Gilat Satellite Networks Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Gilad's second quarter 2025 results conference call. Participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded August 26, 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 day to everyone. Thank you for joining us for Gilott Satellite Network's earnings conference call for the second quarter of 2023. With us on today's call are Mr. Avi Stavia, Gilad's CEO, and Mr. Gil Benyamini, Gilad's CFO. The earnings press release was issued earlier today, and if anyone has not received a copy, I invite you to visit the company's website at Gilad.com, where you'll find the release in the investor relations section. Before turning the call over to management, I'd like to remind everyone that some statements made during the conference call contain forward-looking statements based on current expectations. Actual results could differ materially from these projected as a result of various risks and uncertainties. The potential risks and uncertainties could cause actual results to differ materially, include uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spend, acceptance of our new products on a global basis, and disruptions or delays in our supply of raw materials and components due to business conditions global conflicts, weather, 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 only 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 could affect KeyLot's financial results, is included in the company's filings at 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 corresponding GAAP figures. With that, I would now like to turn the call over to ILAC CEO, Adi. Please go ahead, Adi.

Thank you, Alex, and good day, everyone. Thank you for joining us today to discuss Gilad's second quarter 2025 results. Please note that we are posting a PowerPoint presentation on our website with all the data we will discuss today. The second quarter not only showed strong performance, but also validated our growth strategy across each of our growth engines. Our priorities in 2025 remains on capturing the growing opportunities emerging from our acquisition of StellarBlue earlier this year, and investing in Gilad Defense to better positioned to drive revenue growth in 2026. These drivers, along with our strong presence in VHTS and NGSO constellations, continue to fuel our growth and strengthen our market leadership. Second quarter revenues reached $105 million, a 37% increase year over year, which includes about $36 million in revenues from Stellar Blue. Adjusted EBITDA was $11.8 million, 17% above the same quarter last year, including Stellar Blue's expected ramp-up losses of about $1.5 million. Excluding Stellar Blue loss, our adjusted EBITDA for the second quarter was about $13.3 million, representing a 32% year-over-year increase. Stellar Blue's yearly performance remains on track, with revenue expectation of between $120 million and $150 million. Now on to the business review. In the second quarter, our defense division continued to set the foundation for future growth. Continuing geopolitical tension and shifting global security priorities are promoting governments to increase their defense spending and allocate more of their budget to secure satellite communications. This is generating increased interest in mission-critical SATCOM solutions and Gilad Defense is well positioned to meet these evolving operational needs. We are seeing active engagement from customers across multiple regions, including North America, Europe, and Asia Pacific. Gilad Defense is also extending our global footprint by leveraging top line synergies between Gilad, Datapath, and Wavestream by offering a broader range of solutions to defense customers. In the second quarter, over $8 million from Gilad Data Pass systems were ordered by the Israeli Ministry of Defense, demonstrating the strong value of our technology and the applicability of our solutions to diverse mission requirements. During the second quarter, Gilad Data Pass was awarded a contract to provide the field service and technical services in support of the U.S. Army. The award includes an initial order of more than $7 million with an option to extend the program for up to five years, reaching estimated order of up to $70 million. With a clear strategy, a growing global presence, and unwavering focus on mission-critical connectivity, GILAC defends its position for substantial growth and long-term impact in this essential sector. Turn to our commercial business. Q2 was a milestone quarter driven by strong bookings, strategic wins, and continued adoption of our next-generation satellite communication platform. Our momentum reflects both the accelerating transformation of the industry and Gilad's success in aligning the technology and solutions with the need of our customers. One of the most significant announcements this quarter was the signing of a $40 million contract for a virtualized Skyhawk platform. This landmark agreement not only demonstrate the trust our customer place in Gilad, but also highlight the critical industry shift in our satellite communication infrastructure is being deployed. SkyH4 virtualization empowers operators to move to cloud-native software-defined environments designed for scale, agility, and interoperability with next