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spk05: 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?
spk04: 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.
spk00: 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,
spk01: Gil, go ahead. 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. We regularly use supplemental non-GAAP financial measures internally to understand, manage, and evaluate our business and to 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-GAF financial measures mainly exclude the effect of stock-based compensation, amortization of purchased intangibles, least incentive amortization, litigation expenses, income related to trade secrets claims, restructuring and reorganization costs, merger, acquisition, and related litigation expenses, impairment of held for sale assets, other expenses, income tax effect on adjustments and one-time changes of deferred tax assets. The reconciliation table in our press release highlights these data, and our non-GAAP information presented excluded these items. I will now move to our financial highlights for the third quarter of 2022. Overall, as I did mention earlier, we're pleased with the continued improvement in our results, and especially the strong improvement in our profitability. The results show continued growth in revenue and strong improvement in our gross operating and net margins. While our performance demonstrates a solid improvement, there remain global macroeconomic headwinds, including ongoing electronic component supply constraints, as well as price increases across the board. I'm pleased to say, however, that our performance in the quarter and year-to-date shows that we've been able to mitigate most of these issues without a significant impact on our profitability. In terms of financial results, revenue for the third quarter was $16.4 million, 21% higher of those of the third quarter of last year, which were $49.8 million. In terms of revenue breakdown by segment, Q322 revenues of the satellite network segment, which provides advanced broadband satellite communication networks and associated professional services, turnkey solutions, and managed services in the seller, backhaul, enterprise, IFC, and defense market were $32.4 million compared to $23.2 million in the same quarter last year. The reason for the increase was mainly due to large strategic deals delivered in Q3-22. Q3-22 revenues of the integrated solution segment provide equipment, products, systems, and solutions for mission-critical, defense, broadcasting, Advanced on-the-move and on-the-pulse satellite communication solutions, including for airborne and ground mobile, were $15.7 million, compared to $14.7 million in the same quarter last year. The improvement in the segments was primarily driven by higher revenues from the NGSO and in-flight connectivity markets. Q3-22 revenues of the network's infrastructure and services segment, which provide mainly terrestrial and satellite network construction and operation, services were $12.3 million compared to $11.9 million in the same quarter last year. The improvement was mainly due to higher recurring revenues during the operating phase of the project, partially offset by a decrease in revenues during the construction phase. I would now like to summarize our third quarter gap and non-gap results. Our GAAP gross margin in Q3 22 improved to 38.2% compared to 35.1% in the same quarter last year. The strong improvement in our gross margin was due to the favorable product and services mix recognized this quarter and the higher volume of revenue. GAAP operating expenses in Q3 22 were $19.6 million in the quarter compared with $16.7 million in the same quarter last year. The increase is mainly due to investment in R&D effort to support our current and future growth, and also due to a COVID grant received in Q3-21. GAAP operating income for the quarter improved to $3.4 million compared with $0.8 million in the same quarter last year. GAAP net income in the third quarter was $2.1 million, or a diluted income per share of 4 cents. This is compared to a break-even net income and diluted income per share in the same quarter last year. Moving to non-GAAP results, our non-GAAP gross margin in Q3 2022 improved to 38.3% compared to 35.3% in the same quarter last year. The strong improvement in our gross margin was due to favorable deal mix recognized this quarter and higher volume of revenues. Non-GAAP operating expenses in Q3 22 were $18.7 million compared with $16.2 million in the same quarter last year. As we said in the last few quarters, we are increasing our R&D investment in order to support the opportunities in front of us. We expect this investment to grow in the coming few quarters. Non-GAAP operating income for the quarter improved to $4.4 million compared to an operating income of $1.3 million in the same quarter last year. Non-GAAP net income in the third quarter was $3 million or diluted income per share of $0.06. This is compared with a net income of $0.6 million or income of $0.01 per share in the same quarter last year. Adjusted EBITDA for the quarter improved to $7.3 million compared with an adjusted EBITDA of $3.9 million in the same quarter last year. Moving to our balance sheet. As of September 30, 2022, our total cash and cash equivalents including short term deposits and restricted cash were $69.9 million, compared with $71.4 million on June 30, 2022. We do not hold any debt. In terms of cash flow, we generated $4.7 million from operating activities during the third quarter of 2022. DSOs, which excludes receivables and revenues of our terrestrial network construction projects in Peru, were 89 days, slightly lower than previous quarter DSOs, which were of 95 days. The decrease is mainly due to increase in revenue, whereas receivables remained in the similar level. Our shareholders' equity as of September 30, 2022, totaled about $249 million, compared with $246 million in June 30, 2022. Looking ahead, as Adi already mentioned, we adjusted and narrowed the range of our 2022 revenue guidance with expectations of between $240 and $245 million, representing year-over-year growth of approximately 13 percent at the midpoint. We also increased and narrowed the adjusted EBITDA range to between $23 to $25 million, representing year-over-year growth of approximately 56 percent at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please.
