Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's first quarter 2025 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 May 19th, 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.gilott.com. I would now like to hand over the call to Mr. Alex Vialta of Alliance Advisors IR. Mr. Vialta, would you like to begin, please?

Thank you, operator, and good morning and afternoon to everyone. Thank you for joining us for Gilott Satellite Network's earnings conference call for the first quarter of 2025. With us on the call are Mr. Adi Safia, Gilad's CEO, and Mr. Gil Benyamini, Gilad's CFO. The earnings press release was issued earlier today and is available on Gilad's website underneath the investor relations section. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions, reductions in revenues from key customers, delays or deductions in U.S. and foreign military spending, acceptance of new products on a global basis, and disruptions or delays in supply of raw materials and components due to business conditions, global conflicts, whether or other factors not under our control. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect QLAS financial results is included in the company's filings with the SEC, including the latest quarterly report on Form 10-Q. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to configuring corresponding GAAP figures. With that, I would now like to turn the call over to Mr. Adi. Please go ahead, Adi.

Thank you, Alex, and good day to everyone. Thank you for joining us today as we discuss our first quarter of 2025 earning results. The first quarter of 2025 marks the first quarter operating under our newly aligned organizational structure. Today, we will provide an update on our Gilad Defense, Gilad Commercial, and Gilad Peru divisions, offering insight into how our strategies are driving growth and capturing opportunities in key markets. We will discuss key achievements for the quarter and our opportunities and plans to continue accelerating revenues in 2025 as we capitalize on the acquisition of Stellar Blue and the continued strong demand for Gilad defense solutions. We are already seeing the benefits of this change, particularly in our main growth engines, defense, VHTS and NGSO constellations, and in-flight connectivity. We began 2025 with a good first quarter. Q1 revenues reached $92 million, a 21% increase year-over-year. Adjusted EBITDA was $7.6 million. Q1 2025 was the first quarter we included Stellar Blue's results in our financial results. Stellar Blue contributed about $25 million to our top line and incurred an adjusted EBITDA loss of about $3.6 million. Excluding the loss, our adjusted EBITDA for the quarter was about $11.2 million, representing a 20% year-over-year increase. Stellar Blue's yearly performance remains on track, with revenue expectation of between $120 and $150 million. We also expect Stellar Blue to reach a 10% adjusted EBITDA margin run rate during the second half of the year. Before reviewing the performance of each division, I want to address the impact of the current global macroeconomic turmoil and the shifting international trade policies and tariffs on Gilad business. The global economic uncertainty and the shifting international trade policies are creating new challenges. It is still too early to fully assess the impact as new facts emerge daily. Recognizing these trends early, we proactively initiated adjustment to our raw material sourcing several months ago. This involved strategically shifting from higher to lower-tariff countries and to the U.S., Importantly, a significant share of our U.S. defense business is sourced and manufactured domestically in the U.S., supporting stability in this environment. We intend to monitor the worldwide development closely and will adapt our strategies as needed to ensure business continuity and minimize potential disruption. Now on the business review. We had a strong start to the year with successful launch of Gilad Defense Division during the Satellite 2025 Conference in Washington, D.C. in early March. The market response has been very positive, and we are already seeing results that confirm we made the right decision to unify our defense portfolio into a single Gilad Defense business. The dynamic macro-geopolitical landscape is driving increased defense budgets And accordingly, there is a growing demand for secure, high-performance communication over satellites. We are well positioned to meet these mission-critical needs. We are seeing demand from diverse geographical markets, including North America, Europe, and Asia-Pacific region. In Europe specifically, recent events have accelerated efforts to develop sovereign communications networks with growing investments from both the European Union, and individual countries. This trend is creating significant opportunities, and we believe Europe will become an increasingly important market for Gilad Defense going forward. In Q1, our world spent a diverse global customer base, reflecting demand for a broad range of products and services. This broad portfolio, coupled with our global presence, continues to position us as a trusted and reliable partner for defense organizations worldwide. During Q1, Elad Defense was awarded over $5 million to support critical connectivity for the U.S. DoD and international defense forces with our DCAT terminals and field support services. We also secured $4 million in orders for unique CCT portable satellite terminals for global defense customers and another $6 million contract in Asia for our market-leading SkyEdge platform. Gilad Data Pass was also awarded up to $23 million for a multi-year contract to service satellite transportable terminals for the U.S. DoD customers. Gilad Data Pass will deliver critical program management, field services, and technical support, ensuring operation readiness