Gilat (GILT) Q1 2025 Earnings Call Transcript

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DATE

Monday, May 19, 2025 at 9 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Adi Sfadia

Chief Financial Officer — Gil Benyamini

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RISKS

Peru Segment Revenue: Reported $4.8 million, down from $17.7 million in Q1 2024, attributed to project renewal delays, postponements of major bids, and slower expansions.

Gross Margin: GAAP gross margin fell to 30.9%, compared to 36.9% in Q1 2024, driven by lower Stellar Blue margins, amortization of intangibles, and weakness in Peru.

GAAP Operating Results: The company reported a GAAP operating loss of $700,000, compared to $5.4 million operating income in Q1 2024, attributed to acquisition-related costs and amortization, and no repeat of prior-year Peru arbitration gains.

Stellar Blue EBITDA: Adjusted EBITDA includes a $3.6 million loss from Stellar Blue; management said, "right now the first earn-out is not on track from a payments perspective" due to component and cost challenges.

SUMMARY

Gilat Satellite Networks Ltd. (NASDAQ:GILT) integrated Stellar Blue’s first full-quarter results, producing $92 million in revenue, a 21% increase in revenue, led primarily by its Commercial and Defense divisions, despite notable weakness in Peru. The company reaffirmed its 2025 annual guidance of $415 million to $455 million in revenue and adjusted EBITDA of $47 million to $53 million (non-GAAP), projecting 42% and 18% annual growth at their midpoints, respectively. Management highlighted progress on its Boeing OEM qualification for the Sidewinder product, which is expected to complete certification within two to three quarters, potentially enabling line-fit installations with major airline customers by early 2026.

The Commercial segment posted $64.2 million in GAAP revenue, up 56%, mainly due to the Stellar Blue acquisition, while Defense recorded $23 million, a 34% year-over-year gain.

Stellar Blue contributed $25 million to revenue but had a $3.6 million adjusted EBITDA loss; management expects a 10% adjusted EBITDA margin run rate for this business (Stellar Blue, non-GAAP) in the second half of 2025.

Management reiterated that approximately 80% of forecasted 2025 annual revenue is already supported by backlog commitments.

Company disclosed a $100 million credit line secured in January and ended the quarter with $64.3 million in cash and equivalents, and $3.8 million net of loans as of March 31, 2025.

TAKEAWAYS

Total Revenue: $92 million, representing a 21% year-over-year increase (period not specified as fiscal or calendar), with growth led by Commercial and Defense, offset in part by Peru declines.

Commercial Segment Revenue: $64.2 million in GAAP revenue, a 56% increase, mainly attributed to the acquisition of Stellar Blue.

Defense Segment Revenue: $23 million, up 34%, driven by U.S. and Asian defense deliveries and a series of contracts, including multimillion-dollar U.S DoD and UAV deals.

Peru Segment Revenue: $4.8 million, down from $17.7 million in Q1 2024, due to project delays, major bid postponements, and the completion of the Amazonas expansion phase last year.

Stellar Blue Contribution: $25 million to total revenue, with an adjusted EBITDA loss of $3.6 million; the company affirmed full-year 2025 Stellar Blue revenue guidance of $120 million to $150 million and expects a 10% adjusted EBITDA margin run rate for Stellar Blue in the second half of 2025.

GAAP Gross Margin: GAAP gross margin was 30.9%, compared to 36.9% in Q1 2024, primarily reflecting lower margins in Stellar Blue and amortization of purchased intangibles.

Adjusted EBITDA: Adjusted EBITDA was $7.6 million, compared to $9.3 million in Q1 2024, with organic adjusted EBITDA, excluding Stellar Blue, was $11.2 million (up 20%).

GAAP Net Loss: $6 million, equating to a $0.10 loss per share, compared to $5 million income ($0.09 per share) in the prior year period.

Cash Used in Operations: $6.6 million outflow, reflecting working capital needs and acquisition-related expenses for Stellar Blue.

Line Fit vs. Retrofit Aviation Revenue: Management stated that "100% of our revenues will come from retrofit" in 2025, with a shift toward a more balanced split expected in 2026 and beyond.

Boeing OEM Qualification Milestone: Management said, "within the next two or three quarters, we'll get this qualification" enabling airline customers to line-fit Sidewinder antennas at Boeing facilities once certified.

Production Ramp for Sidewinder: Anticipated achievement of "about 100 units per month" by late Q2 or early Q3 2025, contingent on resolving component supply and qualification issues.

R&D and Sales Investment: Company is increasing allocations to R&D and sales/marketing for Gilat Defense in 2025, with multiple new products launched this quarter targeting GEO, MEO, and LEO constellations.

