Gilat Satellite Networks Ltd. (NASDAQ: GILT) Third Quarter 2022 Results Conference Call November 14, 2022 9:30 AMm. ET
Participating companies
Ehud Helft – EK Global Investor Relations
Adi Sfadia – Executive Director
Gil Benyamini – Chief Financial Officer
Conference Call Participants
Gunther Karger – Discovery Group
Martin Levin – EML Partners
Caleb Henry – Quilty Analysis
Operator
Ladies and gentlemen, thank you for being here. Welcome to Gilat’s third quarter 2022 earnings convention call. All participants are provided in listen-only mode. After the formal provision of the instructions, commands will be given for the response session. [Operator Instructions]
As a reminder, this convention is recorded on November 14, 2022. Everyone has won the company’s press release so far. If they haven’t earned it, please contact Gilat’s investor relations team at EK Global Investor Relations at 1-646-688-3559 or check out the news segment of the company’s website www. gilat. com.
I would now like to pass the floor to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to start, please?
Ehud Helft
Yes. Thank you, operator. Good morning and ready for everyone after noon. Thank you for joining us today for Gilat’s third quarter 2020 earnings conference call and webcast. A recording of this call will be available beginning at approximately noon ET today, November 14, as an Internet broadcast on Gilat’s online page for a 30-day era.
Please also note that investors are cautioned to read the forward-looking statements in the most recent earnings release, reminding that statements made in connection with this call for earnings have no prior effect and would possibly be forward-looking statements within the meaning of the Private Litigation Reform Act of 1995.
All of these forward-looking statements, which aggregate statements regarding the long-term monetary effects of operations, involve risks, uncertainties and contingencies, many of which are beyond Gilat’s and which would possibly cause actual effects to differ materially from those anticipated.
Gilat assumes no legal responsibility for updating or adjusting those forward-looking statements, whether as a result of new data, long-term events or otherwise, and the Company expressly disclaims any legal liability to do so. Our detailed data on threat points can be discovered. in Gilat’s reports filed with the Securities and Exchange Commission.
And with that, let me move on to the advent of today’s call: Mr. Adi Sfadia, Chief Executive Officer of Gilat, and Mr. Gil Benyamini, Chief Financial Officer of Gilat. Now I would like to pass the call to Adi Sfadia. Adi, we are ready to start.
Adi Sfadia
Thank you Ehud and happy day everyone. I need to thank you for joining us in our third quarter 2022 earnings call. We are pleased with the results of the third quarter.
We are pleased with the improvement wrought in profitability across grades, as well as the expansion of our revenue and net income. Third quarter revenue was $60. 4 million, up 21% from the third quarter of last year.
Gross margin, operating margin and non-GAAP net margin were 38. 3%, 7. 2% and 5. 1%, respectively, all advanced compared to the same quarter last year. Adjusted EBITDA increased to $7. 3 million, up 88% from our adjusted EBITDA of $3. 9 million in the 3rd quarter of last fiscal year. Our EBITDA margin adjusted 12% compared to 8% in the 3rd quarter of the previous year.
Looking ahead, we have raised and decreased our profitability guidance for 2022, which is proving to be a solid year of recovery and expansion for Gilat. Our earnings guidance is adjusted between $240 million and $245 million, representing a 13% year-over-year expansion. in the medium term.
GAAP operating source expectations are lowered and adjusted upwards to between $8 million and $10 million and adjusted for adjusted EBITDA to between $23 million and $25 million, representing a 56% year-over-year expansion at the midpoint.
Now I’ll talk about some of our business achievements and talk about some of the recent highlights. The new era of satellite communication continues to be a priority for Gilat. We continue to expand our strategic appointments with satellite operators. I’m pleased to say that we’re seeing increasing interest and strong market traction for our next-generation terrestrial platform, SkyEdge IV.
The need for a multi-orbit, multi-service software protection platform that operates according to the latest software-defined smart satellites being introduced recently is critical to fulfilling today’s and tomorrow’s communication desires. We continue to work heavily with our partner SCS and are well placed for the upcoming O3b mPOWER release and see additional opportunities for further expansions.
We see a strong expansion perspective in this new era of satellite communication and are well on our way to achieving our purpose of gaining a strong position in this new mega market. next years according to industry analyst NSR.
In our SSPA product line, we are on track with the primary projects reported in the past with the prospect of millions of dollars of loads for a giant NGSO constellation. The mobility business continued for Gilat as we won multi-million dollar orders from key consumers. for our SkyEdge IV platform and SSPA product line.
