Compugen Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 15 speakers on the call.

Operator

Ladies and gentlemen, thank you for joining us today. Welcome to Compugen's Q3 2023 Results Conference Call. At this time, all participants are in a listen only mode. As a reminder, today's call is being recorded. An audio webcast of this call will be made available on the Investors section of Compugen's website, www.cgen.com.

Operator

Please note that if the sirens go off during this call, we will need to end the call to take shelter. I would now like to introduce Yvonne Naughton, Head of Investor Relations and Corporate Communications. Yvonne, please go ahead.

Speaker 1

Thank you, Yoni, and thank you all for joining us on the call today. Joining me from Compugen for prepared remarks are Doctor. Nat Cohen Niag, President and Chief Executive Officer and Alberto Sessa, Chief Financial Officer. Doctor. Henry Adewoye, Chief Medical Officer, will join us for the Q and A session.

Speaker 1

Before we begin, we would like to remind you that during this call, The company may make projections or forward looking statements regarding future events, business outlook, research and development efforts And their potential outcome, anticipated progress and plans, results and timelines for its programs, financial and accounting related matters, including projected financial information as well as statements regarding the company's future cash position and other results and the company's future initiatives. We wish to caution you that such statements reflect only the company's current beliefs, expectations and assumptions and that actual results, performance or achievements of the company by different maturity. These statements are subject to known and unknown risks and uncertainties, which could cause the company's actual results to differ materially from those projected in such forward looking statements. I will refer you to the SEC filings for more details on these risks, including the company's most recent Annual Report on Form 20 F filed with the SEC on February 28, 2023, as later amended. The company undertakes no obligation to update projections and forward looking statements in the future.

Speaker 1

I now turn the call over to Inanc.

Speaker 2

Thank you, Yvonne. Good morning and good afternoon, everyone, and welcome to our Q3 2023 update. I will start by saying a few words on the heartbreaking situation in Israel, A Humanitarian Disaster. We are traumatized and devastated by the inhuman slaughtering Shuka's strong core. I'm deeply thankful for all the kind words of support I received from so many friends, colleagues, partners, investors, analysts and the medical associations from across the world.

Speaker 2

Your solidarity means so much to me and provides comfort amidst all the anguish and unverbal pain. Thank you. We recognize the emotional toll this is taking on our employees in Israel, And we are taking care to manage the employee needs with a loss of flexibility and care. Despite what our team members are going through, this is a time when we see teamwork at its best. Everyone supporting each other and stepping in to ensure we have no gas.

Speaker 2

The teams are working hard together to ensure we continue to execute and meet our goals. Some The infrastructure for remote working was established during the COVID pandemic. And although we allow certain teams to work remotely, we are encouraging our employees to come to the office. As a global company with headquarters in Israel and presence in the U. S, Europe and Singapore, stem management members and teams responsible for some of our key functions, including clinical development, preclinical development and IT systems are based outside of Israel.

Speaker 2

Our clinical trials running the U. S. And operating in the ordinary course of business, including with respect to CMC and drug supply. Also, most of our preclinical activities related to COMFALL3 are performed outside of Israel. We continue to work with no material impact on our operations.

Speaker 2

And if this changes, we will communicate it to the market. At Compugen, our goal is to transform the treatment of cancer patients who have no effective treatment option by using our pioneering computational platform to discover novel drug targets and develop potential 1st in class drugs. On this front, we're executing on our differentiated clinical approach to evaluate the blockade of the 3 pathways, PVRIG, TIGIT and PD-one. We're also advancing IND enabling studies lead preclinical potential 1st in class anti IL-ten BP antibody compound for free offering novel approach to harness cytokine biology to address resistance to cancer immunotherapy. And we're advancing our earlier stage pipeline with additional new potential first in class programs.

Speaker 2

A CITI conference which just took place. We presented additional data reinforcing a COM701 mediated anti tumor PBC in tumors typically not responding to immunotherapy. This data, which we continue to collect and share from our prior signal taking studies as to the breadth of tumor types typically not treated disease study allows us to advance our biomarker insights as well as further confirm the COM701 mediated mechanism of action. And in parallel, we're conducting our ongoing studies focusing on NSF TRC and platinum resistant ovarian cancer. Building on data We presented at ESMA IO last year.

Speaker 2

At SCC, we reported clinically meaningful durable partial responses in platinum resistant ovarian cancer patients treated with COM701 triple combination with no new safety signals. 3 patients are continuing study treatment for more than 16 months. While the numbers are small, typical median duration of response for this population is 3 to 4 months with standard chemotherapy, In addition to these durable responses, our treatment combination has the potential advantage of a several of the safety and tolerability profile, which as we reported previously, investigators believe We also reported that clinical benefit defined as partial response or stable disease of at least 180 days was independent of basal inflammatory status and was associated with an increase Intuity8 plus T cells infiltration into the tumor suggesting again and consistent with both with previously reported a COM701 mediated mechanism of action. Excitingly at 60, we showed for the first time Intuor Biases and Association Between the Expression of the PDRI G Ligand PDRL2 and clinical benefit, which may suggest the potential of patients' baseline PDI-two levels as a biomarker to help enrich for patients who may gain clinical benefit from COM701 combination. This is consistent with the basic computational driven hypothesis we shared through this pathway in the past.

Speaker 2

This initial association funding suggests a COM701 mediated net result action and has the potential for informing our studies and I will come back to it later. At SCC, we also reported data in having pre treated metastatic breast cancer patients. COM701, when combined with nivolumab, resulted in preliminary antitumor activity with an overall response rate of 12%, including one complete response for over 21 months In a patient with HER2 negative metastatic breast cancer, a tumor that is considered immune cause and A Partial Response for 10 months in a patient with a treatment negative breast cancer, which is the fastest growing and most aggressive kind of breast cancer. The disease control rate was 29% and the 3 patients with stable disease where PD L1 load and with low tumor mutation burden at baseline, suggesting A COM701 mediated methanidone action. And again, we reported good safety into our ability disease drug combination.

