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

Welcome to this special edition of Freedom fireside chat. I'm Jay Woods, Chief Global Strategist of Freedom Capital Markets. Today, we are going to explore the booming defense satellite communications market, and we are joined not by 1, but by 2 industry leaders. From Gilat, we have Gilad, with a D, Gilad Landsberg, President of Gilat's Defense division. Gilad has over 20 years of defense experience. At this interesting time, I can't wait to pick his brain and take a deep dive into what he's been seeing and how the company continues to grow. And with him is Nicole Robinson. Nicole is the President of DataPath, a key Gilat subsidiary. She brings deep satellite industry experience to the table. Now we're going to take a deep dive and say hello to our guests as we dive into how Gilat is capitalizing on the multibillion-dollar market driving innovation and boosting shareholder value. So let's get started. Gilad, Nicole, welcome.

Thank you.

Thank you, Jay.

I usually go ladies first, but Gilad, I'm going to go to you. Can you share your journey to becoming the President of Gilat's Defense division and what experiences have shaped your approach?

Well, I started in Gilat about 2 years ago. Actually, I'm celebrating the 2 years -- I celebrated the 2 years' mark last week. During the last 20 years, as you mentioned before, I started my career in Rafael. I think everybody knows or heard about this company. That's actually the company who created the Iron Dome, which is very, very famous nowadays. Spent almost 18 years in Rafael, in different areas. Began as a system engineer. And later on, I continued with a company called Aeronautics. Aeronautics, by the way, which is a subsidiary now of Rafael, deals mostly with the tactical and small tactical UAVs, which was quite an experience as well. Spent 3 years there as a division manager and then moved to Gilat. I have to say that during those years, I had the privilege to be a customer for Gilat. So now I move to the other side of the equation, and I found out an amazing and wide world that I was not aware of. So I started Gilat as a COO for about the first 1.5 years. After a while, I got the privilege of being the Executive-in-Charge and a Board member in DataPath. Later on, I got the mission of leading Gilat defense strategy, which was something we found out that we want to do after the acquirement of DataPath. One of the outcomes of the strategy was the creation of Gilat Defense.

You mentioned DataPath. With us is the President of DataPath. Nicole, it's great to have you. You have an extensive background: Comtech, SES, General Dynamics. What drew you to lead DataPath? And how did that symmetry with Gilat come to fruition?

Well, thanks so much, Jay. It's really good to be here with you. Similar to Gilad, in fact, I've been in this industry about 20 years and, as you alluded, across a variety of different space-driven capabilities. What really drew me to Gilat was the passion toward not only delivering next-generation technology to customers worldwide, but the opportunity in DataPath in particular, to focus acutely on the needs of our U.S. government customers, our men and women in uniform. So when Gilat purchased DataPath about 1.5 years ago now, it was really towards the mission of expanding that portfolio, expanding their value into the U.S. government domain, into the U.S. government market. And certainly, with DataPath at the helm, doing a fabulous job of delivering critical SATCOM terminal solutions to that customer set was a perfect fit and one I felt particularly inspired by.

Let's talk about the satellite communications industry. It's expected to reach $6.2 billion in 2025. There's a lot driving this growth. And Nicole, I'll go to you first. What opportunities do you see driving this growth? And what does it mean for Gilat?

Yes. All too often, we focus on the space segment alone. We've got billionaires launching new constellations into new orbits that have not been explored in the past. In some cases, we have billionaires launching themselves into outer space. So there's a sharp focus on the space segment. What's really fascinating to me is how we bring all of that capability together, how we make sense of it from the ground. Our secret sauce is really maximizing the capabilities we have inherent in the modem technologies, the ground systems, and really bringing together a tremendous value to bring all that's happening at space down into the hands of our end users through our terminal and modem solutions. So it's certainly a very exciting time for us, and I know it is for our parent company as well.

Yes. And Gilad, same question to you. What are the things that excite you about the growth? What's driving it? And you're a busy man. What is driving you each day?

The world we're dealing with is entering a new era. Actually, it began a few years ago, and I think that's the most exciting thing. New technologies, new constellations in space. I mean, all of those creates a lot of opportunities business-wise, but it creates also a lot of excitement technology-wise. And looking at the market, we really see the growth. And you mentioned the $6.2 billion, and we actually see that in real opportunities for us, and we just need to adopt and see that we meet the market there where we need to.