I’m excited to share another win for SkyEdge IV to enable maritime applications. The service provider has joined the developing list of industry leaders who have chosen to adopt our platform because of its high-performance friction and multi-orbit capabilities. Gilat is a further advancement in IFC’s market segment with orders of more than $12 million from a leading global aerospace systems integrator that for years has continued to rely on the circle of relatives of Gilat’s AeroStream Ka-band transceiver product to enable in-flight connectivity. With these new orders, Gilat strengthens its leadership in the IFC market.
In the cellular segment, Gilat continues to dominate with multimillion-dollar orders from new consumers and existing consumer network extensions. We saw a growing interest in Africa from a new visitor with whom we signed a multi-year, multi-million dollar contract. the quarter to provide connectivity to remote spaces in Africa.
The Gilat generation is in a position and has proven to facilitate the transition of the market to 5G, stating that we continue to see great potential in the 4G market and plan to further strengthen our presence with more advertising earnings, further strengthening our leadership in this market. The placeplace satellite market is preparing in the coming years for the transition from 4G to 5G, we are confident that this will create new business opportunities for Gilat.
In the enterprise segment, we have been awarded several multi-million dollar contracts in various sectors including utilities and banking. A leading monetary company. In Europe, a leading global communications integrator decided to use Glat’s SkyEdge II-c platform to enable a Tier 1 application to deliver all-weather IoT telemetry data infrastructure at many remote sites on the national distribution network.
Gilat remained active in the defense market with a developing portfolio. This quarter, we signed a multi-year, multibillion-dollar strategic agreement with a leading defense company and the world’s leading UAV manufacturer. Gilat will get its next-generation BRP60 Terminal for UAVs. In addition, we have reached an agreement with a new U. S. service provider. The U. S. National Alert System is a critical program for the U. S. National Alert System. UU. La Gilat network will allow thousands of state and local federal agencies to activate emergency services.
In addition, a EE. UU. se integrator decided on SSPA for our new central defense network for the U. S. Army’s Satcom project. U. S. With this achievement, we are accepting follow-up orders of millions of dollars in the coming years and the opportunity to continue with other systems with an addressable market of more than $100 million. I am pleased with the progress we are making in defense and government. As we increase our investments and in this area, we plan to increase our market share in the coming years.
In Peru, this quarter, we finished the structure of the Ica region. Ica is the fifth region completed through Gilat of the six regions awarded. We are now waiting for approval of the supervision and acceptance of the network to move to the operational phase and start Internet to schools, fitness centers and others. This is a vital step towards our purpose of a recurring earnings stream in Peru.
We also won a multi-million dollar award from Antamina, one of the largest copper and zinc mines in the world. The task consists of connectivity and for thousands of fellows in the municipality of San Marcos, a rural domain near the Antamina mine. in Peru.
In summary, we are very pleased with the progression and our monetary effects in the third quarter. Our end markets continue to improve and grow. The new era of satellite communications is approaching and we are gaining more and more strength in the terrestrial segment of this upcoming bull market. In terms of monetary effects, we are very pleased with our functionality during the quarter. We deliver 21% year-over-year cash expansion and a significant improvement in profitability across the board. We focus on transactions with higher margins and higher profit, as evidenced through our gross margin, operating profit margin and net source of cash on margins, all of which are particularly higher than the third quarter of last year, as well as the previous quarter.
We cut earnings forecasts and adjusted them downwards, we now expect earnings to be between $240 million and $245 million, representing a 13% year-over-year expansion at the midpoint. The slight downward adjustment is basically due to some giant orders won later than expected in the quarter, which will be delivered next year, continued supply chain disruption and slower-than-expected progress in the structure and implementation stages of some of our projects in Peru.
However, since completing the higher margin transactions, we have experienced higher degrees of profitability, which is more than offset and has allowed us to decrease and adjust upwards the diversity of adjusted EBITDA guidance from $23 million to $25 million. Overall, as you can see, we are positive about our customers in the short and long term and look ahead to learn about the expansion opportunity ahead.
And with that, I’d like to talk to Gil Benyamini, our CFO. Gil go.
Gil Benyamini
Thank you Adi. Hello and good afternoon everyone. I must remind everyone that our currency effects are presented on a GAAP and non-GAAP basis. We use other non-GAAP monetary measures internally to perceive, manage and compare our business and make operational decisions. The measures provide consistent and comparable measures to help investors perceive our existing and long-term operating performance.