generation satellites. Evolving to a software-only cloud-based platform elevates Gilad's positioning with higher value, improved margins, and provides the option to sell through a platform as a service business model. During the second quarter, we announced over $47 million in orders from tier one satellite operators. These orders underscored the surging demand for Gilad multi-hole with ground segment technologies, driven by increasing demand for IFC solutions and the widespread adoption of GEO, MEO, and LEO architectures. Operators are making substantial investment in ground system that can seamlessly manage multi-OB connectivity across a range of use cases, including fixed broadband mobility solutions and critical government services. These orders also span multiple regions and program types, including both network expansions and new deployments, highlighting the global relevance of our technology and the growing trust in our platform to support mission-critical services. Moving on to Stellar Blue, we announced receiving $27 million in orders from our Stellar Blue portfolio. With more than 150,000 community flight hours and deployment of over 225 terminals, Gilad Sidewinder ESA terminal is exceeding expectations for performance, reliability, and user experience. Production ramp-up is progressing slowly, and we expect to see more units delivered in Q3 and Q4 this year with better margins. Stellar Blue continues to work closely with its partners to secure new fleet wins. We are confident these efforts will yield positive results soon. Looking ahead, we remain focused on expanding our leadership across key verticals and deepening our relationship with strategic partners. With strong customer demand and differentiated technology portfolio, we believe Gilad is well positioned for continued growth in our commercial businesses. Q2 was an outstanding quarter for Gilad Peru, highlighted by the award of more than $60 million in new orders from Puanatel. As a reminder, these orders were delayed last quarter. The awards are for upgrading the regional network infrastructure that was originally awarded to us in 2016, bringing high-speed internet to more than 800 public institutions, including schools, health care, and police stations across more than 280 localities. This award reflects Gilad Peru's continued partnership with the Peruvian state and our longstanding commitment to digital inclusion, demonstrating once again the key role Gilad Peru plays in delivering meaningful nationwide impact. Digital inclusion is a key priority worldwide and the expertise developed by Gilad Peru in connecting remote and underserved communities is now being leveraged in other regions around the world allowing us to replicate proven models and accelerate similar projects globally. In Peru, we still expect to receive several large RFPs and orders from existing project expansions and renewals in the coming few quarters. I am pleased to say that we continue to have a strong backlog and a healthy pipeline of opportunities in all divisions. On the strength of our results here today, improved visibility and business momentum We are resetting our full year guidance. We are narrowing our revenue range to $435 to $455 million for a higher revenue growth rate of approximately 46% at the midpoint. We have also narrowed our adjusted EBITDA guidance range, now targeting between 50 to $53 million for a higher growth rate of approximately 22% at the midpoint. ELAT remains strategically well positioned for sustained for secure, high-performance connectivity across commercial and defense markets. As satellite networks evolve, expanding in capacity, shifting to multi-orbit, geo, MEO, and LEO architecture, and moving towards software-defined infrastructure, our portfolio is uniquely equipped to meet these emerging requirements with the scalability, flexibility, and reliability our customers expect. Gilad Defense continues with a focused roadmap and expanding sales resources broaden engagement and awareness of our technological expertise and our role in supporting the mission-critical satellite connectivity needs of governments and defense agencies in the U.S. and allied countries. In our commercial division, we are meeting the growing industry demands for virtualized, software-defined ground infrastructure that enables more agile, scalable network deployments. Our multi-orbit platforms are delivering seamless connectivity Gilad as a key enabler of next-generation satellite networks. At the same time, Gilad's site in the ISA terminal continues to gain traction with ongoing progress in integration and certification across multiple aviation segments. In Peru, we play a vital role in expanding access to digital inclusion services, strengthening public infrastructure, and supporting long-term national connectivity goals. Our local presence and trusted partnership with the Peruvian state remains key differentiation as we help close the digital divide in under-served regions. We are very happy with the progress we are making across the company and remain focused on advancing our priorities, deepening customer relationship, and delivering meaningful results as we support the evolving needs of a rapidly changing satellite communication market. And with that, I will hand over the call to Gil Benyaminia, CFO.