Speaker 2

These findings are important because this is yet another indication in which patients are deriving durable benefit from COM701 combination despite Typically not responding to immunotherapy. Additionally, like the initial biomarker work In platinum resistant ovarian cancer, in these leprostastic breast cancer patients, we showed that baseline PDRL2 expression levels our hires in patients with clinical benefits, further supporting our biomarker hypothesis. And finally, at 60, as part of an oral and poster presentation, We shared new data on our preclinical potential 1st in class anti IL-eighteen binding protein antibody COM-five zero three, further supporting our exciting novel approach to harness cytokine biology to tackle resistance potential immunotherapy. As a reminder, there is a huge excitement in this space as cytokine Has the potential to be powerful therapeutics, but has been plagued with challenges of giving them this clinically We have found a way to address this for the IL-eighteen pathway. COMFEG4 free blocking the interaction between IL-eighteen binding protein and IL-eighteen, thereby freeing natural IL-eighteen to inhibit cancer growth in the tumor microenvironment.

Speaker 2

The data we presented at 60 addresses 2 pertinent questions. 1, our IL-eighteen levels in the tumor sufficient to provoke an anti tumor response following antibody blockade of IL-eighteen BP and 2 is an IL-eighteen BP antibody safer than an engineered IL-eighteen cytokine that is given systemically. With respect to the first question relating to IL-eighteen levels in the tumor, we showed that 1, antibody division of IL-eighteen PT, free natural IL-eighteen, prevent tumor growth in multiple mouse tumor models. And 2, COM-five zero three has the potential to release local production of RNA kin in human tumors above the minimum range needed to simulate immune system. We also showed that antibody inhibition of IL-eighteen BP induced a significant increase in functional immune cells such as the effector T cells and induced epithelial corneal extension in the tumor as well as immune memory response.

Speaker 2

So our data suggests that the answer to the first question is yes. ILK levels in the tumor In addressing the second question related to whether an IL-eighteen pp antibody safer than an engineered IL-eighteen cytokine given systemically. We showed that an engineered cytokine generated peripheral inflammatory responses, evidenced by increased serum cytokines and lymphocytes. This contrast with our IL-ten fifty antibody approach, which modulates the tumor microenvironment without affecting the peripherals. The overall data for our COMFIGHT43 program suggests that our anti IL-eighteen fifty antibody approach has a leading edge in inhibiting tumor growth, while avoiding peripheral toxicity associated with administration of a recombinant RNA chain cytokine.

Speaker 2

Along with the successful thesis, I would like to refer to additional progress we have made We are delighted to report that we have completed enrollment in the MSS PSC proof of concept study, which is a testament to the substantial unmet medical need in these patients and lack alternative options. We continue to monitor patients on study treatment and we believe It will be more prudent to provide an update when we have longer follow-up from these cohorts in the first half of twenty twenty four. And our preference is to do this at the medical conference. In the flavivore resistant ovarian cancer study, Enrollment is increasing since we last reported with the activation of 2 additional sites. Nevertheless, completion of enrollment of up to 20 patients we move into 2024.

Speaker 2

The platinum resistant ovarian cancer landscape is continually evolving and becoming more competitive. Although we did not expect an impact of mirvetuximab on our enrollment, which as per label is restricted to about 40% of folax alphahan patients, Ovarian cancer investigators are indicating that as the clinical community gain more confidence in the use of nivratuximab, This is having an impact on our enrollment. Following comprehensive discussions with our investigators, We're optimistic that we can address these gaps and are working closely with our investigators on patient enrollment. Our investigators remain enthusiastic to further enroll to our study based on the durability of process with our triple combination reported at 66 as well as favorable safety profile. In addition to our progress, I'm delighted to see the progress of our partner AstraZeneca in making with resalgostomy, their PD-one treated bispecific derived from our COM902, which has progressed into Phase 3 and Adivan therapy for biliary trust cancer after reception in combination with chemotherapy.

Speaker 2

In addition, AstraZeneca continues to progress their risagastomix Phase 1 and 2 program in additional indication. I believe that this progress of the resagostomy clinical program demonstrates the commitment to explore the potential of TIGIT and our differentiated anti TIGIT COM902. Y Com-two, a reduced Fc effect of function anti TB antibody with regards to MYC was engineered to review Fc effector functionality with the potential to enhance anti tumor activity. Now moving on to what you should expect to see from us next. 1st, We plan to report data from our ongoing proof of concept study in NSF TRC in the first half of twenty twenty four.

Speaker 2

2nd, we plan to enroll up to 20 patients in our ongoing proof of concept study in platinum resistant ovarian cancer and report data in 2024. More specific guidance will be shared during our end of year conference call. 3rd, identification of a predictive biomarker to enrich for responders for COM701 combinations who is always important for us. To this extent, we're excited about the progress we have made on generating initial biomarker data, which I alluded to earlier, showing for the first time an association between the expression of PVRIG ligand PVRL2 and clinical benefits based consistent with our computational prediction. We will continue to build on these preliminary findings as part of our ongoing platinum resistant ovarian cancer study in which biopsies are mandatory.

Speaker 2

In parallel, we're also optimizing our PDRS2 assay to fit the potential patient selection study. Having the potential to enrich for responders in the platinum resistant ovarian cancer patient population. Together with the durability of response and the safety profile of our treatment combination may allow us to build a unique development path for our triplet regimen. We will communicate early next year on how we will use this data to inform future direction. And finally, We're on track for IND filings for COM-five zero three in 2024.