Nicole, I just want to follow up with you. With the DataPath integration with Gilat's Defense division, what do you think you -- how do you enhance their offerings the best? What is it that they saw in you and where you're going to take them to another level?

For decades, we've been operating as a trusted provider with the U.S. DoD. In terms of our alignment within the Gilat portfolio, we do operate as a wholly owned U.S. subsidiary and a proxy corporation. And that allows us a couple of things. Chief among them is the ability to operate in the classified arena at the highest level with those U.S. government customers. So I'd say with that trust comes along not only the trust to manage confidentiality and classified programs, but also trust that we will bring the very best to our men and women and our war fighters. I mean that is particularly key. Today, we're the leader in this category with more than 40 of our terminal systems WGS-certified. That's the most arduous defense certification that you can achieve, and we have the most number of them. So really proud to be doing that. In terms of how we're integrating and working well with our parent company, and in particular, with Gilat Defense to really strengthen our offering, there's a couple of different things that we've been doing to that end. We are a systems integrator and a solutions provider at DataPath. We often reflect on the fact that we're technology-agnostic. And with that, it means we will incorporate and integrate the very best of technology in our terminal solutions to support our war fighters. And in doing that, it just so happens that Gilat is the very best. So it works out really beautifully, the modem technologies that have enabled our terminals to go multi-orbit, have enabled our terminals to go multi-frequency. It's really an exciting time, and the integration is off to a really strong start.

Gilad, people may not realize this, but the Defense division wasn't launched until just a few months ago. How do you position yourself in this company in such a competitive market now? What are you going to do to differentiate yourself besides this great partnership with DataPath?

Historically, we saw the defense market as a significant growth engine to Gilat. We talked about the size of the market, and we saw a lot of opportunities in the DoD like the PWSA, the Proliferated Warfighter Space Architecture; or a family of terminals, PLEO, NGS. Lots of acronyms, I'm not going to go through all of them. But we also saw opportunities outside of the DoD like Iris Square in Europe and many others. Basically, since we saw it was a significant growth engine, and we saw some changes and disruptions on the commercial side, the first step we did was acquiring DataPath. That actually was the first, I'd say, serious step that we did towards the defense market. But later on, we started gathering a new defense strategy, which I mentioned before. And the outcome, as I said, was the creation of Gilat Defense because we did find lots of areas that can operate within, but we also find a lot of changes we need to do. So you asked about how we position ourselves in the competitive market. I think if we look from 20,000 feet, 10 or 15 years ago, the defense technology was always 1 step or even 2 steps before the commercial market. I think this had changed. The commercial technology usually is much faster and less conservative than the defense market technology. Since I believe that Gilat has one of the best technologies in the world, and I'm not trying to be arrogant here, I truly believe in that, our main goal was to take the technology we already have, the experience and the expertise we already have in Gilat, and just make sure that we are adopting it the right way to the defense market.

I'm going to throw this question to both of you. I'll see who wants to take it first. But recently, I'll just mention 2, a $23 million Department of Defense contract for satellite transportation terminals, STT units, and an $11 million deal for DKET terminals. You can explain that one to the audience, the DKET acronym. Can you share what these contracts involve and the significance they have for Gilat going forward? And that's just 2 of the recent ones. So I'll throw it to whoever wants to take the ball from here.

Nicole, you start, and I'll complete.