and continued reliability of these vital communication assets. Gilad Datapass was also awarded a contract of more than $11 million for DCAT-3420 terminals to a leading UAV company. In addition, we received a multi-million dollar order from a global defense organization for the supply of advanced antenna technology to be integrated into the organization's state-of-the-art defense communication systems. These wins validate the strengths of our integrated technologies across Gilad Defense product lines and highlight the increasing trust customers have in our ability to deliver mission-critical communication in challenging environments. As I mentioned during the fourth quarter call, we are increasing our investment in allocating more resources to R&D as well as to sales and marketing at Gilad Defense in 2025. This quarter, we launched several new products, including our new GLT modem, the Aquarius Pro DS modem, and the Gilad Data Pass 2.6 meter terminal. We are highly optimistic that these products will be adopted to serve on GEO, MEO, and LEO constellations for critical government applications. We plan to continue investing significantly in Gilad Defense as we execute our strategy to lead in this important sector. Turning to our commercial business, we are seeing continued momentum in both system deliveries and customer expansions as airlines prioritize next-generation connectivity experience for passengers, including free Wi-Fi plans and connectivity on regional jets. We received $15 million in orders from various satellite operators, including for our SkyEdge 4 platform to support IFC services and for high-performance SSPAs designed to support LEO constellations. The growing adoption of LEO and MEO constellations Connectivity is creating favorable conditions for growth. These developments underscore the increasing demand for our solutions in this rapidly evolving market. Also, in the IFC sector, with respect to StellarBlue, Intelsat has already installed SideWinder, ESA, the market's most advanced and only operational multi-orbit LEO and geo-electronically steered array terminal, on more than 150 aircraft, delivering to date more than 70,000 flight hours of seamless connectivity across North America. The feedback we are receiving from customers and partners has been outstanding. A key milestone this quarter was successfully testing and certification of SideRender ISA by Panasonic, one of the major IFC service providers, further validating its leadership in the market. We are optimistic that this will lead to additional business for us. At the same time, our next-generation LEO business aviation ESA, the ESR 2030 terminal, was tested successfully during flights, and we expect these efforts to allow us to have a production-ready antenna by the end of 2025. Gilad is expanding its strategic collaboration with partners to drive the advancement of next-generation aviation ESA terminals. This development project focused on further developing our Sidewinder ISA and also extend its reach to adjacent aviation markets, including ISR, military, defense, and VVIP. A key aspect of this development is making the Sidewinder platform compliant for OEM offerability with Boeing as part of Boeing's technical service agreement. The platform is progressing through OEM qualification with availability expected in early 2026. This represents a significant step forward in strengthening our position in the evolving aviation connectivity landscape. Importantly, as IFC deployments ramp up, we are also seeing increased demand for our SkyEdge4 and SkyEdge2C basement platforms, further strengthening our position in this market. Building on this momentum, we are also responding to rising demand from satellite operators who are looking for cloud-based, software-driven ground segment architectures. As a result, we have stepped up development of virtualization capabilities for SkyH4, positioning Gilad at the forefront of next-generation cloud-native solutions for satellite communications designed to run on standard cloud hardware and expected to serve the needs of very large software-defined satellites. In other commercial verticals, the demand for digital inclusion is also accelerating as more governments and organizations prioritize access to essential services like education, employment, and healthcare. Satellite communications are playing an increasingly critical role in bridging the digital divide and expanding connectivity to remote and underserved areas. We are leveraging the proven capabilities of Gilad Peru to compete on projects worldwide, with multiple digital inclusion projects currently in the pipeline, reflecting the strong momentum we are seeing in this important area. In Peru, we are progressing on several important fronts. We received network acceptance and began operation of the Amazonas transport network, and we are moving forward with the acceptance process across the Amazonas access network. Additionally, we successfully transferred the ICA transport network to Puanatel, the first such transfer and are working towards transferring the additional regions' transport network as well. While the strong pipeline remains intact, several large projects, be it renewal, expansion and extension, continue to face delays. That said, we remain optimistic about future opportunities in Peru. I am pleased to say that we continue to have a strong backlog and a healthy pipeline. Therefore, we feel comfortable reiterating our 2025 annual guidance. Gilad is strategically positioned for sustained growth driven by strong demand for mission critical defense connectivity, the increasing satellite capacity, and the accelerating adoption of multi-orbit architectures. Our diverse product portfolio is ideally suited to support this evolution, offering the essential flexibility, scalability, and the performance our customers