spk05: Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question is from Gunther Carger from Discovery Group. Please go ahead.
spk03: Yes, congratulations on an excellent quarter and a year so far. A question regarding the defense business. Historically, that's been rather minimal, and lately I've noticed an increase in defense in business acquisitions in the sector. What percentage of the total revenue is presently the defense military business, and what do you expect it to rise to over the next year?
spk00: Hi, Gant, nice to hear from you again. And thank you for the warm congratulations. Indeed, defense business was not in our focus in the last few years. In the last year or so, it's become more and more in our focus. We are investing both in R&D and sales and marketing to promote and refresh our product portfolio. Yet, it's not a big portion of our revenues. It's not a number that we are disclosing right now. We expect defense to become a significant growth engine for Gilad in the next two to three years. It's important to say that in defense, and I'm sure you are aware, the selling cycles are long and it takes time for investment to become fruitful. But we are sure that defense can become a significant part of of Gilad revenue growth in the next two to three years.
spk03: Thank you, Adi. A follow-up item on that. The trend in defense and military technologies is trending toward the unmanned remote-type operations, and I believe that's accelerating. That's one part. And the other part is the current unrest with regard to the Ukraine war. Is the Ukraine war accelerating this trend, or what's your comment on that?
spk00: I agree with the first comment, that unmanned solutions require satellite communication, and we are seeing this trend as well in opportunities in the market. As for Ukraine, Of course, the satellite communications supported Ukraine during the war, but we don't feel it yet. What we do feel is increased demand for RFQs and RFIs regarding satellite communication for the defense sector. So we believe this will be part of our growth potential in the next years. few quarters.
spk03: Thank you, Adi, and best wishes for the coming new year.
spk00: Thank you very much.
spk05: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. The next question is from Martin Levine of EML Associates. Please go ahead.
spk06: Hello. This is Martin Levine. I'm calling from the United States. And I'm curious about how it sounds like you have projects underway in numerous different countries. I'm curious about the top five countries that you're dealing with at this time.
spk00: Hi, Martin. Nice to meet you. The top five countries, you know, we have business worldwide, and in general, we are not focused on one or two countries. Every quarter, it's a different, all those come from different countries, or top five. I can say that we have significantly business in the United States. We have significantly business In Peru, we have a decent business in Japan and Australia, but it varies between the quarters. Those are the domains that we see repeatedly almost every quarter. U.S., Peru, Japan. Other than that, every quarter, most of the orders come from different countries.
spk06: Okay. Thank you so much. And I also congratulate you on a wonderful year so far and look forward to hearing your results in the coming year. So thank you very much.
spk00: Thank you very much.
spk05: The next question is from Caleb Henry of Quilty Analytics. Please go ahead.
spk02: Hi, just a short question from me. I was wondering if there are any updates that GALAC can offer on the electronically steered antenna that was being developed for the aviation market. I recall last you mentioned that you're waiting for sort of an anchor customer to help develop that. Has there been any progress on that front or any plans to further that technology?
spk00: Hi, Caleb. Yeah, indeed, in the electronically steered antenna, we are waiting for an anchor customer in order to accelerate the development. At the end, the antenna needs to be tight very closely with the customer and his needs. Having said that, we have several opportunities and we progress with the development both for ESA antenna for IFC and also for electronically steered antenna for military and defense use. I hope that we'll be able to get the award we expect and we'll announce it once it will be relevant.
spk02: Okay. The defense antenna, does that have a similar stipulation? In other words, you would need a defense customer to basically anchor it and sort of guide the development, or is that something that you can create independently and then go to the marketplace?
spk00: Our plan is to build a product that will be available off the shelf, but we figure that every customer will have several specifications that will need to adjust the antenna for him, but it won't be a major adjustment as we expect it to be in the IFC.
spk02: All right. Thank you.
spk05: There are no further questions at this time. Mr. Binyamini, would you like to make your concluding statement?
spk01: 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.
spk05: Thank you. This concludes Gilad's third quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.
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