Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's fourth quarter 2024 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 12, 2025. By now, you should have all received the company's press release. If you have not received it, please view it in the news section of the company's website, www.gilat.com. I would now like to hand over the call to Ms. Mayrav Sher, Head of Finance and IR. Ms. Sher, please go ahead.

Yes, thank you, Operator. Good morning and good afternoon, everyone. Thank you for joining us today for Gilat's fourth quarter 2024 Results Conference Call and Webcast. I am Merav Sher, Gilad's Head of Finance and Investor Relations. The earning press release that was issued can be found in the Investor Relations section of our website at www.gilad.com. Also, a recording of this call will be available beginning at approximately noon Eastern Time today, February 12th, and a webcast on Gilad's website for a period of 30 days. Also, please note that statements made on this earning call that are not historical fact may be deemed forward-looking statements within the meaning of the Private Securities Litigation 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 GILAS 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. Also, on today's call, management will refer to non-GAAP measures. The company believes these non-GAAP measures assists management and investors in comparing the company's performance across reporting periods on a consistent basis by excluding these non-cash, non-recurring, or other charges that it does not believe are indicative of its core operating performance. The reconciliation of GAAP results to non-GAAP measures can be found in the fourth quarter of fiscal year 2024 earning press release that the company issued and furnished to the SEC earlier today on Form 6 case. With that, let me turn to introduction. On the call today are Mr. Adit Tfadia, Gilad's CEO, and Mr. Gil Bin Yamini, Gilad's CFO. I would now like to turn the call over to Adit Tfadia. Adit, go ahead, please.

