Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to GILAT's second quarter 2024 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 August 7, 2024. 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?

Thank you, Operator. Good morning and good afternoon, everyone. Thank you for joining us today for Gilad's second quarter 2024 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, August 7, as a webcast on Gilad's website for a period of 30 days. Also, please note that investors are urged to read their 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 Reforms Act of 1995. All such forward-looking statements, including statements regarding future financial and 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, 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 Securities and Exchange Commission. With that, let me turn to introductions. On the call today are Mr. Adis Fadia, Gilad's CEO, and Mr. Gil Benyamini, Gilad's CFO. I would now like to turn the call over to Adis Fadia. Adi, go ahead, please.

Thank you, Ehud, and good day to you. Thank you for joining us today for our second quarter of 2024 earning call. The second quarter of 2024 was a good quarter for Gilad, in which we showed real revenue growth. This was primarily due to the strong momentum in our defense business, with a significant contribution following the acquisition of DataPass. We expect this strong momentum to continue in the quarters ahead, In addition, another key achievement was our ability to increase our adjusted EBITDA by 10% year-over-year, exceeding $10 million. Most importantly, during the second quarter, we took a major strategic step and announced the acquisition of Stellar Blue Solutions, a leader and first to market in delivering electronically steerable antenna for the in-flight connectivity market. The closing of the acquisition is on track and expected around the beginning of the fourth quarter this year. In a minute, Gil will discuss the financial elements of the deal in more detail. But before that, I want to discuss why I'm so excited about this acquisition and why this acquisition carries significant potential for Gilad. The acquisition of Stellar Blue culminated many months of deep due diligence looking at all aspects of the IFC market, the company, its long-term growth potential, and potential synergies with Gilad's existing business infrastructure. This deal has the potential to unlock new strategic customers and create additional significant revenue for GILAX. Just recently, Stellar Blue completed qualification and earned supplemental type certification on the multi-orbit sidewinder aeroterminal. We have a vision to broaden this product line with a more comprehensive suite of products for the IFC market. I can share that the company has started delivering the first ISA terminal units to its customers. As such, we expect Stellar Blue to add between $120 to $150 million in revenues in 2025 and be accretive to our non-GAAP results. Furthermore, we estimate that once Stellar Blue reaches its target manufacturing capacity during the second half of 2025, its EBITDA margin will be above 10%. Assuming closing will happen at the beginning of Q4, we estimate Stellar Blue revenues to be between $25 to $35 million in Q4 of 2024. I am confident in Stellar Blue's team, its leadership, its offering, and its go-to-market strategy. This acquisition will position us as a market leader for aviation ISA, a market that we believe is set to explode in the coming years. In the longer term, we can leverage the technology portfolio into other large adjacent markets. Overall, I believe this acquisition can transform Gilad into a high-growth company for the years to come, and I look forward to welcoming Stellar Blue's team to Gilad once we close. As for 2024 outlook, we are reiterating the guidance we gave earlier this year in February 2024. I would note that once we close the Stellar Blue acquisition, we will provide updated guidance to account for the contribution from Stellar Blue in 2024. Now let's move to the business review of the second quarter of 2024. In the very high throughput satellite, the VHTF, and the non-geostationary satellite, the NGSO Constellations Market, we continue to lead the market and grow our business with follow-on multi-million dollar orders from our strategic partners, the satellite operators, which mainly include SCS and Intelsat, among others. This is driven by increasing demand for Gilad's SkyEdge platforms, as satellite operators expand their networks and deliver a wider range of applications to a growing number of users. Recently, we announced that the company was awarded over $9 million in cumulative orders from multiple satellite operators to expand their global SATCOM networks by utilizing Gilad's innovative and field-proven solutions. Gilad's solutions will enable a wide range of services and applications over GEO, MEO, and LEO, including in-flight connectivity, maritime, land mobility, cellular backhaul, enterprise services, and more. Also during the quarter, we announced that SES O3B Empower launched its services via Gilad's SkyH4 platform. In scratch form, the industry-first multi-orbit Miogeo system is