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spk00: Ladies and gentlemen, thank you for standing by. Welcome to GILAT's fourth quarter 2022 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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded February 14, 2023. 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?
spk04: Good morning, good afternoon, everyone. Thank you for joining us today for Gilad's fourth quarter 2022 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, February 14, as a webcast 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 the reminder that statements made on this earnings 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 operating 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 risk factors can be found in Gilad's report filed with the Security and Exchange Commission. With that, let me turn to introductions. On the call today are Mr. Adis Fadia, Gilad's CEO, and Mr. Gil Benyamin, Gilad's CFO. I would now like to turn over the call to Adis Fadia. Adi? All right, begin.
spk01: Thank you, Ehud, and good day to everyone. I would like to thank you for joining us today for our fourth quarter of 2022 and full year earnings. We are pleased with the results reporting fourth quarter revenues of $73 million, bringing us to a full year revenue of about $240 million, which is year-over-year growth of 12%. Most importantly, we are particularly happy with a solid improvement in profitability across the board with fourth quarter adjusted EBITDA of more than $10 million, bringing us to a full year adjusted EBITDA of more than $25 million, which represents significant year-over-year growth of 64%. Today, we are introducing our 2023 guidance. Following our solid growth in 2022, we expect continued revenue growth with further significant increase in profitability in 2023. We expect revenue of between $260 million to $280 million, representing year-over-year growth of 13% at the midpoint. Gap operating income of between $15 to $19 million, representing year-over-year growth of 70% at the midpoint. And adjusted EBITDA of between $30 to $34 million, representing year-over-year growth of 27% at the midpoint. I will now focus on some of the business achievements and discuss some of the recent highlights. The new era of satellite communication continues to be a major focus area for us as we are strengthening our strategic partnership with the satellite operators. Furthermore, it is most rewarding to see growing market acceptance and interest in Gilad's multi-orbit, multi-service platform SkyH4 as satellite operators continue to launch smart software-defined satellites and NGSO constellations. I am pleased to report that Hispasat, the leading global Spanish operator, selected Gilad's SkyH4 platform for its highly flexible Amazonas Nexus high throughput satellite. This will enable Hispasat to offer the highest performing satellite-based fixed data and mobility services. We see a potential of multi-million dollar orders as a result of this strategic partnership expansion. This is another testament to the elastic ability of Gilad's platform to work in harmony with with the newest smart software-defined satellites. We continue working closely with our partner SCS and are well positioned for the upcoming O3B Empire Service launch and see additional opportunities for further expansion. In our SSPA product line, we are on track with previously reported major projects with potential of hundreds of millions of dollars for large NGSO constellations. On this major NGSO development project, we demonstrate our product performance to the customers in enthusiastic satisfaction. In addition, we received an additional multi-million dollar order from a leading satellite operator to deploy our SSPA product line in support of low Earth orbit constellations. We continue to see a great growth potential in this VHTS and NGSO market. The ground segment market alone, consisting of basement equipment, SSPAs and antennas, is estimated by industry analyst NSR to be a multi-billion dollar market. We see a solid growth potential in this new era of satellite communication and are on track to meet our goal of capturing the strong position in this mega market. In the mobility market, we were very successful this quarter in three fronts. In in-flight connectivity segment, we had strong quarter with about $20 million of orders for both our baseband and transceiver product lines. Intercept continues to expand the global IFC network. This network will include both Skyh4 and Skyh2C working together, demonstrating a great advantage to our partners on upward compatibility while protecting their past investments. Furthermore, we received orders from a large global aerospace system integrator who continue to rely on transceivers for in-flight connectivity. In the maritime segment, we are continuing our close and productive partnership with SCS. In Q4, we introduced a premium maritime service to cruise lines with SkyH4. The service will operate over both the GEO satellite and MEO constellation. And finally, for ground mobility, we received a multi-million dollar order for SATCOM expansion on trains in Asia Pacific. Gilad's on-the-move antenna terminals were chosen to provide internet to train passengers as they