Gilat Satellite Networks Ltd. (GILT) Earnings Call Transcript & Summary

Hello. I'm Jay Woods, Chief Global Strategist of Freedom Capital Markets. Thank you for joining us again for our latest installment of Freedom Fireside Chats. And speaking of joining us again, we're very happy to have President of Gilat's Commercial Division, Ron Levin, joining us with a nice announcement. Ron, thanks for joining us.

Thanks for having me again, Jay.

You just announced a $40 million contract.

So yes, we just announced a milestone contract for Gilat, a $40 million deal for development and deployment of a virtual version of our market-leading SkyEdge IV system, and it's really exciting, exciting times.

Yes. I can't wait to learn more about it. So what exactly is the SkyEdge IV platform? And who is the end client?

So we can't really expose the client at this point. But to talk a bit about SkyEdge IV. So SkyEdge IV is Gilat's, as I said, market-leading satellite communication platform, a system comprised of a hub and terminals. In this case, we're talking about taking the hub system and moving it from a hardware-based platform to a software-based platform. If I take it, maybe break it down a bit, basically that of 3 parts. So we have the RF part, the RF system, which actually communicates with the satellites. And then we have the data processing elements, and we have the network management. And we're taking all of those that are today based on dedicated hardware and moving them to a cloud-based architecture. I have to say that in my 13 years in Gilat, I've seen a few generations of our platform evolving. This is, I think, the biggest technological leap that we're taking on ourselves.

Wow. So yes, I was about to ask you about what kind of milestone is this for you? Someone that's been there for 13 years, you just answered my question. You seem very excited. The team sounds like they're ready to get going. And let's talk a little bit more about the technology behind it. One of the things that makes the SkyEdge IV technology so special is the cloud-native architecture, that non-terrestrial network, that 5G non-terrestrial network. This is really going to speed this up. How significant is that increase? And is this becoming the gold standard now going forward in your eyes?

Yes. So the nice thing about SkyEdge IV is that it's already been selected by several of the market-leading satellite operators, and it's already delivering today as is on the hardware-based platform, gigabits and gigabits of capacity per terminal. We're supporting some of the largest cruise ships in the world and some of the largest airlines in the world with this platform. The nice thing is that we're taking a step approach towards 5G NTN, which is the future. So initially, we're taking the platform as is and moving it to be software-based and cloud native. It means actually that the customers that have already made investments, those investments will carry them through to the future, meaning they'll be able to work simultaneously with software-based platform and hardware-based platform, no need for a forklift upgrade. And then once everything is software-based, that gives us a very easy path towards changing the waveform and moving to a 5G NTN waveform, which is really what we're seeing our customers look for in the, let's say, midterm future.

Got you. Now the financial impact, I know you can't go into deep dives on this, but a $40 million contract should be great in terms of revenue going forward. It's being delivered over 24 months. Is this a timetable that is standard? Describe the timetable of 24 months, if you could.

Yes. So this is -- as I mentioned earlier, there are several steps to this development because we have the 3 elements of RF chain, data center and management. So it takes quite a while to transfer everything there to be software-based. So it takes about 24 months. And in terms of the revenue, we're recognizing it according to the progress of the work. So it's about -- over the 24, about a $20 million recognized per year. That's correct.

And I saw recently that you did reaffirm your guidance for the fiscal year, $415 million to $455 million. So this is after that reaffirmation, correct?

Yes, this is correct. We -- obviously, this is not a deal that happened overnight. We were negotiating for a while, and we took it into account in the guidance with the PWIN probability. So it was already calculated in, and we reaffirmed the guidance based on this and other projects that we have ongoing in deliveries.

And the last time we talked, it was after the Stellar Blue partnership. How has that been so far?

So it's progressing nicely. We haven't had many announcements on the market, but it is progressing nicely. We've seen the business pick up, and we're quite happy about that acquisition.

Yes. And as far as this contract goes, do you see any follow-on opportunities with this client?

Definitely. I mean when we look at this, it's a development of the next version of our SkyEdge IV platform. It's meant for deployment on upcoming satellites, and we definitely see room to grow once the development is finished to additional capacity by this client. But not only that, we see huge opportunities for this platform on most of the upcoming software-defined satellites, and there are several of those in the pipeline by several satellite operators. So we see a huge opportunity there, not to mention the NGSO constellations, if I look at IRIS square or OneWeb Gen 2 and the GEO constellations, there's huge opportunity there. For this platform and the future 5G NTN. So yes, we see a huge opportunity in the market.

Well, you break news like we did with Stellar Blue and now this, the market does react positively. When that announcement came out on June 3rd, the stock was up 6.6%. I assume you're too busy to even worry about the stock performance, but the Street seemed to like it. So what do you think was behind the Street's positive reaction to that? You put yourself in the investors' seat, what do you think they expect from you now going forward?

So first of all, we're always looking at the stock prices like our shareholders. But for that reaction, it definitely shows the confidence in Gilat's technology and our ability to deliver and really the confidence that this, as I mentioned previously, unlocks a huge potential of new business going forward. And also moving to a software-based platform unlocks probably more efficiencies and new business models that we'll be able to support going forward. So I think the stock market is excited -- as excited as we are about this.

Yes. And it's been an interesting time. It's been very volatile in the stock market. One thing that we can never avoid is market volatility. The headlines have been a little crazy as everyone knows around the world. But what is the one thing that excites you the most going forward about Gilat? The first time I talked to you, it's Stellar Blue partnership. Now it's this contract. There's a lot going on. What excites you to come to work every day? And what are the things you look forward to next?

So I think, you're right, the market is a disruptive market, and there is a lot of volatility. But when I look at Gilat, I mean, look at this contract, this kind of puts a stake in the ground for Gilat to advance our technology and open up opportunities for us. The Stellar Blue acquisition, obviously allows us to grow into the in-flight connectivity terminal market. We're putting a lot of investment, and we're starting to see the results on the defense side. So all in all, I think Gilat is making the right move and it's a really exciting time for our industry and for Gilat.

And we're excited that you took the time out to just talk with us and share the good news. We've been talking with Ron Levin, the President of Gilat's Commercial Division. Thank you, Ron, and keep up the good work.

Thanks, Jay. Always glad to speak with you.