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

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Second Quarter 2026 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded August 5, 2026. By now, you should have all received the company's press release. If you have not received it, please view it in the News section of the company's website, www.gilat.com. I would now like to hand over the call to Mr. Sanjay Hari of Alliance Advisors IR. Mr. Hari, would you like to begin, please?

Thank you, Hila, and good morning, everyone. Thank you for joining us for Gilat Satellite Network's Earnings Conference Call for the second quarter of 2026. With us on the call today are Mr. Adi Sfadia, Gilat's CEO; and Mr. Gil Benyamini, Gilat's Chief Financial Officer. 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 revenue from key customers, delays or reductions in U.S. and foreign military spending, acceptance of the company's new products on a global basis and disruptions or delays in the company's supply of raw materials and components due to business conditions, global conflicts, weather and other factors not under their control. The company cautions investors to not 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 that could affect Gilat's financial results is included in the company's filings with the Securities and Exchange Commission, including the latest reports. 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'd like to turn the call over now to Gilat's CEO, Adi Sfadia. Please go ahead, Adi.

Thank you, Sanjay, and good day, everyone. Thank you for joining us today to discuss Gilat's second quarter 2026 results. I am pleased to report that Gilat delivered a strong quarter. During the second quarter, we continued to strengthen our position, advance important strategic initiatives and execute successfully across our Defense, Commercial and Peru businesses. Second quarter revenues reached $122.7 million, representing 17% year-over-year growth and adjusted EBITDA reached $15.4 million compared with $11.8 million in the same quarter last year. For the first half of 2026, revenue reached $233.1 million and adjusted EBITDA reached $30.5 million. Overall, the first half of the year demonstrates continued progress across our strategic growth engine, Defense and IFC. During the quarter, we announced a significant strategic milestone with the signing of a definitive agreement to acquire most of Comtech's Satellite and Space Communications segment. The transaction is expected to expand our position in mission-critical Defense and Satellite Communications, strengthen our U.S. presence, broaden our technology portfolio and more than double Gilat Defense revenues. The closing of the transaction is expected towards the end of the year and is subject to several regulatory approvals such as HSR and CFIUS and other customary closing conditions. Now on to the business review. I will start with the Defense. Gilat Defense continued to build momentum, supported by increasing global demand for mission-critical SATCOM solutions that can operate reliably in dynamic mobile and contested environments. Recent conflicts have highlighted the importance of communication system that provide mobility, rapid deployment and operation continuity across land, sea, air and space domains, driving increased demand for resilient and deployable SATCOM capabilities. These evolving operational requirements align well with our Defense portfolio and the operational and sales capabilities we have built. During the quarter, we received important awards that demonstrate our growing Defense activity in both the United States and Europe. In the United States, Gilat Defense received orders totaling $11 million to supply SATCOM terminals and field services to the U.S. Department of War. This award highlights continued demand for Gilat Defense's resilient multi-orbit connectivity solutions and services and reinforce Gilat Defense role as a trusted provider in the U.S. market. Gilat Defense received multimillion dollar order to supply SATCOM terminals to European Ministry of Defense. These terminals are designed to meet unique operational requirements, combining ruggedized hardware with advanced multi-orbit operability to deliver resilient communications in challenging environments. This award reflects the continued recognition of Gilat's field-proven technologies and reinforce our expanding role in the European Defense market. During the quarter, we made important progress in product innovation for unmanned platforms. During Eurosatory, we introduced the Viper Ka, our UAV Ka-band ESA terminal designed to support unmanned ISR and tactical UAV applications. The Viper Ka ESA terminal