Gil, please go ahead. Thank you, Adi. Good morning and good afternoon to everyone. Before I dive into the numbers, 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 second quarter of 2025. As Adi mentioned, we're very pleased with our second quarter performance. We closed the second quarter and the first half of the year, delivering sustained improvements in our results, giving us strong momentum going forward. In terms of our financial results, Revenues for the second quarter were 105 million, 37% increase compared to 76.6 million in Q2 24. In terms of revenue breakdown by segments, Q2 25 revenues for the commercial segment were 69.1 million compared to 43.4 million in the same quarter last year. The 59% increase was primarily due to the contribution of Stellar Blue which we acquired in early January this year, Celerblue generated $36 million, which was partially offset by the termination of our activity in Russia in 2024. Q2 25 revenues for the defense segment were 20 million, similar to the second quarter last year. Q2 25 revenues for the Peru segment were 15.9 million compared to 13.9 million in Q2 24. Our gap gross margin in Q2.25 decreased to 30.4% compared to 34.7% in Q2.24. The decrease is primarily due to lower margins instead of low as it ramps up production as well as amortization of purchased intangibles. Gap operating expenses in Q2 25 were 26.2 million compared to 23.8 million in Q2 24. The increase is primarily due to consolidation of sterile blue, amortization of purchased intangibles, partially offset by other income, which included proceeds from an arbitration that were recognized in Q2 25. As a result, gap operating income in Q2 25 was 5.7 million compared to gap operating income of 2.8 million in Q2 24. Gap net income in Q2 25 was 9.8 million or diluted income per share of 17 cents compared to gap net income of 1.3 million or diluted income per share of 2 cents in Q2 24. Moving to our non-GAAP results, our non-GAAP gross margin in Q2 25 decreased to 32.9% compared to 36.8% in Q2 24. Non-GAAP operating expenses in Q2 25 were 25.2 million compared to 20.9 million in Q2 24. The non-GAAP operating income in Q2 25 was 9.3 million compared to 7.3 million in Q2 24. Non-GAAP net income in Q2 25 was 12 million or a diluted income per share of 21 cents compared to a net income of 5.6 million or income per share of 10 cents in Q2 24. Adjusted EBITDA in Q2 25 was 11.8 million compared to an adjusted EBITDA of 10.1 million in Q2 24. Our Q2-25 organic adjusted EBITDA excluding Stellar Blue losses was approximately 13.3 million, a 32% increase compared with Q2-24. Moving to our balance sheet, on January 6th, 25, the company secured their $100 million credit line from bank consortium, from which we utilized $60 million to finance the acquisition of Stellar Blue. As a result, as of June 30, 2025, total cash, cash equivalents in restricted cash were 65.4 million or approximately 5.5 million net of loans compared to 3.8 million on March 31, 2025. In terms of cash flow, we provided 5.1 million from operating activities in Q2 2025. DSOs, which excludes receivables and revenue of our terrestrial network construction projects in Peru were 60 days, a decrease from 75 days in previous quarter. Our shareholders equity as of June 30, 25 totaled to 316 million compared with 300 million at March 31st, 25. Looking ahead, as Adi mentioned, we're narrowing our guidance range and raising the guidance midpoints for 2025 revenue and EBITDA. Revenue is now expected to be between 435 million and 455 million, representing year-over-year growth of 46% at the midpoint. The adjusted EBITDA is expected to be between 50 and 53 million, representing year-over-year growth of 22% at the midpoint. 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 are dialing in, please press star 1. If you've connected via Zoom, please use the raise hand button located at the bottom of the screen. Please stand by while we poll for your questions. The first question is from Ryan Koontz of Needham & Co. Please go ahead.

Great. Thanks for the question. I wanted to ask about the ramp at Stellar Blue. Obviously, doing well there. How are you feeling about the second half ramp, your ability to meet customer demand? And then from a margin perspective, improving margins on Stellar Blue, can you give us a rough idea of where those margins are at today and where you expect them to be at the end of the year, particularly on a non-gap basis, would be really helpful. Thank you.

Hi, Ryan. Good to hear from you again. So I think that the production ramp-up in the state of Louis is progressing. As you remember, last quarter we said that there is one specific component that our vendors are struggling with, So we are seeing better results in the third quarter and our internal solution is in certification stages and will be ready for shipment towards the end of this quarter. So we definitely see a ramp up in StellarBlue ability to deliver in the third quarter and even more in the fourth quarter. As for the overall margins, I will let Gil to give you the input.

So our margins are ramping up a bit slower than expected, mainly due to the component challenge. We see them ramping. We started the year still at a low rate pace, and now we're moving to a regular production pace. So I guess that we'll see towards the third and even more in the fourth quarter and in the beginning of next year, we'll see more material improvement in the margin of the product.