Thank you, Merav, and good day to everyone. Thank you for joining us today to discuss our fourth quarter and full year 2024 earnings results. On the call, we will highlight key achievements for the quarter and talk about our opportunities and plans to accelerate revenues in 2025 as we capitalize on the acquisition of Stellar Blue and Datapath and continue to drive innovation. We finished 2024 with a strong fourth quarter, achieving a strong adjusted EBITDA and accelerating our revenue growth. Q4 revenue reached $78.1 million, driving full-year revenues to $305.4 million, a 15% increase year-over-year. Adjusted EBITDA also saw significant growth, with Q4 reaching $12.1 million and the full year hitting $42.2 million, 16% growth year-over-year. This performance highlights Gilad's strong execution, strategic growth, and dedication to delivering value. Overall, 2024 has been a profitable and successful year for the company. Before we proceed to the business review, I would like to share some information about the organizational change we are undergoing. As part of our ongoing efforts to streamline operations and increase our focus and resources on our main growth engines, we are pleased to announce our new organizational structure and reportable segments. This new structure is an outcome of a strategic process which we identified our main growth opportunities and that also led to our recent acquisition of DataPass and StellarBlue. Our new organizational structure will allow us to focus more precisely on serving the growing defense market and the increasing opportunities in the commercial, NGSO, and VHTS markets, specifically the IFC segment. We also believe that this structure will provide investors with greater insight into Gilad business lines and simplify the understanding of our operations. As of January 1, 2025, the company is divided into into three new divisions, Gilad Defense, Gilad Commercial, and Gilad Peru. Let me take a moment to explain in more detail. I will start with Gilad Defense. About four years ago, we identified defense as a market with significant potential for our growth. The demand for government and defense outcome solutions is growing and is driven by macro political dynamics and the increasing needs for multi-office connectivity strategies Defense organizations require multiple layers of communication redundancy to ensure high availability, making SATCOM a critical component of mission success. Recognizing these strengths, we acquired DataPath in 2023 and now have created Gilad Defense Division specifically to meet these demanding needs. The newly formed Gilad Defense Division is dedicated to meeting the specific needs of defense integrators military and government organizations worldwide with a strong focus on the U.S. Department of Defense. By integrating products from the wide portfolio of Gilad, Wavestream, and Datapath, the Gilad Defense Division delivers secure, rapid deployment solutions and battlefield connectivity. Moving to Gilad Commercial, the satellite industry is rapidly shifting towards multi-orbit connectivity, driven by the need for greater resiliency, flexibility, and seamless global coverage. At the same time, the push for digital inclusion and the growing demand for in-flight connectivity are reshaping the commercial market. To address these evolving needs, we established the Commercial Division. Our acquisition of Stellar Blue serves as one of the cornerstones of this division, strengthening our position in the high-growth IFC market and enabling us to provide cutting-edge connectivity solutions that meet the demands of passengers, airlines, and service providers worldwide. Gilad's commercial division is focused on providing advanced broadband satellite communication network solutions for enterprises and cellular backhaul, being the partner of choice for the global and regional satellite operators for HTS, VHTS, and NGSO constellations, with turnkey solutions for service providers, MNOs, satellite operators, and enterprises. The third division is Gilad Peru. Latin America in general, and specifically Peru, faces enormous challenges in terms of connectivity, especially in rural and hard-to-reach geographies. Gilad Peru is focused on digital and social inclusion and end-to-end telco solutions focusing on government solutions across Peru. Gilad Peru plays a vital role in bridging the digital divide, connecting underserved communities and delivering high-quality telecommunication services. More specifically, Gilad Peru focuses on telecom services and the operation and implementation of large-scale network projects. Gilad Peru provides terrestrial fiber optic, wireless network, and satellite network construction, implementation, and operations. You can find a link to a dedicated presentation for the matter in the Q4 press release, and our website in the investor relations section. Now let's move to the business review of the fourth quarter. The first highlight I would like to discuss is the closing of our Stellar Blue acquisition, which completed on January 6, 2025. The acquisition marks a significant milestone in Gilad's strategy to expand our leadership in the IFC market. As discussed before, this acquisition enhanced our capabilities to deliver advanced multi-orbit ESA solutions and strengthen our position in the commercial aviation, making us the market leader in this rapidly growing sector. StellarBlue brings unique expertise in satellite communications and system integrations for aviation, complementing