Tariff and Supply Chain Adaptation: CEO Sfadia explained the company "shift some of the raw material sourcing from high to low tariff countries." notably into the U.S, and expects minimal near-term tariff impact.

2025 Guidance Reiterated: Revenue guidance for 2025 of $415 million to $455 million and adjusted EBITDA of $47 million to $53 million was reaffirmed, underpinned by a robust backlog and pipeline.

INDUSTRY GLOSSARY

IFC (In-Flight Connectivity): Connectivity services provided to aircraft for passenger or operations communications using satellite technology.

LEO/MEO/GEO Constellations: Satellite groupings in Low, Medium, and Geostationary Earth Orbits, respectively, offering different latency and coverage profiles for communications.

ESA (Electronically Steered Array): A type of phased-array antenna technology enabling electronic beam steering, critical for multi-orbit and mobile satellite connectivity.

Line Fit: Installation of equipment (such as antennas) during the original manufacturing process of an aircraft, as opposed to retrofit, which takes place after delivery.

Sidewinder: Gilat's main multi-orbit ESA terminal product line for aviation connectivity, operational with both LEO and GEO satellites, referenced for current and future aircraft deployments.

SkyH4/SkyEdge: Gilat ground segment technology platforms supporting satellite communication with advanced baseband capability and support for next-generation constellations.

SSPA (Solid-State Power Amplifier): A key satellite hardware component that amplifies RF signals in ground stations or on-board communication terminals.

VHTS (Very High Throughput Satellite): Satellite technology offering large capacity and data rates, supporting advanced broadband and connectivity applications.

Full Conference Call Transcript

Adi Sfadia, Gilat's CEO, and Mr. Gil Benyamini, Gilat's CFO. The earnings press release was issued earlier today and is available on Gilat's website under the Investor Relations section. 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 revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of new products on a global basis, and disruptions or delays in the supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under our control. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis 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 SEC, including the latest quarterly report on Form 10-Q. 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 configuring corresponding GAAP figures. With that, I would now like to turn the call over to Mr. Sfadia. Please go ahead, Adi.

Adi Sfadia: Thank you, Alex, and good day to everyone. Thank you for joining us today as we discuss our first quarter of 2025 earning results. The first quarter of 2025 marked the first quarter operating under our newly aligned organizational structure. Today, we will provide an update on our Gilat Defense, Gilat Commercial, and Gilat Peru divisions, offering insight into how our strategies are driving growth and capturing opportunities in key markets. We will discuss key achievements for the quarter and our opportunities and plans to continue accelerating revenues in 2025 as we capitalize on the acquisition of Stellar Blue and the continued strong demand for Gilat Defense Solutions.

We are already seeing the benefits of this change, particularly in our main growth engines, defense, VHTS, and NGSO constellations, and in-flight connectivity. We began 2025 with a good first quarter. Q1 revenues reached $92 million, a 21% increase year over year. Adjusted EBITDA was $7.6 million. Q1 2025 was the first quarter we included Stellar Blue's results in our financial results. Stellar Blue contributed about $25 million to our top line and incurred an adjusted EBITDA loss of about $3.6 million. Excluding the loss, our adjusted EBITDA for the quarter was about $11.2 million, representing a 20% year-over-year increase. Stellar Blue's yearly performance remains on track with revenue expectations of between $120 million and $150 million.

We also expect Stellar Blue to reach a 10% adjusted EBITDA margin run rate during the second half of the year. Before reviewing the performance of each division, I want to address the impact of the current global macroeconomic turmoil and the shifting international trade policies and tariffs on Gilat's business. The global economic uncertainty and the shifting international trade policies are creating new challenges. It is still too early to fully assess the impact as new facts emerge daily. Recognizing these trends early, we proactively initiated adjustments to our raw material sourcing several months ago. This involved strategically shifting from higher to lower tariff countries and to the U.S. Importantly, a significant share of our U.S.

Defense business is sourced and manufactured domestically in the U.S., supporting stability in this environment. We intend to monitor the worldwide developments closely and will adapt our strategies as needed to ensure business continuity and minimize potential disruption. Now on to the business review. We had a strong start to the year with the successful launch of the Gilat Defense division during the Satellite 2025 conference in Washington, D.C., in early March. The market response has been very positive, and we are already seeing results that confirm we made the right decision to unify our defense portfolio into a single Gilat Defense business.