enabling SCS O3B Empire software-driven constellation to deliver services with unparalleled flexibility and scale. Our increased focus on the defense market is already bearing fruits. During the second quarter, we announced that Nicole Robinson has been appointed president of Datapath. Ms. Robinson is an international satellite industry executive with a proven record of driving growth, managing global sales and operational teams, and deploying next-generation technology for the benefit of government and defense organizations, businesses, and communities globally. Q2 is also our second full quarter of consolidating revenues from Datapath into the defense sector under the satellite network segment. Furthermore, we recently announced several new projects that were awarded to Datapath and Wavestream. DataBus received over $9 million in orders in support of the U.S. Department of Defense and other agencies participating in field service and technical service programs worldwide. DataBus is deploying technical services and field services in Europe, the Middle East, and the United States to support U.S. defense and users' critical connectivity requirements. These orders include both contract extensions and new contracts from various partners and agencies. DataPass was also awarded a multi-year contract of over $5 million from National Defense Organization to upgrade their DCAT transportable SATCOM network hubs. DataPass multi-band tactical DCAT terminals deliver the operation flexibility, capacity, connectivity, rapid deployability, and control required to support demanding communication in remote locations. DCAT terminals deliver secure, reliable communication anywhere needed to establish network connectivity to support a mission with minimal manpower. In addition, WaveStream, one of our U.S.-based subsidiaries, received a significant order from a Tier 1 U.S. global military terminal provider for the Microstream solid-state power amplifier for satellite communication terminals sold to militaries throughout the world. We continue to make great progress in the mobility sector. demonstrating solid year-over-year growth, developing more products, adding more customers, and supporting more verticals. During the second quarter, we received over $14 million in orders from several prominent service providers and system integrators for the IFC products and solutions. This includes network equipment, VSATs, hub, solid-state power amplifiers, and additional IFC auxiliary products. These orders from new partnerships and existing customers demonstrate the company's leadership position in the growing IFC market for commercial and business aviation. During the quarter, SES announced its Open Orbit initiative, which will allow the use of KA networks for global IFC connectivity. I am optimistic that this initiative will be part of our significant growth in this market. In Peru, we are progressing faster than planned in implementing the Amazonas region's $17 million expansion project. We expect to finish the implementation of this expansion before the end of the year. In addition, we expect to move to the operational phase in the six regions project of Puanatel in the Amazonas region during the third quarter. This follows the completion of the acceptance process which is currently underway. During the quarter, we received the following orders for over $2 million from Internet Para Todos IPT is a consortium comprised of Telefonica and Metafacebook to deliver several record services across rural areas in Peru. IPT is a global collaborative initiative to bridge the digital divide in Latin America under a sustainable model that would allow to overcome the obstacles of bringing connectivity to rural and geographically complex areas. Gilad will provide access to high-speed terrestrial connectivity to over 1 million more people living in rural areas. Furthermore, in Peru, we are expecting additional progress in the next few months. This includes the maturity of several large RFPs with PONATEL and the Peruvian government, as well as several project extensions. We are very pleased with the strong pipeline in Peru for the rest of the year. To conclude, the second quarter has been very valuable for Gilad. Our acquisition of Stellar Blue Solutions has the potential to be a significant growth engine for Gilad, and it will establish us as a market leader for aviation ISA, a market that we believe is set to explode in the coming years. I am pleased with our second quarter results, which include the contribution of our acquisition of DataPass and strong momentum in our defense business. We continue to lead with our next generation platform, which support multiple orbits, verticals, and applications, including our strategic markets of mobility, cellular backup, and defense. We are particularly proud of our contribution to the SCS OSRB Empire service launch. During the second quarter, we made significant progress in expanding our IFC footprint into business and commercial aviation, including the SCS Open Orbit Initiative. We have a strong pipeline and expect the materialization of important deals over the coming months. With that, I will hand over to Gil Beniamini, RCFO.