That first one there, the STT, you're right, it's the satellite transportable terminal. This is the DataPath rapid deployment vehicle trailer mount SATCOM system. It's been deployed in the harshest of environments over the past, I'd say, 15 to 20 years. What's so significant about this program, and it was about $23 million in value, it shows an enduring need and reliance of our existing capability. So while we're innovating, we're going multi-orbit, we're going multi-frequency, we're delivering all that new value in keeping with what's taking place on the space side of things, reflecting that on the ground, our existing systems are still very much operationally critical. And so we're really proud to see that STT program, the satellite transportable terminal program, be executed. The other one you mentioned there, too, the $11 million DKET award that we recently announced, DKET stands for defense Ka-band Earth Terminal (sic) [ Deployable KU-Band Earth Terminal ]. The acronym is actually not relevant anymore. These terminals now, this is a 4.2-meter class terminal. They're capable of going up to tri-band, even quad-band. So working with 3 and even 4 different satellite frequencies, they've really extended far beyond what that acronym previously meant. In this particular program, it's about supporting one of the preeminent UAV operators as each of these relocatable 4.2-meter earth terminals can operate up to 4 UAVs at the same time. So it's really fascinating. You often think of UAVs from what's going on under the hood of the aircraft. But in our case, it's the ground system that really gives it the telemetry, the control, the operations, these platforms need. So 2 really exciting wins, and I know Gilad is just as excited about them as I am.

Yes. And if I just need to add to what Nicole said, I think those wins were significant for us as well. First, it symbols the trust that the DoD has with DataPath and the future relations and opportunities for DataPath as well. I think that deals like that gives DataPath -- due to the fact that they're on the ground with the customers, so it gives them a better understanding of the needs and builds future relations and opportunities with our customers. And in the end, the programs are long-term contracts, which are being translated to revenues, to constant revenues, for up to 5 years. And all of those are giving us stability revenue-wise.

Gilad, just a follow-up, building on those contracts, how is Gilat leveraging its NGSO constellation and its defense offerings? Are there specific technologies driving your growth in particular? I know, obviously, the DataPath relationship is one, but what are some of the technologies driving the growth now?

We are actually already actively operational in the NGSO constellations, whether it's through Gilat operations on mPOWER, that's the constellation that is managed by SES. We have Wavestream products. We didn't mention Wavestream until now, but Wavestream is a subsidiary of us, amazing expertise with solid-state power amplifiers. And we have their products already operational on different NGSO constellation. And by the way, same for Stello Blu, that supports NGSO as well. All the time for those areas, we see a growth in the NGSO alongside constant revenue that can come from the GEO constellations as well. Two examples for that is we have the DPI 2.6 meters that we launched during a satellite show in March, which actually is a portable that supports both GEO, MEO and LEO. And another example for that is the GLT 1500, which is a multi-orbit SDR, multi-orbit, multi-waveform, and it was actually designed to be a defense solution from the first moment.

To our listeners, thank you for joining us. Gilat.com, to explore their latest updates and see why this is a stock to watch in 2025 and beyond. Stay tuned for more insights and keep investing smart. I'm Jay Woods, Freedom Capital Markets. Thanks for joining us.

Thank you again for joining us on our latest installment of Freedom fireside chat. I'm Jay Woods, Chief Global Strategist of Freedom Capital Markets. We are joined by not 1 but 2 industry leaders from Gilat, Gilad Landsberg, Nicole Robinson.

So we are living in an interesting time right now with the conflict going on. Are there any real-time examples of how critical defense operations in this real-world environment are being helped by your current technology? Is that something we can discuss? Or is it something that's just too much of a hot button issue right now?

We can certainly discuss it. I think actually, next year, DataPath will have been at the business of developing the terminal solutions and systems integration for 30 years. In the early 1990s, we had the Gulf War; we had Afghanistan in the early 2000s; Iraq, Ukraine more recently and a variety of missions that are not reported. DataPath terminals and systems have been leveraged all the way from manpacks systems and solutions to relocatable hub infrastructure to provide critical communications that, frankly, has been in the business of protecting lives, securing freedoms. I realize that may sound cheeky, but it's no overstatement. That's the business that we're in, and we're very proud to have served in all of those missions and those activities over the past 30 years. And the current operations are no exception. Earlier, we talked about what was so inspiring and really drew me to DataPath and to Gilat's initiatives to really expand the capabilities in the U.S. A big part of that were the individuals here at DataPath that have been critical to all of those missions. When you sit down with some of these folks that have been here 25, in some cases, almost 30 years, and to hear their firsthand experience, to learn what they have contributed to the technology and the impact it's had on human life, it's chilling, it's inspiring and it's the kind of thing that gets you up every morning to say, "This is important, what we're doing." And today is no exception.