The dynamic macro geopolitical landscape is driving increased defense budgets, and accordingly, there is a growing demand for secure, high-performance communication over satellites. We are well-positioned to meet these mission-critical needs. We are seeing demand from diverse geographical markets, including North America, Europe, and the Asia-Pacific region. In Europe specifically, recent events have accelerated efforts to develop sovereign communications networks with growing investments from both the European Union and individual countries. This trend is creating significant opportunities, and we believe Europe will become an increasingly important market for Gilat Defense going forward. In Q1, awards spanned a diverse global customer base, reflecting demand for a broad range of products and services.

This broad portfolio, coupled with our global presence, continues to position us as a trusted and reliable partner for defense organizations worldwide. During Q1, Gilat Defense was awarded over $5 million to support critical connectivity for the U.S. DoD and international defense forces with our decaf terminals and field support services. We also secured $4 million in orders for unique CCT portable satellite terminals for global defense customers and another $6 million contract in Asia for our market-leading SkyEdge platform. Gilat Data Pass was also awarded up to $23 million for a multiyear contract to service satellite transportable terminals for the U.S. DoD customers.

Gilat Data Pass will deliver critical program management, field services, and technical support, ensuring operational readiness and continued reliability of these vital communication assets. Gilat Data Pass was also awarded a contract of more than $11 million for DICKET 3,420 terminals to a leading UAV company. In addition, we received a multimillion-dollar order from a global defense organization for the supply of advanced antenna technology to be integrated into the organization's state-of-the-art defense communication systems. These wins validate the strength of our integrated technologies across Gilat Defense product lines and highlight the increasing trust customers have in our ability to deliver mission-critical communication in challenging environments.

As I mentioned during the fourth quarter call, we are increasing our investment in allocating more resources to R&D as well as to sales and marketing at Gilat Defense in 2025. This quarter, we launched several new products, including our new GLT modem, the Aquarius Pro DS modem, and the Gilat Data Pass 2.6-meter terminal. We are highly optimistic that these products will be adopted to serve on GEO, MEO, and LEO constellations for critical government applications. We plan to continue investing significantly in Gilat Defense as we execute our strategy to lead in this important sector.

Turning to our commercial business, we are seeing continued momentum in both system deliveries and customer expansions as airlines prioritize next-generation connectivity experiences for passengers, including free Wi-Fi plans and connectivity on regional jets. We received $15 million in orders from various satellite operators, including for our SkyH4 platform to support IFC services and for high-performance SSPAs designed to support LEO constellations. The growing adoption of LEO and MEO constellations connectivity is creating favorable conditions for growth. These developments underscore the increasing demand for our solutions in this rapidly evolving market.

Also, in the IFC sector, with respect to Stellar Blue, Intelsat has already installed Sidewinder, the market's most advanced and only operational multi-orbit LEO and GEO electronically steered array terminal, on more than 150 aircraft, delivering to date more than 70,000 flight hours of seamless connectivity across North America. The feedback we are receiving from customers and partners has been outstanding. A key milestone this quarter was the successful testing and certification of Sidewinder by Panasonic, one of the major IFC service providers, further validating its leadership in the market. We are optimistic that this will lead to additional business for us.

At the same time, our next-generation LEO business aviation ESA, the 2,030 terminal, was tested successfully during flights, and we expect these efforts to allow us to have a production-ready antenna by the end of 2025. Gilat is expanding its strategic collaboration with partners to drive the advancement of next-generation aviation ESA terminals. This development project focuses on further developing our Sidewinder ESA and also extends its reach to adjacent aviation markets, including ISR, military, defense, and VVIP. A key aspect of this development is making the Sidewinder platform compliant for OEM offerability with Boeing as part of Boeing's technical service agreement. The platform is progressing through OEM qualification with availability expected in early 2026.

This represents a significant step forward in strengthening our position in the evolving aviation connectivity landscape. Importantly, as IFC deployments ramp up, we are also seeing increased demand for our SkyH4 and SkyH2C baseband platforms, further strengthening our position in this market. Building on this momentum, we are also responding to rising demand from satellite operators who are looking for cloud-based software-driven ground segment architectures. As a result, we have stepped up development of virtualization capabilities for SkyH4, positioning Gilat at the forefront of next-generation cloud-native solutions for satellite communications designed to run on standard cloud hardware and expected to serve the needs of very large software-defined satellites.

In other commercial verticals, the demand for digital inclusion is also accelerating as more governments and organizations prioritize access to essential services like education, employment, and health care. Satellite communications are playing an increasingly critical role in bridging the digital divide and expanding connectivity to remote and underserved areas. We are leveraging the proven capabilities of Gilat Peru to compete on projects worldwide, with multiple digital inclusion projects currently in the pipeline, reflecting the strong momentum we are seeing in this important area. In Peru, we are progressing on several important fronts. We received network acceptance and began operation of the Amazonas network. We are moving forward with the acceptance process across the Amazonas access network.