travel across the region. Gilad technology is ready and proven to facilitate the market transition to 5G. Furthermore, we continue to lead the 4G market segment with more than 75% market share. We see great potential in the 4G market, expect to increase our presence with additional business wins, thus strengthening our leadership in this market even further. To this point, both SCS and Intelsat have chosen Gilad's platform as the lead technology for several Arbekol global projects. In Q4, we enlarged our reach and extended contracts receiving multi-million dollars of orders for equipment and expansion of managed service contracts in Asia and Latin America. In addition, we supported our long-time partner, Team Brazil, in achieving their goal to be the first network operator providing coverage to all 100% of Brazilian cities. Gilad completed connectivity to over 1,500 rural sites, empowering teams to provide 4G coverage to all Brazil's 5,570 municipalities. We are growing our enterprise business with IoT mission-critical connectivity infrastructure for a Tier 1 utility company in Europe. Furthermore, our enterprise customers worldwide continue to depend on us to enhance their business. For example, we received an order of thousands of visits from a service provider in India. We continue to be active in the defense and government segment and have a growing pipeline. During Q4, we received an important multi-million dollar order and we see a nice potential going forward. I am pleased with the progress we are making in this segment as we continue to be on track with this multi-year process. We have increased our investment and focus in this area and expect to grow our market share over the next few years. In Peru, we were successful in delivering high-quality service and working smoothly in providing a high level of service despite the difficult political and local environment. Our fifth project, the ICA Network, is already operative and still subject for Pronatel's approval to accept the network and to allow us to provide services to customers. We are expecting to grow our social inclusion involvement in Peru further to a $7 million award we received during the quarter from Antamina, one of the largest copper and zinc mines in the world. We are progressing with the implementation of this social inclusion e-learning project and are expecting to provide service to the students during 2023. Furthermore, we have received additional orders from the Ministry of Education that have been using our services for over a decade. Despite political turmoil and a challenging local environment, which includes strikes, blockages, and lockdowns, we are able to continue with the services and business, and we are expecting a political favorable change to resume important future government projects. To summarize 2022, we had a strong Q4, bringing it to a closure of an excellent year. We demonstrate 12% yearly growth in revenue, and we significantly accelerated our profitability with 64% year-over-year increase. We continue to see growing traction on our products and services among new customers, as well as existing ones. During the year, we launched SkyH4, our next-generation platform, and achieved remarkable market acceptance from the leading satellite operators. With this leading technology, we intend to capture the lion's share of this multi-billion dollar market. Already in 2022, we delivered SkyH4 system to over 20 gateways worldwide, enabling hundreds of gigabytes per second of capacity and have already secured tens of millions of dollars worth of contracts awards. I am pleased with the great progress in the mobility market. The IFC sector has recovered and is fast growing. We enjoyed a record year in orders of tens of millions of dollars from Intelsat for the worldwide aero network and from a leading global aerospace system integrators for our transceivers. In the maritime sector, we secured a new wind for Skyhatch 4 to enable maritime application and we are making excellent progress with STS on cruise premium maritime service. In cellular backholls, we also had a record year with tens of millions of dollars coming from existing partners and new memorial operators. And in defense, we are making progress with important wins and growing pipeline. I would like to take this opportunity to thank our chairman of the board of directors, Mr. Isaac Angel, for his great contribution over the past two years and to wish him success as he retires from our board. The board has appointed Mr. Ami Bam as chairman of the board, effective upon Mr. Angel's departure. On behalf of Gilad, I would like to welcome Mr. Bam, who has been an invaluable board member for the last 10 years, and I am most pleased that we will now gain even more from his vast experience. Looking ahead, we expect to grow both our top and bottom line in 2023 as the satellite communications sector strongly gains traction. We are increasingly optimistic, and as our guidance demonstrates, we expect to maintain our strong momentum. We are entering 2023 with a very strong backlog and a good pipeline and therefore expect further growth in all of our strategic markets and are looking forward to a strong 2023. And with that, I hand over to Gil Benyamin, our CFO. Gil, please go ahead.