Speaker 2

Before handing over to Alberto, I will pass briefly on our finance set and then Alberto will go into the details. We have an expected cash runway So at least the end of 2024, which we believe is sufficient to support all planned operations. This does not include any potential cash inflow, including potential milestone payments, which we may become eligible for through our partnership with AstraZeneca. Also, as we indicated, Obtaining non diluted cash from partnering is a priority, and we are focusing our efforts on that front. With that, I will hand over to Alberto for the financial update.

Speaker 3

Thank you, Anant. I'm happy to summarize our financial results. I will start with our cash balance. As of September 30, 2023, cash, cash equivalents and cash investments were approximately $57,500,000 Our focus on cash management, while continuing our execution on our DNAM1 access hypothesis and progressing our lead preclinical drug candidate, COM503. As Anat mentioned, We have an expected cash runway to at least the end of 2024, which we believe is sufficient Now regarding expenses.

Speaker 3

Expenses for the Q3 of 2023 were in line with our plans. R and D expenses for the Q3 of 2023 were $8,300,000 down from $9,300,000 Q3 of 2022. The decrease is mainly due to lower expenses associated results with our C and C activities, offset by an increase in clinical trial expenses and by the end of the amortization G and A expenses for the Q3 of 2023 were $2,300,000 compared Q2 $600,000 in the Q3 of 2022. Net loss for the Q3 of 2023 was $9,900,000 or $0.11 per basic and diluted share compared to a net loss of $11,700,000 or $0.14 per basic and diluted share in the Q3 of 2022. With that, I will hand back to Anat to summarize.

Speaker 2

Thank you, Alberto. To summarize, we continue to execute. With our most recent data presented at SITC, we continue to provide evidence supporting a potential COM701 mediated clinical benefit in how to treat patients who are not responding to standard of care and Phase prior I O therapy. This transcends our path as we continue to pursue our ongoing proof concept study designed to reinforce the data in our 2 selected indications and continue to inform our complementary biomarker strategy. We're looking forward to presenting data from this study in 2024 and providing more details on our biomarker strategy informing future direction and related studies.

Speaker 2

We've always said that blocking TIG may not be enough and the PVRIG may be needed. This belief is consistently being reinforced As we roll out our clinical data across multiple indications and most evidently With COM701 and COM902, our 2 wholly owned PVRIGENcv program, we are the leader in the unique chemotherapy free trigger combination approach of blocking 3 immuno access immune checkpoints, PVRIG, KG and PD-one with initial clinical data to support our hypothesis. We're also paving the way in harnessing cytokine biology to address cancer immunotherapy resistance, which is a field of high interest to the industry. With COMT-three targeting the IL-eighteen pathway, We're on track to IND filings in 2024. I would like to thank all our employees for their dedication, teamwork and resilience despite the challenges we have been enduring in Israel.

Speaker 2

With that, I will turn the call back to the operator to initiate the Q and A session. Actually, before we go to the operator, I see Pierre Ferre, our Vice President of First Clinical Development, Just joined us fresh off the plane from 16 San Diego. Pierre will be glad to answer any questions on CompuGen for free, which sparked a lot of interest after his oral presentation at 50. Welcome, Pierre. Yoni, you can now initiate the Q and A session.

Speaker 2

Thank

Operator

Please stand by while we poll for your questions. The first question is from Ashtikha Gurdwarden of Truist. Please go ahead.

Speaker 2

Hi. Thanks for taking my questions.

Speaker 4

I'm Jing and I'm on the line for Ethoca. So I have a question regarding about the first question is about what's the expected Your expected milestones or time lines in 2024 and beyond for the program you co developed with your partner AstraZeneca? And then could you tell more details about how you both parties will handle this program? How will you monitor and evaluate the progress and then performance of this progress. That's my first question.

Speaker 4

Second question is regarding You're, of course, the COM503. So I would like to know or I would like to ask how are you going to determine the optimal dose and the schedule for this COM503 and then in the animal or human study preclinical and clinical? And then How will you count for the variability and also The ability of this IL-eighteen and IL-eighteen PD levels in the different individuals or conditions. Okay. That's my two questions.

Speaker 4

Thank you.

Speaker 2

Thank you, James. So I'll start with the first question that relates And then Pierre will take the second person that relates to COMFIGHT for 3. So first I'll say that With AstraZeneca, the pharmacy that we have is actually a license agreement where we licensed to AstraZeneca The right to develop bispecific antibodies based on our COM-eight zero two. And from the get go, This agreement is actually granting the right for AstraZeneca for the full development and the later commercialization of the program. We're getting updates on this program, but this program is really progressed by AstraZeneca.

Speaker 2

And obviously, Any information about this program will be disclosed only by AstraZeneca. Specifically for contractual reasons, I cannot provide any insights about the specific milestones and the breakdown and the timing and eligibility. And the only insight that I can give on this front is that The clinical milestones that we were already obtaining, we were eligible for milestones for The initiation of patient dosing in Phase 1 and in Phase 2, it was $6,000,000 for Phase 1 and $7,000,000 for Phase 2. And other than that, at this point in time, I cannot say more. And as I stated, this is really AstraZeneca strategy in how to advance these programs to reach indications and at what timing.

Speaker 2

And Pierre, will you take the context for 3 questions?

Speaker 5

Yes, my pleasure. So you were asking how we would conduct the Phase 1 study to go to the active dose. So, to do that, we will of course run a Phase 1 cancer patient with standard dose escalation with some accelerated baby dose situations. About the dose itself, we have Bill's large experience at Compugen on the tools and the methods needed to measure all the components requirement for the pathway. We have built a comprehensive translational package with all our experience in vivo with vivo models, varying cancers and also lots of experience on in vitro testing on human samples.