is designed for resilient multi-orbit connectivity, supporting operations across multi-orbit satellite constellations and delivering secure low-latency communications with low swap for mission-critical unmanned operations. Overall, our Defense business continues to gain momentum, supported by growing demand in both the U.S. and Europe and continued investment in technologies that address evolving Defense requirements. With the closing of the acquisition of Comtech Satellite and Space Communications in parallel, we believe Gilat Defense will be equipped to pursue even larger opportunities and support the growing demand for secure, resilient mission-critical connectivity. Turning to our Commercial business. Our Commercial business continued to show strong progress during the second quarter, particularly around our SkyEdge platforms and IFC portfolio. Satellite operators and IFC service providers are moving towards more flexible, scalable and multi-orbit architectures, and Gilat has a ground segment expertise, PSA portfolio and customer relationship needed to support this transition. Our SkyEdge platforms remain a key foundation for next-generation satellite networks. During the quarter, we received more than $20 million in orders from a leading global satellite operators awarded mainly for our SkyEdge platforms and services. We expect to see additional demand for our SkyEdge platforms as operators continue to deploy next-generation constellations and upgrade their ground infrastructure. In IFC, the Sidewinder ESA terminal is progressing into large-scale deployment. During the quarter, we received $43 million of orders from a leading IFC service provider for Sidewinder ESA terminals with deliveries for both Line-fit and retrofit. These awards support continued growth in our mobility business and further validate Sidewinder's role in next-generation multi-orbit IFC architectures. The Boeing Line-fit program and certification activities continue to advance during the quarter. Through integration partners, Boeing will offer Line-fit installation capability, helping accelerate deployment time lines and reduce the cost and operational disruption associated with retrofit programs. We are progressing well towards full certification, an important step in making Sidewinder ESA terminal Commercially available as Line-fit options. Deliveries of the first units are expected in Q4 this year. In parallel, we have begun the process to line fleet availability with Airbus and received an order as part of this effort, further expanding the long-term opportunity for Sidewinder across the Commercial aviation market. Overall, our Commercial business continues to benefit from growing demand for multi-orbit connectivity across both network infrastructure and mobility applications. With continued traction for our SkyEdge platforms, strong momentum for Sidewinder and progress on both Boeing and Airbus lines programs, we believe we have a strong foundation for additional growth opportunities as the market continues to evolve. Our Peru business continues to execute well with solid operational progress across our social inclusion programs. We completed work in the first three regions of our infrastructure upgrade program, and we moved to the operational phase in parallel with the supervision activity. In expected to be completed during the third quarter. These milestones continue to demonstrate Gilat Peru's ability to deliver large-scale communication projects efficiently and reliably. We continue to advance discussion on several significant project expansion while actively pursuing additional large-scale opportunities that support Peru's ongoing investment in social inclusion and nationwide connectivity. I am pleased to say that we continue to have a strong backlog and a healthy pipeline. Therefore, we are reiterating our 2026 annual guidance. We expect 2026 revenues of between $500 million and $520 million and adjusted EBITDA of between $61 million and $66 million. The Satellite Communications market continues to benefit from growing demand for resilient connectivity, mobility applications and multi-orbit networks. We continue to see favorable market dynamics across our Defense and IFC growth engines, supporting our long-term growth strategy. Gilat Defense continues to be one of our primary growth engines. We are seeing increasing investment in Defense communication across the U.S., Europe and other allied markets, supported by ongoing demand for advanced SATCOM solutions. We believe our portfolio and continued focus on innovation provide a strong foundation for future growth. Our Commercial business continued to benefit from the industry transition towards multi-orbit