Additionally, we successfully transferred the ECA transport network to Pornatel, the first such transfer, and are working towards transferring the additional region transport network as well. While the strong pipeline remains intact, several large projects, bid renewals, expansions, and extensions continue to face delays. That said, we remain optimistic about future opportunities in Peru. I am pleased to say that we continue to have a strong backlog and a healthy pipeline. Therefore, we feel comfortable reiterating our 2025 annual guidance. Gilat is strategically positioned for sustained growth, driven by strong demand for mission-critical defense connectivity, the increasing satellite capacity, and the accelerating adoption of multi-orbit architectures.

Our diverse product portfolio is ideally suited to support this evolution, offering the essential flexibility, scalability, and performance our customers require. Our defense business is off to a strong start this year, benefiting from strong tailwinds driven by the macroeconomic developments. Gilat Defense is building momentum and expanding its critical role in delivering resilient, high-performance satellite communication in support of national security and global stability. In our commercial business, we are seeing solid execution and continued growth. Stellar Blue's innovative Sidewinder ESA is gaining significant market traction, and we are working closely with our partners to broaden its application into new verticals and advance its certification for line-fit installation.

At the same time, the increasing demand for both IFC and multi-orbit solutions is driving further adoption of our baseband and RF avionics technologies, reinforcing our leadership position in the global ground segment market. We are encouraged by the momentum across our business segments and remain confident in our strategic direction as we continue to deliver innovation, execution, and long-term value to our customers and stakeholders. And with that, I will hand over the call to Gil Benyamini, our CFO. Gil, please go ahead.

Gil Benyamini: Thank you, Adi. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis. I will now talk through our financial highlights for the first quarter of 2025. As Adi mentioned, we are very pleased with our first quarter performance. We completed the acquisition of Stellar Blue on January 6, and they are reflected in our financials for the first time. In terms of our financial results, revenue for the first quarter was $92 million, a 21% increase compared to $70.1 million in Q1 2024.

The increase was led by the Commercial segment due to the acquisition of Stellar Blue combined with the growth in the Defense segment and offset by lower revenue in the Peru segment. In terms of the revenue breakdown by segment, Q1 2025 revenues for the Commercial segment were $64.2 million compared to $41.2 million in the same quarter last year. The 56% increase was primarily due to the acquisition of Stellar Blue, which contributed $25 million to our revenue, partially offset by the termination of our activity in Russia in 2024. Q1 2025 revenues for the Defense segment were $23 million compared to $17.2 million in the same quarter last year.

The 34% increase was primarily driven by high deliveries to our defense customers in the U.S. and Asia. Q1 2025 revenues for the Peru segment were $4.8 million compared to $17.7 million in Q1 2024. The decline is primarily attributed to delays in renewing several projects, postponing major project bids, and slower progress on expanding existing projects. Additionally, in Q1 2024, we recorded revenues from the construction phase of the Amazonas project expansion, which was completed during the year. We are currently awaiting Pornatel inspection and approval to transition to the operational phase. Furthermore, some equipment deliveries are expected later this year. Our GAAP gross margin in Q1 2025 decreased to 30.9% compared to 36.9% in Q1 2024.

The decrease is primarily due to lower margins in Stellar Blue as it ramps up production, as well as amortization of purchased intangibles and lower gross margins in Peru. GAAP operating expenses in Q1 2025 were $31.1 million compared to $22.7 million in Q1 2024. The increase is primarily due to the consolidation of Stellar Blue, amortization of purchased intangibles, transaction costs, and other income recognized in Q1 2024. GAAP operating loss in Q1 2025 was $700,000 compared to GAAP operating income of $5.4 million in Q1 2024. The decrease was driven by acquisition-related expenses and purchased intangibles amortization, and the absence of profits from arbitration in Peru that was recognized in Q1 2024.

GAAP net loss in Q1 2025 was $6 million or a loss per share of $0.10 compared to GAAP net income of $5 million or diluted income per share of $0.09 in Q1 2024. Moving to non-GAAP results, our non-GAAP gross margin in Q1 2025 decreased to 31.7% compared to 37.8% in Q1 2024. Non-GAAP operating expenses in Q1 2025 were $24.1 million compared to $22.2 million in Q1 2024, and non-GAAP operating income in Q1 2025 was $5.2 million compared to $6.6 million in Q1 2024.

The non-GAAP net income in Q1 2025 was $1.8 million or diluted income per share of $0.03 compared to a net income of $6 million or income per share of $0.11 in Q1 2024. Adjusted EBITDA in Q1 2025 was $7.6 million compared to an adjusted EBITDA of $9.3 million in Q1 2024. The decrease in the adjusted EBITDA is primarily due to Stellar Blue losses in the first quarter. Our Q1 2025 organic adjusted EBITDA, excluding Stellar Blue losses, was $11.2 million, a 20% increase compared with Q1 2024.