Gil, please. Thank you, Adi. Good day to everyone. I would like to remind everyone that our financial results are presented on both 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 that 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, if and when applicable, the effect of non-cash stock-based compensation expenses, amortization of purchased intangibles, lease incentives, gap information presented excludes these items. Before moving to the financial highlights, I would like to review the Stellar Blue acquisition and provide you with more financial information on the consideration components of the deal. The initial consideration at closing is $98 million. This will be financed from both internal resources as well as a bank loan. with incentives to deliver accelerated growth with a focus on three main areas. Parts 1 and 2 of the earn-out, which totals to $48 million, covers the ability of the company to successfully execute its plans for the near future and requires that Stellar Blue ramp up its production line and deliver a grid number of ESA terminals not less than specific margins. and that Stellar Blue brings additional new orders at agreed margins equivalent more or less to its existing backlog. These conditions, combined with the existing backlog, support our expectations of between $120 to $150 million outlook for revenues for 2025 and provide further grounds for future growth within the existing markets and customers. Parts 1 and 2 of the earnouts are expected to be paid if due 12 and 18 months post-signing respectfully. Part 3 of the earnout, which totals an additional up to $99 million, is conditioned upon engaging in new strategic customer agreements with enhanced product offerings both in and beyond the IFC market. but applied to new service providers and mobility markets with an opportunity for significantly higher margins, all within two years from signing of the purchase agreement. As Adi mentioned, we believe that this acquisition transforms Gilad to a high-growth company for the years ahead. I will now move to our financial highlights for the second quarter of 2024. Overall, as Adi mentioned earlier, we are very pleased with a strong start of 2024. We reported a 13% year-over-year growth in revenue. This was driven mainly by our current recent acquisition of Datapath. Non-GAAP growth margin was 37% and our adjusted EBITDA reached $10.1 million, 10% growth over Q2 of last year. We are optimistic about our prospects in the quarters ahead, and we reiterated our guidance for 2024, which I'll cover later. In terms of our financial results in more detail, revenue for the second quarter was $76.6 million, 13% higher than those of the second quarter of last year, which was $67.6 million. The improvement was driven by growth in the satellite network segment. In terms of the revenue breakdown by segment, Q2-24 revenues of the satellite network segment were $50.6 million compared to $40.7 million in the same quarter last year. Q2-24 revenues of the integrated solution segment were $13 million compared to $12.7 million in the same quarter last year. And Q2-24 revenues of the networks, infrastructure, and services segment were $13.1 million compared to $14.2 million in the same quarter last year. The decrease was due to lower services revenues this quarter. I would now like to summarize our second quarter, both GAAP and non-GAAP results. Our GAAP gross margin for Q2-24 was 34.7% compared to 37.8% in the same quarter last year. The reduction in our gross margin was mainly due to data passes, gross margins which are lower than the Gilad average, and the depreciation of a backlog intangible asset associated with the acquisition of data passes. This was partially offset due to a favorable product and services mix in the current quarter compared to Q2 of last year. Gap operating expenses in Q2 24 were $23.8 million, an increase of $3.7 million versus the same quarter last year. This quarter, we have the impact of approximately $2.4 million of amortization of purchased intangibles and other acquisition-related expenses. These impacts are included only in the GAAP numbers. I also note that this quarter, we have the operational expenses related to DataPath, which we didn't have in the second quarter of last year. GAAP operating income for the quarter is $2.8 million, compared to $5.4 million in the same quarter last year. GAAP net income in the second quarter was $1.3 million, or two cents per diluted share. This is compared to a GAAP net income of 4%. earning per share of $0.08 in the same quarter last year. Moving to the non-GAAP results, our non-GAAP gross margin in Q2-24 was 36.8% compared to 37.9% in the same quarter last year. As I mentioned earlier, this difference is mainly due to data path lower gross margin compared to Gilad's average. Non-GAAP operating expenses in Q2-24 compared with $19.6 million in the same quarter last year, primarily due to the consolidation of data path expenses. Non-GAAP operating income for the quarter improved to $7.3 million compared to $6.1 million in the same quarter last year. Non-GAAP net income in the quarter was $5.6 million, or diluted earnings per share of $0.10. This is compared with $4.9 million, or diluting earnings per share of of $0.09 in the same quarter last year. Adjusted EBITDA for the quarter improved to $10.1 million, an increase of 10% compared with the adjusted EBITDA of $9.2 million in the same quarter of last year. Moving to the balance sheet, as of June 30, 2024, our total cash and cash equivalents and restricted cash net of short-term debt were $94.6 million compared with $98.5 million In terms of cash flow, we used $3.5 million by operating activities during the second quarter of 2024. Due to changes in working capital, we expect an operating cash inflow in the next quarter. We also made a net repayment of loans of $4.6 million this quarter. DSOs, which excludes receivables previous quarters dso which was 76 days this kpi is within our normal range of out of up to 90 days our shareholders equity as of june 30 24 increased to 283 million dollars compared with 200 281 million dollars at the end of march 24. looking ahead we really reiterate our guidance for the year Our expectations remain for revenue of between $305 to $325 million, representing year-over-year growth of 18% at the midpoint, gap operating income of between $15 to $19 million, and adjusted EBITDA of between $40 to $44 million, representing year-over-year growth of 15% at the midpoint. Operator, please.