spk02: 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-GAAP financial measures mainly exclude the effect of stock-based compensation, amortization of purchased intangibles, lease incentive amortization, litigation expenses, income related to trade secrets claims, restructuring and reorganization costs, merger, acquisition, and related litigation income or expenses, impairment of held for sale asset, other expenses, income tax effect on adjustments, one-time changes of deferred tax assets, and one-time tax expense related to the release of historical tax-trapped earnings. The reconciliation table in our press release highlights this data, and our non-GAAP information presented excluded these items. I will now move to our financial highlights for the fourth quarter of 2022, followed by our full year 2022 highlights. Overall, as I did mention earlier, we are very pleased with the continued improvement in our results, and especially the strong improvement in our full calendar year revenue and profitability year over year. I'm pleased to say that despite the macroeconomic headwinds and global supply chain issues, our performance in the quarter and the full calendar year shows that we've been able to mitigate most of these issues without significant impact on our profitability. And even though 2023 contains some potential macro challenges ahead, we believe that we can overcome these challenges and continue to improve our financial performance furthermore in 2023. In terms of our financial results in 2022, revenues for the fourth quarter were $72.6 million, 8% higher of those of the fourth quarter of the last year, which were $67 million. For the year, revenues were $239.8 million, up 12% versus $215 million in 2021. The improvements were driven by growth in all of our segments and mainly from VHTS and NGSO, IFC, and solar backhaul verticals. In terms of the revenue breakdown by segments, Q4-22 revenues of the satellite network segment were $36.4 million compared to $32.3 million in the same quarter last year. Q4-22 revenues of the integrated solution segment were $16.3 million, relatively similar to the same quarter last year. And Q4-22 revenues of the network infrastructure and services segment were $19.9 million compared to $18.3 million in the same quarter last year. The improvement was mainly due to the higher recurring revenues during the operating phase of the project, partially offset by a decrease in the revenues of the construction phase, which is expected as we're close to finishing the construction phase and to moving to the operating phase in the last two projects. I would now like to summarize our fourth quarter gap and non-gap results. Our gap gross margin in Q4-22 improved to 38.2% compared to 36.8% in the same quarter last year. The improvement in our gross margin was due to the favorable product and services mix recognized this quarter and the higher volume of revenues. GAP operating expenses in Q4-22 were $21.6 million in the quarter compared with $19.3 million in the same quarter last year. The increase is mainly due to higher R&D expenses incurred in order to support our current and future growth. Gap operating income for the quarter improved to $6.1 million compared to $5.4 million in the same quarter last year. Gap net loss in the fourth quarter was $6 million or a diluted loss per share of 11 cents. This is compared to gap net income of $2.1 million or a diluted income per share of 4 cents in the same quarter last year. Q4-22 results include a one-time tax provision of $12.9 million that was recorded with respect to historical trapped earnings. Those earnings are exempt from taxes until distributed as dividends. Once distributed, the company should pay the related corporate taxes that were exempt. The company chose to take advantage of the temporary Israeli tax relief that expired in November 22 and to pay significantly reduced tax rate to allow in the future certain actions such as distribution of dividends shares buyback or acquisitions of foreign companies without paying an additional substantial corporate tax. Gap net income in the fourth quarter excluding this one-time provision was $6.9 million, and this is compared to a gap net income of $2.1 million in the same quarter last year. Moving to non-gap results. Our non-GAAP gross margin in Q4-22 improved to 38.3% compared to 37% in the same quarter last year. Non-GAAP operating expenses in Q4-22 were $20.7 million compared with $18.2 million in the same quarter last year. Non-GAAP operating income for the quarter improved to $7.1 million compared to operating income of $6.6 million in the same quarter last year. Non-GAAP net income in the fourth quarter was $7.9 million, or a diluted income per share of 14 cents. This is compared with a net income of $5.6 million, or income per share of 10 cents in the same quarter last year. Adjusted EBITDA for the quarter was $10.1 million, compared with an adjusted EBITDA of $10.4 million in the same quarter last year. And for the year, the adjusted EBITDA was $25.2 million, compared with an adjusted EBITDA of of $15.4 million in 2021. Moving to our balance sheet. As of December 31st, 2022, our total cash and cash equivalents, including short-term deposit and restricted cash, were $87.1 million, compared with $69.9 million on September 30, 2022, and compared to $86.6 million in December 31st, 2021. We do not hold any debt. In terms of cash flow, We generated $16.8 million from operating activities during the fourth quarter of 2023. DSOs, which excludes receivables and revenues of our terrestrial network construction projects in Peru, were 72 days, lower than the previous quarter DSOs, which were of 89 days. The decrease was impacted by both increase in revenues as well as decrease in receivables due to higher collection in the last quarter. Our shareholders' equity as of December 31, 2022, totaled about $244 million, compared with $248 million at the end of 2021. Looking ahead, as Adil already mentioned, we're expecting strong 2023 with revenue of between $260 to $280 million. representing year-over-year growth of 30% at the midpoint, GAAP operating income of between $15 to $19 million, representing year-over-year growth of 70% at the midpoint, and adjusted EBITDA of between $30 to $34 million, representing year-over-year growth of 27% at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please.
