Gilat Satellite Networks Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 19, 2025

Key Takeaways

  • Q1 revenues of $92 M, up 21% year-over-year; adjusted EBITDA was $7.6 M and organic adjusted EBITDA excluding Stellar Blue losses rose 20% to $11.2 M.
  • Acquisition of Stellar Blue contributed $25 M to revenue but incurred a $3.6 M adjusted EBITDA loss; management expects Stellar Blue to generate $120–150 M in annual revenue and achieve a 10% adjusted EBITDA margin run rate in H2.
  • Defense division revenue grew 34% to $23 M and won over $49 M in contracts, including U.S. DoD terminals, CCT portable satellite orders, SkyEdge platform deals, multi-year DataPass agreements and UAV terminal supply.
  • Commercial/IFC segment momentum continued with SiteWinder ESA installed on 150+ aircraft, Panasonic certification secured and development of next-gen ESR2030 aviation antenna on track for production readiness by year-end.
  • Peru segment revenue declined to $4.8 M from $17.7 M due to project renewals and expansions being delayed, with management aiming to complete major renewals in Q2/Q3.
AI Generated. May Contain Errors.
Earnings Conference Call
Gilat Satellite Networks Q1 2025
00:00 / 00:00

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's First Quarter twenty twenty five Results Conference Call. All participants are present in listen only mode.

Operator

Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded 05/19/2025. By now, you should have all received the company's press release. If you have not received it, please view it in the News section of the company's website, www.guillot.com. I would now like to hand over the call to Mr. Alex Vialta of Alliance Advisors IR. Mr. Vialta, would you like to begin, please?

Alex Villalta
Vice President at Alliance Advisors IR

Thank you, operator, and good morning and afternoon to everyone. Thank you for joining us for Gilat Satellite Networks earnings conference call for the first quarter of twenty twenty five. With us on the call are Mr. Adi Safia, Gilat's CEO and Mr. Gil Benyamini, Gilat's CFO.

Alex Villalta
Vice President at Alliance Advisors IR

The earnings press release was issued earlier today and is available on Gilat's website underneath 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 deductions in U. S.

Alex Villalta
Vice President at Alliance Advisors IR

And foreign military spending, acceptance of new products on a global basis and disruptions or delays in 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.

Alex Villalta
Vice President at Alliance Advisors IR

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. Please go ahead,

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Alex, and good day to everyone. Thank you for joining us today as we discuss our first quarter of twenty twenty five earnings results. The first quarter of twenty twenty five marks 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 as we capitalize on the acquisition of Stellar Blue and the continued strong demand for Gilat Defense Solutions.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 $92,000,000 a 21% increase year over year. Adjusted EBITDA was $7,600,000 Q1 20 20 5 was the first quarter we included Stellar Blue's results in our financial results. Stellar Blue contributed about $25,000,000 to our top line and incurred an adjusted EBITDA loss of about $3,600,000 Excluding the loss, our adjusted EBITDA for the quarter was about $11,200,000 representing a 20% year over year increase.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Stellar Blue's yearly performance remains on track with revenue expectation of between $120,000,000 and $150,000,000 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 business. The global economic uncertainty and the shifting international trade policies are creating new challenges. It is still too early to assess to fully assess the impact as new facts emerge daily. Recognizing these trends early, we proactively initiated adjustment to our raw material sourcing several months ago.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

S, supporting stability in this environment. We intend to monitor the worldwide development closely and will adapt our strategies as needed to ensure business continuity and minimize potential disruption. Now on the business review. We had a strong start to the year with successful launch of Gilat Defense Division during the Satellite twenty twenty five Conference in Washington, D. C.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We are seeing demand from diverse geographical markets, including North America, Europe and Asia Pacific region. In Europe specifically, recent events has accelerated efforts to develop sovereign communications networks with growing investments from both the European Union and in individual countries. This trend is creating significant opportunities and we believe Europe will become increasingly important market for Gilead Defense going forward. In Q1, awards spent a diverse global customer base, reflecting demand for our broad range of products and services. This broad portfolio, coupled with our global presence, continue to position us as a trusted and reliable partner for defense organizations worldwide.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

During Q1, Gilat Defense was awarded over $5,000,000 to support critical connectivity for the U. S. DoD and international defense forces with our DKAT terminals and field support services. We also secured a $4,000,000 in orders for unique CCT portable satellite terminals from global for global defense customers and another $6,000,000 contract in Asia for our market leading SkyEdge platform. Gilat Data Pass was also awarded up to $23,000,000 for a multiyear contract to service satellite transportable terminals for the U.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

