Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's fourth quarter and full year 2020 result conference call. All participants are present in a listen-only mode. Following the 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 February 16th, 2021. By now you should have all received the company's press release. 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 at www.gilad.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Ehud, would you like to begin, please?

Thank you, operator. Good morning and good afternoon, everyone. Thank you for joining us today for Gilad's fourth quarter and full year 2020 results conference call and webcast. The recording of this call will be available beginning at approximately noon Eastern time today, February 16, and will be available for telephone replay until February 19 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 statement in Gilad's earnings release With the reminder that statements made on this earning call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. All such forward-looking statements, including statements regarding future financial operation results, involve risk 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, and the company explicitly disclaims any obligation to do so. More detailed information about the risk factors can be found in Gilad's reports filed with the Securities and Exchange Commission. With that said, let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilad's CEO, and Mr. Bosmat Halpern, Gilad's CFO. I would now like to turn the call over to Adi Sfadia. Adi, we are ready to begin.

Thank you Ehud, and good day to everyone. I would like to thank you for joining us today for our quarterly earning call. I am happy to report our fourth quarter 2020 results, as well as to provide a summary of our performance in 2020. During 2020, and especially during the second half of the year, we made major technological achievements and closed some very significant deals, all of which positioned us very well for 2021 and onward. We reduced our operating costs by close to 20% to better align our costs with the 2020 revenue level, which allowed us to maintain a positive EBITDA over the past three quarters. As you know, in the fourth quarter of 2020, our merger with ComTech was terminated, with a settlement that was reached on all pending litigation for a payment of $70 million to Gilad by Comtec. We recently shared approximately $55 million as dividend with our shareholders derived from this termination fee net of transaction and litigation costs. Moving ahead, we are continuing at full force to implement our strategy which we believe will generate long-term value for our shareholders. In Q4, we continued the trend of recovery that started in Q3. We closed multi-million dollar deals in our strategic growth areas that I will go into shortly. On the financial front, in 2020, we saw a decline in our revenues to $165.9 million from $263.5 million in 2019 Due to the COVID-19 pandemic, which was primarily because of the absence of travel and therefore a sharp decline in our IFC business. Taking a closer look at the fourth quarter of 2020, overall our revenue showed improvement over the previous quarter with a 14% quarter-over-quarter increase to $42.6 million. This recovery demonstrates that we are heading back in the right direction. While improved versus the previous quarter, the mobility segment remains weak, reflecting the pandemic's continued effect on the international travel and the IFC vertical. As the vaccine continues to be rolled out globally and hopefully life returns to normal, we believe the IFC market will have a strong recovery and hold much growth potential for Gilad in the coming quarters and years. On the bottom line, our adjusted EBITDA in Q4 was $1.1 million, and Impromvet versus the previous quarter of about $600,000. As our revenues continue to recover in 2021, we would expect much of this growth to benefit our bottom line. Looking ahead, our recent strong booking levels in the last two quarters is a good sign and we expect the financial improvements to be continued into 2021 with a quarter-over-quarter progress. We hope and expect that air travel will resume in the second half of 2021 and therefore the need for our IFC products and solutions will return and even increase. With that, we will return to the profitability level that we saw in years prior to the pandemic. The non-geostationary orbit satellite constellation and the very high throughput satellite continue to be a major strategic focus area for Gilad. I am excited to report that at the end of the fourth quarter of 2020, We secured an award estimated at over $50 million for a contract to provide Gateway solid-state power amplifiers for a low-Earth orbit broadband satellite constellation. The award was granted by a leading satellite operator for a Gateway SSPA to be supplied by Gilad subsidiary Wavestream. This key achievement, together with our major win last year to provide a ground segment for the SCS-03B Empire satellite constellation, has further solidified our position as a front runner in providing the ground segment for NGSO constellations. As we reported last quarter, we expanded the O3B Empire partnership with SCS with 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, mainly for maritime and government applications. Furthermore, the VHTS and the NGSO market holds significant growth potential for Gilad, comprising of hundreds of millions of dollars of market opportunities. We believe that we are well positioned to win this additional NGSO and VHTS business as the opportunities mature. Cellular Backhaul over Satellite is a strategic growth engine for Gilad, and we had notable achievements during the second half of 2020, both for major deals that we closed As well as from technology leadership perspective. Our managed service strategy of providing end-to-end services continued to be successful, bringing in larger contracts with recurring revenue. At the end of 2020, we closed the multi-million dollar contract expansion with Globe, Philippines' largest mobile network operator. Globe chose Gilad's robust end-to-end solution, providing high-quality service to quickly expand Their nationwide coverage answering the rapidly growing connectivity demand. This deal follows three major managed service achievements reported last quarter from leading MNOs, one in Mexico and two in the United States. Gilad's strategy to supply MNOs with managed services proven to be most successful and enhanced with our significant local presence and support, as well as strengthened by our proven delivery capabilities. I would like to share an event that most recently demonstrated Gilad's excellent service capabilities. You may recall that a massive explosion took place in downtown of Nashville, Tennessee on Christmas Day. This explosion caused major communication disruption to 19 Southern Link sites that could not pass vital traffic to both communication and utility monitoring. Southern Link is our new customer, which we reported last quarter, and I am proud to share that Gilad's excellent intervention, supported by its regional team and Global Network Operations Center, brought their site back online in record time. In addition to managed service deals, we closed several Arbeco equipment deals of national importance in Mexico. Gilad works closely with its long-time partner, the satellite operator Hispasat, and the service provider Access. Gilad supplied them with network equipment and Vsats to enable them to provide services to the MNOs in Mexico. Gilad is supporting both