require. Our defense business is off to a strong start this year, benefiting from strong tailwinds driven by the macroeconomic development. Gilad Defense is building momentum and expanding its critical role in delivering resilient, high-performance satellite communication in support of national security and global stability. In our commercial business, we are seeing solid execution and continued growth. Stellar Blue's innovative SideWinder ISA is gaining significant market traction, and we are working closely with our partners to broaden its application into new verticals and advance its certification for line-fit installation. At the same time, the increasing demand for both IFC and multi-orbit solutions is driving further adoption of our Baseband and RF avionics technologies reinforcing our leadership position in the global aground segment market. We are encouraged by the momentum across our business segment and remain confident in our strategic direction as we continue to deliver innovation, execution, and long-term value to our customers and stakeholders. And with that, I will hand over the call to Gil Binyamini, our 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 a GAAP and non-GAAP basis. I will now talk through our financial highlights for the first quarter of 2025. As Adi mentioned, we are very pleased with our first quarter performance. We completed the acquisition of Stellar Blue on January 6, and they are reflected in our financials for the first time. In terms of our financial results, revenue for the first quarter were $92 million, 21% increase compared to $76.1 million in Q124. The increase was led by the commercial segment due to the acquisition of Stellar Blue combined with the growth in the defense segment and offset by lower revenue in the Peru segment. In terms of the revenue breakdown by segments, Q125 revenues for the commercial segment were 64.2 million compared to 41.2 million in the same quarter last year. The 56% increase was primarily due to the acquisition of Stellar Blue, which contributed $25 million to our revenue, partially offset by the termination of our activity in Russia in 2024. Q125 revenues for the defense segment were $23 million compared to $17.2 million in the same quarter last year. The 34% increase was primarily driven by high deliveries to our defense customers in the U.S. and Asia. Q125 revenues for the Peru segment were 4.8 million compared to 17.7 million in Q124. The decline is primarily attributed to delays in renewing several projects, postponing major project bids, and slower progress on expanding existing projects. Additionally, in Q124, we recorded revenues from the construction phase of the Amazonas project expansion, which was completed during the year. We are currently awaiting frontal inspection and approval to transition to the operational phase. Furthermore, some equipment deliveries are expected later in this year. Our gap gross margin in Q125 decreased to 30.9% compared to 36.9% in Q124. The decrease is primarily due to lower margins in sterile blue as it ramps up production. as well as amortization of purchased intangibles and lower gross margins in Peru. GAAP operating expenses in Q125 were 31.1 million compared to 22.7 million in Q124. The increase is primarily due to the consolidation of Stellar Blue, amortization of purchased intangibles, transaction costs, and other income recognized in Q124. Gap operating loss in Q125 was 2.7 million compared to gap operating income of 5.4 million in Q124. The decrease was driven by acquisition-related expenses and purchase intangibles amortization and the absence of profits from arbitration in Peru that was recognized in Q124. Gap net loss in Q125 was 6 million or a loss per share of $0.10 compared to gap net income of $5 million or diluted income per share of $0.09 in Q124. Moving to non-GAAP results, our non-GAAP gross margin in Q125 decreased to 31.7% compared to 37.8% in Q124. Non-GAAP operating expenses in Q125 were $24.1 million compared to $22.2 million in Q124. and non-GAAP operating income in Q125 was $5.2 million compared to $6.6 million in Q124. The non-GAAP net income in Q125 was $1.8 million or a diluted income per share of $0.03 compared to a net income of $6 million or income per share of $0.11 in Q124. Adjusted EBITDA in Q125 was $7.6 million compared to an adjusted EBITDA of $9.3 million in Q124. The decrease in the adjusted EBITDA is primarily due to Stellar Blue losses in the first quarter. Our Q125 organic adjusted EBITDA excluding Stellar Blue losses was $11.2 million, a 20% increase compared with Q124. Moving to our balance sheet, on January 6th, The company secured a $100 million credit line from a bank consortium, from which it utilized $60 million to finance the acquisition of Stellar Blue. As a result, as of March 31, 2025, total cash and cash equivalents and restricted cash were $64.3 million, or approximately $3.8 million net of loans. compared to $118.2 million on December 31, 2024. In terms of cash flow, we used $6.6 million for operating activities in Q125 to support the working capital needs of Stellar Blue during the ramp-up and its acquisition-related expenses. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were 75 days up from 71 days in previous quarters. Our shareholders' equity as of March 31, 2025, totaled to $300 million, compared with $304 million at the end of 2024. Looking ahead, as Adi mentioned, we are reiterating our guidance for 2025 with projected revenue between $415 million and 455 million, representing year-over-year growth of 42% at the midpoint. Adjusted EBITDA is expected to be between 47 and 53 million, represented year-over-year growth of 18% at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Please stand by while we pull for your questions. The first question is from Louis de Palma of William Blair. Please go ahead.

