Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's third quarter 2020 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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded November 10, 2020. If you have not received it, please contact Gilad's investor relations team at GK Investor and Public Relations at 1-646-688-3559 or view it in the news section of the company's website www.gilad.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin please?

Good morning and good afternoon everyone. Thank you for joining us today for Gilad's third quarter 2020 conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, November 10th, and will be available for a telephone replay until November 13th at noon. The webcast will be archived on Gilad's website for a period of 30 days. Also, please note that investors are urged to read the forward-looking statements in Gilad's earnings release, with a reminder that the statements made on this earning call are not historical facts and may deem forward-looking statements with the meaning of the Private Security Litigation Form 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 Gilad and which may cause actual results to differ materially from anticipated results. Gilad is under no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise, on the company's explicit disclaimer as any obligation to do so. More detailed information about the risk factors can be found in Gilad's reported file with the Securities and Exchange Commission. With this, let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilad's Interim CEO, and Mrs. Basmat Halperin, Gilad Interim CFO. I would now like to turn over the call to Adi Sfadia. Adi, you are ready to begin.

Thank you, Ehud, and good day everyone. I would like to thank you for joining us today as we resume our quarterly updates which we were not able to hold over the past year due to the pending acquisition agreement with Comtec. Last month, on October 5th, we reported that the merger agreement with Comtec signed on January 29, 2020 was terminated and a settlement was reached on all pending litigation for a payment of $70 million to Gilad by Comtex. We recently announced our plan to share a $55 million dividend with our shareholders, derived mainly from this termination fee. A cash dividend of $20 million was declared and will be paid on December 2, 2020, and an additional $35 million will be declared subject to court approval. Moving ahead, we are continuing at full force to implement our strategy, which we believe will generate long-term value to our shareholders. I would like to briefly summarize that strategy for those of you who are new to our story and to remind those of you that have not met us for a while. Gilad is a leading global provider of satellite-based broadband communications. We have over 30 years of experience designing and manufacturing cutting-edge ground segment equipment and provide comprehensive solutions and N2N Services powered by our innovative technology. Our main gross engines are Cellular Backhaul Over Satellite, In-Flight Connectivity or IFC and the ground segment for Non-Geostationary Orbit Satellites or NGSO and Very High Throughput Satellites or VHTS for short. Cellular Backhaul is part of our fixed network segment. Our customers include T1 Mobile Network Operators or MNOs usually requiring Satellite Backhauling to Extender Networks to Rural Areas and Other Remote Locations such as Islands, Highways and Parks where terrestrial coverage is prohibitively expensive to lay out. In addition, we are increasingly seeing the need for cellular backhaul over satellites for emergency response and as a backup to terrestrial lines. This quarter we won several important and strategic managed service deals in cellular backhaul which we believe will continue to be a strong, profitable growth engine for the foreseeable future. In addition, our fixed network segment includes our broadband solutions for enterprise and consumer, including our services in Peru. Now turning to IFC, which is part of our mobility solutions segment. Our largest customers in this segment are Gogo, one of the largest IFC service providers, and Honeywell, one of the largest global system integrators. Though COVID-19 has a devastating impact on travel and aviation in general, IFC is expected to grow in importance as the industry recovers and passengers require high-speed internet connections. The mobility solution segment includes also our on-the-move products and solutions for defense, maritime and trains. In addition, the mobility solution segment includes our U.S. subsidiary, Wavestream, which design and manufactures high-speed, high-power, solid-state power amplifiers for ground, sea, and airborne satellite communication systems. Wavestream focuses on providing solutions for IFC, defense applications, and NGSO gateways. Another important focus is the NGSO and the VHTS solutions. Our major win last year to provide the ground segment for the SCS-03B Empire satellite constellation has put us at the forefront of the basement providers for NGSO. An additional business for Gilad is providing terrestrial telecommunication infrastructure projects in Peru for Pronatel, a government-owned company, as well as operating parts of the network and selling additional services in support of the Peruvian population. The construction phase of these networks is reported under our terrestrial infrastructure project segment while the operational phase and the additional services provided on top of the networks are reported under our fixed network segment. Our target in Peru is to reach a run rate of $50 million in annual recurring revenues, which we believe can be reached by the end of 2022. As of today, we have in our backlog a run rate of yearly service revenues in Peru of more than $30 million. There is no question that the COVID-19 pandemic has and continues to affect our 2020 results. This is primarily in the mobility segment which is dominated by the IFC market. Having said that, during the third quarter, we began to see recovery in most of our other business areas. This is demonstrated by a solid increase in our backlog. Thanks to our cost-cutting initiative, we were able to show a slight improvement in our adjusted EBITDA. In the current quarter, adjusted EBITDA stood at about $600,000 compared with the previous quarter's adjusted EBITDA of about $100,000. In the fourth quarter, I expect that we will show an improvement both in the revenue level and profitability compared with this quarter. Summarizing our financial performance in the third quarter, revenue totaled $37.3 million, GAAP operating loss totaled $10.9 million and adjusted EBITDA was about $600,000. Bosmat will elaborate on our financial performance in a few minutes. I will now move on to review our third quarter business achievements. I will start with the mobility segment and our IFC business. Even though the COVID-19 pandemic has impacted the global aviation market, Gilad has not changed its overall mobility strategy. We expect that upon industry recovery, IFC will be even more important as passengers who throughout the pandemic came to rely heavily on always connected experience will continue to demand reliable high-speed internet connections. In addition, we believe that the introduction of widespread free Wi-Fi will significantly increase