Great. That's helpful. Thank you. And then on your virtualization win for SkyEdge 4, what's the fulfillment model look like there? Are you just shipping software to COTS hardware? Are you having to ship appliances with that? And then how do you think about pricing and utilization there? Do you sell licenses? Can it be sold on a – consumption-based or even a subscription-based model? What's happening with the virtualized SkyH4, please?

So the initial order that we receive is basically to operate our software on a cloud commercial off-the-shelf equipment. So it will be from Revenue recognition perspective, it will be a licensed sale or a capex sale. It's a one-time sale plus ongoing maintenance services. Future upgrades will be also a software-owned. The overall business or the price is give or take the same price as if we sell the hardware, but in this case, the customer needs to bring It's all on hardware. In most of the cases, most of the customers will prefer to build their own private cloud, but it will be able also to run it on a public cloud. We also have several flexible business models, including where we build the cloud for the customers, provide our licenses, do some kind of a platform of a service or a subscription-based or consumption-based model. Based on our history, most of the customers at the end wants to buy in a CapEx mode, but we are open for a recurring revenue business model as well.

That's great. Thanks for that. Maybe just one last question on Peru. Are there any major decisions coming in the second half of this year that you think can improve that business top line?

Yes, I think that the order that we received this quarter will delay at least from late December and will help us ramping up Peru's revenues in 2025 But we do expect another large order in the next few weeks or the next two months. And in addition, there are several large RFPs that are expected to be issued by the Peruvian government. And we expect to participate in those RFPs. And even if we take some of them, it will help us to generate significant growth in Gilad, Peru.

Great. Thanks for all that. That's all the questions I have.

Thank you, Ryan. The next question is from Lee DePalma of William Blair. Please go ahead.

Good afternoon.

Hi, Louie. How are you?

Great. What are the main contributors to the improved outlook that weren't in the the prior guidance or the different assumptions. And should we assume that the new programs that you've won in terms of the revenue carries over into 2026?

Can you repeat the first question? You were a bit disconnected.

Yeah, no problem. What are the main contributors to the improved guidance?

Okay, so the main contributor, you know, we started the year with a relatively high range of the guidance because of the acquisition of StellarBlue and the unknowns. in this acquisition. Today, we have much better visibility both to Stellar Blue and Gilad. The last recent business award, the significant award that we announced, and the backlog that we have, including the opportunities that we feel comfortable in our pipeline, gave us the assurance that we can increase our guidance for the year. Now, as for your second question, some of the awards that recently we received will be dragged as well into 2026, and some of it even further, like Peru, which is building the network or upgrading the network, and then another four to five years of recurring services.

Fantastic. And you discussed, I believe you said that there are now 225 stellar blue sidewinder terminals that have been deployed, which I assume means are flying. What is the backlog now for future shipments? It seems that you've won and you announced and you discussed on today's call several new contracts and you had original contracts with American Airlines, Air Canada, and I believe also Alaska Airlines. So what is the backlog? What was the backlog at the end of the quarter?

So we... It's not a data that we are providing on a quarterly basis, but when we acquired Stellar Blue, we said that we have close to slightly below 1,000 aircraft in backlog. So you can do the math. There are additional awards that our customers already received, but haven't placed a PO with Gilad. So we do expect to have... large orders in the next few weeks or coming quarter.

Great. And also related to Stellar Blue, what is the status of the different milestone payments associated with the acquisition?

Okay. So I'll remind everyone that we have three types of air and outs. The first milestone ended at the end of the second quarter and was to reduce the operational risk and the new product introduction risk. Stellar Blue had to deliver 350 terminals before the end of the second quarter, which they failed, BILAC failed to do. We delivered only 225 aircraft because of several reasons, but mainly because of the production ramp up and some vendors inability to deliver products on time. So the first A&R payment is not going to be paid. The second A&R is to get new orders of summing to a range of between $120 to $140 million. And it's until the end of the fourth quarter this year. And I think it's too early to tell if we will meet the end out milestone or not. We do see a strong pipeline with our customers. So we do expect to get a significant amount of orders before the end of the year. So I believe that there is a very good chance that Stella Lou will be able to meet the milestone. Of course, it's need to be in the profitability that was set in the agreement. So the cost reduction initiatives that we are taking, including shifting some of the production internally and developing some substitute product to a very expensive one, needs to take, needs to happen. And we are on our way of doing so. The sale there now is until mid-2026 and is signing up to four strategic agreements. Each one is about $25 million. Strategic agreement need to be at least $35 million of orders is significantly better profitability than the existing one. And to be a, door opener to a new market. So it should be, for example, line fit with Airbus, significant order from defense customers and other tier one vendors in the market. We have an ongoing discussion with several strategic customers, but it's really too early to say. There is almost a year until the end.