our existing solutions and extending our reach to key commercial partners. The addition of StellarBlue strengthen our position to capture a larger share of the IFC market. In addition, StellarBlue continues to make progress in extending its product line into the defense sector's air applications. We are already seeing strong early results, promising partnerships, and significant new business opportunities. Building on this momentum, StellarBlue has made significant strides in the IFC market. With over 125 multi-orbit ESA air terminals shipped to date and activation as well underway, StellarBlue is leading the way in next-generation aviation connectivity. Our production capacity is scaling to meet this growing demand. During Q4, we received very significant orders of approximately $19 million for network equipment from our IFC partners, successfully expanding our deployments with them. These are very large-scale IFC operating networks over multi-orbit constellations. Also, Gilad Wavestream demonstrates consistent growth and continued success with SSPA and terminal-related avionics products dedicated to the IFC market. Our strong partnership with InterSat continues to drive growth, expanding beyond commercial aviation into business aviation and maritime. Leveraging our SkyEdge family of VSAT platforms, InterSat is enhancing its global SATCOM network to deliver seamless, high-performance connectivity across diverse orbital assets. This expansion reinforced our position as a key technology provider and opened new long-term revenue opportunities. As we look ahead to 2025, we see significant opportunities for our IFC product portfolio as multi-orbit constellations grow in capacity and coverage. In the fourth quarter, we saw strong demand in the NGSO market with Gillette Wavestream Leo Gateway Solid State Power Amplifiers product portfolio a category leader playing a key role in supporting LEO constellations. In 2024, SCS successfully launched its service for all 3BM power, a major milestone that underscores the strengths and advanced capabilities of our SkyH4 platform. This launch cements our leadership in next-generation satellite networking, demonstrating our ability to support highly flexible, software-defined satellite services. At the same time, InterSat expanded its multi-service network, choosing ELAT technology for its maritime and business aviation sector. This highlights the confidence that the leading satellite operators have in our solutions and reinforce our growing role as a key technology provider across multiple verticals. These achievements further validate our strategy of delivering cutting-edge, future-proof satellite communication solutions. As we look ahead to 2025, we are well positioned to secure very significant orders for our Leo Gateway products while also anticipating growth with SCS and InterSats multi-orbit and cloud strategy. In addition, the recent award of the Iris Square Constellation by the EU to the SpaceRise Consortium that includes Udalsat, SCS, and Ispasat is a positive development with significant opportunities and potential. Turning to defense, we concluded the year with significant wins for Gilad Data Pass, securing key deals for our portable and transportable products. This success includes contracts with both the U.S. DOD and international defense organizations, further solidifying our position in the critical market. Specifically, in the fourth quarter, we received approximately $9 million in orders from the U.S. DOD and other international defense organizations. 2024 was the first full year of DataPass operating under Gilad, and we couldn't be more pleased with the results. Gilad DataPass transportable and portable products have gained success with various defense organizations all over the globe. At the same time, we have been advancing our defense strategy by adapting SkyEdge 4 to meet military requirements and developing our next-generation GLT software-defined radio modem tailored to the evolving needs of the defense market. As we look ahead to 2025, we are planning significant investments in Gilad Defense, substantially increasing our R&D efforts to introduce more product solutions and features. Additionally, we will increase Gilad Defense sales and marketing investment to approach the defense market channels and customers. We see significant opportunities for Gilad Defense unified solutions seamlessly integrating the expertise and technologies of Gilad, Datapass, and Wavestream to provide a comprehensive, mission-critical offering for the defense government customers worldwide. In Peru, we experienced solid growth this year, securing $20 million in orders from major players in the country's communication sector. A key highlight was our partnership with IPT, Internet para Todos, a consortium of Telefonica and Facebook's that is expanding and extending its network reach to more communities. Our efforts remain focused on bridging the digital divide, enabling underserved communities to gain access to high-quality Internet connectivity. Looking forward, we have a robust pipeline for 2025 with large opportunities emerging, such as the progression of significant RFPs with PONATEL and the Peruvian government, along with several upcoming projects, expansions, and extensions. Given our expanding opportunity set in 2025, we expect another year of top-line and profit growth. We expect 2025 revenues of between $415 and $455 million. We expect an adjusted EBITDA of between $47 and $53 million. Looking