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 Ryan Koontz of Needham & Company. Please go ahead.

Good morning. Nice quarter. Thanks for the opportunity and the questions. Can you update us maybe on what your view is of, you know, cross-selling the data path? You made some comment and prepared remarks, I think, but I didn't quite capture what the intention of your commentary was. I know that was something that you were working on and sounded like more of a 25-type opportunity maybe. Can you update us on that?

Yeah, thanks Ryan for popping on the call. Indeed, cross-selling Datapath equipment, it goes both ways. Datapath to bring Gilad's equipment into the DoD and Gilad to sell Datapath equipment worldwide. We are progressing. We are starting to have a dialogue both with some of the DoD agencies and promoting DataPass equipment worldwide. To be honest, we are more optimistic these days. We see much more potential than we thought we would see at the first year from signing. The first collaboration was between WaveStream and DataPass. It's a $12 million order that we received last quarter. Other than that, there is a pipeline that is developing, and I hope that we'll be able to announce several awards soon.

Great. That makes a lot of sense. Thanks for that. On the infrastructure business, it sounds like you're progressing there. with your customer approvals, how should we think about the gross margin outlook there post-approval of the Amazonia region?

So usually the construction phase is associated with a lower gross margin than the service or operation part of this business. So we expect to finish the construction or almost all of it by the end of this year. And naturally, this will push up the gross margin of this segment to be higher next year. That's great.

Thanks for that. Now, on your progress in the LEO market, I wonder if you could share any anecdotes, whether customer-specific or general. Obviously, OneWeb has begun their commercial launch. How should investors think about your current mix of business relative to the LEO market, and how do you see that market developing over the next 18 months from Gilad's perspective?

Up until today, most of the business we got on the LEO segment relates to solid-state power amplifiers for constellation gateways. We are not allowed to name names, but we are working with big players in this segment. Right now, we see two very large opportunities from our perspective on the LEO segment, which includes SSPA, networks, modems, and also antennas. One of them is OneWeb Gen 2, and the other one is Iris Square, which is a European initiative to launch LEO Constellation. We are one of two finalists in OneWeb, and I believe that they should take a decision in the coming quarter or so. IRIS, we answer the RFIs and we expect them to launch the RFPs soon. And we are eligible to participate because we have a large operation in Europe. In addition, what we see on the Leo side is that it drives a lot of IFC business. For example, Intelsat bought from OneWeb capacity and it will drive a lot of business in the IFC, especially in the electronic steerable antenna, which is part of the main motivation and rationale for the Stellar Blue acquisition. So, to summarize, I think that we are expecting a lot of business from LEO in the coming few quarters. I forgot to mention that also the SATCOM Direct Antenna Development Award that we got about a year ago is also related to the OneWeb constellation. Over there we are developing a ESA terminal for business aviation over OneWeb. So all in all, we are seeing very nice business and with the two opportunities, they are very significant for Gillette.

That's great, Adi. Great update there. Going to follow up on that and your stellar blue comments, what should we think of as the key milestones that you're tracking and what are the greatest challenges with getting the production capacity going on Stellar Blue. It sounds like with their terrific backlog, it's really just a matter of execution here. And what do you view as the biggest challenges there?

So, you know, execution is always the name of the game. And indeed, Stellar Blue is now in the midst of moving from a development phase to execution delivery phase. I can share that they already delivered first unit to the customers. They passed certifications and in the midst of ramping up production. And since we have much more confidence today, we even a bit upgrade the initial forecast we gave for next year from $100 to $150 million to $120 to $150 million. It's still preliminary, of course, and not guidance. I think that as every company, to execute and bring more orders, those are the two main challenges of StellarBlue.

Got it. And in terms of that ramp, in terms of supply chain and these sorts of things, are there real challenges there with sourcing? Or is it more challenges with regards to, you know, any new products kind of ramping through, you know, the production process?