Speaker 5

So we have made and This will be ongoing for the rest of the time that goes to the clinical trial. We have built a comprehensive PKPD modeling that we will aim to follow during The course of the study. With the tools that we have, we can monitor the suppression of IL-eighteen BT in the periphery of the patients and that would be the basis the main basis of reaching the actual dose. A very interesting thing with that program is the safety so far that we've seen in all the animal models and also the human in vitro molybdenumolus that we have tested. And so with that safety in hand, is that Transferring to the expected high tolerance in patients, we really think that we will be able to reach active dose level that saturates ILO TBP targets easily in the tumor.

Operator

The next question is from Diana Graybosch of Leerink Partners. Please go ahead.

Speaker 6

Hi, good morning. This is Jeff on for Dana. I just have a few questions related to the biomarker data you reported to see. Where are can you just recap where you are in the process of developing companion diagnostics to enrich for TRL2 patients respectively? And how would this path differ for IHE versus genomic application to Tandem Diagnostics?

Speaker 6

And Is any one more practical than the other to implement? 2nd, do you think the data you shared on PBL2 expression in ovarian cancer and that genomic application data more broadly, something you can leverage to facilitate enrollment indication next year When you report ovarian and MSS CRC data, you plan to show this retrospective of PPAR L2 expression data in these patients. Thank you.

Speaker 2

So thank you, Jeff. I'll start with answering the first question of the question of where we are and I'll move forward and then Pierre can relate to the IC and Genomics and General Cultivation. So I'll just say that a big point in time, first, we're very excited with the data that we got. It's still initial by pointing in the exact right direction that we were thinking of at the stage that will build the hypothesis And we are continuing to collect data and this is from the ongoing study. It is important for us to add more patients and generate more robust data as we go with the ovarian cancer For the meantime, we're also developing an assay, but I want to make sure Medicare would want to relate with it as well when he And it is not a final companion diagnostic assay.

Speaker 2

We're now in parallel of Collecting more data, we're optimizing the assays that will be used eventually for screening patients in a study. And it's not going to be the ultimate companion diagnostic assay. But we're trying to work aggressively in both Following on collecting the data and optimizing an assay, so we are ready to be able to take it forward Based on pending the data, we'll continue to look good. Pierre, do you want to relate to the additional questions or to Anne?

Speaker 5

Yes, I would say that the IHC assay is being optimized for use in the central laboratory that we already used in the recent past to generate our data and based on those data, we are optimizing it further to make it easier on practical terms in a day to day basis when we if and when we will activate prospective patient selection. And about the genomics, indeed in The poster that we reported in SITC, we have flagged that one of our patients having the highest score On IHC, PVRYL2 is also showing a genomic amplification that may be detected perhaps in the future from peripheral blood from the periphery. So it will be a non invasive way of assessing the biomarker and the possibility that the patient may respond. We view that Association between genomic amplification and the high score

Speaker 7

of pivotal 2 are the first of confirmation

Speaker 5

that there is something there of interest. So in public databases on ovarian cancer, it is a low proportion of patients that are Having flu genomic amplification, so we don't think that immediately it will be Achievable to screen patient on that front, but we are intrigued also by the fact that there are gains, not only amplifications, but also gains. And this is something that we will explore of course in parallel, But we do think that the IHC that we have in hand will be proximal

Speaker 7

Thanks for taking my questions.

Operator

The next question is from Steve Willey of Stifel. Please go ahead.

Speaker 8

Yes, good morning. Thanks for taking the questions. Can you just speak to, I guess, how many sites are currently active In the ovarian trial, I guess how many have you brought on just within the past few months and I guess over the longer term do you think you need to bring on more sites

Speaker 2

Thank you, Steve. So right now, we have 9 sites active. We have few more, which is based on the plan that we've already Well, we're thinking about ranking up and we don't think that we should add additional sites beyond what we planned and what we're looking to do now. And the reason for this is what I was just alluding to in the prepared remarks. So first, we believe that the close monitoring that we're doing now with And again, trying to make sure that the study It's on the radar.

Speaker 2

This is something that is going to achieve the goal and this is after We added ovarian cancer specific sites, the sites that are growing, specifically ovarian cancer patients. So these 2 things, adding the size, making sure that we speak with the investigators and we have to I have To say that hearing their comments about how they think about the triplets activity, Mainly the durability in conjunction with the safety for these patients that really experienced so many lines Of treatment, we don't really need to convince them. So we believe that the ramp up that we started to see We'll continue and that we don't need to add additional sites to the study.

Speaker 9

Okay.

Speaker 8

And then I think you said that I mean, you're obviously assaying for PBRL2 expression. So I think you said biopsies are mandatory. Is the ask of a patient both in on treatment and then I guess a baseline and then multiple on treatment biopsies or are you just looking for one specific biopsy? And I guess is that second on treatment biopsy requirement. Is that in any way rate limiting in terms of your ability to get patients to solicit consent?

Speaker 2

It's a very good question. So I maybe Henry will want to add anything about this, but In any case, in any study, when you ask for biopsy, this is a hurdle, obviously, because patients need to go through some new basis approach. But we don't anticipate at this We ask for mandatory biopsy baseline prior to treatment and also on treatment. And this is really serving us in order to make Eventually, we can go with the platinum resistant ovarian cancer data that we have into what eventually will be a biomarker driven study that will allow us to and maximize the potential of COM701 treatment for patients that may respond to these treatments. So at this point in time, this is mandatory.

Speaker 2

With this mandatory request, we do see a ramp up And we believe that this will not be the issue for enrollment.

Speaker 8

Okay. And then just lastly on the colorectal trial, I know this is open label. Do Do you have a sense as to what the distribution of patients looks like with respect to the presence or absence of liver metastases at baseline? Thanks.

Speaker 2

So I will start and then Henry maybe wants to add. Yes, it's open label. We're familiar with it while we're not looking every day on the patient distribution. We're familiar with this. We are the kind of study that allows for liver mass And that's unique and this is because we believe that there could be some edge there based on the prior data.