take-up rates and will provide a strong tailwind to the industry and to Gilad. We are working closely with our customers and partners to enable them to meet the expected increase in bandwidth requirements and passengers' connectivity demands. In China, we announced this summer an important milestone as a driver of opening up the Chinese KA Band for in-flight entertainment and connectivity market for a multi-million dollar market opportunity. The announcement was made with our partners China Satcom and FTS, a leading Chinese system integrator who received the STC certification for in-flight entertainment and connectivity earlier this year. Gilad has already received initial orders out of the multi-million dollar potential for its flagship aero modems. The non-geostationary orbit satellite constellation and the very high throughput satellite continue to be a major strategic focus area for Gilad. We are on track with the platform development for the EMPIRE-MEO constellation. We are working closely with SCS on additional program needs. Recently, we expanded the O3B EMPIRE partnership with SCS under a multi-million dollar follow-on order for high-speed modems. The modems will deliver multi-gigabit throughput targeting high-end services over the constellation. Furthermore, we believe that we are well positioned to win additional NGSO Business as the opportunities mature. Gilad's only-owned U.S. subsidiary, WaveStream, is a trusted supplier to the U.S. Department of Defense, providing high-quality military communication products. In the third quarter, WaveStream received further multi-million dollar orders from the U.S. Department of Defense, demonstrating their continued faith in WaveStream's ability to execute at a high level and support their needs for years to come. In Cellular Beckholz, one of our strategic growth engines, we are continuing to excel and have maintained our global market leadership. According to a 2020 report by market analyst NSR, Gilad leads with 44% market share in modern shipments. This superiority is furthered with impressive 5G technical achievements. As a matter of fact, this quarter we successfully demonstrated 5G traffic carrying with outstanding performance over TICON GEOS HTS Satellite. Superior user experience was recorded using Gilad Capricorn Plus VSAT. With this successful test, we have declared Gilad's cellular backhaul solution operational and ready for implementation in the 5G architecture. Gilad's strategy of providing the cellular backhaul over satellite solution as a managed service has proven successful and is beneficial for both the MNOs and Gilad. MNOs are free to focus on their core competencies while leaving the complexity of the satellite communication to the satellite expert. Gilad, on the other hand, provides an end-to-end service enjoying a larger contract with recurring revenue. I am pleased to report that this quarter Gilad won several multi-million dollar managed service deals which included new MNOs as well as substantial contract renewal extensions and extensions. In North America, we had two major achievements this quarter. Gilad was awarded $20 million for a three-year managed service contract renewal and expansion from Tier 1 MNOs in the United States. With this, Gilad becomes the MNO's sole vendor to provide end-to-end services for LTE backhauling and disaster recovery while replacing existing satellite technologies. This contract is a testament to the MNO's appreciation of Gilad's proven service and technological capabilities. In addition, we were awarded a three years managed service contract by Southern Link for coverage to remote areas as well as emergency response. On top of securing a new MNO in the United States, this achievement further validates Gilad proven technologies I would like to share that we extended another Satellite Backwell managed service contract with the leading MNO in Mexico and have a healthy pipeline of additional such deals worldwide and I hope to announce additional success in the near future. We also closed several important Satellite Backwell equipment deals, among others one with AMN, Africa Mobile Networks, which extended Gilad's contract for Africa's largest solar background network over satellite, and another contract with KSL, Kazakhstan's largest mobile network operator. In the area of broadband connectivity, we continue this quarter to strengthen our presence in Latin America with important wins in Peru and Argentina. In Argentina, We were selected by Telefonica International Allsales Services, a subsidiary of Telefonica Group, to deliver broadband services to rural areas. In Peru, we were awarded a three-year service deal for a nationwide enterprise. Both of these projects were particularly challenging due to the pandemic, and Gilad's local team and partner excelled in timely deployment in difficult rural terrains. As we have reported in the past, our business in Peru in the first three regions awarded in early 2015 moved into operational phase and are now delivering services to half a million people. Also, we are in an acceptance process regarding the fourth region that was awarded in late 2015. We expect to finish the acceptance no later than the end of Q1 2021, which will allow us to enter the operational phase and enable us to start recognizing the related recurring service revenues. We are progressing with the additional two regions which were awarded in 2018 slightly slower than expected due to the pandemic restriction in Peru. This quarter, Gilad was awarded a substantial five years expansion contract by IPT, a consortium consisting of Telefonica and Facebook, among others. In a festive signing event, Mrs. Nakagawa, Vice Minister of Communications said, and I quote, The expansion of these services will benefit around half a million people. Gilad accepted the challenge to work on a regional project in an extremely difficult area, and we should praise its impeccable work. This milestone proves that the investment in private entities generates the expected value for the citizens, especially during the current worldwide pandemic where we need internet access to stay connected. We believe that further to this expansion, which includes hundreds of additional sites, there is still significant potential to increase and expand to additional regions as well as to extend the deal over time. This deal demonstrates our ability to execute our vision of profitable recurring revenues in Peru. In closing, I am pleased to share with you that even though the industry continues to deal with the COVID-19 pandemic, we had some very significant achievements this quarter which will support our long-term growth. As we move into Q4, we are beginning to see the light at the end of the tunnel and are cautiously optimistic. However, we are watching the pandemic closely as a second wave hits many parts of the world. We, like others, have learned to conduct business with the pandemic and I am pleased with our accomplishment and with a healthy pipeline of significant and large opportunities. On a personal note, I am optimistic about the great future for Gilad. I am fully committed, supported by my dedicated management team and talented employees to bring Gilad back to growth and profitability and to surpass our success from before the pandemic. Bosmat, we are ready for your report. Please, go ahead.