Great. And that is super helpful. And one final question. It seems that UTELSAT has signed agreements to raise significant funding from different parties to support OneWeb Gen 2 or the general OneWeb constellation. And what is your view of how OneWeb Gen2 and Iris Squared will proceed. Do you believe that OneWeb Gen2 and Iris Squared are going to be the same constellation? And what are the potential opportunities for Gilat associated with both of these plants?

So we, you know, based on the discussion we had with you two in the last several quarters, They want to integrate OneWebGen2 and IRIS2 together as the same as SCS with their MEO100 and the IRIS2 because IRIS is going to be a multi-orbit constellation. So they want to tie it together and they won't take any decision on OneWebGen2 before they will know exactly what is going on with IRIS2. As for Iris Square, we received the first RFI this quarter for the end-user terminal. And additional RFIs will follow, and then RFPs. We do believe that awards will be granted not before mid-year next year. know the irish square is uh i think is uh almost fully subsidized by the finance by the eu regulator and the 12 billion euro um a project i think 40 percent also comes from the operators, from UtahSat, SCS, and ISPAsat, and the rest is coming from the European Committee. All in all, we believe that IRIS2 will be a bit delayed, but they will launch the constellation, and then OneWebGen2 will follow. For Gilad, it's a very... For Gilad, it's a... Sure.

Thank you. And one final one. The Intel set SES merger recently closed. And I know it only closed a few weeks ago. But have you observed any changes in customer behavior as both SES and an Intel set are fairly large customers of yours? And how would you assess the impact of the deal?

Yeah, so we'll just add one small thing about Iris Square. I think it's an extremely important and very large opportunity for Gilad. We have a decent EU presence, which we... give us the right qualification to participate in the program. And as such, we received the RFI. So we do see this is a top priority for Gilad to get an award over there. As for Indersat and SCS merger, indeed, I think there are three or four weeks into the merger. But what we see today is that the people that we used to work on both sides are there. And from customer perspective, the relationship are very strong. We keep on seeing a lot of interest on both sides, both from Intel's side and from SCS for Gilad equipment. On the terminals, on the ISA side, on the Sky4 side, and also on the Skype to see for IFC side. So we do expect to see a significant business from the combined company in the next few months.

Fantastic. Thanks, everyone.

Thank you, Louis. Talk to you soon.

The next question is from Omri Efroni of Oppenheimer. Please go ahead.

Hi, guys, and congrats for the great quarter. I have a few questions about Stellar Blue as the other analyst. Last quarter, you said the guidance was for Stellar Blue from the revenue between $120 million to $150 million, and EBITDA positive in the second half of 2025. So I only wanted to make sure that the guidance is still intact. That's the first one. And then for the follow-up, And I was wondering about if you can give some more color about the defense division and what are you seeing here? So, and what do you see from demand, especially from the Israeli defense ministry in Europe? Thank you.

Okay. So yes, the guidance will still stay in place, 120 to 150 million dollars. In revenues, we do expect them to significantly reduce the losses and to show a positive EBITDA. You saw in the announcement that in my script, I said that we reduced the losses from $3.5 million in the first quarter to $1.5 million this quarter. And we do expect them to progress quarter over quarter and show positive EBITDA on the second half of the year and even to be able to reach a 10% EBITDA ratio towards the end of the quarter. I'm not sure it will be a full quarter, but towards the end of the quarter, once the cost reduction will be in place and we will be able to start delivering the replacement for the component that is developed by another vendor, we'll see a decent profitability from Stellar Blue. As for the defense, we do see a lot of interest from several countries. It's mainly discussions on capabilities and things like that. We're having a lot of proof of concept and demo sessions, not only in Europe, but worldwide. In parallel, we are building our sales force, investing a lot of money in that to see the increasing in our OPEX, also in new product and solutions for the defense. One of them is our next generation tactical model, which will be one of the most advanced and resilient model in the industry. And in Israel, we announced several awards and we still have ongoing interest. Of course, I cannot get into Sometimes I don't know order specific because in some cases it's a secured project. But we are progressing very well in all fronts. Also in the US, we announced several large orders on the service side, on the product side. And there is a lot of business going on that we'll see in the next quarter or two.