S. DoD customers. Gilat Data Pass will deliver critical program management, field services and technical support, ensuring operation readiness and continued reliability of these vital communication assets. Gilat Data Pass was also awarded a contract of more than $11,000,000 for DICKET three thousand four hundred twenty 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.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 and 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 this product will be adopted to serve on GEO, MEO and LEO constellations for critical government applications. We plan to continue investing significantly in Gilead Defense as we execute our strategy to lead in this important sector.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Turning to our commercial business. We are seeing continued momentum in both system deliveries and customer expansions as airline prioritize next generation connectivity experience for passengers, including free Wi Fi plans and connectivity on regional jets. We received the $15,000,000 in orders from various satellite operators, including for our Sky H4 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.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Also in the IFC sector, with respect to Stellar Blue, Intelsat has already installed SiteWinder, ESA, 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 successfully testing and certification of Sidewinder ESA 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 ESR 2030 Terminal was tested successfully during flights and we expect these efforts to allow us to have a production ready antenna by the end of twenty twenty five.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Gilat is expanding its strategic collaboration with partners to drive the advancement of next generation aviation ESA terminals. This development project focused on further developing our Sidewinder ESA and also extend 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 affordability with Boeing as part of Boeing's technical service agreement. The platform is progressing through OEM qualification with availability expected in early twenty twenty six. This represents a significant step forward in strengthening our position in the evolving aviation connectivity landscape.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Importantly, as IFC deployments ramp up, we are also seeing increased demand for our SkyH4 and SkyH2C basement 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 healthcare. Satellite communications are playing an increasingly critical role in bridging the digital divide and expanding connectivity to remote and underserved areas.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 transport network, and we are moving forward with the acceptance process across the Amazonas access network. Additionally, we successfully transferred the ICA transport network to Pronatel, the first such transfer, and are working towards transferring the additional regions transport network as well. While the strong pipeline remains intact, several large projects, be it renewals, expansions and extensions continue to face delays.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 the performance our customers require.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 sidewind, Arista, 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.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 Binhamini, our CFO. Gil, please go ahead.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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 twenty twenty five. As Adi mentioned, we are very pleased with our first quarter performance.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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 were $92,000,000 20 1 percent increase compared to $76,100,000 in Q1 twenty twenty four. 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 twenty twenty five revenues for the Commercial segment were $64,200,000 compared to $41,200,000 in the same quarter last year. The 56% increase was primarily due to the acquisition of Stellar Blue, which contributed $25,000,000 to our revenue, partially offset by the termination of our activity in Russia in 2024.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Q1 '20 '20 '5 revenues for the Defense segment were $23,000,000 compared to $17,200,000 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 20 20 5 revenues for the Peru segment were $4,800,000 compared to $17,700,000 in Q1 twenty twenty four.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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 twenty twenty four, we recorded revenues from the construction phase of the Amazonas project expansion, which was completed during the year. We are currently awaiting for until inspection and approval to transition to the operational phase. Furthermore, some equipment deliveries are expected later in this year. Our GAAP gross margin in Q1 twenty twenty five decreased to 30.9% compared to 36.9% in Q1 twenty twenty four.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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 twenty twenty five were $31,100,000 compared to $22,700,000 in Q1 twenty twenty four. The increase is primarily due to the consolidation of Stellar Blue, amortization of purchased intangibles, transaction costs and other income recognized in Q1 twenty twenty four. GAAP operating loss in Q1 twenty twenty five was $2,700,000 compared to GAAP operating income of $5,400,000 in Q1 twenty twenty four. The decrease was driven by acquisition related expenses and purchase intangibles amortization and the absence of profits from arbitration in Peru that was recognized in Q1 twenty twenty four.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

GAAP net loss in Q1 twenty twenty five was $6,000,000 or a loss per share of $0.10 compared to GAAP net income of $5,000,000 or diluted income per share of $09 in Q1 twenty twenty four. Moving to non GAAP results. Our non GAAP gross margin in Q1 twenty twenty five decreased to 31.7% compared to 37.8% in Q1 twenty twenty four. Non GAAP operating expenses in Q1 twenty twenty five were $24,100,000 compared to $22,200,000 in Q1 twenty twenty four. And non GAAP operating income in Q1 twenty twenty five was $5,200,000 compared to $6,600,000 in Q1 twenty twenty four.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