Moving to our balance sheet, on January 6, the company secured a $100 million credit line from a bank consortium, from which it utilized $60 million to finance the acquisition of Stellar Blue. As a result, as of March 31, 2025, total cash and cash equivalents and restricted cash were $64.3 million or approximately $3.8 million net of loans, compared to $118.2 million on December 31, 2024. In terms of cash flow, we used $6.6 million for operating activities in Q1 2025 to support the working capital needs of Stellar Blue during the ramp-up and its acquisition-related expenses.

DSO, which excludes receivables and revenues of our terrestrial network construction project in Peru, were 75 days, up from 71 days in the previous quarter. Our shareholders' equity as of March 31, 2025, totaled $300 million compared with $304 million at the end of 2024. Looking ahead, as Adi mentioned, we are reiterating our guidance for 2025 with projected revenue between $415 million and $455 million, representing year-over-year growth of 42% at the midpoint. Adjusted EBITDA is expected to be between $47 million and $53 million, representing year-over-year growth of 18% at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please go ahead.

Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. To cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please stand by while we poll for your questions. The first question is from Louie DiPalma of William Blair. Please go ahead.

Louie DiPalma: Adi and Gil, good afternoon.

Adi Sfadia: Hi, Louie. How are you?

Louie DiPalma: I'm doing great. My first question is, is your defense business expected to be a beneficiary of the expected increases in European defense spending?

Adi Sfadia: Generally speaking, yes. We are seeing a lot of traction from Europe's defense increased budget. You know, nothing yet materialized, but we are seeing a lot of demand requests for RFPs and things like that. So we believe that in the midterm, we'll see decent business from Europe that will support our growth in defense.

Louie DiPalma: Great. And it seems that you've made progress with the Boeing line fit. What other milestones need to be achieved for that program before it's implemented?

Adi Sfadia: Generally speaking, there are some adaptations to the terminal, and now we are in the certification process. So it seems like within the next two or three quarters, we'll get this qualification and will be ready. And then it's up to the customers to order it.

Louie DiPalma: Great. Thanks. And for Peru, how should we think of revenue linearity over the next few quarters? I think you reiterated the full-year guidance, but should most of the revenue be in the fourth quarter? Or how should we think about it?

Adi Sfadia: So, Peru linearity is a bit challenging. So we do expect Peru's revenue run rate to be $4.55 billion. This quarter was relatively low because several large projects that are about to be renewed were delayed, and we expect to have it hopefully in Q2 and if not in early Q3. In addition, part of the recurring revenue in Peru requires us to deliver some hardware equipment once every year. And we do expect it during the third quarter. This is a chunk of $7 million or $8 million of hardware revenue every year. In addition, there are several large projects, especially large expansions of existing projects where we are not competing against others.

It's just negotiation with the government, and we expect to conclude the negotiation in the next few months. And revenue will return to the same level that we saw in recent years.

Louie DiPalma: Great. That's it for me. Thanks.

Adi Sfadia: Thank you, Louie. See you soon.

Operator: The next question is from Ryan Koontz of Needham and Company. Please go ahead.

Ryan Koontz: Hi. Can you hear me okay, gentlemen?

Adi Sfadia: Yes, we do. Great.

Ryan Koontz: Sounds like your organic growth in defense is going quite well, and you're stepping up OpEx a little bit there to make some investments in both R&D and sales. My question then really is more about the commercial side, how that's evolving, the Stellar Blue unit and its integration with the balance of your commercial business. From a sales perspective, do you feel like you have sufficient go-to-market resources in place today to achieve your goals you've set for Stellar Blue, or is that something you're still adding on?

And the second question related to that is, is the nature of these relationships, these sales relationships, is it actually a lot of technical, more engineering-to-engineering related, or is there competitive bidding going on kind of on a periodic basis? Thanks.

Adi Sfadia: Okay. So in terms of progress at Stellar Blue, I think we made very good progress during the quarter. One of the main risks in the acquisition was the new product introduction from a startup company, and the market acceptance and the feedback we are getting is really amazing. More than 150 aircraft already installed, performing more than 77 flight hours with seamless connectivity with relatively no issues whatsoever. We do have some supply chain issues with one of the LRUs, one of the component manufacturers. We identified it ahead of time, and we are working internally on replacing this unit. The new unit is under qualification and certification processes.