ahead, Gilad is well-positioned for continued growth, driven by strong market tailwinds, including increasing satellite size, declining launch costs, and growing data transfer demand. Our SkyH4 platform, particularly with VHTS and NGSO technologies, is ideally suited to capitalize on these trends. Our commercial business, bolstered by Stellar Blue, is poised for significant expansion as we establish our leadership in the expanding ESA for IFC market. Our portfolio of ESA products and multi-orbit solutions will be instrumental in capitalizing on the increasing demand for IFC by airlines and passengers. Our defense business also maintains strong momentum with increased orders and awards as Gilad Data Pass leverages our expertise in supporting operations in most challenging environments. The defense segment represents a significant growth opportunity, and we are pleased with our progress in meeting government and military customer needs with innovative satellite solutions. And with that, I will hand over the call over to Gil Benyaminia, CFO. Gil, please 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. I will now walk through our financial highlights for the fourth quarter of 2024, followed by a review of the full year performance. As Adi mentioned earlier, we are very pleased with our performance this year. We closed the year with strong momentum, delivering sustained improvements in our results, including significant year-over-year growth in both revenue and profitability. 2024 was a pivotal year for Gilad, marked by the strategic acquisition of Stellar Blue, which we expect to, further accelerate our growth. Notably, the acquisition was completed after the balance sheet date and is therefore not reflected in our 2024 financials. In terms of our financial results, revenue for the fourth quarter were $78.1 million, 3% increase compared to $75.6 million in Q4-23. For the full year, revenues totaled $305.4 million, reflecting 15 percent growth from $266 million in 2023. The increase was primarily driven by growth in the defense vertical. In terms of revenue breakdown by segments, Q4 24 revenues for the satellite network segment were $49.1 million compared to $53.5 million in the same quarter last year. The decline was primarily due to termination of our activity in Russia. Q4-24 revenues of the integrated solution segment were 17.3 million compared to 9.5 million the same quarter last year. The increase was primarily driven by higher revenues from the defense vertical. Q4-24 revenues of the network infrastructure and services segment were 11.8 million compared to 12.6 million in Q4-23. I would now like to review our fourth quarter results starting with GAAP basis before moving to the non-GAAP numbers. Our GAAP growth margin in Q4-24 improved to 39.7% compared to 38.2% in Q4-23. GAP operating expenses in Q4-24 were $18.3 million compared to $26 million in Q4-23. The decrease is primarily due to proceeds from arbitration in Peru, which were recorded as other operating income in Q4 of 23. GAP operating income in Q4-24 was $12.8 million compared to $2.9 million in Q4-23. The increase was driven by proceeds from the arbitration in Peru, as previously mentioned. GAAP net income in Q4-24 was $11.8 million, or a diluted income per share of $0.21, compared to $3.4 million, or a diluted income per share of $0.03 in Q4-23. Moving to non-GAAP results, our non-GAAP gross margin in Q4-24 improved to 40.4%. compared to 39.1% in Q423. Non-GAAP operating expenses in Q424 were $21.9 million compared to $23.4 million in Q423. Non-GAAP operating income in Q424 was $9.7 million compared to an operating income of $6.1 million in Q423. Non-GAAP net income in Q4-24 was 8.5 million, or a diluted income per share of 15 cents, compared to a net income of 6.5 million, or income per share of 11 cents in Q4-23. Adjusted EBITDA in Q4-24 was 12.1 million, compared to an adjusted EBITDA of 9.4 million in Q4-23. For the full year, adjusted EBITDA was $42.2 million compared with an adjusted EBITDA of $36.4 million in 2023. Moving to our balance sheet, as of December 31st, 24, total cash, cash equivalents, and restricted cash net of loans were $118 million compared to $106 million on September 30, 24, and compared to 95 million in December 31st, 23. The increase was mainly driven by our ongoing operations, as well as from the arbitration process in Peru. In terms of cash flow, we generated 16.3 million from operating activities in Q4, 24. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were 71 days, down from 83 days in previous quarter due to both increased revenues and higher collection. Our shareholders' equity as of December 31st, 24, totaled $304 million, compared with $275 million at the end of 23. Looking ahead, as Adi mentioned, we expect a strong 2025 with projected revenues between $415 million and $455 million. In addition, we expect adjusted EBITDA to range between 47 and 53 million. We do not provide forward-looking guidance on GAAP basis because we are unable to reasonably provide forward-looking guidance for certain financial data, such as amortization of purchased intangibles and earn-out-based expenses related to recent acquisitions. As a result, We are not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. That concludes my financial review. I would now like to open the call for questions. 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're 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 Sergei Glyamov of Freedom Brokers. Please go ahead.