networks and next-generation mobility services. We see continued opportunities for our SkyEdge platforms as operators expand network capacity and capabilities, while Sidewinder remains a strong contributor to the growing demand for advanced IFC solutions. Our second quarter results reflects continued execution across the business and reinforce our confidence in the opportunities ahead. Backlog and pipeline during the second half of the year support our full year outlook and reinforce our confidence in the long-term growth opportunities across the business. And with that, I will hand over the call to Gil Benyamini, our 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 a GAAP and non-GAAP basis. I will now walk through our financial highlights for the second quarter of 2026. As Adi mentioned, we delivered a strong second quarter with 17% year-over-year revenue growth and 31% year-over-year growth in adjusted EBITDA. Growth was broad-based across all three segments and adjusted EBITDA grew faster than revenues, demonstrating solid operating leverage. In terms of our financial results, the revenues for the second quarter were $122.7 million, representing a 17% growth compared with $105 million in Q2 '25. The revenues for the Commercial segment in Q2 '26 were $83 million compared with $69.1 million in the same quarter last year. The 20% growth year-over-year was primarily driven by revenues from the In-Flight Connectivity vertical. Revenues for the Defense segment in the second quarter of '26 were $22.5 million, 12% higher than $20 million in the same quarter last year. Q2 '26 revenues for the Peru segment were $17.2 million, 8% higher than $15.9 million in Q2 '25. Our GAAP gross margin in Q2 '26 was 30%, in line with the same quarter last year. The decrease in the gross margin compared to Q1 '26 is mainly attributed to less favorable deal mix in the Commercial segment, partially offset by higher gross margin in Peru segment. GAAP operating expenses in Q2 '23 were $32.6 million compared with $26.2 million in Q2. The increase was primarily attributable to an earn-out provision related to the acquisition of DataPath, which was recorded in GAAP G&A expenses. As a result, GAAP operating income was $4.7 million compared to $5.7 million in Q2 '25. GAAP net income in Q2 '26 was $8.1 million or a diluted income per share of $0.10 compared with GAAP net income of $9.8 million or diluted income per share of $0.17 in Q2 '25. Turning to non-GAAP results. Our non-GAAP gross margin in Q2 '26 was 32% compared with 33% in Q2 '25. The decrease is primarily attributable to a less favorable deal mix in Defense and the Peru segment, partially offset by improved margins in the Commercial segment. Non-GAAP operating expenses for the quarter were $26.3 million compared with $25.2 million in Q2 '25. Non-GAAP operating income in Q2 '26 was $12.6 million, 35% higher than $9.3 million in Q2 '25. The non-GAAP net income in Q2 '26 was $15.6 million or a diluted income per share of $0.20 compared with a non-GAAP net income of $12 million or income per share of $0.21 in Q2 '25. The difference between the growth in the net income and the diluted earnings per share reflects the higher diluted share count due to 166 million raised in the last trimester of 2025. Adjusted EBITDA reached $15.4 million, 31% higher than Q2 '25, reflecting strong operating leverage on higher revenue. Adjusted EBITDA margin expanded to approximately 12.6% compared with approximately 11.2% in Q2 '25, an improvement of 1.4%. Moving to the balance sheet and cash flow. During the quarter, we used approximately $1.9 million in operating cash, primarily reflecting working capital timing. We ended the quarter with a strong liquidity position of $159 million, comprised of cash, cash equivalents, restricted cash and short-term deposits. DSO was 110 days, excluding Peru construction activity and remain within our expected range. Our shareholders' equity as of June 30, 2026, totaled $545 million compared with $536 million on March 31, 2026. Looking ahead, based on our backlog pipeline and expected delivery plan, we are reiterating our full year '26 guidance. Revenues are expected to be between $500 million to $520 million, representing 13% growth year-over-year at the midpoint. We expect an adjusted EBITDA of between $61 million to $66 million, 19% growth at the midpoint and continued margin expansion. Importantly, we are maintaining this outlook despite of unfavorable movements in the Israeli shekel versus the U.S. dollar, which are expected to increase our operating expenses in the second half of '26. That concludes my financial review. We would now like to open the call for questions. Operator, please go ahead.