And we expect that towards the end of this quarter, early next quarter, we'll have both solutions available and we'll be able to accelerate deliveries and revenues to customers. So I think we are on track with that. We are doing cost reduction on the terminal, and we expect to see much better margins along the year. So we remain with our guidance for Stellar Blue of revenues of between $120 million to $150 million, with reaching a run rate of adjusted EBITDA of more than 10% sometime during the second half of the year. I think we have internally enough resources to achieve our goals.

I think we have a strong backlog that covers most, if not all, of our market guidance. We do expect to get some large orders in the next few weeks or few months at the latest. We need to remember that those orders are coming in batches, not one or two, rather hundreds or several hundreds every time. And we believe it will meet all our objectives with Stellar Blue along the year. As for selling efforts, most of the technology sales are with Intelsat and Panasonic and the IFC service providers over there. We need to be chosen and to prove that our technology is superior to competitors.

Later on, it's Intelsat and Panasonic, they need to go and fight in the market with the airlines to get the awards over there. And when needed, we are supporting them. I think that our superior technology helps them in their competitive market environment.

Ryan Koontz: That's great. Very thorough response there. Appreciate that. And you mentioned on the call earlier a next-generation product coming. I assume that's coming from the Stellar Blue side. Can you walk through kind of the differentiation there compared to your current generation product? What's coming at the end of the year? When do you think it might start to achieve revenue?

Adi Sfadia: Yeah. So in general, if you take the existing Sidewinder ESA and adjust it a little bit to support the military defense, ISR, and VVIP aircraft. We already started the work, and we expect it to be finished sometime during 2025 and some early 2026. We do expect to get some orders, if not by the end of the year, then early next year.

Ryan Koontz: Alright. Great. All I wanted to do. Thank you.

Adi Sfadia: Thank you, Ryan.

Operator: The next question is from Sergey Glinyanov of Freedom Broker. Please go ahead.

Sergey Glinyanov: Hello, Adi, Gil. How's it going?

Adi Sfadia: Hi, Sergey.

Sergey Glinyanov: Yeah. Thank you for taking my question. So a little bit about Sidewinder. What monthly production rates do you have for now, and what do you anticipate by the end of the year? We know that you have a long-term target rate at roughly 100 per month. So what's going now, and what do you anticipate for by the end of the year?

Adi Sfadia: So, indeed, we are expecting by the end of the year to, before the end of the year, reach about 100 units per month. Right now, in most of the units, we are give or take very close to this production capability, except for the fact that, as I said earlier, we are missing one specific unit that we are working both internally and with the existing vendor to accelerate his production and to introduce an additional product alternative. So I believe that towards the end of Q2, early Q3, we will reach close to 100 units per month.

Sergey Glinyanov: Yeah. Sounds great. And so, but you mentioned you have not worked at this point closing for now because of the certification. Should pass. And in terms of primary and secondary aviation markets, what revenue structure do you anticipate for this year and for the long term?

Adi Sfadia: I'm not sure I understand the question. Can you again repeat it and clarify?

Sergey Glinyanov: Yeah. Sure. So now you're working primarily with the aviation airlines, I think. And you have not worked closely with Boeing because you should pass your certification for Stellar Blue ESA. But what delivery structure in terms of primary and secondary aviation market do we expect for this year and for the long term?

Adi Sfadia: Okay. So you're talking about the breakdown between line fit and retrofit. So currently in 2025, 100% of our revenues will come from retrofit, meaning putting the antenna on existing fleets. We do expect that towards mid or the second half of 2026, the split will be closer to fifty-fifty. And in the long term, I think that it will be slightly more line fit than retrofit. Although the retrofit will continue to be a significant market for us.

Sergey Glinyanov: Yeah. Got it. And Adi, you mentioned you'd like to expand Sidewinder's application in ISR and VVIP. Does it not harm your original product, like ESA 2030, or maybe you can put some colors about that?

Adi Sfadia: Sure. Sure. First of all, the same market segment, in some cases, has more than one product. The ESA 2030 is a LEO-only antenna that can work on Ku, meaning on OneWeb constellation. The Sidewinder is a multi-orbit LEO antenna, and it fits a larger aircraft. It's another way to offer another product for the same market segment. So I think that both products will go together. It's not really replacing each other.

Sergey Glinyanov: Okay. Thank you. Got it. That's all for me. Thank you very much.

Adi Sfadia: Thank you, Sergey.

Operator: The next question is from Chris Quilty of Quilty Space. Please go ahead.

Chris Quilty: Thanks, Adi. I just wanted to follow up on the Sidewinder. I think you mentioned you're working towards defense...

Adi Sfadia: Yes.

Chris Quilty: Chris, we lost you.

Operator: The next is from Omri Efroni of Oppenheimer. Please go ahead.

