Ladies and gentlemen thank you for standing by. Welcome to Gilat's Third Quarter 2020 Results Conference Call. All participants are at present in listen-only mode. Following the managements formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded, November 10th, 2020. If you have not received it please contact Gilat's Investor Relations team at GK Investor & Public Relations at 1-646-688-3559 or view it in the News section of the company's website www.gilat.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin please?

Yes. Good morning and good afternoon everyone. Thank you for joining us today for Gilat's third quarter 2020 conference call and webcast. Recording of this call will be available beginning at approximately noon Eastern Time today November 10 and we will be available for a telephone replay until November 30th at noon. The webcast will be archived on Gilat's website for a period of 30 days. Also please note that investors are urged to read the forward-looking statements in Gilat's earnings release with a reminder that the statements made on this earnings call are not historical facts and may deem forward-looking statements with the meaning of the Private Securities Litigation Form 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 differ materially from anticipated results. Gilat is under no obligation to update or alter these forward-looking statements whether as a result of new information, future events, or otherwise on the company's expressly disclaimers any obligation to do so. More detailed information about the risk factors can be found in Gilat's reported filed with the Securities and Exchange Commission. With that let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilat's Interim CEO; and Mrs. Bosmat Halpern, Gilat's Interim CFO. I would now like to turn over the call to Adi Sfadia. We are ready to begin.

Thank you, Ehud and good day everyone. I would like to thank you for joining us today as we resume our quarterly update which we are not able to hold over the past year due to the pending acquisition agreement with Comtech. Last month on October 5th, we reported that the merger agreement with Comtech signed on January 29th, 2020 was terminated and a settlement was reached on all pending litigation for a payment of $70 million to Gilat by Comtech. We recently announced our plan to share a $55 million dividend with our shareholders, derived mainly from this termination fee. A cash dividend of $20 million was declared and will be paid on December 2nd, 2020 and an additional $35 million will be declared subject to court approval. Moving ahead, we are continuing its full force to implement our strategy which we believe will generate long-term value to our shareholders. I would like to briefly summarize that strategy for those of you are new to our story and to remind those of you that have not met us for a while. Gilat is a leading global provider of satellite-based broadband communications. We have over 30 years of experience designing and manufacturing cutting-edge ground segment equipment and provide comprehensive solutions and end-to-end services powered by our innovative technology. Our main growth engines of cellular backhaul over satellite, in-flight connectivity or IFC, and the ground segment for non-geostationary orbit satellites or NGSO and very high throughput satellite or VHTS for short. Cellular backhaul is part of our Fixed Network segment. Our customers include Tier 1 Mobile Network Operators or MNOs usually requiring satellite backhauling to extend their networks to rural areas and other remote locations such as island, highways, and parks where terrestrial coverage is prohibitively expensive to lay out. In…

Thank you, Adi and 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. We regularly use supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and to make operating decisions. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance. Non-GAAP financial measures mainly exclude the effect of stock-based compensation, amortization of purchased intangibles, amortization of lease incentive, litigation expenses or income related to trade secrets claim, reorganization costs, merger, acquisition and related litigation expenses and initial recognition of deferred tax assets with respect to carryforward losses. The reconciliation table in our press release highlights this data and our non-GAAP information presented exclude these items. I will now move to our financial highlights for the third quarter of 2020. Revenues for the third quarter of 2020 were $37.3 million compared to $63.4 million in the third quarter of 2019. This mainly reflects the impact of COVID-19 on revenue from our – from IFC in our Mobility Solutions segment. However, compared to previous quarter of 2020, revenues were similar at $38.3 million, declining by only around $1 million. Fixed network segment's revenue were $22.8 million compared to $27.3 million in the same quarter last year. The decrease is mainly due to lower revenue from our EMEA region. We saw a slight improvement compared with the prior quarter, where fixed network's revenues were $21.8 million. Mobility Solutions segment revenues were $9.2 million compared to $27.1 million in the same quarter last year and $14 million in the previous quarter. The decrease reflects the effect of COVID-19 on the IFC market. Terrestrial infrastructure projects segment revenues, which include the construction revenues for…

Thank you. [Operator Instructions] The first question is from Gunther Karger from Discovery Group. Please go ahead.