Not many people know all the hard work that goes behind the scenes just to get that communication and that network going and thriving. So thank you for sharing that. And now with all these successes, I got to play devil's advocate, too. What are some of the biggest challenges that Gilat faces in the defense SATCOM market? And what are you looking and how do you address them? I'll go to you, Gilad, for that question.

Sure, Jay. It's the second question you're asking that I will not be able to share all the details due to obvious reasons. First one is obvious, which is competition. The market have changed in the past couple of years. We have the entry of significant players. We have the NGSO creation of verticals in the market. So all of those are creating obvious challenges and competition. On the other side, I do believe that especially within the defense market, there are still opportunities since those changes not necessarily affect the market the same way it affected the commercial market. We're aiming to be a solution provider and a one-stop shop to create solutions for our customers. That's one way to deal with this competition. So that's one challenge. The second one is the fact that we're an Israeli company. Technological and operational experience, maybe it's a huge advantage for us, but in certain countries, it might be a disadvantage. And we have ways to deal with that. By the way, the acquirement of DataPath, and the collaboration we're doing now between DataPath and Gilat, was a very good way to solve some challenges that we met in order to start working with the Department of Defense in the United States. The last one, which we're in the middle of dealing with, is the company focus. In the end, for many years, Gilat was a company that dealt with commercial solutions or products. Gilat did deal with the defense market, but it wasn't the main focus. Now taking a huge shift and turning it into working towards the defense market is a challenge. It affects our budgets. The people we recruit, the process we have internally and externally, the products that needs to be adopted, et cetera, all of those are challenging us for many months now, and I'm feeling very, very confident that we're solving most of them or we solved most of them in the past couple of months, and we'll complete solving all of them by the end of the year.

Now I'd be remiss if we didn't talk a little bit about the financial impact. Gilat, a publicly traded company, a nice uptrend, things have been going slowly and steadily along, the growth continues. Nicole, you've been part of that growth. Let me just ask you, we see how you support the defense operations. What kind of revenue impact do you think DataPath brings with the contracts that we've already acquired? Can you talk about the revenue stream side of things without going into any specifics, what you can share?

Yes. Maybe I'll speak in terms of percentages, and I'll keep us in a safe space here. But I think it's been a significant impact. And actually, a very strategic bet that Gilat made back in November of 2023 on DataPath to say, "This company here in Atlanta, Georgia has tremendous potential. We think we're barely scratching the surface here. Let's see what we can do to scale these products, help deliver into new markets, inject with new technologies." And in the first year of full financial reporting for the company, we've grown by 40% revenue. Who in the world wouldn't take a bet like that to say, "We're going to buy a company that in 1 year's time is going to deliver 40% growth." So just a thrilling ride it has been so far. I'm not so sure if it will be that high of a percentage going forward, but it will keep going up, and we're really excited about that and very proud. Every quarter when we have our financial results with the parent company. We're just so very proud to show that this was the right investment to make. And certainly, we talked about scratching the surface of DataPath's potential. It's very rewarding for the men and women of this company to see the technology adopted the way it is and the scale that it's on.

And speaking of the technology side of things, Gilad, we've seen the Stello Blu acquisition. We touched on SkyEdge in defense. What are the key growth areas that you see in the Defense division and the trends that continue? I assume you're busy and the landscape is always changing. So what are the key trends that you're seeing for growth in your division?

Some of them are coming from Wavestream. We are more making some adoptions in order to make sure that Wavestream products are meeting the defense market as well. We are very, very focused on solutions to UAV. You can see the photo behind me, and it's there for a reason. Nicole mentioned the gateways for UAVs already being done in DataPath. But on the other side, we are doing airborne terminals on the side of Gilat. So we can actually provide a full solution for our customers. And not only one side of the equation, we can actually provide the whole equation and not let our customers do the integrations by themselves. So we do see the UAV or the UAS market as a significant market for us. I mentioned before the GLT 1500. We believe that's the future. We hear it from the customers and from the market. The NGSO brought a lot of flexibility and opportunities for the war fighters. And everybody is looking for resiliency. Everybody is looking for a swap. Swap is size, weight and power. Everybody is looking to reduce those and those constellations are actually creating the opportunity to do so because they are closer to the earth.