Speaker 2

But as I said, we continue to monitor patients. We continue to collect the data We're thinking very hardly on what data we should While the study is continuing, but we've made the decision that it's better for us not to share portions of data, incomplete picture, it is better for us to have a longer term Follow-up and share the full picture. As I said, preserving medical confidence when investors will be able to see the full future of the data. Henry, anything else you would like to add on the liver, Matt, answer question?

Speaker 7

Thank you, Anat. I think you've covered the major part of the question. But just to give some color, Looking back at the data we presented previously on the 22 subjects, patients with macrosadisibolorectal cancer. A little above 3 quarters of those patients have ever met. That was the initial presentation we had.

Speaker 7

The number of patients that we anticipate will have lenabemest will also probably be around that number, Based solely on the fact that most of these patients have exhausted all available standard of care therapies. And in addition to that, most common side of metastasis of colorectal cancer, if you just look at the unmapsulins is the liver. So between half, so about 2 thirds of about 3 quarters of patients who probably have liver beds on an analysis. And I'm just making an assumption here and a projection. Until we do look at that data next year, like Anat has mentioned, before we'll be able to give you more substantive information on that regard.

Speaker 8

Okay. Thanks for taking the questions.

Speaker 2

And maybe Steve, maybe I'll just add, just to make sure that it is clear In a biomarker driven study, we will obviously only require for a baseline that

Operator

This concludes the Q and A session of Compugen's Investor Relations conference call. Thank you for your participation. You may go ahead and disconnect. Ladies and gentlemen, thank you for standing by. The conference will begin shortly.

Speaker 7

Q4

Operator

2020 results conference call. All participants are present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star 0. As a reminder, this conference is being recorded November 7, 2023.

Operator

By now, you should have all received the company's press release. If you have not received this, please contact Elat's Investor Relations team at EK Global Investor Relations at 1-six forty six-six eighty eight-three thousand five hundred and fifty nine or view it in the News section of the company's website, www.delot.com. I would now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr.

Operator

Health, would you like to begin?

Speaker 10

Yes. Good morning, good afternoon, everyone. Thank you for joining us today for Gilat's Q3 2023 results conference call and webcast. A recording of this call will be available beginning Also, please note that investors are urged to read the forward looking statements in the IRAS earnings release with a reminder that statements made on this earnings call There are no historical facts may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingencies, many of which are beyond the control of Gilat and which may cause actual results to die from materially from anticipated results.

Speaker 10

IRAD is under no obligation to update or update forward looking statements whether as a result of new information, future events or otherwise. The company expressly disclaims any obligation to do so. More detailed information about risk factors, Sandipan and Gilat's reports filed with the Securities and Exchange Commission. With that said, let me turn the introduction. On the call today are Mr.

Speaker 10

Adi Sadia, Gilat's CEO and Mr. Ghibin Yamini, Gilat's CFO. I would now like to turn over the call to Adith Adyadi, who will take stock.

Speaker 11

Thank you, Ehud, and good day to everyone. I want to thank you for joining us today for our Q3 of 2023 earnings call. I want to take a moment to comment on the tragic event of October 7 and the war in Israel. Our thoughts and prayers are with the victims and families of this horrific attack. We are very proud of our employees' response to this crisis and their dedication to the company during these times.

Speaker 11

We also want to thank our partners, customers, suppliers and the world community at large for their full hearted support. Before I discuss the business results of the quarter, I want to emphasize Gilat is a strong global company with operation and development sectors worldwide. Our operation remains unaffected by the recent events in Israel. We continue to closely monitor the situation and have implemented relevant measures and refreshed our business continuity plan to minimize any potential effect, if at all on our business. Now let's move to the business review of the Q3 of 2023.

Speaker 11

We are pleased with our results for the Q3, particularly the continued revenue growth combined with the continued improvement of our profitability. The good performance was due to growing interest in our solutions as well as advancement in the satellite communications space in general. In particular, I would mention the in flight connectivity market that contributes significantly to our revenue growth and profitability this quarter. We report significant improved profitability and adjusted EBITDA demonstrating the operating leverage inherent in our business. In fact, our year to date adjusted EBITDA of $27,000,000 already exceeds the adjusted EBITDA from the whole of 2022.

Speaker 11

We are very pleased with the progress made this year and we expect this trend to continue. Looking ahead, we are narrowing our revenue and profitability expectations for the full year 2023. We expect revenues of between $265,000,000 to $275,000,000 We are increasing our GAAP operating income to between $29,000,000 to $31,000,000 due to one time income net Gil Bin Yamini, our CFO, will discuss in his comments. And we expect adjusted EBITDA of between $35,000,000 to $37,000,000 representing elevated growth of 43% at the midpoint. In the very high throughput satellite, the VHDS and the non geostationary satellite, the NGSO constellation business.

Speaker 11

We continue to lead with follow on multimillion dollar orders from our strategic partners, satellite operators. Network extensions and delivery of Gilat's multi orbit next generation platform, the SkyEdge 4 and the Aclaris business are taking place globally in support of multiple applications such as in flight connectivity, cellular, vehicle and enterprise. In the Q3, we secured a new win for 1,000,000 of dollars for our multi application platform to support new high throughput satellites. This satellite will be used primarily for IST with maritime and cellular backhaul as secondary applications. In our SPA product line.

Speaker 11

I'm pleased to report that we continue to take progress in a major project with significant potential for a large NGSO constellation. We are on track and expect to pass qualification process in Q4 this year. This quarter continues to be a strong quarter for Gilat Cellular Backhaul Solution over Santilat. A significant award this quarter for approximately $20,000,000 for a contract extension from a Tier 1 MNO in the United States. Gilat continues to support this long term Tier 1 customer with a multiyear end to end managed services contract for satellite based cellular backhaul and emergency response services.