Omri Efroni: Hi, guys. Thanks for taking my questions. I was wondering a little bit more about the certification process in the Boeing lineup. Is it part of the earn-out you should you're going to do with Stellar Blue? Is it a piece of the $25 million of the strategic contract that if Stellar Blue signs, you need to pay them? Thanks. And then I have another question.

Adi Sfadia: Sure. So this specific deal with Boeing was signed before we signed the acquisition. So it's not part of the earn-out. There are several types of line fit that might also with Boeing that might trigger earn-out payment, but this specific technical service agreement OEM availability is not part of the earn-out.

Omri Efroni: So just to clarify, in the next two or three quarters, you're forecasting to have a certificate that the new Stellar Blue antenna will be line-fitted into the Boeing production. Is it right?

Adi Sfadia: Correct. Intelsat will be able, Intelsat or Panasonic or any other customer will be able to install the Sidewinder antenna in Boeing premises.

Omri Efroni: Okay. So that will trigger $25 million of earn-out, or it's not part of it?

Adi Sfadia: This is, as I said earlier, this is not part of the earn-out. This is a specific agreement we signed before we signed the agreement.

Omri Efroni: Okay. And so basically, it will be part of Boeing's portfolio, and you will be able to order this with the aircraft, then it can trigger an earn-out payment.

Adi Sfadia: Okay. Got it. Thanks for that clarification. And about the 10% EBIT run rate in the second half of 2025. One of the steps in the early announce was to get into the profitability of the Stellar Blue products. Does the lower EBITDA now from the products have any effects on the earn-out you need to give to Stellar Blue, or is the stage one and stage two earn-out still in place?

Adi Sfadia: So it's a good question with a very long answer. So in general, when we built the earn-out, we built it in a way, especially the first earn-out, to reduce significantly the production risk. With that, we are more than satisfied with the current status of the production rate. Having said that, the actual deliveries are lower than what the earn-outs require because of this missing component that I explained earlier. And because it's the first unit, they are slightly more expensive in terms of cost than what we expect the usual run rate will be.

We are only starting to see the cost reduction, and we do expect that during the third quarter, we will reach the expected costs and margin with Stellar Blue. So if you summarize what I said, then right now the first earn-out is not on track from a payments perspective. Still, we have seven weeks until the end of the quarter. And everyone at Stellar Blue is working very hard in order to meet the earn-out to expand deliveries and to reduce the cost. As for the second earn-out, it depends on the number of units, new units orders. And at least based on the forecast that we are seeing right now, we are on track to get those orders.

Omri Efroni: Okay. Got it. Thanks so much for taking my questions.

Adi Sfadia: Pleasure.

Operator: The next question is from Chris Quilty of Quilty Space. Please go ahead.

Chris Quilty: Thanks, guys. Can you hear me?

Adi Sfadia: Yes. We hear you great.

Chris Quilty: That's better. Okay. Following up on orders, you had mentioned that you expect some additional Sidewinder orders. Presumably, that is based upon orders already won by the customer. Or, you know, do your airline customers place orders for antennas, I assume not, in advance of them actually winning a large batch of planes?

Adi Sfadia: So right now, we are not working directly with the airlines. Although we support our customers with those sales. So typically, we are getting the orders from the Intelsat and the Panasonic of the world. And we do expect them to place some orders in the next few weeks or months.

Chris Quilty: Correct. But that presumably, that's based upon orders that Intelsat has already won with airlines.

Adi Sfadia: Correct. They are not ordering for inventory, but against the business that they already won.

Chris Quilty: Perfect. Also, you mentioned a UAV terminal during, I think, the script. That's the one I that we sold a d kit, a transportable terminal to a leading UAV company. It's part of their portfolio to manage the UAVs.

Chris Quilty: Got it. If I can switch real quick just to the balance sheet since this is the first we've kind of seen Stellar Blue folded in there. So, Gil, some questions for you. Sure. There was a large step up in advance from customers and other long-term liabilities. And, obviously, a big step up in the amortization. Can you give us some visibility on those items?

Gil Benyamini: Yes, sure. So, of course, we applied the acquisition accounting. It means that we consolidate all of the assets and liabilities of Stellar Blue into the balance sheet. So there are some advances that you can see and other items. On top of that, we applied in the purchase accounting PPA purchase price allocation, under which we've allocated the excess amount that we paid on top of the tangible assets to goodwill and to other intangible assets. As well as creating a provision for the earn-out according to, you know, modeling the earn-out and in present value. So this is mainly what you can see in the balance sheet.