Yes, thank you. First, thank you for an outstanding report given the pandemic circumstances. Secondly, a question, with regard to Gogo and its ongoing sale of its commercial division to Intelsat that's where they're selling the Ka/Ku equipment to. What is the impact if any on Gilat for that? For example with the sale to Intelsat, I could expect there may be some expansion of service. So I would welcome any comment on that?

Yes. Indeed, we are seeing several consolidations in the market. And Gogo acquisition -- Gogo CA acquisition by Intelsat is one of them. We are working closely with Gogo and closely with Intelsat. And we think that the combination of the two carries a significant potential for Gilat. First of all, we consider both of them as partners and we believe that there is a room for extending the cooperation of Gilat with those two companies. I guess, that one of the reasons that Intelsat acquired Gogo is that Gogo will use their Ku capacity. And that means more deployments for Gilat hubs and later on modems. So in general, we see it as a positive development for Gilat.

Thank you. A follow-up question if I may. The -- on the military side defense just recently appointed a head of -- the rejuvenated department of Gilat to deal with for that sort of business. Could you offer any comment as to what areas or what effort is ongoing at this time with that area of business?

That's a good question. As you know in the past few years, the defense business was relatively small business for Gilat mainly tactical equipment, UAVs, antennas and amplifiers that we develop and manufacture in Wavestream. What we see today is that we see increase in the opportunities in the market. And we thought it's the time is right to strengthen our team and we hired a new head of defense business to make sure that we can capture those opportunities. So it's too early to say because it's just starting the work as we speak. But we believe that with them, we will be able to capture much more opportunities that we used to capture in the past.

Thank you very much and good luck.

Thank you, Gunther.

The next question is from Yuval Shine [ph] of Hebrew University. Please go ahead.

Hello. With growing competition, can you say something about what is your competitive advantage? And what is your goal towards the Chinese market and the old eastern markets? And whether you need a substantial amount of free cash for future growth?

So in one question you capture 30 minutes answer, but I'll try to be short. First of all, our competitive advantage is we believe that our technology and our presence worldwide. We have a presence in a lot of countries worldwide. We invest heavily in R&D. And our ability to provide not only equipment, but also services including managed service position us very well in the growth areas that we invest in. As for the cash that we need for future expansion, we have, I think after we include $70 million payments from Comtech and $55 million dividend. I think we have about $85 million to $90 million in cash and equivalents. So it's sufficient money to support our future growth, may it be organic or inorganic growth. Can you repeat the third question that you had?

The Chinese market -- I asked it for the competition aspect about the Chinese market and the growing companies that deal with these kind of technologies.

So, the Chinese market is not a simple market. We are working several years in China we delivered baseband for ChinaSat-16, and we recently announced our achievement with ChinaSat and FTS of deploying our aero modem, and I think it's the first commercial modems that fly in China using ChinaSat-16 Ka-band. It helps that we are Israeli company in China. Not that the Chinese are not doing business with the U.S. but sometimes it's helped to be a non U.S. company. There are several large opportunities in the coming future. ChinaSat is going to launch several new satellites and we think that we are well positioned to win them, and we are expecting the RFP to be issued probably at the second half of 2021. I think today the most important activity that we are doing is mainly concentrate on the in-flight entertainment and connectivity opportunities in China.

Thank you very much.

The next question is from Asaf Barel of Oppenheimer. Please go ahead.

Hey, guys. First of all welcome back that I hear from you again on the conference call. If we could start off, I'll ask a few questions on each of the operating segments just to kind of keep it clean. So for Fixed Networks, we're seeing that revenues are stabilizing and even recovering from 2Q 2020 levels, which is pretty encouraging. To what extent is that stabilization or maybe initial signs of recovery attributable to -- I attribute this give or take, yes, I don't actually need a dollar sign at everything. But number one, traditional satellite equipment that you guys sell? Number two, the satellite -- the cellular backhaul business? And then, number three, the Fitel services revenues, because when we do the comps on a year-over-year basis, we should see even an incremental gain from Fitel. So kind of break it down for us, where the positive trajectory is coming from since 2Q and then some of the other moving parts?