Got it. So just if I may, just to be clear, even with the component change from the other vendor that is going to take place in the end of the third quarter, still the guidance of the Stellar Blue acquisition is intact, even with the new component.

Yeah. It's still staying in place. Most of the information that I'm giving you today We knew in advance when we gave the guidance at the beginning of the year. Development and ramp-up of production sometimes take time, but I think that we are progressing on a monthly basis, and we see the progress. You saw the significant reduction in the losses this quarter, and I'm sure that we'll move to a positive EBITDA during the second half of the year.

Okay, thank you very much.

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

Thanks, guys. I just wanted to follow up on the Stellar Blue and the order front. I know that I think last quarter you were certified by Panasonic, which is, I think, one of your big lead customers. So fair to expect we should see something this quarter in terms of announcements. And additionally, where should we look for large follow-on orders from Are these done more directly with the airlines or do you have other partners you're working with?

Hi, Chris. So, yes, we started to work on the certification with Panasonic last quarter. We are about to finish them. We already received from Panasonic prior to closing an order of slightly below 100 aircraft. And we expect to see additional order. But you know, Panasonic and Intercept and other customers usually don't order in advance. They usually order back to back and there is about nine months lead time. And they have a delivery schedule that they are committing to the airline. So we do expect to get in the coming months few months older from both Intelsat and Panasonic. In parallel, we are working with other players in the market, but it's in early stages, so it's too early for this time.

Gotcha. I think you also indicated that with the SVS Intelsat acquisition, do you think there was, in advance of the close, you know, any activities, you know, hold up in orders as they process that, that may have created a little near term backlog of potential orders going into the back half a year, or did you just see normal purchasing activity by both entities?

I think we saw normal purchasing activity. You know, in some cases we work together with, together with our partners, helping them promoting, their services and our equipment. And in relatively large number of cases, the order comes back to back when they get the orders from their customers. So we know the situation and business is continuing as usual. We do expect to have a strong second half with the merged company.

Great. A follow-up question on the SkyEdge 4 platform and maybe a specific end market in cellular backhaul, which seems to have slowed down in the last year to year and a half. Are there any specific dynamics that you're seeing there? And how does the new virtualized platform help, if at all, in that particular market?

So in general, I agree that there is a bit of a slowness in the solar vehicle market, coupled by the promise of the direct-to-device and the Leo players that are also aiming this market. What we see right now is significantly less new RFPs and customer extensions. Customers waiting for the 5G NTN and to see how it's going to being integrated with the 5G network that they have today. Direct-to-device cannot provide the speed that the standard cellular backup can provide. We do have, with existing customers, we do get follow-on orders, not in the same magnitude that we saw in the past. We believe that it will take another, I would say several few quarters until the market will return to normal on the cellular backbone. Skyh4, the virtual platform is just running the Skyh4 software over a cloud commercial of the shelf equipment It's not going to, at least not in this space, additional features, but it will allow operators to have the agility and flexibility that they need and also will allow us to sell in a more compelling business model.

I understand. Did I hear you say that customers... Go ahead. Go ahead. So, Gil, I was going to say, you mentioned that on those SkyEdge for sales that, you know, customers are generally making a CapEx acquisition. Are you selling at the same price for the software only as you would have, you know, software hosted on a piece of hardware? Or is it, you know, something less than that? And how do we think about, you know, both revenue growth would slow if you're selling... software only for less, but margins would change. Are we going to see that impact, you know, putting aside Stellar Blue in the model in 25, or is that more out into a 26, 27 impact?