On top of that, I mentioned the $60 million loan that we took in order to execute the acquisition. And you can see that as well on the balance sheet. All of these items, except for the goodwill, are reflected in the P&L. The intangible assets are depreciated. Most of the assets, the underlying assets are the backlog, the technology, and the customer agreement. So we depreciate it over their effective life. So the backlog would usually be four to six quarters. And the other assets would be much longer, like ten years. And of course, we have financing expenses for the loan in the P&L.

Chris Quilty: Understand. And so, I mean, what should we model, you know, ballpark for this year or maybe just DNA? I mean, is Q1 a good run rate, or does it not fully capture all the amortization?

Gil Benyamini: It is not fully capturing the whole picture because mainly because of the backlog asset, which is not so linear. I would say that about $3.5 million of amortization are expected there quarterly without the business during the first year. Including the backlog? Including the backlog, of course.

Chris Quilty: Okay. Great. And the large gateway orders, that's still something that we expect to happen sometime here in '25?

Adi Sfadia: Yes. Are you talking about the No. Sky's four gateway? Or you're talking about LEO constellations?

Chris Quilty: LEO constellation.

Adi Sfadia: LEO constellation, you know, the Skype for MEO NGO, we do expect to have large orders. On the LEO constellation, so as I said in the last call, OneWeb right now, OneWeb Gen 2 is right now on halt until Eutelsat will better the synergies between OneWeb and Iris Square. With Iris Square, we expect to get RFIs and RFPs during the, they said before the end of the second quarter, I suspect there will be a bit of a delay. So let's say Q3, and again, they said awards before the end of the year, but I would give it another quarter. So there is a risk that the decision-taking will be delayed to early next year.

But at least from discussing with the different parts of the consortium, they are on track with their plans. We received some kind of questionnaire about in what areas do we want to compete and things like that. So in general, we see that the players are on track. In addition, we do expect to get a large order to SSPA for existing LEO constellation, which we cannot name the name of the customer.

Chris Quilty: Right. Final question, Gil, just to clarify. For the full-year guidance, Q1 using the $7.6 million reported or the $11.2 million that would reflect the extra charges to Stellar Blue.

Adi Sfadia: No. It's the $7.6 million. Yes. The $3.6 million of Stellar Blue is just to clarify that organically we made significant progress in terms of profitability this quarter, but the guidance we gave to the market includes Stellar Blue as well. And I think this is the place to remind that Gilat, it's really hard to measure Gilat quarter over quarter. Because of the way we do business with large and small deals, with different margin profiles between regions, between segments. So I think that the best way to look at Gilat results is the current quarter or the current four trailing quarters.

With our guidance for the year, and we are on track to achieve our guidance for the year, both on the top line and on the bottom line. Based on the very large backlog that we have. I think that we have close to 80% of our backlog covering the revenues for the year. And an additional pipeline of opportunities that we have in front of us.

Chris Quilty: Great. And if the best way we did get the segment reporting broken out by defense and commercial. I didn't notice, did you file the historical pro formas for that? And second question, would you consider reporting EBITDA margin by segment in the future?

Adi Sfadia: So in the future, we'll consider. You will see a six-month report with the prospectus that we are maintaining. And filing pro forma is required only to maintain those kinds of reports. So we need to take a decision if we are extending it or not. And based on that, if we decide to extend it, then we are required to provide pro forma as well. We are working right now on the form a results to be ready to be filed once we take it efficient.

Chris Quilty: Great. Thank you, and good luck for the balance of the year here.

Gil Benyamini: Thank you, Chris. Thank you.

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

Gunther Karger: Yes. Thank you. Can you hear me alright?

Adi Sfadia: Yes, Gunther.

Gunther Karger: Yes, I missed part of your comments on the effect of the tariffs. Could you kindly repeat some of that, please?

Adi Sfadia: Yes. So in general, it's too early to assess the effect because it's emerging daily. We did an analysis and we understood that based on the existing rates, the effect is not significant. In addition, before all the turmoil started, we identified it's going to start and we started to shift some of the raw material sourcing from high to low tariff countries. And shift a lot of production into the U.S., especially for the product that we manufacture for the U.S. DoD. So in general, I think that overall, at least as it seems like now, the effect is not high. We are still monitoring closely the situation and reacting based on actual news.

Gunther Karger: Yes. Thank you. In other words, it seems like the situation is rather stable rather than unstable. Will that be a correct statement?

Adi Sfadia: Yes, yes.

Gunther Karger: Thank you very much, Adi.

Adi Sfadia: Thank you, Gunther.

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

Gil Benyamini: Yes. 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 to speak to you on our next call. Thank you very much. And have a great day.

Operator: Thank you. This concludes Gilat Satellite Networks Ltd.'s first quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.

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