So, while Bosmat is gathering the information you asked, I'll give a high level brisk. What we saw in the market this quarter is a very decent recovery in the Fixed Networks, especially in terms of booking and there is a timing issue between booking and revenues. Usually, it's between three to six months. Sometimes we deliver the day after, but in most of the cases if you buy hubs and other equipment it takes time to manufacture ship and install and get the acceptance. So, I believe that the achievements we have made and announced this quarter, especially in cellular backhaul, which was close to 40% or 50% of our bookings this quarter. We will see in the coming few quarters, especially since it's managed service and you will see it over a three- year period. In Peru, we are progressing as planned with the services for Pronatel. And in addition, as I said in my script, we were awarded extension -- significant extension or expansion of the IPT agreement, which is a contract of tens of millions of dollars for a period of five years, providing the connectivity for IPT which will use it for 4G backhauling. And this is just the beginning of those services, because right now we can serve them only in three regions. Soon we’ll be able to provide this also in Cusco the fourth region. We expect to move to operational phase early next year. And in Ica and Amazonas, the fifth and the sixth region that we were awarded in 2018, probably only in 2022. So the potential over there is very high. And the additional cost from those revenues are relatively low, because we are selling the existing capacity of the networks. In addition, there are several other large opportunities in Peru that we hope to capture in 2021. One of them is -- get the award from Pronatel of services of the second half of the network that right now we are not obliged to maintain.

If you look at the fixed segment, in general, and this changes quarter-over-quarter in Gilat. It's important to note that quarter-over-quarter, the revenue mix changes a lot due to different large deals. But, in general, the cellular backhaul is around 30% of the revenues there. The Peru services revenue, right now, are around 20% to 25%. And we expect them to rise as we enter into the operational phase of the different regions. And the broadband which is the rest is around 45% of those revenues.

Okay. That's actually extremely helpful. Yes, the Peru revenues actually sound even -- when I did the math in my head here, even a little bit better than what we had modeled pre-COVID, right? Your weren't expecting to get maybe 25% of the Fixed Networks revenues, right? Is this going better than you had expected in terms of services coming online?

You're talking about the Terrestrial?

No. I think, it's as expected, except I think that the IPT deal is very, very -- a good beneficial deal that is maybe higher-than-expected. But except for that, when looking at the Peru regional projects, it's not better than expected. I think it's more or less in line or even maybe a bit slower because of the COVID-19.

I will remind you that, in Peru, the restriction are still valid for almost seven or eight months. Peru is significantly affected by the COVID and there is still some areas that are completely closed. And it's -- we as a telecom company, has the ability to move from region to region and install and provide service, but it's not as easy as it should be.

Yes. What I was referring to is just, not on the construction business, right? I'm just talking about the services revenues.

Yes.

That 20% to 25% was services revenues, right? Just to be clear?

Yes, out of the fixed, right.

Yes. Yes, yes. Of course. Okay. Okay, cool. So that color is very helpful. Many other satellite players, legacy satellite players have come under financial pressure. This has been a long-term trend, long-term negative trend. But COVID-19 really worsened the situation for the more leveraged companies. We've had one major company actually declared bankruptcy. What kind of impact are you guys seeing? Are you seeing a shrink in CapEx? How should we expect this to play out moving forward? Are there even maybe potentially opportunities here? Any color?

So, indeed, service providers, especially the big ones and the satellite operators are highly leveraged companies.

Yes.

We saw at the beginning of the year Chapter 11 trend when Speedcast and Global Eagle and the Intelsat and others went into the Chapter 11. Most of them are on their way out. I know that Speedcast received or on its -- going to receive equity injection from their creditors and the Global Eagle moved to be on by the lien -- the first lien creditors, Intelsat received court approval to invest $400 million from the creditors in order to acquire Gogo CA. So I think all of them will move out. I think that, no doubt, there was effect especially with Speedcast, where we are doing a lot of business with them in Australia. But right now, NBN acquired Speedcast Australia and we saw – we are going to do the business directly with them. So we believe that there is no business that was lost. Some delayed and we'll see the orders are coming probably, if not this quarter then early 2021.