So with respect to pricing, prices are similar between the CapEx hardware model and the software model. From our perspective, prices are the same. Can you repeat the second question, Chris? The effect on the margins. So the effect on the margins is very positive because once we develop the software, it will be more like software kind of margins rather than hard ones.

Chris, I want to add that even today with Skyh4, the ratio between software and the hardware is changed significantly in comparison to SkyH2C. Today, the first day, we provide almost all the hardware the customer will need and all the expansions and the upgrades are almost entirely software. So we are starting to see the effect in the commercial segment. But as you said, SellerBlue takes it a bit down. I think we'll see a gradual progress in the next few years to increase the commercial business margins. But the virtual platform will be ready two years from today. So the real effect, I would say, we will start to see towards, let's say 2000 and the end of 2027.

Got it. And final question on the amplifier wave stream business. I know there's still a large NGSO order out there. Any progress on moving on that?

Yes, there is a lot of progress on this front. We already received more than $30 million. We are delivering in orders. We are delivering every quarter based on the customer needs. We do expect to get additional orders in the next few months. We see also around it also a defense business that can be can be built, so we expect also defense order to this specific constellation, but it has its own pace. It's not everything at one day.

Right, and I lied because I do have one final question for Gil. There were a number of gyrations on the balance sheet between contract assets, inventories, long-term receivables, PB, Harmon Zuckerman, Anything we should focus on there and in terms of modeling.

PB, Harmon Zuckerman, Um, I think that the You know, all the changes are mainly in the working capital related to deliveries. We had some reduction in the inventory due to timing of deliveries between Q1 and Q2. It also affected AR, of course. So the changes over there are relatively significant. relatively large, but more than that, I wouldn't say that there is something new to take into account when you model the company.

So no material changes in either the need or cash generation from working capital as we go through the balance of the year?

No, it always depends on the POs that we get. Some of them, like the Peruvian award that we just reported, is usually associated with advanced payments. So I would expect this to positively affect the balance sheet. in the next quarter or two. But this is something that we're used to see from time to time. So I wouldn't describe it as unique, but just the reflection of orders and its timing on the balance sheet.

Great quarter, guys. Keep up the good work.

Thank you, Chris. The next question is from Gunther Karger of Discovery Group. Please go ahead.

Yes, thank you for taking the question. I have a comment rather than a question. First, I'm particularly pleased with your progress in the defense business, which I long time ago was involved with. big piece of growth business. And secondly, is to congratulate you on the performance. So that's my comment.

Thank you, Gunther.

Thank you.

The next question is from Sergei Glinyanov. Please go ahead.

Hi gentlemen, my congratulations with your performance in second quarter. So, we saw that operating margin is improved compared to first quarter of 2025. What is the primary effect for that improvement of operating margin, if we exclude the effect from maybe you implemented some initiatives that could reduce the cost or something else.

So, hi, Sergey. First of all, Stellar Blue has the most, I would say, substantial effect on the changes in the gross margin comparing this year and then previous year. And we also got some improvement in the gross margin of Stella Blue compared to Q1. So I would say that this is one major driver of the change. We also had some better gross margin in Peru this quarter that also improved the weighted gross margin. So both together created a better gross margin. And of course, the revenue mix also affects the gross margin, although there are no other unique things to discuss, but it can vary and fluctuate between quarters.

Yeah, thank you. And continuing the topic about your backlog, you obtained probably more than $1.5 million of new orders or second quarter. I get that it's pretty much than a year ago and only $27 million for Stellar Blue antennas. What is the backlog of volume in commercial and defense segments now and average exercise period excluding Stellar Blue?

So Adi discussed Stellar Glue before about entering into the deal with about 1,000 antennas. The nature of deals there are not a monthly kind of deals. Usually, it comes in large batches. And as Adi mentioned, we're expecting to see some pretty soon. With respect to the backlog of the commercial and the defense, this is a number that we don't share. I can share with you that we usually have visibility for a year that we enter of at least 50%. for the upcoming year. And then some of the backlog is also relevant for the years after. So without stating any numbers, we have a decent amount of backlog that allows us to see future growth.

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

Thank you so much.

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

Thank you. I would like 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 the last second quarter 2025 results conference call, thank you for your participation, you may go ahead and disconnect.