Howdy, Ian Gill. Good afternoon.

Hi, Louis. How are you?

I'm doing great. My first question is your defense business expected to be a beneficiary of the increases, the expected increases in European defense spending?

Generally speaking, yes. We are seeing a lot of traction from Europe defense increased budget. You know, nothing yet materialized, but... We are seeing a lot of demand, requests for RFPs, and things like that. So we believe that at mid-term we'll see decent business from Europe that will support our growth in defense.

Great. And it seems that you've made progress with the Boeing line fit. What other milestones need to be achieved for that program before it's implemented?

Generally speaking, there are some adaptation to the terminal, and now we are in the certification process. So it seems like within the next two or three quarters, we'll get this qualification and we'll be ready. And then it's up to the customers to order it.

Great. Thanks. And for Peru, how should we think of revenue linearity over the next few quarters? I think you reiterated the full-year guidance, but should most of the revenue be in the fourth quarter, or how should we think about it?

So, Peru linearity is a bit challenging. So, we do expect Peru, you know, revenue run rate to be $45 to $50 million. This quarter was relatively low because several large projects that are about to be renewed The renewal was delayed, and we expect to have it hopefully in Q2, and if not, in early Q3. In addition, part of the recurring revenue in Peru, we need to deliver some hardware equipment once every year, and we do expect it during the third quarter. This is a chunk of $7 or $8 million of hardware revenue every year. In addition, there are several... large project, especially large expansions of existing projects where we are not competing against others. It's just negotiation with the government, and we expect to conclude the negotiation in the next few months, and revenue will return to the same level that we saw in recent years.

Great. That's it for me. Thanks.

Thank you, Louis. See you soon.

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

Hi. Can you hear me okay, gentlemen?

Yes, we do.

Great. Sounds like your organic growth in defense is going quite well, and you're stepping up OpEx a little bit there to make some investments in both R&D and sales. My question then really is more about the commercial side, how that's evolving, you know, the Stellar Blue unit and its integration with the balance of your commercial business. From a sales perspective, do you feel like you have sufficient go-to-market resources in place today to achieve your goals you've set for Stellar Blue, or is that something you're still adding on? And the second question related to that is, you know, is the nature of these relationships, these sales relationships, is it Is it generally more technical, more engineering-to-engineering related, or is there actually a lot of competitive bidding going on kind of on a periodic basis?