So that's kind of on the same question because it's also going to apply to the NGSO business and moving forward. You guys compete to a certain extent with the additional satellite players on equipment, right? So are you seeing maybe any of that competition? Is there any kind of impact that we maybe seeing factor understanding in certain products?

I'm not sure, I fully understand your question. In some cases, with satellite operator we compete on equipment. The only satellite operators who own their own equipment it's only ViaSat, who usually doesn't sell their equipment as standalone. So it's not really a competition. It's mainly competition for our customers. And the used network and with them we do compete here and there and nothing besides that. We do compete with some of the – with some of our customers on services. But our services today is strictly to MNOs and we try to limit the managed service that we are providing to MNOs. And when needed we buy the capacity from the satellite operator. So we have customer vendor relationship. So I think that we are managing the relationship well.

Okay. Great. Yeah. How is this financial situation in Peru? You can see on the balance sheet the way receivables look in terms of the GAAP accounting. But if you guys feel comfortable with the situation in Peru with the government, I mean, we haven't taken a close look at the fiscal situation but any color there would be helpful?

Yes. The relationship of Gilat and the government are very good. We are doing projects with the government in the last 20 years. I think we had more than 15 projects already. They are paying on time and in dollars. So we don't have the exchange rate risk. In most of the cases, they are paying in advance. Today in some of the regions, we are in a situation that we are – in order to achieve a milestone we are more progressed than we should based on the contract. And in those kind of cases sometimes we need to finance it on our own. We expect a very large payment from the government once they accept Cusco. It's close to $20 million into payments depending on what the type of the network they accept. There are delays in accepting the networks, mainly because of the COVID. They can't send people to test and accept relevant sites. Today, we are in progress with them. And we believe that by the end of Q1 we'll be able to get the two acceptance both for the transport and for the access network. So we are aiming to get payment, if not by the end of this quarter Q4 then by Q1 2021.

Okay. Great. That's very helpful. Okay. I think it's enough on Fixed Networks. On the Mobility business, I know that visibility is still low here. But number one obviously the revenues came down from $14 million to $9 million this quarter. To what extent, is that the bottom? So that's number one. And then number two, you had mentioned that you expect obviously the business to return to a certain level. We were talking about maybe 2K 2,000 airplanes being fitted whether it be retrofitted or fresh new airplanes being equipped with in-flight connectivity. How quickly do you think we come back here, even if the airlines do go back to normal business maybe late 2021 who knows when? How -- what's kind of the turnaround time between when business starts to normalize in terms of air traffic? And then, when we start to see a pickup in demand for modems?

That's a good question. We are not going to give guidance for Q4 revenues. I think it's -- the revenue in Q3 was lower, mainly because at the beginning of the year, we delivered the order that we had in the backlog. Right now most of the service providers and the integrators are not buying equipment until they will see that the aviation markets return. The question when it will return. I don't think anyone knows the answer. I think everyone thinks that the earliest will be probably mid next year something that maybe 2022 or even later, it depends what is the aspiration of each one that you talked to. We think that once the aviation will return, we believe that in the same quarter or the quarter after all the service providers will return to buy equipment and install it and increase their network deployment. We believe that the adoption of the wide adoption of free WiFi will -- is a significant opportunity for Gilat and the market there is a lot of potential over there. And from my discussions with analysts and CEO of those service providers, they say that they can't predict when they -- everything will return to normal. But they believe that within three to five years' time, they will manage five to 10 times the capacity they used to manage before the pandemic. This alone is enormous opportunity for Gilat in equipment and services.

Okay. I guess last question, if I could. We had spoken in the past, if you could just remind me in case I missed the press release or whatever on the situation of the antennas. We have spoken about you guys signing business aviation deal. Obviously, we can put that on ice. So I don't know whether I know where that stands. But in general kind of the future of commercial antenna?