Speaker 11

Furthermore, The most exciting technical milestone was achieved with QIAGE for Aquarius VSAT for 5 gs solar backhaul in India With Reliance Jio over SCS also being in power services. An outstanding performance of 1 gigabit per second was showcase in India's 1st satellite based gigafiber service called Geospace Fiber at the India Mobile Congress. The amazing success demonstrates high speed decking services over satellites to deliver high throughput connectivity To previously inaccessible geographic within India. I couldn't be prouder of our team who made this happen. During the quarter, we built upon our ongoing activity with Intelsat with an additional multimillion dollar deal to enhance the global network and torus modem deployment that operates both on SkyEdge 4 and SkyEdge 2C.

Speaker 11

In addition, we engaged in our SSPA business in several new opportunities for next generation IFC equipment, which we hope will mature in the next few months. This success in addition to our ongoing business with another large aerospace integrator, a long time partner in the IFC market, who continually relies on Gilat transceivers. In March this year, we signed an agreement to acquire Datapast Inc, a leading U. S. Defense satellite integrator.

Speaker 11

This is a major step in our initiative to increase our presence in the strategically growing defense market. The acquisition is an important step in the expansion Gilat business into the U. S. DoD and government sector as well as into other international governments and defense markets. We are progressing very well towards the closing of the transaction.

Speaker 11

We expect our revenues in the defense sector to increase by approximately $50,000,000 on a yearly basis following the imminent closing of this acquisition. We are now waiting final regulatory approval, which by recent indication should arise soon, following which we expect closing to happen this quarter. We further expect that the forthcoming closing of the Datapad acquisition will provide a tailwind for major defense opportunities. As I have mentioned in the past, We are putting great focus on the defense market and we are seeing slow but good progress in this area and expect This extra focus will bear fruit soon. In the Q3, we only advanced a project with the Ministry of Defense of the country in Southeast Asia.

Speaker 11

We continue to grow our pipeline and are working on several exciting deals which we hope will materialize in the near future. Furthermore, our enterprise customers worldwide continue to depend on us to enhance their business and new opportunities continue to arise. For example, We received a managed service contract extension from a large government corporation in Asia Pacific to provide connectivity for multiple applications across the nation. This includes but not limited to enterprise applications with strong opportunities for cellular backward emergency response and mobility applications such as comms on the move and comms on the post. Providing social inclusion is a big part of our strategy and We have exemplified also a new deal in the Philippines.

Speaker 11

A new global network was deployed to provide connectivity to the unconnected, leveraging our Sky 2C platform and Gemini Research. In Peru, we are progressing towards completing the construction of the Amazonas region, which is the 6th region awarded to Gilat back in 2018. We expect to enter acceptance process soon, enabling us to deliver the network We are expecting additional progress in the next few months. This includes the maturity of several large Irish peers in Bonnatell and the Peruvian government as well as several project extensions. We are most pleased with the strong pipeline we have in Peru.

Speaker 11

To conclude, I am pleased with our ongoing support of our partners as well as our ability to capture significant new opportunities. We continue to lead with our next generation platform, Slide 4, that supports multiple orbit and verticals, including our strategic market of mobility, cellular, vehicle and defense. We also secured new opportunities for our SSPI business, especially in the IFC segment and are seeing increased opportunities in that line of business. We have a strong pipeline and expect The materialization of important deals over the coming months. And with that, I hand over to Gil Bin Yamini, our CFO.

Speaker 11

Gil, please.

Speaker 12

Thank you, Eddie. Good morning and good afternoon to everyone. I would like to remind everyone that our financial results to help investors understand our current and future operating performance. Non GAAP financial measures mainly exclude the effect of non cash stock based compensation expenses, amortization of purchased intangibles, amortization of intangible assets related to acquisition transactions, lease incentive amortization, impairment of held for sale assets, income tax effect on adjustments, one time changes of deferred tax assets and other operating income or expenses. The reconciliation table in our press release highlights this data and our non GAAP information presented excludes these items.

Speaker 12

I will now move to our financial highlights for the Q3 of 2023. Overall, as Adi mentioned earlier, we are very pleased strong results of this quarter. We reported a 6% year over year growth in revenue and the solid improvement in profitability. Non GAAP gross margin was 41% and our adjusted EBITDA reached $9,500,000 Higher by 30% compared to Q3 last year. Given the strong performance to date alongside with expected timing of Q4 deliverables and our proximity to the end of the year, we narrowed our revenue and adjusted EBITDA guidance and increased our GAAP operating income guidance, which I will cover later.

Speaker 12

In terms of our financial results, revenues for the Q3 was $63,900,000 6% higher than those of Q3 of last year. This was driven by growth in the satellite network segment, Mainly from the cellular backhaul, enterprise and mobility verticals. In terms of revenue breakdown by segment, Q3 2023 revenues of the Satellite Network segment were $40,700,000 compared to $32,400,000 in same quarter last year. The significant increase mainly resulted from some large deals, which were delivered this quarter to our strategic customers in the mobility market as well as the high volume with our enterprise and solar backhaul customer base. Q3 'twenty three revenues of the Integrated Solutions segment were $11,000,000 compared to $15,700,000 in the same quarter last year.

Speaker 12

The decline was mainly due to a transition period between strategic and large projects in this segment. Q3 'twenty three revenue of the Networks Infrastructure and Services segment were $12,200,000 compared to $12,300,000 in the Q3. I would now like to summarize our Q3 both GAAP and non GAAP results. Our GAAP gross margin in Q3 'twenty three improved to 40.4% compared to 38.2% in the same quarter last year. The improvement in our gross margin was mainly due to a favorable product and services revenue mix recognized this quarter and the higher level of revenue.