No, we don't see any supply chain issues. specific issues. It's just ramping up new product introduction into the market, which usually takes time. It's not something that is unique to Stellar Blue. It's within every company, including with Gilad, when we launched a new product. At the beginning, there are challenges on the manifest chain line.

Okay. Perfect. That's all I got. Thanks for the commentary.

Thank you, Ryan.

See you soon. The next question is from Chris Quilty of Quilty Space. Please go ahead.

Thank you. Nice results, guys. Just to follow up on that last question, maybe it sounds like the supply chain and the manufacturing is going well, but can you touch on the SDC process? I think you did mention you're making progress there, but How broadly are you targeting STCs on different airframes, and who is leading that effort? Does that happen internally at Stellar Blue, or do you have partners working on that?

It's a combination of Stellar Blue and the responsibility of the customers, and it's progressing as we expected. Recently, Stellar Blue announced that they got several certifications, And we see it on track. And I think it's not halting any deliveries. The only thing is ramping up production and starting to deliver more units per month. Now we are talking about a few units per month. Soon we are talking about 10 units, tens of units. And hopefully by the second half of next year, we'll be able to deliver more than 100 units per month.

Great. Do you have a couple of housekeeping questions? I know last quarter you kind of gave us a breakdown of the DataPath contribution to the organic growth versus acquired growth. Can you share that this quarter?

Yeah, sure. So this quarter, as I mentioned, most of the growth came from DataPath. If we look on a quarterly basis, the organic growth was negative 4%. On a six-month basis, it was plus 4%, as expected. And I remind everyone that we like to analyze Gilad not on a quarterly basis, but on a longer period kind of analysis due to timing of specific deliveries that might shift a bit to the right or to the left. So generally, we're on track. Great.

And is the run rate for the amortization reported in the quarter consistent with what we should expect on a go-forward basis now that data path is rolled in and excluding stellar blue, obviously?

Yeah, so in general, as I said in my script, it's about $2.4 million per Q in these quarters. Usually, there are, I would say, two components that might affect this number. First is the... Amortization or net income at the end of the day is also affected by Gilad share price due to the fact that part of the payment is in shares. So it may fluctuate up or down. The second thing is that part of the amortization is associated with backlog, which is usually amortized over up to 18 months. so you can expect a drop in this 2.4 million around 18 months after a closing, which will be middle of next year. I think there is a schedule in the 20F of the amortization. Should be, yes. But it wouldn't cover the change in the share price.

Right. And you mentioned backlog, so I'll ask, and I know you don't provide backlog, but excluding the data path, what are you seeing in overall trends in terms of order pipeline this year relative to your expectations, and are there any factors? On the defense market, we're not dealing with a continuing resolution in the U.S. In the aviation market, we are dealing with Boeing and late deliveries. you know, are any of those macro factors impacting your outlook, or is it more just company and deal specific?

In Gilad, in most of the cases, it's company and deal specific. But what we do see is strong momentum in the IFC tied to Intelsat and SES Open Space Initiative. We do see a lot of headwinds in the defense, not only through data pass, also through wave stream and the satellite networks at Gilad. But overall, if you look at the blended forecast, we haven't changed our guidance. That means that we are on track with our expectations.

Great. And specific to the cellular backhaul market, you were running really hot, you know, I think a year ago or so with a lot of orders. It feels like that market has sort of slowed down a bit. Is that a correct perception? And do you see any, you know, discrete large opportunities or reasons that the market might pick up a little bit on a go for it?

I agree that the last quarter was a bit slower than usual. But we don't think it's a trend. We think it's a one-off in the industry. Based on the analysts who cover the market, everyone expects that this market will grow from $150 million down today to around $350, $400 million in seven years or so. So we share the same expectation. We see a nice pipeline. So we really hope that it will return. We're starting to see a lot of 5G opportunities. 5G will drive significant growth in years to come.

And remind me, is the SkyEdge 4 fully 5G compatible, or is that a new platform upgrade?

No, the 5G is fully, the SkyEdge 4 is fully 5G compatible. I remind you that about a quarter ago in India, we demonstrate together with SCS and one of the largest Indian operators, more than 600 megabit per second into the handset, which is on SkyEdge 4 together with the SCS M-Power. So from a speed perspective and latency, we are already there. Of course, no one will get 600 megabits per second to the handset, but this is up to the operator, not up to us.