The non GAAP net income in Q1 twenty twenty five was $1,800,000 or diluted income per share of $03 compared to a net income of $6,000,000 or income per share of $0.11 in Q1 twenty twenty four. Adjusted EBITDA in Q1 twenty twenty five was $7,600,000 compared to an adjusted EBITDA of $9,300,000 in Q1 twenty twenty four. The decrease in the adjusted EBITDA is primarily due to Stellar Blue losses in the first quarter. Our Q1 twenty twenty five organic adjusted EBITDA excluding Stellar Blue losses was 11,200,000.0 a 20% increase compared with Q1 twenty twenty four. Moving to our balance sheet.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

On January 6, the company secured a $100,000,000 credit line from a bank consortium from which it utilized 60,000,000 to finance the acquisition of Stellar Blue. As a result, as of 03/31/2025, total cash and cash equivalents and restricted cash were $64,300,000 or approximately $3,800,000 net of loans compared to $118,200,000 on 12/31/2024. In terms of cash flow, we used 6,600,000.0 for operating activities in Q1 twenty twenty five to support the working capital needs of Stellar Blue during the ramp up and its acquisition related expenses. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were seventy five days, up from seventy one days in previous quarters. Our shareholders' equity as of 03/31/2025, totaled to €300,000,000 compared with $3.00 €4,000,000 at the end of twenty four.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Looking ahead, as Adi mentioned, we are reiterating our guidance for 2025 with projected revenue between $415,000,000 and $455,000,000 representing year over year growth of 42% at the midpoint. Adjusted EBITDA is expected to be between 47,000,000 and $53,000,000 represented 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 The first question is from Louis De Palma of William Blair. Please go ahead.

Louie Dipalma
Research Analyst at William Blair

Hi, good afternoon.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Hi, How are you?

Louie Dipalma
Research Analyst at William Blair

Doing great. My first question is your defense business expected to be a beneficiary of the increases, the expected increases in European defense spending?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Generally speaking, yes. We are seeing a lot of traction from Europe defense increased budget. Nothing yet materialized, but we are seeing a lot of demand request for RFPs and things like that. So we believe that at the mid term, we'll see decent business from Europe that will support our growth in defense.

Louie Dipalma
Research Analyst at William Blair

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
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Generally speaking, there are some adaptation 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 we'll be ready. And then it's up to the customers to order it.

Louie Dipalma
Research Analyst at William Blair

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
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So Peru linearity is a bit challenging. So we do expect Peru revenue run rate to be $45,000,000 to $50,000,000 This quarter was relatively low because several large projects that are about to be renewed, The renewal was 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, we need to deliver some hardware equipment once every year. And we do expect it during the third quarter. This is a chunk of 7,000,000 or $8,000,000 of hardware revenue every year.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

In addition, there are several large projects, especially large expansions of existing projects where we are not compete 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
Research Analyst at William Blair

Great. That's it for me. Thanks.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Louis. See you soon.

Operator

The next question is from Ryan Koons of Needham and Company. Please go ahead.

Ryan Koontz
Senior Analyst at Needham & Company

Hi. Can you hear me okay, gentlemen? Yes, we do. Great. 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 and D and sales.

Ryan Koontz
Senior Analyst at Needham & Company

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

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Okay. So in terms of progress at Stellar Blue, I think we made a very good progress during the quarter. One of the main risks in the acquisition was the it's a 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, more than 70,000 flight hours with seamless connectivity with relatively no issues whatsoever.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We do have some supply chain issues with one of the LRUs, one of the component manufacturer. We identified 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 during towards the end of this quarter, early next quarter, we'll have both solution available and we'll be able to accelerate deliveries and revenues to customers. So I think we are on track with that.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 $120,000,000 to $150,000,000 with reaching a run rate of adjusted EBITDA of more than 10%, sometimes 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 a few months 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 objective with Teleblue along the year.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

As for selling efforts, most of the technology sales is with Intelsat and Panasonic and the IFC service providers. Over there, we need to be chosen and to prove that our technology is superior upon 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 environments.

Ryan Koontz
Senior Analyst at Needham & Company

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.

Ryan Koontz
Senior Analyst at Needham & Company

Can you walk through kind of the differentiation there compared to your current generation product? What's coming at the end of the And when do you think it might start to achieve revenue?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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

Ryan Koontz
Senior Analyst at Needham & Company

All right, great. That's all I have for me. Thank you.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Ryan.

Operator

The next question is from Sergey Glynanov of Freedom Broker. Please go ahead.

Sergei Kalenikov
Asset Management at Freedom Broker

Hello, Adi, Gil. How it's going?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Hi, Sergey.

Sergei Kalenikov
Asset Management at Freedom Broker

Yes. Thank you for taking my question.

Sergei Kalenikov
Asset Management at Freedom Broker

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 by the end of the year?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So indeed, we are expecting by the end of the year to before the end of the year to reach to about 100 units per month. Right now, in most of the units, we are give or take very close to this production capabilities, except from 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 additional product alternative. So I believe that towards the end of Q2, early Q3, we will reach to our close to 100 units per month.

