Ladies and gentlemen, thank you for standing by. Welcome to Gilat’s First Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded May 4, 2021. By now, you should have all received the company’s press release. 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 at 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. Thank you operator. Good morning and good afternoon, everyone. Thank you for joining us today for Gilat’s first quarter 2021 results conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern Time today May 4, as a webcast on Gilat 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 statements made on this earnings call are not historical facts and maybe deemed forward-looking statements within 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 and the company expressly disclaims any obligation to do so. More detailed information about the risk factors can be found in Gilat’s reports filed with the Securities and Exchange Commission. And with that, let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilat’s CEO; and Mrs. Bosmat Halpern, Gilat’s CFO. I would now like to turn the call over to Adi Sfadia. Adi, we are ready to begin.

Thank you, Ehud and good day to everyone. I would like to thank you for joining us today for our first quarter of 2021 earnings call. I am encouraged by the improvement of our first quarter of 2021 revenues versus the previous quarter. While the first quarter is seasonally the weakest one of the year, we are seeing a positive progress and momentum across all our business units when compared with the previous quarter. The exception is the IFC segment, which is yet to show a recovery. Revenues in the quarter were $44.7 million, which were 5% better than the previous quarter and slightly below the same quarter last year, as last year we benefited from ISP backlog that we delivered. Looking ahead, we do expect to see a continued sequential growth trend in revenues throughout 2021, with a boost from the IFC segment once it starts its recovery, which we do hope it will be towards the end of this year. We expect that NGSO and cellular backhaul will be the main market segment that will drive growth in 2021 and beyond. And we also see strong potential for the defense business to support our growth in a more meaningful way than in the past. Moreover, looking into 2022, we believe that it will be a year of significant growth for our company as our NGSO project will materialize and we believe that IFC will recover. On the bottom line, our adjusted EBITDA loss in Q1 was $1.4 million compared with a loss of $5 million in the same quarter last year. As our revenues continue to recover in 2021, we would expect much of this growth to benefit our bottom line. The lower EBITDA level this quarter in comparison to the previous quarter was primarily due to the…

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. 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 purchasing intangibles, amortization of lease incentive, litigation expenses or income related to trade secret claims, reorganization costs, merger acquisition and related litigation costs and settlement, an initial recognition of deferred tax assets with respect to carry-forward losses. The reconciliation table in our press release highlights this data and our non-GAAP information presented excludes these items. I will now move to our financial highlights for the first quarter of 2021. Overall, as Adi mentioned, our quarterly results showed an improvement in revenue over the previous quarter and this is already the second quarter with continued sequential growth. We see the trend going in the right direction and the stabilization of our end markets. The exception remains the in-flight connectivity, or IFC vertical, which we believe will start to recover towards the end of the year. Revenues for the first quarter were $44.7 million compared to $47.7 million in the first quarter of 2020. We saw an increase in our revenue from enterprise broadband and cellular backhaul solutions compared to the first quarter of last year. However, the decline versus last year primarily reflects the impact of the COVID-19 pandemic on revenue from IFC in our Mobility Solutions segment. Bear in mind, that the full impact of the pandemic was not apparent until the end of the first quarter last…

Thank you. [Operator Instructions] The first question is from Chris Quilty of Quilty Analytics. Please go ahead.

Good afternoon. Wanted to follow-up real quickly on the terrestrial contract awards, are those booked as one-time revenue? Or are they amortized over some period of time? And was that correct in both of those should come through in the second quarter?

Hi, Chris, the terrestrial section is that, from our perspective is the one-time construction revenues, I remind you that we were awarded six regions in Peru around $550 million, which around two-third, $330 million or so our one-time construction revenues over a period of 3 years, 4 years, 3 or 4 years for each region. This is going to be end – by the end of 2022, maybe early 2023. The second part, $222 million is operational revenues for activating and maintaining the network for a period of 10 years. Now each region has two networks. One is the transport and the other one is access networks. And the $220 million is for operating only the access networks. As for the transfer network, the PRONATEL, the government need to issue a RFP to award it to Gilat later on to operate the transport. This is another potential for Gilat of several million dollars on operational revenues for each region.

Understand. And the $50 million steady state would represent only the recurring revenues and not the construction revenue?

Correct. Correct. We expect to reach this run rate, I would say, towards the end of next year. Today, I think we are much more than half way there, just from the projects, we have more than $22 million per year. We signed several months ago agreement with IPT, Internet Para Todos, which is a consortium of Telefónica and Facebook to support links to 4G deployment worldwide, sorry, not worldwide, in the regions that we were awarded. This is another more than $5 million a year. And we have another slight in terrestrial recurring revenues from all projects that we were awarded of another $5 million. So all in all, we are more than $30 million today with recurring revenue run rate.

Great. Just a follow-up on the in-flight connectivity business, when you look at your current customers there in terms of hardware shipments, have you gotten any indications that they are starting to lay out a roadmap of when they are going to be accepting more equipment for insulation?

Not yet. We do have conversation with them. We do see that they ask more questions, meaning that internally something is starting to go into the right direction. But we haven’t got yet forecast and the orders except here and there for maintenance-related and things like that. But from our perspective, this segment is still not recovered yet. And as we predict right now, we believe that it will be towards the end of this year.

And towards the end of this year, you’ll get back to the pre-COVID run rate or you think you’ll start initial shipments beginning...

I think we will start initial shipments to return to pre-COVID run rate. I would say that it should happen towards the mid next year, assuming the world will recover from the COVID. We need to remember that in Israel, we – it seems like the pandemic is behind us and in the U.S. It seems in the right direction, but other places in the world are still significantly affected by the pandemic. Latin America. We see in the news what is going on in India. So we are – I think we are far from recovering from the pandemic.

