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Operator: Ladies and gentlemen, thank you for standing by. Welcome to Gilat’s First Quarter 2023 Results Conference Call. All participants are at present in listen-only mode. Following management’s formal presentation, instruction will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, May 9, 2023. By now, you should have all received the company’s press release. If you have not received it, please contact Gilat’s Investor Relations team at EK Global Investor Relations at 1-646-688-3559 or view it in the news section of the company’s website, www.gilat.com. I would now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin?

Ehud Helft: Yeah, good morning and good afternoon, everyone. Thank you for joining us today for Gilat’s first quarter 2023 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern Time today, May 9, as a webcast on Gilat website for a period of 30 days. Also, please note that investors are urged to read the forward-looking statements in Gilat’s earnings release with a reminder that statements made on this earnings call that are not historical facts may be deemed forward-looking statements within the meaning of the Private 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 Gilat, and which may cause actual results to differ materially from anticipated results.

Gilat 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 expressly disclaims any obligation to do so. More detailed information about risk factors can be found in Gilat’s reports filed with the Securities and Exchange Commission. With that, let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilat’s CEO; and Mr. Gil Benyamini, Gilat’s CFO. I would now like to turn the call over to Adi Sfadia.

Adi Sfadia: Thank you, Ehud, and good day to everyone. I want to thank you for join us today for our first quarter 2023 earnings call. 2023 started very well for Gilat. The first quarter of 2023 was another quarter in which we showed solid year-over-year revenue growth. Our growth was broad, across multiple business areas in total 15% compared to the same quarter last year. Adding to that, the significant improvement in our profit margins, with gross margins reaching a multi-year high of 42% and adjusted EBITDA of $8.4 million, more than tripled the adjusted EBITDA of the same quarter last year. As you can imagine, I’m very pleased with the results of the first quarter. Looking ahead, we are increasing our profitability expectation for the year.

We expect GAAP operating profit of between $16 million to $20 million and adjusted EBITDA of between $31 million to $35 million, while keeping the revenues guidance at the same level of between $260 million to $280 million. 2023 is turning out to be a very strong and profitable year for Gilat. I’m pleased to highlight 3 major activities achieved this quarter: first, we continue to make great progress with our strategy to be the partner of choice for the satellite operators: second, we signed this quarter a strategic agreement with the leading IFC service provider with the potential of tens of millions of dollars for this development and supply of electronically steered antenna; and third, we signed an agreement to acquire DataPath Inc., a U.S. defense integrator to significantly boost our defense offering, focusing on the U.S. Department of Defense.

I’ll now focus on some additional business achievement and opportunities. The new era of satellite communication continue to be primarily focused for Gilat. We strengthen and expanded our strategic relationship with the satellite operators, SES and Intelsat, receiving orders of tens of millions of dollars during the first quarter of 2023. During the first quarter, Hispasat is the leading global satellite operator based in Spain, chose kites for Gilat’s next generation platform for its new highly flexible and efficient Amazonas Nexus satellite. In further testament to the great market acceptance of SkyEdge IV, as we experienced additional operators choosing Gilat’s next generation platform. We have a growing pipeline of operators that see the value of the SkyEdge IV, which was designed to meet the need for VHTS multi-orbit software-defined satellite and sales in multiple applications, particularly no quality with the expanded strategic partnership with SES to include also classic SES is existing new constellation in addition to SkyEdge IV already being platform of choice for the O3b mPOWER and SES-17.

Furthermore Intelsat is strengthening its strategic partnership with Gilat, and joint the multi-service capabilities of Gilat’s platforms and terminals such as in-flight connectivity and cellular backhaul. As a reminder, SkyEdge IV was chosen for Intelsat high throughput satellite IS-40e, which was launched last month. In our SSPA products line, we are on track, we previously reported project with significant potential for large NGSO constellation. The IFC segment remains a strategic market and significant growth engine. As I mentioned earlier, I’m excited to share the win for a major ESA project with the potential of tens of millions of dollars with the leading IFC service provider. The ESA terminal will enable us to increase our IFC presence with an additional product and to enter new market segment such as IFC for business jets, as well as connectivity for government and military aviation.

With this ESA project is an important turning point and growth engine as we enter to the new promising and growing ESA market. Furthermore, we’re collaborating with our partners on several potential projects for both ESA and IFC transceivers for that client. In additional, Intelsat continue to expand its global IFC network to include both SkyEdge IV and SkyEdge II-c working together. This demonstrates a great advantage to our partners on upward compatibility, while protecting their past investments. We expect even further expansion as IFC picks up and into broaden the global coverage increased capacity to serve additional aircraft. Gilat’s platforms will operate on multiple satellites, including Intelsat IS-40e, Intelsat Nexus IS-46 and Intelsat E10B.