Yes. So we have an antenna for business aviation, but the project was canceled I think a year ago when we announced it. We announced several development with our ESA antenna in the past few months. We are progressing, but I must be honest very slowly because the fact that service providers and the airlines are unwilling to invest right now. That means that the opportunity will take significantly more time than originally expected. So it will take time. It's not something for tomorrow morning. And even once they will decide to invest its cycle of several years until you fit the antenna to their needs, get all the certifications. So it's not an opportunity for the near future.

Okay. So with that first of all tank you very much for the very clear broad kind of your answers. Best of luck. I look forward talking to you guys tomorrow.

Thank you very much.

The next question is from Jarib Steiner [ph]. Please go ahead.

Hi, Adi. I wanted to ask you regarding your cash balance. So you have a lot of cash on hand and your stock price is very undervalued. So are you thinking of making a buyback plan?

So one-by-one, I would say, we just announced that we want to share a $55 million dividend, $20 million was declared and going to be paid in three weeks' time, another $35 million will be declared once we get approval from court to capital reduction because we don't have significant distributable profit because the termination fee profit will be recorded in Q4 and we wanted to share the dividend as soon as possible and not to wait to -- after we report our yearly results towards the end of Q1. So $55 million is already there. We remain with $85 million. And in the future, if we will think it's appropriate we will discuss it in the Board. And then if we decide that we go with it, we will announce. Right now it's not on the table.

Okay. And when should we expect return to profitability? Is it next year? Like can you give some time lines about it?

So it's a bit too early to give guidance for 2021. Although, I can say that we are definitely going to see growth on top line and on bottom line. We show minimal adjusted EBITDA this quarter. We will show quarter-over-quarter progress in Q4 and later on in Q1. 2021 will be profitable. Again we are cautiously optimistic because we see that the world is starting to digest the situation and do business although there is COVID and although we can't travel and meet face-to-face with customers. We can't do installation on our own and we're doing it remotely in most of the cases. So we see that acceptance is there to do business. Profitability -- significant profitability we will see once we'll see the topline return to the levels we used to see before the pandemic and the IFC will return. I think that 2021 will be a significantly better year than 2020 and will show a decent double-digit EBITDA but it's too early to say more than that.

Okay. Thank you and good luck.

Thank you very much.

The next question is a follow-up question from Gunther Karger of Discovery Group. Please go ahead.

Yes. Thank you for taking the additional question. With the MNOs gravitating rapidly toward the 5G network systems. The emerging IoT Internet of Things is coming into play as well. So my question is as the IoT accelerates and starts generating bandwidth demand in addition to the standard network operators will this have any positive influence on Gilat's business?

So I'll start with the 5G. No doubt 5G will be a significant growth engine in the future. But I need to be honest 5G's material revenues, I will say it will take two to three years to see it in the P&L. From the simple fact that you first start with the cities where you have a terrestrial connection and later on you deploy in rural areas. What we will see in the interim period is that 5G will drag a lot of 4G deployments. Because a lot of MNOs will going to deploy 5G will be required in several cases by their license to deploy 4G in the rural areas. And the fastest way and the easiest and the cheapest way to do it is with Gilat equipment. And as I said based on the analyst report NSR, we have about 44% market share in the cellular backhaul. But if you look at the details and just look at the 4G, I think we have more than 80% of the market share. So I think we are well positioned to capture a lot of the 4G business in the coming few years up until 5G will be ready for satellite cellular backhaul. We recently announced our achievement with Thaicom, which we demonstrate together with them. As for IoT, IoT most of the applications for IoT is narrow band and not broadband and we are looking at this area also. I can say that today we are investing a lot in IoT. We do have some business in IoT, especially in aggregation places like backhauling for IoT devices and we will see more of this in the coming future.

Thank you, Adi.

Thank you, Gunther.

[Operator Instructions] There are no further questions at this time. Before I ask Bosmat Halpern to go ahead with her concluding statement, I would like to remind participants that a replay of this call is scheduled to begin two hours after the conference. In the U.S. please call one 1-888-326-9310. In Israel, please call 0392-55904. Internationally, please call 9723-925-5904. Bosmat, would you like to make your concluding statement.

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 in our next call. Anyone who would like to speak to us is invited to contact our Investor Relations team. Thank you very much and have a great day.

Thank you. This concludes Gilat's Third Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.