Hello, Roman. I would like to start from my congratulations with another successful year with Gilad. And, yeah, my first question is related to Stellar Blue. And previous guidance was roughly 120 to 150 millions per 2025. Is that guidance still relevant?

Hi, Sergey. Yes, this guidance is still relevant and it is included in the overall guidance.

Great, thank you. Will this segment be divided regarding the new organizational structure?

Stellar blue is not a. Is not a reportable segment is managed part of the commercial division with a lot of synergies between. Gillette old IFC sub segment and stellar blue, so the overall results will be tied will be consolidated under the Gillette commercial division.

Okay, got it. Would you provide, please, any details about any costs related to new organizational structure that will be incurred?

In our website, we added a short presentation about the segment change that we made, and we also provided unaudited high-level information financial results for 2023 and 2024, which I believe can help analysts and investors to rework their model.

Okay, got it. And my final question is, there was a little improve of EBITDA margin in 2024. As we can look at your EBITDA 2025 guidance, there is a little decrease in margin in the midpoint and it surrounds two percentage points. Is it primarily because of Stellar Blue and R&D and marketing spendings, right?

Yeah, in general, Stellar Blue has a lower gross profit rate than Gilad's usual gross profit, and of course it affects the EBITDA. We need to remember that Stellar Blue are in its production ramp-up phase, so we do expect them to be EBITDA positive for the year, and we do expect them to be more than 10% EBITDA during the second half of the year. In addition... We are planning to increase significantly our investment in the defense division, especially in R&D and sales and marketing. So if you combine all of these, this is the main reason why the overall EBITDA ratio for 2025 is slightly lower than 2024. But we do expect significant improvement in 26 onwards.

Great, thank you. That's all from me.

Thank you, Sergey.

Good luck.

The next question is from Louis De Palma of William Blair. Please go ahead.

Adi, Gil, and Amira, good afternoon.

Hi, good afternoon.

Have the discussions... the very early discussions with Iris Squared been positive? And what is the expected timeline for contracts associated with Iris Squared and the deployment?

So, you know, the initial discussion with the consortium are in a very friendly way. But, you know, the... Irish Square Consortium issued some RFIs at the beginning of mid-2024. Now with the awards, we expect them to issue either additional set of RFIs or set of RFPs probably towards the mid or half of the year or probably Q3 this year. Based on what they said, based on what they are saying, they expect to provide awards before the end of the year and sign agreements during early 2026. But I think it's a very aggressive timeline. So I would expect a bit delay in those timeframes.

Great. That makes sense. And can you talk about trends within the defense vertical? With the new reporting segments, you forecast strong growth and in defense, and what does the pipeline look like in terms of future contract awards and opportunities with your different products?

Yes, so I can share slightly more light on this exciting new Gilad defense. So I think that the cornerstone is our acquisition of Datapath that in 2024 did slightly more than $50 million, and we expect them to grow in 2025 as well. So we are seeing both business with the US DOD, but also international. We are seeing a lot of synergies with Gilad Salesforce worldwide trying to sell DataPass solutions. And the pipeline is increasing for both portable and transportable solutions. On the other side, DataPath is leveraging their relationship with the DoD and the U.S. Army to bring GILAT networking and modem solutions into the DoD. We are seeing a lot of excitement there. We starting to engage with meetings that we haven't been able to engage for years. In parallel, we are trying to leverage our relationship with the global satellite operators like SES and Intelsat, and that they already have a huge network of GILAT to leverage this network and to penetrate with GILAT modems into the DoD, again, leveraging the networks that they already bought. We recently announced that... We are FAR and DFAR compliant with our product, so they are eligible to be sold to the U.S. DoD. And in addition, we are able to manufacture them locally in the U.S. So we are slightly but promising jumping on every barrier that we had in the past. And we are seeing a lot of excitement both internally and externally about this. We are trying to bid for very large programs that will include also development efforts. And I think that 2025 will see a significant booking increase, and the outcome in revenues will come in 2026 onwards. We said several times in the past that growth in this segment won't be linear because it's project and program based. And we are aiming to get at least one or two very large awards to support future growth.

Sounds good. And as it relates to Peru, Gail, you guided for a decline for revenue there. in 2025, but going forward beyond 2025, should there be stability or will Peru continue to trend lower?

First of all, looking forward, we believe that Peru is going to grow. In 2025, we see some delays in renewal of some of the recurring contracts. So this might push revenues down a little bit. But overall, most of Peru's revenues are for longer terms. And we definitely see a long-term growth trajectory for Peru.

I would like to add that in 2024, we had some construction revenues, some leftovers from past transaction and some expansion that we got an award at the beginning of 2024. And we are expecting to start seeing operational revenues from this project in 2025. So I think that it's a bit misleading if you reduce the... The construction revenues on operation side, you will see growth year over year.

Thanks. And also, Adi, you indicated that you have shipped 125 of the ESA antenna systems with Stellar Blue. And I was wondering, could you provide an update in terms of where – Stellar Blue stands in terms of the contingent payments?

I think it's really in early stages right now. The first milestone is to deliver several hundreds of units in a grid margin. The first units usually are more costly than the production ramp-up units because as part of the ramp-up, you learn and fix issues. I think we are in a good position to reduce the terminal costs, but it's really too early to talk about the earn-out. The first earn-out will be end-to-end. by mid-year, so I guess that during the second quarter we'll be able to give some more light on it.