[Operator Instructions] The first question from Louie DiPalma of William Blair.

Over the years, Hughes has been referenced as one of your larger competitors. Do you see any impact from the bankruptcy in terms of potential opportunities or strategic activity?

So indeed, Hughes over the years were a significant competitor of Gilat, mainly on the geo side, but they are also the sole provider of OneWeb modems. Hughes is also a customer of Gilat. We sell them SSPAs. We also buy from them modems to integrate with our Sidewinder multi-orbit ESA antenna. We do have a small debt from them, a few hundred thousand, really insignificant. Based on the indication we got from them that they said that they have intention to pay all their debt and continue business as usual. I suspect that some of the customers will have uncertainty to work with a company under Chapter 11, especially customers that require long-term development efforts and long-term service needs. And over there, we see opportunity to penetrate.

Great. That is helpful. And at the recent Defense industry conference, you announced the Ka-band Viper antenna as part of your RaySat subsidiary. What Ka-band constellations should that antenna support? And what are the major applications that you envision seeing the greatest demand for the antenna?

So generally speaking, it's going to support all the Ka constellation from GEO satellites through Telesat LEO and mPOWER Ka. It can be installed on several types of, and also Amazon, by the way, it can be installed in several types of UAVs and support all the relevant applications that those UAVs are required to do.

Okay. And how small of unmanned aerial vehicles can be antenna support? Does it go as small as Group 3 drones? Or are the drones needed to be much larger?

No, it's from small to medium UAVs.

Excellent. And on another topic, I was wondering, can you provide an update on the Stellar Blu milestone payments such that I think there were different milestones perhaps related to the Line-fit or strategic partnerships for this year. So can you provide an update?

Definitely. So the last milestone of Stellar Blu was to sign a strategic agreement. The milestone was until June 2026. We didn't meet, although we signed an important agreement during the quarter with the Airbus, it didn't met the qualification in the agreement to meet the earn-out requirement. So basically, we paid $99 million for the Stellar Blu, $98 million for the Stellar Blu acquisition. And now we are free from earn-out obligations and working on cost reductions and large deployment with our customers.

And are you able to share what was the revenue for Stellar Blu in the quarter or just the growth for Stellar Blu relative to last year?

I can share that this quarter was a record quarter in terms of the number of terminals that we delivered, more than 200 terminals we delivered this quarter, a nice growth over the previous quarter. The Stellar Blu revenues are part of the Commercial revenues and since the Commercial revenues is an integrated segment, it's hard to break the information. This quarter, we have a book-to-revenue ratio on the terminal side that was higher than one.

Next question is from Chris Quilty of Quilty Space.

Just as a follow-up on that. Do you know how many terminals are actually installed and operating now?

I don't remember the exact number. I think it's around 600 units, slightly more than 600 units are installed and operated.

Chris, I think it's important to emphasize that the installation is to our customers, not up to us. We delivered significantly more units than that, and the installation is dependent on their timeline and their agreement with the airlines.

Got you. And do you know are the installation times compressing, because typically, these would take a long period of time. And I think Starlink is doing these in a matter of hours nowadays.

I know that they are working hard to and run to install. It really depends on the aircraft availability and maintenance windows. I think that they are about to finish the second large order in the next few months.

Understood. And are you moving closer or still in negotiations with any other airline customers that you think are likely before end of the year?

We are not engaged directly with the airlines. Most of the engagement is done through our partners, SPS and Panasonic. We know that they got several awards that we are not allowed to expose. And in some cases, they don't share with us all the opportunities upfront. We know that they are bidding on some very large opportunities that can drive significant revenue growth in the future.

Great. Gil, just a question on the segment growth here. If I look at your prior forecast for the Defense segment, I think it's got to grow about 40% in the second half over the first half. Is that still a good trajectory for the Defense segment? And I guess, same for the other two segments, still tracking on the beginning of the year forecast? Or has it shifted?

Yes. So our forecast is based on firm backlog and delivery schedule and pipeline and the forecast for the Defense is as we presented, and we definitely see a much higher H2 in the Defense compared to H1. And this is, again, aligned with the backlog and expected book-to- ships in the second half of the year.

And the Commercial segment was better than I had forecast in Q2, but I assume that's primarily hardware shipments related with the large number of terminals shipped.

Yes, it's a combination of the deliveries of the sidewinders that Adi mentioned, the record delivery and hubs and other network equipment that might shift a bit to the right or to the left. And yes, it was better than expected.

Understand. And on the SkyEdge IV platform, are you yet seeing any early pull from your customers have a lot of software-defined satellites on orbit. I think we're looking towards next year for the delivery of those systems. Or do you not expect to see firm orders until satellites are on orbit?

No. The way we work with our customers that in some cases, they advance orders. They want to be ready when the satellite is in orbit. We do expect to get some large orders from our existing customers and new customers. There are several satellites that are planned to be launched next year. And in some cases, we are in competition process. And in some cases, we expect to get the orders.