of these partners to extend the service of Altan Lared Compartida, the shared telecommunication network in Mexico that is built to supply connectivity to over 3 million people. Mexico's underserved rural population will benefit from 4.5G LTE coverage and join high-quality mobile broadband voice and data services. In addition, Gilad Through Access is providing the satellite network and equipment in Mexico to LATAM's largest MNO to bring connectivity to rural Mexico. These deals in Mexico are in addition to other important Stellar Backhaul Equipment deals closed earlier in the year in Africa and Kazakhstan. On the technology readiness side, we conducted in the second half of 2020, a most successful test delivering 5G traffic with outstanding performance over TICON GEO HTS Satellite, thus providing that we are ready to implement in the 5G architecture. Before moving on the mobile segment, I would like to share with you that we are making additional headway with our support for 5G networks with the upcoming launch of our next generation family of ISATs. These ultra-high performance multi-orbit VSATs provide the required performance and provide the support for seamless satellite handover. Satellite communication is essential to materialize the 5G vision and is an essential enabler to provide the scale and the scope for connectivity everywhere. Gilad, as a recognized leader in the cellular backhaul over satellites, is well positioned to become a major participant in the evolving 5G ecosystem. Gilad has proven multiple times that its technology is ready to support the 5G experience, which will directly influence the way people live and work. I am confident that with our achievement in the 5G important market, Gilad will continue to lead the industry with its innovative solutions. In concluding on the Solar Backhaul section, I want to share that Gilad continues to be a global leader for 4G LTE Solar Backhaul over satellites, with more than 80% market share in such installations worldwide. We believe that the 5G adoption initially in cities will drive additional 4G deployment over satellite backhauling in suburban and rural areas where terrestrial coverage is less feasible. At the second stage, 5G deployment over satellite will spread to rural areas as well, answering the promise of universal coverage and closing the digital divide. This market size is expected to become around $200 million per year for satellite equipment only and more than $6 billion a year for satellite equipment, services and capacity in a few years, thus holding a huge potential for Gilad. As is well known and was mentioned in our previous conference call, the mobility segment was most heavily hit by the COVID-19 pandemic. Saying that, we continue to view this segment as a strategic for Gilad and view the pandemic effect as temporary. Upon an industry recovery, we expect this segment to grow in importance as air passengers increasingly demand reliable high-speed internet connection during travel. We expect this trend to be further strengthened with the introduction of free Wi-Fi for IFC, which will significantly increase take-up rates and will provide a strong tailwind to the industry and to Gilad. In addition, We closed the deal to equip hundreds of boats and vessels and cruise ships with satellite communication. Gilad modems and transceivers were successfully deployed on maritime vessels in Asia, providing an excellent user experience operating over China's Satcom HTS-KA network, providing multiple switchovers between the satellite beams. As the world is seeing the light at the end of the tunnel of the pandemic, we expect the maritime market to pick up and for Gilad to materialize additional opportunities and will support our future revenue growth. ESA antenna progress was achieved as reported in recent announcement. We completed a successful integration with Inmarsat's operational Global Express Network. This was the first time a live demonstration of an ESA terminal was performed on Inmarsat operational GX satellite. This integration further emphasized Gilad's ESA leadership and Readiness for Commercial Deployment. However, as this project requires significant development resources, we are seeing delays in market adoption due to the pandemic. We expect that the availability of new LEO Constellation Aero Services will expedite adoption. The new driver for ESA adoption is Business Aviation, with thousands of smaller aircrafts which cannot fit the tail mount antenna. ESA brings a significant opportunity to this market that mechanical antennas cannot bring. Therefore, our focus is the short-term business jet opportunities which require a smaller form factor ESA terminal. Now moving to the defense segment, where we saw significant achievement from our subsidiary Wavestream throughout the year. Wavestream closed multiple multi-million dollar contract with U.S. Department of Defense for which they are trusted suppliers providing high-quality military communication products. These awards, that total approximately $9 million during 2020, are a continued sign of faith in Wavestream's ability to execute at high level and support the DoD needs for years to come. In addition, I would like to share that we are seeing a growing opportunity for defense products, solutions, and applications worldwide. Therefore, we have hired a retired Brigadier General from the Israeli Defense Forces to aid Gilad Defense business to maximize these opportunities. 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 we are now delivering services to half a million people. Also, we are in acceptance process regarding the fourth regional that awarded in late 2015. Due to the recent COVID-19 restrictions in Peru, the acceptance may be further delayed from the end of Q1 to Q2 2021, allowing us at that time to enter to the operational phase and start recognizing the related recurring service revenues. We are progressing with the additional two regions, which were awarded in 2018, slower than expected due to the pandemic restrictions in Peru. We have also made significant progress during the year in implementing our strategy of profitable recurring revenues. As we reported in the past, we were awarded a substantial five-year expansion contract by IPT, a consortium consisting of Telefonica and Facebook, among others. In addition, we secured this quarter a large multi-million dollar deal with CORPAC, the Peruvian Corporation of Commercial Airports and Aviation. We are providing mission-critical telecom systems to 29 airports. This win follows Gilad's proven execution capabilities for large-scale government projects and we expect that it will open the door for additional large deals. In closing, I would like to reiterate that in Q4 we continued our path to recovery that began in Q3. During Q4, we closed multi-million dollar deals in our strategic growth areas We have a strong pipeline supported by innovative technology, a dedicated management team, and excellent employees, which gives me the confidence that the financial improvement will continue into 2021. I further expect that Gilad will continue to see quarter-over-quarter progress, with a return to higher profitability in the second half of 2021. In-flight connectivity plays a major role in attracting air-traveling customers. As such, I am confident that as air travel resumes and continues to be its recovery, it will bring a significant increase in demand of our products and solutions, allowing us to return to the profitability we saw in years prior to the COVID-19 pandemic. Bosmat, we are ready now for your report. Please go ahead.