During the first quarter, we signed an agreement to acquire DataPath Inc. a U.S. Defense satellite integrator. It’s a major step in our initiative to increase our presence in the strategic growing defense market. The acquisition is an important milestone for the extension of Gilat’s business into the U.S. DoD and government sectors, as well as into other international government and defense markets. The acquisition price of the fixed component and an airline component, the together total to our enterprise value of up to $45 million, as part of the acquisition, Gilat will assume approximately $15 million are made up of debt mainly to banks and most of the reminder of the purchase price of up to $30 million including the airline [ph] portion will be paid in Gilat.

I’m pleased that we are progressing well with the closing of the transaction that is subject to certain regulatory approvals, mainly approval in the U.S. We expect our revenues in the defense sector to increase by approximately $50 million on a yearly basis following the closing of the acquisition, which is expected in the third quarter of 2023. In addition, this quarter we launched 2 new products for the defense market that we expect to further enhance our offering. First is the endurance. A modular hot swappable high power amplifier solution designed to disrupt the industry by its ability to replace existing software solution based on new technology. The U.S. DoD is already evaluating this SSPA for a significant software program, once certified we expect full order value of millions of dollars per year in the coming few years and the ability to pursue additional U.S.D [ph] and commercial programs.

The second addition to our portfolio for the military and government market is the new satellite model SkyEdge IV. This new model can also operate with SkyEdge II-c, and as such protect past investment of customers, we’ve already adopted Gilat’s training platform. In our strategic cellular backhaul growth engine, we continue to expand our global presence with multimillion dollar of orders. We continue to receive orders from leading mobile network operators as well as from satellite operators who have chosen Gilat as the lead technology for cellular backhaul, including this quarter in Australia, Latin America, and Africa. In the enterprise market, two deals stood out during the quarter. First, in Asia, a multimillion dollar order was received to expand an advanced disaster response national network to ensure service continuity.

And second, in Latin America, a world leading financial service company is deploying millions of dollars of Gilat technology across the country for communication backup over satellite to expand the reliability and robustness of the network. In Peru, we made progress this quarter with Pronatel accepting the network in our fifth project in the Ica region. This will allow us to shift to the operation trade that to provide services to customers. Furthermore, I’m pleased to report that in January this year, Gilat Peru received about $3.2 million as initial payment for the first arbitration of the 12 arbitrations once against Pronatel and the Peruvian Ministry of Communication in 2018 and in 2022 for a total amount of approximately $29 million.

To conclude, I believe that Gilat today is in best position. It has been in a long time. Revenue is growing strongly with bookings, backlog and pipeline at a very healthy level. This is due primarily but not solely, of the strengthening and growing of the relationship with the satellite operators to significantly build our position in the defense market with the agreement to acquire DataPath and to embarking on ESA terminal project ISP with the potential of tens of millions of dollars. Just as important, looking ahead, we are well on track with our revenue expectation for 2023 of between $260 million to $280 million, representing year-over-year growth in revenue of 13% at the midpoint. We’re increasing our profitability expectation, GAAP operating income of between $16 million to $20 million and adjusted EBITDA of between $31 million to $35 million, representing year-over-year growth of 31% at the midpoint.

I’m looking forward to successful year and materializing many of the opportunities discussed as well as capturing additional large project. And with that, I hand over to Gil Benyamini, our CFO. Gil?

Gil Benyamini: Thank you, Adi. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented on both GAAP and non-GAAP basis. We regularly use supplemental non-GAAP financial measures internally to understand manage and evaluate our business and to make operating decisions. We believe that these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance. Non-GAAP financial measures mainly exclude the effect of stock-based compensation, amortization of purchased intangibles, lease incentive amortization, litigation, income or expenses, income related to trade secrets claim, restructuring and reorganization costs, merger acquisition and related litigation income or expenses, impairment of health for sale assets, other expenses, income tax effect on adjustments, one-time changes of deferred tax assets and one-time tax expense related to the release of historical tax draft earnings.

The reconciliation table in our press release highlights this data and our non-GAAP information presented excludes this item. I will now move to our financial highlights for the first quarter of 2023. Overall, as Adi mentioned earlier, we’re very pleased with the strong start of 2023. We reported a 15% year-over-year growth in revenue and a significant improvement in profitability. Non-GAAP gross margin was at a multi-year high at 42% and our adjusted EBITDA reached $8.4 million more than 3X over Q1 last year. We’re well on track with our revenue targets for the year and today we also increased our GAAP operating profit and adjusted EBITDA guidance, which I’ll cover later. In terms of our financial results, revenues for the first quarter were $59 million, 15% higher than the first quarter of last year, which were $51.4 million.