Thanks. Okay, so in terms of progress at Stellar Blue, I think we made very good progress during the quarter. One of the main risks in the acquisition was the It's a new product introduction from a startup company. And the market acceptance and the feedback we are getting is really amazing. More than 150 aircraft already installed, perform more than 70,000 flight hours with seamless connectivity, with relatively no issues whatsoever. We do have some supply chain issues with one of the LRUs, one of the component manufacturers. We identified ahead of time, and we are working internally on replacing this unit. The new unit is under qualification and certification processes, and we expect that during... Towards the end of this quarter, early next quarter, we'll have both solutions available, and we'll be able to accelerate deliveries and revenues to customers. So I think we are on track with that. We are doing cost reduction on the terminal, and we expect to see much better margins along the year. So we remain with our guidance for Stellar Blue products, of revenues of between $120 to $150 million, with reaching a run rate of adjusted EBITDA of more than 10%, sometimes during the second half of the year. I think we have internally enough resources to achieve our goals. I think we have a strong backlog that covers Most, if not all, of our market guidance. We do expect to get some large orders in the next few weeks or a few months, the latest. We need to remember that those orders are coming in batches, not one or two, rather hundreds or several hundreds every time. And we believe that we'll meet all our objectives with Taylor Blue along the year. As for selling efforts, most of the technology sales is with Intelsat and Panasonic and the IFC service providers. Over there, we need to be chosen and to prove that our technology is superior upon competitors. It's Interstat and Panasonic. They need to go and fight in the market with the airlines to get the awards over there. And when needed, we are supporting them. I think that our superior technology helps them in their competitive market environments.

That's great. Very thorough response there. Appreciate that. And you mentioned on the call earlier a next generation product coming. I assume that's coming from the stellar blue side. Can you walk through kind of the differentiation there compared to your current generation product? What's coming at the end of the year? And when do you think it might start to achieve revenue?

So in general is to take the existing Sidewinder ISA and adjust it a little bit to support military, defense, ISR and VVIP aircrafts. We expect, we already started the work and we expect it to be finished some during 2025 and some early 2026. We do expect to get some orders If not by the end of the year, then early next year.

All right, great. That's all I have to say. Thank you.

Thank you, Ryan.

The next question is from Sergei Glinyanov of Freedom Broker. Please go ahead.

Hello, Adi, Gil. How is it going? Hi, Sergei. Thank you for taking my question on. So a little bit about Sidewinder. What monthly production rates do you have for now and what do you anticipate by the end of the year? We know that you have a long-term target rate at roughly 100 per month. So what's going now and what do you anticipate by the end of the year?

So Indeed, we are expecting by the end of the year to, before the end of the year, to reach to about 100 units per month. Right now, in most of the units, we are give or take very close to this production capabilities, except from the fact that, as I said earlier, we are missing one specific unit that we are working both internally and with the existing vendor to accelerate his production and to introduce additional product alternatives. So I believe that towards the end of Q2, early Q3, we will reach close to 100 units per month.

Yeah, sounds great. So that you mentioned that you have not worked at this point closely for now because it's certification you should pass. And in terms of primary and secondary aviation markets, what revenue structure do you anticipate for this year and for long term?

I'm not sure I understand the question. Can you again repeat it and clarify?

Yeah, sure. So now you're working primarily with the aviation airlines, I think, and you have not worked closely with Boeing because you should pass your certification. for Stellar Blue, but what delivery structure in terms of primary and secondary aviation market do you expect for this year and for long term?

Okay, so you're talking about the breakdown between line fit and retrofit. So currently in 2025, 100% of our revenues will come from retrofit, meaning putting the antenna on existing fleets. We do expect that towards mid or the second half of 2026, the split will be closer to 50-50. And on the long term, I think that it will be slightly more line-fit than retrofit, although the retrofit will continue to be a significant market for us.

Yeah, got it. Adi, you mentioned you'd like to expand the SightWinder application in ISR and VVIP. Does it not harm your original product like ESR2030? Or maybe you can put some colors about that?

Sure, sure. First of all, for the same... For the same market segment, in some cases, we have more than one product. The ESR-2030 is a LEO-only antenna that can work on KU, meaning on one web constellation. The Sidewinder is a multi-orbit LEO geo-antenna, and it fits to a larger aircraft, and it's another product for the same market segment. So I think that both products will go together. It's not really replacing each other.

Okay, thank you. I got it. That's all from me. Thank you very much.

Thank you, Sergei.

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

Thanks, Adi. I just wanted to follow up on the Sidewinder. I think you mentioned you're working towards defense.

Yes. Chris, we lost you. Chris?

I'm checking this out. The next question is from Omri Afroni of Oppenheimer. Please go ahead.