Great. Thanks, everyone. Thank you, Louis.

The next question is from Ryan Kuntz of Needham & Company. Please go ahead.

Great, thanks. Most of my questions have been answered here, but with regard to the production ramp there at Cellar Blue, can you refresh us on where the company was in Q4 and what you anticipate that, uh, volume ramp to look like as we go through the first half of 25. Yeah.

So, uh, Q4 was the initial production ramp up of, uh, production. Um, they delivered around 75 units, um, in, in Q4. Um, They have several tens of active systems that have already been installed and activated on aircraft. And until now, I think the customers are very happy. The systems perform very well. So I think we are on the right direction.

That's great. Great to hear those are installed and performing well. And on the commercial side, relevant to your historical numbers there, the decline we saw in 24, can you remind us, I think there was some Russia impact there, exiting Russia. Can you remind us of that impact in 24 versus 23?

Russia used to be around 20 million, give or take, per year. In 2024, I guess we had slightly, you know, around 50% out of it. And in 2023, we've been, I don't remember the exact number. Gil, maybe you remember?

The decline was about $10 million a year. This is more or less the number.

Got it. All right, great. And just in terms of the competitive environment, maybe going back to IFC here, what's that competitive environment like for you now, you know, post-Stellar Blue deal closing and, you know, how do you see this market developing versus the opportunities and competitors out there? Thanks.

So, you know, there is a direct and indirect effect. On the direct effect, I think that... Today with StellarBlue we have the leading multi-orbit ESA terminal that has the best swap and cost. Swap is the size, weight, and power and cost that is available today in the market. We have a lot of opportunities with several service providers and aircraft manufacturers. I think that being a line fit in one of the large aircraft manufacturers is one of our top objectives for 2025 and 2026. About the indirect competition, it's always there. Our customers compete against each other and against Starlink, but overall, the fact that the industry is shifting to free Wi-Fi significantly increased the potential growth in this market in general and for Gilad.

That's great. Thanks for those comments, and I look forward to seeing how 25 unfolds.

Thank you, Ryan.

The next question is from Chris Quilty. from Quilty Analytics. Please go ahead.

Oh, it's Quilty Space. They got it wrong. Apologies for the background noise. I'm driving. Gil, quick question or follow-up on the top-line guidance, just to make sure I have the pieces. You're still looking for order of 120 to 150 in the stellar blue. I think we're talking about a 10 million headwind from Russia. And I missed the sort of order of magnitude on the Peru business in terms of a headwind? Once we back that out, what are we looking at for, and again, I don't want to look necessarily on the traditional businesses the way you had it organized by segment, but, you know, if I did and looked at sort of amplifiers versus modems, you know, those buckets, you know, where are you seeing growth and or, you know, the faster growth in the business lines?

Yes, so obviously in the IFC with the acquisition, we see the highest growth. We also see growth in our defense vertical now becoming a segment, and we provided some guidance under this segment to grow from a 98% in 2024 to 110 in 2025. We have some headwind in Peru, as mentioned. And at the end of the day, our focus area in the IFC, in the defense, And in the VHTS and NGSO, these are the areas that we believe that most growth will come from.

I understand. And maybe just specifically on the power amplifier side of the business, are you still chasing large opportunities there on the NGSO side?

Yeah, definitely, definitely we do. And we also, on the overall SSPA business, we also project growth next year, of course.

Great. Back to Stellar Blue, I think you've got two sizable customers there, and I think some of the earn-out is related to bringing on you know, other large customers. Where do you sit in that process in terms of negotiations? Is it still looking like, you know, that's a 2025 event or does it get pushed further out?

I think, you know, we are pursuing it in 2025. Right now we believe it will be closed before year-end, but of course it can slip later on. But We have a very large backlog and a lot of opportunities. And when InterSat and Panasonic get more and more awards, we expect them to place additional orders. And with the large aircraft manufacturers, we are aiming to close as soon as possible in 2025.