Sergei Kalenikov
Asset Management at Freedom Broker

Yes. Sounds great. And that you mentioned that you have not worked at this point closely for now because of the certification you should pass. And for in terms of primary and secondary aviation markets, what revenue structure do you anticipate for this year and for long term?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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

Sergei Kalenikov
Asset Management at Freedom Broker

Yes, sure. So now you're working primarily with aviation airlines, I think, and you have not worked closely with Boeing because you should pass your certification for Stellar Blue S, what delivery structure in terms of primary and secondary aviation market we expect for this year and for long term?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Okay. So you're talking about the breakdown between line fit and retrofit. So currently in 2025, '1 hundred percent 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 twenty twenty six, the split will be closer to fifty-fifty. And on 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.

Sergei Kalenikov
Asset Management at Freedom Broker

Yes. Got it. Adi, you mentioned you'd like to expand signed winder application in ISR and VVIP. Does it not harm your original product like ESR2030 or maybe you can put some colors about that?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Sure. First of all, for the same market segment, we in some cases, we have more than one product. The ESR2030 is a LEO only antenna that can work on Ku meaning on one web constellation. The Sidewinder is a multi orbit LEO GEO antenna and it fits to a larger aircraft and it's another offer another product for the same market segment. So I think that the both products will go together. It's not really replacing each other.

Sergei Kalenikov
Asset Management at Freedom Broker

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

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Sergey.

Operator

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

Chris Quilty
Co-CEO & President at Quilty Space

Thanks, Adee. I just wanted to follow-up on the Sidewinder. I think you mentioned you're working towards defense.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. Chris, we lost you. Chris?

Operator

I'm checking this out. The next question is from Omriah Froni of Oppenheimer. Please go ahead.

Omri Efroni
Investment Research at Oppenheimer & Co. Inc.

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 earnout you should you're going to do with Stellar Blue? Is it a piece of the $25,000,000 of the strategic contracts that if Stellar Blue signs you need to pay them? Thanks. And then I have another question.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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

Omri Efroni
Investment Research at Oppenheimer & Co. Inc.

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

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Correct. It's Intelsat will be able Intelsat or Panasonic or any other customer will be able to install the Sidewinder antenna in Boeing premises.

Omri Efroni
Investment Research at Oppenheimer & Co. Inc.

Okay. So that's where so that will trigger the $25,000,000 of earn out or it's not part of it?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

This is as I said earlier, this is not part of the earn out. This is a specific agreement was signed before we signed the agreement. Okay. And For example, it will be part of Boeing portfolio and you will be able to order this with the aircraft, then it can be it can trigger earn out payment.

Omri Efroni
Investment Research at Oppenheimer & Co. Inc.

Okay. Got it. Thanks for that clarification. And about EBITDA 10% EBIT run rate in the second half of twenty twenty five. '1 of the steps in the earlier earn outs was to get into the profitability of the Stelo Blue products.

Omri Efroni
Investment Research at Oppenheimer & Co. Inc.

Is it does the lower EBITDA now from the products have any effects on the earn out you need to give to Esteele Blue or Stage one and Stage two earn out is still in place?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So it's a good question with a very long answer. So in general, when we build the earn out, we build it in a way, especially the first earn out is 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 earnouts require because of this missing components that I explained earlier. And because it's the first units, they are slightly more expensive in terms of cost than what we expect the usual run rate will be.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We are already starting to see the cost reduction. And we do expect that during the third quarter, we will reach to the expected costs and margins with Stellar Blue. So if you summarize what I said, then right now the first earn out is not on track from payments perspective. Still, we have seven weeks until the end of the quarter. And everyone at Sella Blue is working very hard in order to meet the earn out, to expand deliveries and to reduce the cost.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

As for the second earn out, it depends on the number of units 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
Investment Research at Oppenheimer & Co. Inc.

Okay. Got it. Thanks so much for taking my questions.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Pleasure.

Operator

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

Chris Quilty
Co-CEO & President at Quilty Space

Thanks guys. Can you hear me?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. We hear you great.

Louie Dipalma
Research Analyst at William Blair

That's better.

Chris Quilty
Co-CEO & President at Quilty Space

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 do your airline customers place orders for antennas? I assume not in advance of them actually winning a large batch of planes.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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
Co-CEO & President at Quilty Space

Correct. But presumably that's based upon orders that Intelsat has already won with airlines?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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

Chris Quilty
Co-CEO & President at Quilty Space

won. Perfect.