Hi, guys. Thanks for taking my questions. I was wondering a little bit more about the certification process in the Boeing lineup. Is it part of the earn-out you're going to do with Stellar Blue? Is it a piece of the $25 million of the strategic contract that if Stellar Blue signs, you need to pay them? Thanks. And then I have another question.

Sure. So this specific deal with Boeing was signed before we signed the acquisition. So it's not part of the earner. There are several types of line fit that might, also with Boeing, that might

um will trigger an out payment but this specific technical service agreement oem offerability is not part of the part of the year not so um so just to be just to clarify it in the next two or three quarters um you're um forecasting to have a certificate that uh new uh the stellar blue antenna will be line-fitted into the Boeing production, is it right?

Correct. It's a, Intelsat will be able, Intelsat or Panasonic or any other customer will be able to install the Sidewinder antenna in Boeing premises.

Okay, so that's where, so that will trigger the $25 million of earn-out or it's not part of it?

This is, as I said earlier, This is not part of the earnout. This is a specific agreement was signed before we signed the agreement.

Okay.

For example, it will be part of Boeing portfolio, and you will be able to order this with the aircraft. Then it can trigger earnout payment.

Okay. Got it. Thanks for that clarification. And about EBIT, 10% EBIT run rate in the second half of 25, one of the steps in the early air amounts was to get into the profitability of the Stella Blue products. Does the lower EBIT now from the products have any effects on the air and out you need to give to Stella Blue, or the stage one and stage two air and out is still in place?

So it's a good question with a very long answer. So in general, when we build the air and out, we build it in a way, especially the first air and out, is to reduce significantly the production risk. With that, we are more than satisfied with the current status of the production rate. Having said that, the actual deliveries are lower than what the urinals require because of this missing component that I explained earlier. And because it's the first unit, they are slightly more expensive in terms of cost than what we expect the usual run rate will be. We are already starting to see the cost reduction, and we do expect that during the third quarter, we will reach to the expected costs and margins with Taylor Blue. So, you know, if you summarize what I said, then right now the first turnout is not on track from... payment perspective. Still, you know, we have seven weeks until the end of the quarter, and everyone at Stellar Blue is working very hard in order to meet the earn out, to expand deliveries, and to reduce the costs. As for the second earn out, it depends on the number of units, new units orders, and at least based on the forecast that we are seeing right now, We are on track to get those orders.

Okay, got it. Thanks for taking my questions.

Pleasure.

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

Thanks, guys. Can you hear me?

Yeah, we hear you great.

Ah, that's better.

Okay. Following up on orders, you had mentioned that you expect some additional Sidewinder orders? Presumably that is based upon orders already won by the customer, or do your airline customers place orders for antennas, I assume not, in advance of them actually winning a large batch of planes?

So right now we are not working directly with the airlines, although we support our customers with those sales. So typically we are getting the orders from the Intelsat and the Panasonic of the world, and we do expect them to place some orders in the next few weeks or months.

Correct, but presumably that's based upon orders that Intelsat has already won with airlines.

Correct. They are ordering for inventory, but against business that they already won. Perfect.

Also, you mentioned a UAV terminal during, I think, the script. That's the first one I can recall.

I mentioned that we sold a DCAT, a transportable terminal, to a leading UAV company. It's part of their portfolio to manage the UAVs.

Got it. If I can switch real quick just to the balance sheet, since this is the first we've kind of seen Stellar Blue folded in there. So Gil, some questions for you. There was a large step up in advance from customers and other long-term liabilities, and obviously a big step up in amortization. Can you give us some visibility on those items?

Yeah, sure. So of course, we applied the acquisition accounting It means that we consolidate all of the assets and liabilities of Stellar Blue into the balance sheet. So there are some advances that you can see and other items. On top of that, we applied in the purchase accounting PPA, purchase price allocation, under which we've allocated the excess amount that we paid on top of the tangible assets to Goodwill and to other intangible assets, as well as creating a provision for the earn out according to modeling the earn out and in present values. So this is mainly what you can see in the balance sheet. On top of that, I mentioned the $60 million loan that we took in order to execute the acquisition, and you can see that as well on the balance sheet. All of these items, except for the goodwill, are reflected in the P&L. The intangible assets are depreciated. Most of the assets, the underlying assets, are the backlog. the technology and the customer agreements. So we depreciate it over their effective life. So the backlog would usually be four to six quarters, and the other assets would be much longer, like 10 years. And, of course, we have financing expenses for the loan in the P&L.