Gotcha. Follow-up on Peru. Even with the lower revenues, is it fair to assume profitability is even or up as you shift down to the hardware business and into service?

So the service revenues are associated with higher profitability. So it compensates the decrease in revenues.

Gotcha. And Gil, you mentioned higher R&D spending in the defense area. What sort of order of magnitude of spending, and are there specific areas where you see more opportunity?

So most of the investment is aimed towards new modems. and a family of terminals and other large projects that we aim to participate in. At the end, we'll have to see how much of the overall R&D will be allocated to the defense, but it's in the magnitude of a few million dollars. And in the overall, we expect R&D to be more or less at the same level that it is this year. So it's mainly internal allocation.

On top of that, it's the R&D of StellarBlue. So at the end, you will see a significant increase in R&D. In general, we are aiming to add more features for SkyH4 to support defense applications. The main focus is on security features, adding transit and FIPS capabilities, developing our next generation GLT, highly secured modem, and also some flat panel and electronically steered vehicles antennas with a focus on the UAV market. So all in all, you will see a significant increase in the R&D of the defense.

Adi, speaking of SkyEdge 4, you guys had a great year in 23 of growth there. 24 seems like it was sort of flat. And I'm talking about the commercial side, sort of 5G cellular backhaul. What's the outlook? Do you see programs picking back up in 25? Or is it another sort of flattish year on the commercial side?

I think that right now there is... As long as the large satellite manufacturers keep on delaying the launch of new satellites, the new SDS satellites, I think it will be a bit flattish in terms of new networks. Because usually the large networks that we sell are touching with new satellite launches. But we do expect to see revenues of the next generation SkyH4 shifting to virtual platform and cloud-based solution where the SkyH4 will run on native cloud. So we do expect to see some new wins over there. But again, once the satellite manufacturers We'll start launching new satellites. We will return to significant growth on the networking side.

Great, thank you. Last question, and sorry, I'm all over the map here, but back to StellarBlue. And this is kind of a high-level thought in the market. Obviously, SpaceX has made a mark in IFC. Hughes, I think, is shipping their single-beam antennae. but flat panel antenna is still relatively new in the market. Where do you see the trends going in terms of single beam, dual beam, multi-beam, multi-orbit, KA band, KU band, multi-band, in terms of where the customers are asking for solutions?

Yeah, so... I think that right now, Stellar Blue is the best technology available. But all the antennas today are supporting single beam. The next generation will support dual beam on the receive side. KUKA antennas, It's also something that I think that the industry is considering, but up until now, it wasn't that of a big success. As for KA, I think that there is a lot of opportunities over there. Once we'll see Telesat constellation is ramping up. So I think we might see some new development over there.

Very good. Thank you and appreciate the details there and good luck in the year ahead. Got a busy one to go.

Thank you, Chris. Thank you.

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

Yes, thank you. Very good results. Congratulations. A technology question. Can you hear me all right?

Yes, we can.

Oh, great, great. It's a technology-oriented question. Regarding Stella Blue, the IFC market traditionally is the passenger area. What about the operational area? Will the Stella Blue acquisition enable encroachment into the operational communications, air-ground communications, avionics, and things of this type?

StellarBlue is focused on delivering the electronically steered antenna. They have no intention of going to air to ground. And in terms of operation, I'm not sure I fully understand your question, so I'll refer to two parts. Of course, StellarBlue provides services and maintenance services on the platform that they are selling. but they have no intention to compete with the service provider, meaning their customers, if this is what you asked.

Yes, thank you. I was thinking more of the operational communications, which is currently primarily HFVHF ground, and as the systems move to the satellite area and you have an onboard system antennas and communication facilities. I'm just wondering if the Stella Blue would allow the movement of operational communications to that area away from the traditional HFV, HF systems.

On the aircraft side, theoretically it's doable, but it's... Today it's regulated communication, so I don't have details if they can change this regulation to allow the use of this antenna for the aircraft operation.

Thank you very much.

Thank you, Gunther.

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?

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 Gilat's fourth quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.