Chris Quilty
Co-CEO & President at Quilty Space

Also you mentioned a UAV terminal during, I think, the script. That's the first one I can

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I mentioned that we sold a D CAT, transportable terminal to a leading UAV company? It's part of their portfolio to manage the UAVs.

Chris Quilty
Co-CEO & President at Quilty Space

Got it.

Chris Quilty
Co-CEO & President at Quilty Space

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

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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, 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 modeling the earnout and in present value.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

So, this is mainly what you can see in the balance sheet. On top of that, I mentioned the $60,000,000 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 and L. The intangible assets are depreciated. Most of the assets the underlying assets are the backlog, the technology and the customer agreements.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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 and L.

Chris Quilty
Co-CEO & President at Quilty Space

Understand. And so, mean, what should we model ballpark for amortization this year or maybe just D and A? I mean, is Q1 a good run rate or does it not fully capture all the de amortization?

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

It is not fully capturing the old picture because mainly because of the backlog asset, which is not so linear. I would say that about $3,500,000 of amortization are expected quarterly Without the backlog. During the first year. Including the backlog? Including the backlog, of course.

Chris Quilty
Co-CEO & President at Quilty Space

Okay. Great. And the large gateway orders, that's still something that we expect to happen sometime here in 2025?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes. Are you talking about Sky's four gateway or you're talking about LEO constellations?

Chris Quilty
Co-CEO & President at Quilty Space

LEO constellation.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

LEO constellation, Skyd4 for MEO and GEO, we do expect to have large orders. On the LEO constellation, so as I said in the last call, OneWeb right now, OneWeb Gen two is right now on halt until Eutelsat will better understand 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 too early next year.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

But at least from discussing with the different part of the consortium, 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
Co-CEO & President at Quilty Space

Great. Final question Gil just to clarify for the full year guidance Q1 using the $7,600,000 reported or the 11,200,000.0 that would reflect the extra charges to Stellar Blue?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

No, the 7 point six It's the 7.6 percent, yes. The 3.6% 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 profile between regions, between segments. So I think that the best way to look at the Gilat results is the current quarter or the current four trailing quarter 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 very large backlogs that we have.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

I think that we have close to 80% of our backlog covering the revenues for the year and additional pipeline of opportunities that we have in front of us.

Chris Quilty
Co-CEO & President at Quilty Space

Great. And 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 margins by segment in the future?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

So in the future, we will consider. You will see it in the six months report with the prospectus that we are maintaining. And filing pro form a is required only to maintain those kind of reports. So we'll need to take a decision if we are extending it or not. And based on that, if we will decide to extend it, then we are required to provide pro form a as well.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

We are working right now on the pro form a results to be ready to be filed once we take a decision.

Chris Quilty
Co-CEO & President at Quilty Space

Great. Thank you and good luck for the balance of the year here.

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

Thank you, Chris. Thank you.

Operator

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

Gunther Karger
Hedge Fund Manager at Discovery Group

Yes. Thank you. Can you hear me all right?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Yes, Gunther.

Gunther Karger
Hedge Fund Manager at Discovery Group

Great. Thank you. Yes. I missed part of your comments on the effect of the tariffs. Could you kindly repeat some of that please?

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

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 to The U.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

S. DoD. So in general, I think that overall, at least as it seems like now that the effect is not high, are still monitoring closely the situation and react based on the based on actual news. Hello? Yes.

Gunther Karger
Hedge Fund Manager at Discovery Group

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
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Again?

Gunther Karger
Hedge Fund Manager at Discovery Group

Yes. Yes. Thank you very much, Adi.

Adi Sfadia
Adi Sfadia
Chief Executive Officer at Gilat Satellite Networks

Thank you, Ganto.

Operator

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

Gil Benyamini
Gil Benyamini
Chief Financial Officer at Gilat Satellite Networks

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's first quarter twenty twenty five results conference call. Thank you for your participation. You may go ahead and disconnect.

Executives
    • Adi Sfadia
      Adi Sfadia
      Chief Executive Officer
    • Gil Benyamini
      Gil Benyamini
      Chief Financial Officer
Analysts
    • Alex Villalta
      Vice President at Alliance Advisors IR
    • Louie Dipalma
      Research Analyst at William Blair
    • Ryan Koontz
      Senior Analyst at Needham & Company
    • Sergei Kalenikov
      Asset Management at Freedom Broker
    • Chris Quilty
      Co-CEO & President at Quilty Space
    • Omri Efroni
      Investment Research at Oppenheimer & Co. Inc.
    • Gunther Karger
      Hedge Fund Manager at Discovery Group
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