Speaker 12

I note that revenue margins and profitability may fluctuate between quarters as an outcome of the actual revenue volume and deal mix. GAAP operating expenses in Q3 'twenty three were $13,100,000 in the quarter or 20% of revenue compared with $19,600,000 or 33% of revenues in the same quarter last year. The significant decline in GAAP operating expenses was due to a win of Philippines lawsuit, which was settled This quarter and resulted in a one time other income as well as the sale of real estate in Bulgaria and therefore a reduction in GAAP OpEx of $7,400,000 GAAP operating income for the quarter improved to $12,700,000 Excluding the one time other income was $5,300,000 higher by 55% compared to Q3 'twenty two. GAAP net income in the 3rd quarter was $10,200,000 or diluted earnings per share of $0.18 This is compared to a GAAP net income of $2,100,000 or diluted earnings per share of $0.04 in the same quarter last year. GAAP net income in Q3 'twenty three, excluding the onetime other income was $3,800,000 almost double that over the Q3 Q3 'twenty three improved to 40.5% compared to 38 point 3% in the same quarter last year.

Speaker 12

Non GAAP operating expenses in Q3 'twenty three were $19,800,000 $6,100,000 compared to $4,400,000 in the same quarter last year. Non GAAP net income in the 3rd quarter was $4,600,000 or diluted earnings per share of $0.08 This is compared with a non GAAP net income of $3,000,000 earnings per share of $0.06 in the same quarter last year. Adjusted EBITDA for the quarter was $9,500,000 An improvement of 30% compared with an adjusted EBITDA of $7,300,000 in the same quarter last year. Moving to our balance sheet. As of September 30, 2023, our total cash and cash equivalents, including restricted cash, was $100,300,000 compared with $87,800,000 on June 30, 23 And compared to $69,900,000 as of September 30, 2022, we do not hold any debt.

Speaker 12

In terms of cash flow, we generated $13,800,000 from operating activities during the Q3 of 2023, which also includes the collection of the lawsuits award in the Philippines, as I mentioned earlier. DSOs, which exclude receivables and revenue from our terrestrial network construction projects in Peru, were 75 days higher than the previous quarter DSO, which were 63 days. The increase was impacted by an increase in receivables, partially offset with increase in revenues And is in line with our credit policy. Our shareholders' equity as of September 30, 2023, totaled about $265,000,000 compared with $255,000,000 at the end of June 23. Looking ahead, As I already mentioned, due to our proximity to year end, we have narrowed our revenue guidance and adjusted EBITDA guidance range for the year.

Speaker 12

Given the one time other income, as mentioned before, we are updating our GAAP operating income target for the year. Our updated expectations show a strong 2023 with revenue of between $265,000,000 to $275,000,000 Representing year over year growth of 30% at the midpoint. GAAP operating income of between $29,000,000 to $31,000,000 Representing year over year growth of 43% at the midpoint. All in all, as Adi mentioned, We are very pleased with our performance to date and we expect to conclude 2023 as a strong year for Gilat. That concludes my financial review.

Speaker 12

I would now like to open the call and would be happy to take your questions. Operator, please.

Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question is from Ryan Coons of Needham and Company.

Operator

Please go ahead.

Speaker 9

Thanks for the question and I'm glad to hear everyone in the company is safe. Can we start maybe with gross margins and maybe talk through some of the The puts and takes on gross margin looks like a nice step up sequentially in September, but maybe I'm reading into the implied guidance

Speaker 12

Yes. Hi, Ryan. So, as you know, gross margins are affected mainly by volume and mix. The changes during this year between quarters were mainly due to mix changes of our product, while delivering some of the products, For instance, in the IHC and NGSO, usually with higher profit margins and other product with lower ones, plus we have the Peru effect, which was more Stronger in Q2 and lowered the gross margins a bit. So it fluctuates, but I think that What we see now is the trend throughout the year.

Speaker 12

So, I would also say that Looking at Gilat on a quarter by quarter basis, maybe a bit misleading than I would look on a year to date basis or trailing 12 months and I think that this would give a better picture.

Speaker 9

That's fair. Thanks for that clarification. And on your recent win in the backhaul, it sounds like with a large U. S. Operator, Any timing around your expectations for when you might start to see revenue from that?

Speaker 11

Hi, Ryan. It's Actually, we are seeing revenues already. It's the sales extension of this project. We are entering actually we already entered the 7th year of doing business with that customer And it's around $1,500,000,000 per quarter, slightly more than that with some upside every quarter.

Speaker 9

Nice, great. And it sounds like IFC was strong in the quarter. Any More color you can share with us on your kind of progress in the IFC market here in the near term, either in Q3 or the next few quarters.

Speaker 11

In the IFC, what we see is a lot of interest. We have several main customers. The main one is the Intelsat and we have a large very large U. S. Integrator who bundles our SSPA with its terminals.

Speaker 11

And this business continue regular and Almost every quarter additional orders made via additional models, network expansions or additional SSPAs. We do have some small customers for our baseband and modem and other customers for SSPA. We are seeing a lot of interest on our SSTA product line. We saw a smaller work So we expect to have a strong year in 23 in general and also a strong year in 2024 in the IFC.

Speaker 9

Great. That's really helpful. And the types of plane seats we're going on to, is this more going down market kind of business gens?

Speaker 11

Also business jet, yes. Right now, the main focus is on the commercial, but also on the business jets.

Speaker 9

Got it. Helpful. I think that's all I had. I'll pass the call.

Speaker 11

Brian, I just would like to mention another thing. If you remember last quarter, we announced our Stockholm Direct deal to develop electronically steered antenna. So we are in the development process and we expect revenue within, let's say, 18 months from today. So in 2025, we expect additional growth in this sector.

Speaker 9

Great. And that's for transmission

Speaker 11

That's for business jet, Yes, this is for business.

Speaker 9

Got it. All right, great. Thanks for that.

Speaker 12

Thank you.

Operator

The next question is from Chris Quilty of Quilty Analytics. Please go ahead.