All right. You can't put a special mode in there for me? I can.

All right.

All right. So a follow-up question just on, you know, you had talked about the Galant ESA. A, one of you guys come up with a name for that product so we don't have to call it the Galant ESA. And, you know, any update there, obviously you have that as a project with SATCOM Direct. You know, Hughes has sort of come into that market with, you know, a OneWeb-compatible ESA product. you know, what is that business jet market looking like and, you know, what do you think the opportunity size for that product is relative to Stellar Blue?

So, first of all, our ESR solutions are called, in general, ESR family. We see a lot of players are getting into the market. At the end, usually each and every service provider has its own unique terminal. Usually it's one terminal. In rare cases, you see them working with more than one terminal. I know that HNS is cooperating with GOGO on the BA side. But give or take, this is what we see right now. The business aviation is a very large market. with a lot of potential, and I think that there is room for several players over there to grow.

Gotcha. And I guess maybe final question here, when you look at the defense market opportunity, clearly you're still working the data path angle, but have they historically had international exposure for that business, or was it... overwhelmingly US-based and do you have sort of the sales channel within Gallaudet to move those products or does that take some investment in sales and marketing and overseas distribution for some of those projects?

So, historically give or take about 10% of database business was international. They have some channels worldwide, especially in Europe, and they work direct in some of the Asian countries. But now, where Gilad has a foot on the ground on those countries, we think that we can accelerate the penetration and increase the business. We are already seeing some opportunities in Asia and in Latin America and in... in other places. And I think that there is a potential to double database revenues both in the U.S. and internationally.

The next question is from Gunther Krager of Discovery Group. Please go ahead.

Yes, thank you for taking the question. Regarding aviation communications, concerning the recent shutdown, the shutdown of the commercial air transport system because of communications, is there any opportunity for Gillard and the upcoming... acquisition to serve that market. I'm talking about operational communications between air traffic control centers and the aircraft in between.

You know, our terminal serves the passengers. Of course, they can serve also the crew, but it's not built in a way to have a secure communication between the traffic control and the crew. Of course, at emergency, if something doesn't work, they can try and use our equipment, but it's not built for that.

Thank you. It seems like that could be an enormous opportunity because that's an archaic system which is creating the problem they've had.

It's definitely an opportunity. We are trying to focus right now on delivering our commitments to the customers, but when reviewing adjacent markets and future growth engines, it's something that we're definitely going to explore. Thank you very much. Good luck.

Thank you. The next question is from Sergei Lukyanov of Freedom Brokers Capital. Please go ahead.

Hello, Revan. At this moment, I have a couple questions, and most of them are regarding this pillar blue. The first, I'm just wondering what sales growth rate and margins do you expect from this one from next several years after 2025? Maybe at least, Raul, figures, any thoughts, please.

The only figures right now that we can share is what I said earlier, that we expect, assuming we close at the beginning of Q4, we expect Stellar Blue revenues to be between $25 to $35 million, and 2015 revenues are between $200 and $25 million. Revenues will be between $120 to $150 million. And once Stellar Blue reaches its capacity milestone on the second half of the year, we expect them to be at above 10% EBITDA.

Okay. The second, if you look at the operational expense line, there is some decrease of R&D amount, the percentage of sales for lots of quarters. Will such situation be stable for next time, or will R&D increase after the acquisition?

So R&D changed a bit. you know, comparing to last quarter. There's some fluctuation due to the, you know, consumption of equipment and so on, and the portion of R&D which is classified to cost of goods sold in NRE projects, so it might fluctuate a bit. Another thing that affects R&D is grants, which were higher uh this quarter than last quarter uh not materially but but uh to some extent uh higher so uh all in all this was this was the the reason for rnd to to decrease a bit uh thanks and uh finally and uh as it was uh mentioned so

minutes ago, we have already had ESR 2013 and 2014, the portfolio of ESA for business innovation application. What is the future of the ESA family? Could it be replaced by blue products? And EPS, how could it affect ?

Those are two separate projects. We have no intention to replace neither of the technology. Each one is designed for its own specific customers, and we plan to keep it as is.

Okay, thank you. Thank you.

Thank you. 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. Benyamini, would you like to make your concluding statement?

Yes, thank you. 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.

Thank you. This concludes Gilad's second quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.