You mentioned the GLT 1500 terminal. You recently showcased that at the Washington, D.C. event, Satellite 2025. Those must be exciting times to go to these events and deal with people that are, one, interested in your technology, what you're doing, probably trying to steal some of your secrets while they're there as well. But what was some of the buzz going around at that convention?

There were many buzz because actually, we came with 3 different products. The GLT 1500 was one of them. I mentioned the DPI 2.6 meter portable. And we also acquired DS family, which I can elaborate later on. But the GLT was a real star of the show because it really brings the future of SATCOM for land and airborne applications. The fact that you can use the same modem to deal with different constellations and different waveforms, it gives you a flexibility that in order to match today, you needed to have a rack of a few modems that needs power and the weight of it is huge. So I think solutions like this brings the new space era in the eyes of Gilat.

Got you. And now here's something that I'm not familiar with. So you're going to have to kind of explain the Department of Defense. They recently announced procurement reforms for 2025. Could you kind of explain what those reforms are, the purpose of those reforms and what impact they may have on the SATCOM market? Because I tried to research this one, and it was a little out of my pay grade as far as these reforms go.

In general, the reforms are really about streamlining processes, federal workforces, budgets, of course, and procurement. So in many cases, I think the efforts are viewed as a negative in the industry. They're seeing the impact of a reduction in certain spending. There's been delays of certain procurements. I do think there's a silver lining. However, maybe I don't have a popular opinion on this one. But at the heart of many of these efforts is really strengthening the defense industrial base of the United States. And so for DataPath as a U.S. manufacturer of trusted defense satellite communication systems, that's key for us. Without even having the stated requirement, more than 75% of the elements of our solutions are U.S. manufactured. It's important to us. We study the federal acquisitions regulations and the defense chapters of it as well to make sure that we're bringing the very best and we're bringing maximum U.S. content available into our systems, not only to help our war fighters with having the most trusted technologies on the market, but also because it does help strengthen the industrial base of the United States. So there is a silver lining to this. I do think that some of the reforms are focused on streamlining, refining, optimizing. But the net of all of that could be very positive for companies like DataPath.

Well, I'm a silver linings guy, so you struck the right cord with me. I appreciate that. Gilad, was there anything you wanted to add to that?

I think Nicole nailed it. But I think one of the things we see on those reforms is trying to adopt commercial solutions in order to bring technology into the field the fastest. And as I mentioned before, that's actually what we're doing. We're adopting commercial technology in order to meet the defense requirement. And I think this is exactly meeting those reforms.

As we start to wrap up, I want to give you the opportunity to tell people watching this, what are some of the key milestones or events that investors should be watching out for in the Defense division over the next year?

I would like to see the constant growth relative to last year. We had a very strong beginning of the year, the first half of the year, and want to continue with that on the second part of the year. We do want to show already, in the next couple of months, our growth on our baseband business within the DoD. We are working on that very, very hard. And hopefully, it will happen in the next couple of months. There are some new product solutions and cooperation that we will announce during the year. So look for that. And the last one, but it's important as well, is the ribbon-cutting for Gilat Defense offices in Virginia.

This is an interesting time to be talking about defense, and your systems are being put to work literally as we speak. Are there any final thoughts as to the future of defense SATCOM or more particularly your role in shaping it? Are we learning on the fly right now by day-to-day events?

We're still learning, but there are many aspects that we know what we're planning to do and what we're about to do. But if I need to wrap it up in one sentence, as far as I see it, the space is the limit, and we have just begun.

I think we could drop the microphone there, Nicole. We could have scripted that, that wouldn't have been better. But Gilad Landsberg, Nicole Robinson. It's been a nice incredible deep dive into Gilat's Defense division. It's an ever-growing SATCOM market. We said $6.2 billion as we started. Given the world events, I can only see that market growing by leaps and bounds. And it's clear Gilat is poised to continue to grow with its innovative solutions and strategic wins. So to our listeners, thank you for joining us. Gilat.com, to explore their latest updates and see why this is a stock to watch in 2025 and beyond. Stay tuned for more insights and keep investing smart. I'm Jay Woods, Freedom Capital Markets. Thanks for joining us.