I understand. And so, I mean, what should we model, you know, ballpark for amortization this year, or maybe just DNA? I mean, is Q1 a good run rate, or does it not fully capture all the amortization?

It is not fully capturing the whole picture, mainly because of the backlog asset, which is not so linear. um i i would say that about uh 3.5 million dollars of amortization are expected there quarterly during the first year including the backlog including the backlog of course okay um great and um the large gateway order is that still something that we expect to happen sometime here in 25 yes

Are you talking about the SkyEdge 4 gateway, or you're talking about LEO constellations?

LEO constellations.

LEO constellation, you know, the SkyEdge 4 for MEO and GEO, we do expect to have large orders. On the LEO constellation, so as I said in the last call, OneWeb right now, OneWeb Gen 2 is right now on halt until YouTube will better understand the synergies between OneWeb and... and Iris Square. With Iris Square, we expect to get RFIs and RFPs during the, they said before the end of the second quarter, I suspect there will be a bit of a delay. So let's say Q3. And again, they said awards before the end of the year, but I would give it another quarter. So there is a risk that the decision taking will be delayed to early next year. But at least from discussing with the different part of the consortium, they are on track with their plans. We received some kind of questionnaire about in what areas do we want to compete and things like that. So, in general, we see that the plans are on track. In addition, we do expect to get a large order to SSPA for existing LEO constellation, which we cannot name the name of the customer.

Great. Final question, Gil, just to clarify. For the full-year guidance, Q1 using the 7.6 million reported or the, you know, 11.2 that would reflect the extra charges to Stellar Blue?

No, the 7.6.

It's the 7.6, yes.

The 3.6 of Stellar Blue is just to clarify that organically we made significant progress in terms of profitability this quarter, but the guidance we gave to the market includes Stellar Blue as well. And I think this is the place to remind that... Gilat, it's really hard to measure Gilat quarter over quarter because of the way we do business with large and small deals, with different margin profile between regions, between segments. So I think that the best way to look at the Gilat results is the current quarter or the current four trailing quarter with guidance for the year. And we are on track today. to achieve our guidance for the year, both on the top line and on the bottom line, based on very large backlogs that we have. I think that we have close to 80% of our backlog covering the revenues for the year and additional pipeline of opportunities that we have in front of us.

Great. And if the best way, we did get the segment reporting broken out by defense and commercial. I didn't notice, did you file the historical pro formas for that? And second question, would you consider reporting EBITDA margins by segment in the future?

So, in the future, we will consider. You will see it. six-month report with the prospectus that we are maintaining. And filing pro forma is required only to maintain those kind of reports. So we need to take a decision if we are extending it or not. And based on that, if we will decide to extend it, then we are required to provide pro forma as well. We are working right now on the pro forma results to be ready to be filed once we take a decision.

Great. Thank you, and good luck for the balance of the year here.

Thank you, Chris. Thank you.

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

Yes, thank you. Can you hear me all right?

Yes, Gunther.

Oh, great. Thank you. Yes, I missed part of your comments on the effect of the tariffs. Could you kindly repeat some of that, please?

Yes. So, in general, it's too early to assess the effect, because it's emerging daily. We did an analysis and we understood that based on the existing rates, the effect is not significant. In addition, before all the turmoil started, we identified it's going to start and we started to shift some of the raw material sourcing from high to low-tariff countries and shift a lot of production into the U.S., especially for the products that we manufacture to the U.S. DoD. So in general, I think that overall, at least as it seems like, now that the effect is not high, we are still monitoring closely the situation and react based on actual news.

Hello? Yes. Yes, thank you. In other words, it seems like the situation is rather stable rather than unstable. Would that be a correct statement?

Again?

Yes, yes. Thank you very much, Adi.

Thank you, Gunther.

There are no further questions at this time. Mr. Binyamini, would you like to make your concluding statement?

Yes, 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 to speak to you on our next call. Thank you very much and have a great day.

Thank you. This concludes Gilad's first quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.