spk00: 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 polled in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Quilty from Quilty Analytics. Please go ahead.
spk05: Thanks, guys, and congratulations on the numbers. I think in your commentary you mentioned a record year in the cellular backhaul market. Was that in terms of revenues or orders or market share, or how did you measure that?
spk01: The record years were in terms of orders. I don't remember the exact amount of revenues, but usually most of the solar backhaul revenues is booked to ship in a relatively small time. So it's either a few weeks or maybe a shift of a quarter.
spk05: Good. And so maybe that brings up a question on inventory. you know, the inventory levels have been a little bit elevated over the last year or so. Should we expect those to stay at the level or, you know, supply chain issues start to clear? Should they come down?
spk01: So, indeed, inventory went significantly up in the last, I think, 18 months, but it was intentional because of supply chain. We took... a decision to buy to inventory and order for 24 months ahead. Now, we are starting to see a bit of ease on the supply chain, but not as expected. We believe that in the second half of the year, we'll start to see significantly reduced lead time, which will allow us to reduce our inventory as well.
spk05: Okay, great. And if I back up maybe on the segment level, obviously good revenue growth in aggregate, but should we expect that to show up in one particular segment over another, whether satellite networks, integrated solutions, or the network infrastructure?
spk01: I would expect the growth going further to be in the satellite network, mainly in the satellite network. and also slightly in the integrated solution. In Peru, we reached to the level of revenues, $50 million recurring revenues, and we expect to finish the construction of the network towards the end of the year. Maybe it will slip to early next year, and with that, around $15 to $20 million of construction revenues a year will disappear.
spk05: I understand. And if I remember, you were hoping to get that fifth region completed by the end of this year, but just due to the political situation, it's probably first quarter, second quarter, and then the sixth region by the end of the year?
spk01: Correct. We already finished the ICA region at the beginning of Q4, but due to the political turmoil in Peru... And since it's a government project, it takes them much more time to accept the network than it used to take. We do expect them to accept the network during the coming quarter, maybe in April. But we are still under audit. Most of the audit is already finished. As always, there are some rejects that we need to fix, but it's immaterial. and we believe that they will accept the network in the next two to three months.
spk05: Great. And just a question on any changes in the CapEx spending, and when we think about cash flow for next year, should we think about it as being sort of in line with the revenue growth, or do you expect to get some balance sheet leverage on a go-forward basis?
spk02: So our CAPEX has been increasing in the last year, mainly due to investments in CAPEX in Peru, in projects that we buy the CAPEX and in the next periods we enjoy revenues. We believe that CAPEX levels shouldn't increase significantly in the future.
spk05: And cash flows?
spk02: So with cash flows, you know, we expect to keep positive cash flows in line with the increase of EBITDA, of course. Great.
spk05: And that will do it for now. Thank you.
spk01: Thank you, Chris.
spk00: 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. There are no further questions at this time. Mr. Binyamini, would you like to make your concluding statement?
spk02: Thank you, everyone, for joining us for the conference call. And we hope to see you soon or speak with you on our next call.
spk00: Mr. Binyamini, there is an additional question. Would you like to take it?
spk02: Sure.
spk00: The next question is from Gunther Karger of Discovery Group. Please go ahead.
spk03: Yes, thank you. I don't have a question. I have a statement. I've observed the company for quite a number of years, and I must congratulate Adi and his management for an excellent performance in the quarter and the year, and in particular, vastly improved communications. I think you're on your way. Thank you so much.
spk01: Thank you, Gunther.
spk02: Okay, so I want to thank you all for joining us on this call and for your time and attention. We hope to see you soon. We'll speak to you in our next call. Thank you very much, and have a great day.
spk00: Thank you. This concludes GILAS' fourth quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.
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