Understand. And I know you’ve done this in the past, but can you review for the mobility segment, what the breakdown looks like there, either in terms of by end-market application or by equipment/service revenues in that revenue bucket?

In mobility, we mainly sell equipment. We do have around 10% of the revenue it’s service revenues, but it’s mainly maintenance post contract support.

And by end market application, I mean, IFC is down, I imagine, 80% or more from prior levels? And where are you seeing the continued revenue strength or do you think you will see strength in near-term?

I’m not sure I fully understand the question. Can you please repeat it?

Well, I’m saying within the mobility segment, you’ve recently won some contracts on the maritime side. And are there other either land mobility or government applications that would fall into that mobility bucket that might get the revenues moving before the core IFC business really comes back online?

Yes. So let’s recap for a second, what we have in our mobility. In the mobility, we have IFC revenues. We have defense revenues on the move and on the POS, and we have our NGSO business. So in the NGSO business, we recently announced several orders with Wavestream, our U.S. subsidiary that provide solid-state power amplifier for NGSO gateway. So this business is increasing quarter-over-quarter. The development of the mPOWER constellation is progressing, and we – our expectation is towards the end of this year, early next year to start seeing revenues. Right now, it’s on the development phase. We do see a lot of pipeline and opportunities with the defense world in Israel and worldwide, we do have some initial success, which will we – will be able to announce soon, and we are now in RFP process of several large opportunities, which I believe we would be able to win some of them. And this revenue will come later on this year and next year.

And a follow-up on the NGSO business, you have done – had several announcements of contract wins, but I’m having a hard time sizing how much of those wins have been booked this year? And what might land next year in terms of timing? Can you give us a sense in terms of order of magnitude, how much NGSO related revenues might be up next year or let’s say even ‘21 versus ‘20, and again, looking out in ‘22. I’m just trying to understand how that’s going to stagger out over time?

We – I think 2 or 3 months ago, we announced that Wavestream was awarded of an agreement of more than $50 million. So I guess this will be spread over 2.5 years also before a significant expansion. The empower, we haven’t disclosed the amount, but it’s a potential of tens of millions of dollars of equipment and later on services, and this does not include the modems and the expansion. Right now, it’s for around 10% of the constellation. So over there, there is a significant potential. And I would say it’s that mainly revenues will next start year because the satellites are not yet involved. They haven’t launched it, them yet. So the potential over there is big. I believe that they will rather than quickly fill a large part of them, and they will need to acquire more and more VSATs. There are, in addition, several opportunities, both on the SSPA and on the baseband, that we are in RFP and bidding process, and I believe we will be able to win some of them. So I believe that NGSO is going to be a significant market segment, within Gilat, several tens of millions every year growing.

Just to add 1 thing to what Adi just said. The order that we received already from mPOWER, most of it will be already delivered probably in early 2022, maybe even earlier, but, at least, it’s early 2022. And this is the order that we described before.

Great. So without giving specific percentages, it appears 2021 will be up over 2020. And likewise, ‘22 will also be a growth year going forward?

Yes. I think that based on the – if you sum all the information I just gave, I think the ‘22, we will see significant growth over ‘21.

Great. One other IFC related question, you have done a lot of development work on your phased array antenna, which will become increasingly important as these NGSOs come into service. Where do you stand there in testing and customer decisions?

So that’s a very good question. In ISA, we are one of the most progressed companies with our technology. We’re able to demonstrate even on, I think, that the only ISA is no moving part that was demonstrated on a commercial flight in-flight is Gilat. But right now, customer decisions are far from being taken. Most of them, the antenna is the most expensive part in the solution. And right now, there are trials, there are several opportunities, but I think we are far from having a customer decision to replace or to start a new project. We reached to a point that additional significant development need to be tight with the customer decision based on the relevant aircraft that antenna will be installed in. I guess, maybe in two or three quarters, we will know more where we stand with the potential that we now see.

Great. And a final question, you mentioned that you expect to announce or see some defense order activity picking up. Two questions, is that international in general or U.S. or IMOD? What markets are you selling into? And second question, are there any unique products that you’ve had to develop for the DoD market or are these simply repurposing some of your commercial products maybe layering on some cyber or encryption capability?

So we are working in all the market segments or market geographic markets that you just mentioned. Yes in the DoD deals, though we have some opportunities over there, especially to Wavestream, we are working with in Israel, of course but in other places in the world. It’s mainly our startup Satcom equipment, antennas and productizing our commercial solutions to defense needs.

And so all that productization is R&D work that has been done or do you have a significant amount of work to do?

Most of the R&D is being done. But as you know, every Ministry of Defense has their own requirement. So almost every deal that we see and saw in the past in the defense segment requires some customization, localization and things like that.

Great. Thank you and congrats on the results.

Thank you, Chris.

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

Yes. Hello. My question concern IFC, the – you had a contract with Gogo to supply its entire fleet and Gogo has sold that division to Intelsat. Do you contract transfer over to Intelsat or does that now have to be done from scratch?

Our agreement with Gogo was moved to Intelsat. And today, we are in discussion both with Intelsat and Gogo team under Intelsat. I remind you that we built to Gogo, one of the largest, if not the most large largest satellite network worldwide, supporting more than 15 satellite, I think, and hundreds of teams. Everything is managed with Gilat total network management system, and everything was moved with Gogo Commercial Aviation under Intelsat.

Thank you. So it sounds like with that move and Intelsat that being global, that actually could expand rather than contract. Would that be a correct assumption?

Correct. I would believe that this will support to strengthen our relationship both with Gogo and Intelsat.

Thank you.

Thank you, Gunther.

[Operator Instructions] There are no further questions at this time. Ms. Halpern, 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. Thank you very much, and have a great day.

Thank you. This concludes Gilat’s first quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.