Non-GAAP monetary measures primarily exclude the effect of stock-based compensation, amortization of purchased intangible assets, amortization of board incentives, litigation costs, income from secret industry claims, restructuring and reorganization costs, similar merger, acquisition and litigation costs, impairment of assets held for sale, Other expenses, taxes have an effect on changes and one-time changes in deferred tax assets. The reconciliation chart in our press release highlights those insights, and our non-GAAP data presented excludes those items.
I will now turn to our monetary highlights for the third quarter of 2022. Overall, as Adi commented earlier, we are satisfied with the continuous improvement in our effects and, especially, the strong improvement in our profitability. The effects show continued earnings expansion and a strong improvement in our gross and net operating margins, while our functionality demonstrates solid improvement, global macroeconomic headwinds persist, adding source constraints for electronic components, as well as value increases in all areas.
However, I am pleased to say that our functionality during the quarter and year-to-date shows that we have been able to mitigate those issues as much as possible without a significant effect on our profitability.
In terms of monetary results, third-quarter earnings were $16. 4 million, up 21% from $49. 8 million in the third quarter of last year. Broadband satellite communications networks and related and controlled proArray turnkey responses in the cellular backhaul, IFC and defense market business were $32. 4 million, compared to $23. 2 million in the same quarter last year.
The explanation of why the construction is basically due to significant strategic transactions completed in the third quarter of 2022. Third quarter 2022 earnings for the Integrated Solutions segment, which supplies equipment, product systems, and responses for the diffusion of complex critical differences on the move and worldwide. the Satellite Communications Solutions business, adding air and floor mobile, $15. 7 million, compared to $14. 7 million in the year-ago quarter. The improvement in the segment is basically due to higher profits from the NGSO and in-flight connectivity markets.
Third quarter 2022 revenue from the Network Infrastructure and Services segment, which primarily provides facilities for the structure and operation of terrestrial and satellite networks, was $12. 3 million, compared to $11. 9 million in the year-ago quarter. The improvement is basically due to higher recurring revenues in the operation phase of the project, partially offset by the decrease in income in the structure phase.
Now I would like to summarize our GAAP and non-GAAP effects for the third quarter. Our GAAP gross margin in the third quarter of 2022 advanced to 38. 2% from 35. 1% in the same quarter last year. The strong improvement in our gross margin is attributable to the favorable combination of products and services identified this quarter and the higher volume of earnings.
GAAP operating expenses in the third quarter of 2022 were $19. 6 million in the quarter, compared to $16. 7 million in the same quarter last year. The accumulation is basically due to investments in R R
According to GAAP, the revenue source for the quarter increased to $3. 4 million from $0. 8 million in the same quarter last year. Third quarter GAAP net revenue source of $2. 1 million, or diluted earnings consistent with a consistent percentage of $0. 04. This is compared to a steady-even net profit and diluted earnings consistent with the same quarter last year.
Transition to non-GAAP results. Our non-GAAP gross margin for the third quarter of 2022 increased to 38. 3% from 35. 3% in the same quarter last year. The strong improvement in our gross margin is due to the favorable combination of transactions observed this quarter and the accumulation in earnings volume
Non-GAAP operating expenses in the third quarter of 2022 were $18. 7 million to $16. 2 million in the same quarter last year. As we have said in recent quarters, we are expanding our investments in R
The non-GAAP revenue source for the quarter increased to $4. 4 million from a constant revenue source of $1. 3 million in the same quarter last year. Non-GAAP net income source for the third quarter $3 million, or earnings with a consistent percentage of $0. 06. That compares to a net revenue source of $0. 6 million, or earnings of $0. 01 consistent with a consistent percentage in the same quarter last year. Adjusted EBITDA for the quarter increased to $7. 3 million compared to adjusted EBITDA of $3. 9 million in the same quarter last year.
Let’s move on to our balance sheet. As of September 30, 2022, our total money and money equivalents, adding short-term deposits and limited money, $69. 9 million, compared to $71. 4 million as of June 30, 2022. We have no debt. In terms of cash flow, we generated $4. 7 million of operating activities in the third quarter of 2022.
DSOs excluding accounts receivable and revenue from our ground network structure projects in Peru had a minimum of 89 days compared to 95-day DSOs last quarter. The minimum is basically due to the accumulation of income, while accounts receivable remained at the same level. Our shareholders’ equity as of September 30, 2022 totaled approximately $249 million, compared to $246 million as of June 30, 2022.
