically steered antenna for GEO and LEO. Initial test of a GEO approved antenna design meets the intended specifications and commercial for commercial aviation. Gilat needs to further meets and exceeds the performance of existing flat-panel antennas while supporting two satellite beams simultaneously. Safran passenger innovation selected Wavestream to develop, qualify and produce a new line of Ku-band power supply unique products to support the Ku-band usage, bolstering Gilat's growth in the IFC market. In addition, we received orders for the Taurus modem from Safran for the Airbus HBCplus program as well as from a leading IFC service provider that expands Gilat IFC footprint into the business aviation and government markets.

In our enterprise business segment, our customers worldwide continue to depend on us to enhance their business and new opportunities continue to arise. We are witnessing a significant surge in social inclusion project globally. This project aims to bridge the digital divide and empower underserved communities by providing access to essential services, such as education, healthcare and economic opportunities. Communication is the cornerstone of social inclusion and satellite communication stands out as the key achieving widespread connectivity that surpass the limitation of terrestrial alternatives. We received a $3 million follow-on order for a public WiFi service in Latin America. This project highlights once again the importance of social inclusion project aimed at bridging the digital divide.

During the quarter, we also received a significant order for an additional social inclusion project in Brazil. This program will expand WiFi services across the country and require thousands of additional research systems from Gilat over the coming years. In Peru, we are pleased to announce the completion of the construction and implementation of the six regional projects for Pronatel in the Amazonas region. We are now in the acceptance process and expect to be operational later this year. In addition, we are progressing in building the $17 million expansion project in the Amazonas region, expecting to finish the expansion before the end of the year. Furthermore, in Peru, we are expecting additional progress in the next few months. This includes the maturity of several large RFPs with Pronatel and the Peruvian government, as well as several project extensions.

We are very pleased with the strong pipeline in Peru for the rest of the year. To conclude, I am pleased with our results for the first quarter which includes the contribution of the revenues of our recent acquisition of DataPath in addition to a solid level of organic growth, which are attributed to the growing interest in our solutions, advancement in the satellite communication market and particularly our strategic partnership with the major satellite operators. We continue to lead with our next-generation platform, the SkyEdge IV, which supports multiple orbit verticals and applications, including our strategic markets of mobility, cellular backhaul and defense. During the first quarter, we made significant progress in developing our electronically steerable antenna for Geo and Leo and expanded the IFC footprint into business aviation and government markets.

We have also delivered our SSPAs to a new NGSO operator for its gateway deployments and are seeing increasing opportunities in this line of business. We have a strong pipeline and expect the materialization of important deals over the coming months. With that, I hand over to Gil Benyamini, our CFO. Gil?

Gil Benyamini: Thank you, Adi. Good morning, and good afternoon to everyone. I would like to remind everybody 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 make operating decisions. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance. Non-GAAP financial measures mainly exclude if and when applicable, the effect of noncash stock-based compensation expenses, amortization of purchased intangibles, lease incentives and amortization, other integration expenses, onetime changes of deferred tax assets, 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 exclude these items. I will now move to our financial highlights for the first quarter of 2024. Overall, as Adi mentioned earlier, we are very pleased with the strong start of 2024. We reported a 29% year-over-year growth in revenue. This was driven by 12% organic growth as well as by our recent acquisition of DataPath that contributed 17% to our growth. Our GAAP gross margin was 38%, and our adjusted EBITDA reached $9.3 million, 11% growth over Q1 last year. We are optimistic about our prospects in our quarters ahead. And as Adi mentioned earlier, we reiterate our guidance for 2024, which I'll cover later. In terms of our financial results in more detail, revenues for the first quarter were $76.1 million, 29% higher than those of first quarter of last year, which were $59 million.

The improvement was driven by growth in the satellite network segment and was comprised of organic sources and from acquisition of DataPath, which we closed in the middle of Q4 of last year. We also demonstrated solid growth in the network infrastructure and services business segment. In terms of revenue breakdown by segment, Q1 '24 revenues of the Satellite Network segment were $46.8 million compared to $33.5 million in the same quarter last year. Q1 '24 revenues of the Integrated Solutions segment were $11.6 million compared to $12.9 million in the same quarter last year. Q1 '24 revenues of the Network Infrastructure & Services segment were $17.7 million compared to $12.5 million in the same quarter last year. The increase was derived from higher construction revenues as well as increase in the services revenue.

I would now like to summarize our first quarter, both GAAP and non-GAAP results. Our GAAP gross margin for Q1 '24 was 36.9% compared to 41.9% in the same quarter last year. The reduction in our gross margin was mainly due to particularly favorable product and services mix that we experienced in Q1 of last year. In addition, and as we mentioned in the past, DataPath's gross margins are slightly lower than Gilat's average, which impacts the overall gross margin in the current quarter and will continue to do so going forward. As we discussed in previous calls, analyzing Gilat's results on a quarter-by-quarter basis is problematic since they can be significantly affected by our revenue and product mix. I note that the gross margin in the trailing four quarters was 38.2%, similar to 38.5% in the trailing four quarters that ended on March 31, 2023.

GAAP operating expenses in Q1 '24 were $22.7 million, an increase of $5 million versus the same quarter last year. In Q1 of last year, we had a onetime cash income of approximately $3 million for an arbitration won in Peru. This quarter, we also have an impact of approximately $0.7 million 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 operational expenses related to the DataPath, which we did not have in the first quarter of last year. GAAP operating income for the quarter is $5.4 million compared to $7 million in the same quarter last year. GAAP net income in the first quarter was $5 million or $0.09 per diluted share.

This is compared to a GAAP net income of $5.6 million or diluted earnings per share of $0.10 in the same quarter last year. Moving to non-GAAP results. Our non-GAAP gross margin in Q1 '24 was 37.8% compared to 42% in the same quarter last year. The differential was for the same reasons I mentioned earlier. Non-GAAP operating expenses in Q1 '24 were $22.2 million compared with $19.5 million in the same quarter last year. The increase was mainly due to the consolidation of DataPath. Non-GAAP operating income for the quarter improved to $6.6 million compared to $5.3 million in the same quarter last year. Non-GAAP net income in the first quarter was $6 million or diluted earnings per share of $0.11. This is compared with $3.8 million or diluted earnings per share of $0.07 in the same quarter last year.

Adjusted EBITDA for the quarter improved to $9.3 million, an increase of 11% compared with adjusted EBITDA of $8.4 million in the same quarter last year. Moving to our balance sheet. As of March 31, '24, our total cash and cash equivalent and restricted cash net of short-term debt were $98.5 million compared with $95.3 million on December 31, '23 and compared to $89.7 million as of March 31, '23. In terms of cash flow, we generated $4.2 million from operating activities during the first quarter of '24 and net repayment of loans was $2.7 million. DSOs, which exclude receivables and revenues of our terrestrial network construction project in Peru were 76 days, higher than the previous quarter DSO, which was of 64 days. These KPIs is within our normal range of 60 to 90 days.

Our shareholders' equity as of March 31, '24 totaled about $281 million compared with $275 million at the end of December '23. Looking ahead, we reiterate our guidance for the year. Our expectations remain for revenues of between $305 million to $325 million, representing year-over-year growth of 18% at the midpoint, GAAP operating income of between $15 million to $19 million and adjusted EBITDA of between $40 million to $44 million, representing year-over-year growth of 15% at the midpoint. That concludes my financial review. I would now like to open the call and would be happy to take your questions. Operator, please.

See also

20 Countries That Have The Potential To Be Major Tourist Destinations and

10 Best Technology Dividend Aristocrats to Buy.

To continue reading the Q&A session, please click here.