The improvement was driven by growth in the Satellite Network segment, mainly from the VHTS and NGSO, IFC and cellular backhaul vertical. In terms of the revenue breakdown by segment Q1 2023 revenues from the Satellite Network segment were $33.5 million compared to $24.8 million in the same quarter last year. Significant increase mainly resulted from the large deals delivered this quarter to our strategic customers in the IFC and Maritime markets. Q1 2023 revenues of the Integrated Solutions segment were $12.9 million compared to $13.7 million in the same quarter last year. Q1 2023 revenues of the Network Infrastructure and Services segment were $12.5 million compared to $12.9 million in the same quarter last year. I would now like to summarize our first quarter both GAAP and non-GAAP results.

Our GAAP gross margin in Q1 2023 improved to 42% compared to 32% in the same quarter last year. The improvement in our gross margin was due to a particularly favorable product and services mix recognized this quarter, and the higher level of revenue. Please be aware that revenue margins and profitability may fluctuate between quarters and as an outcome of the revenues volume and the mix. It’s recommended to analyze the profitability according to the trailing 4 quarters and in light of the annual guidance. The gross margin in the trailing 4 quarters was 38.6% compared to 33.4% in the trailing 4 quarters that ended on March 31, 2022. GAAP operating expenses in Q1 2023 were $17.7 million in the quarter at a relatively similar level of those of the same quarter last year.

We’ve received a first payment of approximately $3 million for the first 2 arbitrations won against Pronatel and the Ministry of Communications in Peru in 2018 and in 2022 for a total amount of approximately $29 million, which is included only in the GAAP numbers and offset much of the increase in the operating expenses in the quarter. GAAP operating income for the quarter improved $7 million compared to an operating loss of $1 million in the same quarter last year. GAAP net income in the first quarter was $5.6 million or diluted earnings per share of $0.10. This is compared to a GAAP net loss of $2.5 million or a loss per share of $0.04 in the same quarter last year. Moving to the non-GAAP results, our non-GAAP gross margin in Q1 2023 improved to 42% compared to 32% in the same quarter last year.

Non-GAAP operating expenses in Q1 2023 were $19.5 million compared with $16.7 million in the same quarter last year. The increase was mainly due to an increase in R&D expenses to support our long-term business growth. Non-GAAP operating income for the quarter improved to $5.3 million compared to an operating loss of $0.3 million in the same quarter last year. Non-GAAP net income in the first quarter was $3.8 million or diluted earnings per share of $0.07. This is compared with a net loss of $1.8 million or loss per share of $0.03 in the same quarter last year. Adjusted EBITDA for the quarter was $8.4 million over 3X improvement compared with an adjustment EBITDA of $2.5 million in the same quarter last year. Moving to our balance sheet, as of March 31, 2023, our total cash and cash equivalents, including restricted cash were $89.7 million compared to $87.1 million on December 31, 2022 and compared to $75.1 million as of March 31, 2022.

We did not hold any debt. In terms of cash flow, we generated $6.2 million in operating activities during the first quarter of 2023. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were 77 days higher than previous quarter’s DSO, which were 72 days. The increase was impacted by decrease in revenues, partially offset by decrease in receivables due to higher collection in the quarter. Our shareholders’ equity as of March 31, 2023 totaled about $250 million compared with $244 million at the end of December 2022. Looking ahead, as I already mentioned, we have increased our GAAP operating income and EBITDA guidance for the year. Our expectations remain for a strong 2023 with revenues of between $260 million to $280 million, representing year-over-year growth of 13% at the midpoint; GAAP operating income of between $16 million to $20 million, representing year-over-year growth of 81% at the midpoint; and adjusted EBITDA of between $31 million to $35 million representing year-over-year growth of 31% at the midpoint.

That concludes my financial review. I would now like to open the call and we’re happy to take your questions. Operator?

Operator: Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from Chris Quilty of Quilty Space. Please go ahead.

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

Operator: The next question is from [Alon Laft of Metta] [ph]. Please go ahead.

Operator: The next question is a follow-up question from Gunther Karger of Discovery Group. Please go ahead.

Operator: [Operator Instructions] There are no further questions at this time. Mr. Benyamini, would you like to make your concluding statement.

Gil Benyamini: 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.

Operator: Thank you. This concludes Gilat’s first quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.