Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's third quarter 2022 results conference call. All participants are present in 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 November 14th, 2022. 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 EK Global Investor 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 EK Global Investor Relations. Mr. Helft, would you like to begin, please?

Thank you, Herr Perreller. Good morning and good afternoon, everyone. Thank you for joining us today for Gilad's third quarter 2022 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, November 14th, as a webcast on Gilad's website for a period of three days. Also, please note that investors are urged to read the forward-looking statements in Gilad's earnings release, with a reminder that statements made on this earnings call that are not historical facts, may deem forward-looking statements within the meaning of the Privacy Investigations 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 Gilad, and which may cause actual results to die prematurely 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 exclaims any obligation to do so. More detailed information about risk factors can be found in Gilad's report filed with the Securities and Exchange Commission. And with that, let me turn to introductions. Those on the call today are Mr. Adis Fadia, Gilad's CEO, and Mr. Gil Benyamin, Gilad's CFO. I would now like to turn on the call to Adis Fadia. Adi, we're ready to begin.

Thank you, Ehud, and good day to everyone. I would like to thank you for joining us today for our third quarter of 2022 earning call. We are pleased with the results of the third quarter. We are particularly happy with the solid improvement in profitability across the board, as well as the growth in our revenues and bottom line. Third quarter revenues were $60.4 million, 21% above the third quarter of last year. Non-GAAP gross margin, operating income margin, and net income margin were 38.3%, 7.2%, and 5.1%, respectively, all improved versus the same quarter of last year. Adjusted EBITDA improved to $7.3 million, 88%, above our adjusted EBITDA of $3.9 million in the third quarter last year. Our adjusted EBITDA margin was 12% versus 8% in the third quarter a year ago. Looking ahead, we increased and narrowed our profitability expectations for 2022 which is turning out to be a strong year of recovery and growth for Gilad. Our revenue expectations are adjusted to between $240 to $245 million, representing year-over-year growth of 13% at midpoint. Gap operating income expectations are narrowed and adjusted upward to between $8 to $10 million, and adjusted EBITDA expectations are narrowed and adjusted upward to between $23 to $25 million, representing year-over-year growth of or 56% at midpoint. I will now focus on some of our business achievements and discuss some of the recent highlights. The new era of satellite communication continues to be a primary focus for Gilad. We are continuing to expand our strategic relationship with the satellite operators. I am pleased to say that we are seeing a growing interest and strong market traction for our next generation ground platform, the SkyH4. The need for a multi-orbit, multi-service, software-defined platform that works in harmony with the newest smart software-defined satellites that are currently being launched is a must to provide the communication needs of today and tomorrow. We continue working closely with our partner SCS and are well positioned for upcoming OCBM power launch and see additional opportunities for further expansions. We see solid growth potential in this new era of satellite communication and we are on track to meet our goal of capturing a strong position in this new mega market. The ground segment market alone is estimated to be a multi-billion dollar market opportunity over the next few years, according to industry analyst NSR. In our SSPA product line, we are on track with previously reported major projects with the potential of hundreds of millions of dollars for large NGSO constellations. The mobility business continued to pick up for Gilad as we received multi-million dollar orders from key customers for both our SkyH4 platform and our SSTA product line. I am excited to share a new win for SkyH4 to enable maritime applications. The service provider joined the growing list of industry leaders who have chosen to adopt our platform due to its high-performance multi-orbit and Robin capabilities. Gilad is making further headway in the IFC market segment with orders of over $12 million from a large global aerospace system integrator who for years has continued to rely on Gilad's KA-band AeroStream family of transceiver products to enable in-flight connectivity. With these new orders, Gilad is growing its lead in the IFC market. In cellular backhaul segment, Gilad continues to lead with orders of millions of dollars from both new customers and network expansions from existing customers. We saw growing interest in Africa from a new customer with whom we signed a multi-year, multi-million dollar contract in the quarter to deliver connectivity to remote area in Africa. Gilad technology is ready and proven to facilitate the market transition to 5G, saying that we continue to see great potential in 4G market and expect to further increase our presence with additional business wins, thus strengthening our leadership in this market even further. As the satellite market becomes ready over the coming years for the transition from 4G to 5G, we are optimistic that this will create additional new business opportunities for Gilad. In the enterprise segment, we were awarded several contracts of millions of dollars in several sectors, including utilities and banking. SenseNet, a large service provider in Brazil, chose Gilad for projects with both Petrobras, Brazil's largest oil and gas company, and a leading financial service company. In Europe, a leading global communication integrator chose Gilad's SkyH2C platform to empower a Tier 1 utility company to provide all-weather IoT telemetry for mission-critical infrastructure across hundreds of remote sites on the national distribution network. Gilad continues to be active in the defense market with a growing pipeline. This quarter, we closed a multi-year, multi-million-dollar strategic agreement with a major defense company and a world-leading UAV manufacturer. Gilad will provide its next-generation BRP-60 terminal for unmanned aerial vehicles. In addition, we closed a deal with a new U.S. service provider which supports mission-critical applications for the United States National Warning System. Gilad's network will support thousands of federal, state, and local agencies to enable emergency services. Furthermore, a U.S. integrator selects our newly launched Defense Hub Network SSPAs for a U.S. Army SATCOM project. With this achievement, we accept follow-on orders of millions of dollars in the coming years and the ability to pursue other U.S. Army programs with an addressable market of more than $100 million. I am pleased with the progress we are making in the defense and government sector as we increase our investment and focus in this area. We expect to grow our market share over the next few years. In Peru this quarter, we completed the construction of the ICA region. ICA is the fifth region Gilad completes out of the six regions awarded. We are now waiting for supervision, approval, and acceptance of the network in order to move to the operational phase and initiate the internet services to schools, health centers, and others. This is an important step towards our goal of a healthy recurring revenue stream in Peru. We also received a multi-million dollar award from Antamina, one of the largest copper and zinc mines in the world. The project consists of connectivity and services to thousands of students in the municipality of San Marcos, a rural area near Antamina mine in Peru. In summary, we are very pleased with the development and our financial results in the third quarter. Our end markets continue to improve and grow. The new era of satellite communication is developing quickly, and we are increasingly capturing a strong market position in the ground segment of this growing market. In terms of financial results, we are very pleased with our performance in the quarter. We recorded revenues growth of 21% year-over-year, as well as significant improvement in profitability across the board. We focus on deals with higher margins and higher profitability as reflected in our gross margin, operating income margin, and net income margin, which all significantly higher than of Q3 last year, as well as those of the previous quarter. We have narrowed the revenue guidance and adjusted it slightly downward now expecting revenues to be between $240 to $245 million, which is 13% year-over-year growth at midpoint. The slight adjustment downwards was primarily due to some of the large orders that received later than we expected in the quarter, which will be delivered next year. Continued supply chain disruption and slower progress than expected on construction and implementation phases in some of our projects in Peru. Nonetheless, since we delivered higher margin deals, we have experienced higher levels of profitability, which has more than compensated and allowed us to narrow and adjust upward the adjusted EBITDA guidance range to $23 to $25 million. All in all, as you can see, we are increasingly optimistic about both our near and longer-term prospects, and we look forward to realizing the growth opportunity ahead of us. And with that, I'd like to offer to Gilby Diamini, our CFO,