Speaker 13

Speaking of Business Jet, you guys were the new entrant last quarter with the Satcom Direct announcement. And this quarter, We just got the announcement that Hughes has now jumped into the ring with the Delta order. I'm assuming that's something you couldn't address Timing wise because of your new product, but from what you know competitively, how does the Satcom Direct product you're developing stacked up against the recent Hughes announcement. So first of all,

Speaker 11

it's news that H and S is getting into the Being a service provider in IFC, their main focus is on the regional jet And they are using a flat panel antenna from Fincom. Satcom Direct, their main focus is on business jet and military And we are developing for them the ESA, the electronically steered antenna. So it's a completely different type of term.

Speaker 13

Understand. Do you see any other product line extensions? You're starting at the bizjet level with the Satcom Direct product as it scale up

Speaker 11

The business just has a smaller antenna and Satcom direct Antenna is focused on one way of constellation. For GEO, we will need a bigger antenna. And this is part of our roadmap as well. This antenna for commercial Aviation will be for GEO and LEO as well, not only for GEO.

Speaker 13

Got you. Switching gears, the Aquarius wasn't a product line you talked about much. I think you did a relaunch with SkyEdge for In 'twenty one or 'twenty two, is that correct?

Speaker 8

Yes.

Speaker 13

So has that product line caught on in the way that the SkyEdge 4 has or is it just Such an ultra high performance product line that it just takes much longer for it to gain traction in the market.

Speaker 11

So the Aquarius product portfolio is a new product portfolio dedicated SkyEdge Pro. We do have several Sky to see modems that also works on Sky's 4, but the Aquarius is the new line of product. So it started with cruise with SCS Empire, but not only. We are now seeing it on cellular backhaul and we see more in the future. As I mentioned in my notes, We recently demoed 1 gigabyte per second with SCS and Reliance Jio in India.

Speaker 11

This is a robust achievements and those models are supposed to be with very high speed performance, Of course, fits the 5 gs requirements.

Speaker 13

Switching gears again, I think you mentioned First of all, could you just repeat the DataPath revenue contribution for next year? But I think you indicated that's all classified as defense. There may be very small commercial sliver in there, but from a reporting perspective, can you remind us Gil, does it all land

Speaker 11

So the DataPath revenues is around $50,000,000 plusminus10%. And it's Probably we learned on the satellite network, but it's still under accounting review. So it's a bit early 2 to 3.

Speaker 13

All right, fair enough. And in general, how I mean, I know you don't provide orders per se in terms of an order book, but what have you seen as you look Look back I guess over 2023, what have you seen in the trend line towards order strength or weakness over the course of the year and

Speaker 11

So it really Depends on the segment, but in general, I would say that our bookings or order in Our give or take as expected at the beginning of the year when we put the guidance. We are seeing a lot of traction in IFC And in Cellular Backhaul, in the defense, we are developing our pipeline. I'm sure you know that the Sales cycle is very long in the defense. So we are seeing slow, but very good progress and we hope to have a tailwind once we close the Dataposs acquisition. We are seeing some slowness in integrated solution order, But we expect to ramp up in the next quarter or 2.

Speaker 11

And in Peru, it really depends on local RFPs. And we know that the government plan to launch Several very large RFPs in the next few weeks and we also expect some contract extensions and extensions. So we expect a strong close for the year in Peru.

Speaker 13

Got you. You mentioned integrated solutions and obviously there's been a lot of weakness this year. Can you remind us, I mean is that certainly most of the defense companies that I deal with have talked about order slowness with the government. Do you think it is more related to the macro government purchasing environment or is it Specific to the programs that you're working on that you've seen some delays?

Speaker 11

I think it's a combination of the 2. But I would say that the majority of the slowness is the shift that we are seeing between several large projects which ended during 2022, early 2023 and other large projects that we awardees, we expect them to uplift towards mid End of next year. So it seems like a transition year.

Speaker 13

Got you. That's good color I wasn't aware of. And then I guess final question and sorry this is a little esoteric, but Gil it looks like your

Speaker 11

Thank you, Chris.

Operator

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

Speaker 14

Yes, thank you. Excellent quarter. Congratulations. I didn't hear any comment on Peru. Could you give an update on Peru, please?

Speaker 14

And also the second question. I may have missed the comment. Do you expect to close on the data path this year?

Speaker 11

So can you repeat your question again about Peru?

Speaker 14

Yes. Just a general update on Peru. I missed anything on that.

Speaker 11

Sure. So, in Peru, business as usual, we are close to the end of finishing the 6th region, The Amazonas region was awarded back in 2018. We expect to start acceptance procedures with the government before the end of the quarter And to final acceptance for the mid of next year and then to switch to operation phase. In parallel, we see a lot of bids that are coming Up soon in the quarter and we are also expecting several contract expansion and extensions. So, we expect to have A strong booking quarter for Peru.

Speaker 11

As for DataPath, indeed, we are progressing towards closing this This quarter, we already received the CPU's approval and we're still awaiting one last Very closing condition which we expect to achieve as well in the next few weeks. So indeed, we are expecting to close The transaction is working.

Speaker 14

Thank you. And also regarding the Danaapat, do you anticipate keeping that operation as a separate subsidiary or do you expect to integrate that into your military and defense operations?

Speaker 11

Combination of the 2. Now, data path is going to be an important leg in our defense strategy, but we do expect them to continue to work independently And to grow their business while using Gilat and the waste stream resources in the defense in order to increase the overall defense presence of Gilat worldwide.

Operator

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Mr.

Operator

Binyamini, would you like to make your concluding statement?

Speaker 12

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 speak to you at our next call. Thank you very much and have a great day.

Operator

Thank you. This concludes Gilat's Q3 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

Powered by Quartr
Earnings Conference Call
Compugen Q3 2023
00:00 / 00:00