Looking ahead, as Adi already mentioned, we have adjusted and reduced the diversity of our earnings guidance for 2022 with expectations between $240 million and $245 million, representing a year-over-year expansion of approximately 13% at the midpoint. reduced adjusted EBITDA diversity to between $23 million and $25 million, representing a year-over-year expansion of approximately 56% over the medium term.
That concludes my monetary review. Now I would like to open the call for questions. Operator, please?
Q&A session
Operator
Thank you, girls and gentlemen, at that time we will begin the question and answer session. [Operator Instructions] The first is from Gunther Karger of Discovery Group. Please continue.
Gunther Karger
Congratulations on a wonderful quarter. And, yes, so far, a consultation on the defense sector. Historically, this has been minimal and, in recent years, I have detected some commercial acquisitions in the sector. What percentage of total turnover is ultimately allocated to the army’s defense activity?? And what do you think will accumulate over the next year?
Adi Sfadia
Hello, Gunther, I’m glad to hear and thank you for your warm congratulations. In fact, defence activities have not been at the centre of our considerations in recent years. have invested in the R
Gunther Karger
Similarly, the trend in defense and military technologies tends towards the type of unmanned remote operations. And I think it’s accelerating. That’s one point. And the other component is the existing turmoil, related to the war in Ukraine. Does the war in Ukraine drive this trend, or what is your comment on it?
Adi Sfadia
So, I agree with the first comment that the unmanned solution requires satellite communication and we see this trend also in market opportunities. As for Ukraine, of course, satellite communication supported Ukraine in the war. But we still don’t feel it. What we feel is an increased demand for our SKUs and RFIs for satellite communications for the defense sector. Therefore, we believe it is part of our expansion outlook in the coming quarters.
Gunther Karger
Thank you Adi. Et wishes for the next New Year.
Adi Sfadia
Thank you very much.
Operator
[Operator Instructions] The following is from Martin Levin of EML Associates. Continue.
Martin Levin
Hi, I’m Martin Levin, I’m calling États-Unis. I’m curious about how, it seems that you have projects underway in many other countries. I’m curious about the five most sensible countries you’re dealing with right now?
Adi Sfadia
Nice to meet you. The highest sense of five countries, yes, we have business all over the world. And in general, it’s – we don’t focus on one or two countries. Each quarter, it is another each one that comes from other countries or the maximum five sensible. I can say that we have a lot of business in the United States. We have decent business in Japan and Australia, but it varies from quarter to quarter. These are the main ones we all see, continuously at the maximum every quarter. , in the United States, Peru, Japan. Apart from that, each and every quarter, the maximum orders come from other countries.
Martin Levin
It is ok. Thank you so much. And I also congratulate you on a glorious year and look forward to hearing its effects in the coming year.
Adi Sfadia
So thank you very much. Thank you so much.
Operator
The following is from Caleb Henry of Quilty Analytics.
Caleb Henri
Hello. Just a quick inquiry from me. I was wondering if there were any upgrades Gilat might be offering to the electronically piloted antenna being developed for the aviation market. Has there been any progress on this front or plans to advance this technology?
Adi Sfadia
Hello Caleb. Sí. De fact, on the electronically controlled antenna we are waiting for a flagship visitor to drive the progression. In the end, the antenna will have to be very connected to the visitor and their needs. That said, we have several opportunities and are progressing the progression of the ESA antenna for IFC and also the electronically controlled antenna for military and defense use. I hope we can get the value we expect and we will announce it as soon as it is relevant.
Caleb Henri
Does the defense antenna have a similar stipulation?In other words, you would like a defense consumer to anchor you and advise you on development. Or is it something you can create independently and then transfer to the market rate?
Adi Sfadia
Our plan is to build a product that is available in the market. But we think each visitor will have several specs that we want to fully adjust the antenna, but possibly not a major adjustment like we’re doing. waiting for it to be at the ISP.
Caleb Henri
It is ok. Thank you.
Operator
There are no more questions in this momento. Sr. Benyamini, would you like to make your final remarks?
Gil Benyamini
I want to thank you all for joining us in this call and for your time and attention. We look forward to seeing you soon or contacting you on our next call. Thank you very much and have a wonderful day.
Operator
This concludes Gilat’s third quarter 2020 earnings convention call. Thank you for your participation. You can go ahead and log out.