Gilat Satellite Networks Ltd. (GILT) Q2 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Second Quarter 2024 Results [Operator Instructions]. As a reminder, this conference is being recorded, August 7, 2024. 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 Global Investor 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 EK Global Relations. Investor Relations. Mr. Helft, would you like to begin, please?

Thank you, operator. Good morning, and good afternoon, everyone. Thank you for joining us today for Gilat's Second Quarter 2020 Results Conference Call and Webcast. A recording of this call will be available beginning at approximately noon Eastern time today, August 7, is a webcast 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 statements earnings call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingencies, many of which are beyond the control of Gilat and which may cause actual results to 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 explicitly disclaim any obligation to do so. More detailed information about these factors can be found in Gilat's reports filed with the Securities and Exchange Commission. With that, let me turn to introductions. On the call today are Mr. Adi Sfadia Gilat's CEO; and Mr. Gil Benyamini, CFO. I would now like to turn the call over to Adi Sfadia. Adi go ahead, please.

Thank you, and good day. Thank you for joining us today for our second quarter of 2024 earnings call. The second quarter of 2024 was a good quarter for Gilat in which we showed year-over-year revenue growth. This was primarily due to the strong momentum in our defense business with a significant contribution following the acquisition of DataPath. We expect this strong momentum to continue in the quarters ahead. In addition, another key achievement was our ability to increase our adjusted EBITDA by 10% year-over-year, exceeding $10 million. Most importantly, during the second quarter, we took a major strategic step and announced the acquisition of Stellar Blu Solutions, a leader and first to market in delivering electronically steerable antenna for the in-flight connectivity market. The closing of the acquisition is on track and expected around the beginning of the fourth quarter of this year. In a minute, Gil will discuss the financial elements of the deal in more detail. But before that, I want to discuss why I'm so excited about this acquisition and why this acquisition carries significant potential for Gilat. The acquisition of Stellar Blu culuminated many months of deep due diligence, looking at all aspects of the IFC market, the company, its long-term growth potential and potential synergies with Gilat's existing business infrastructure. This deal has the potential to unlock new strategic customers and create additional significant revenue for Gilat. Just recently, Stellar Blu completed qualification and a supplemental type certification on the multi-orbit side winter aero terminal We have a vision to broaden this product line with a more comprehensive suite of products for the IFC market. I can share that the company has started delivering the first ISA terminal units to its customers. As such, we expect Stellar Blu to add between $120 million to $150 million in revenues in 2025 and be accretive to our non-GAAP results. Furthermore, we estimate that once Stellar Blu reaches its target manufacturing capacity during the second half of 2025, its EBITDA margin will be above 10%. Assuming closing will happen at the beginning of Q4, we estimate Stellar Blu revenues to be between $25 million to $35 million in Q4 of 2024. I am confident in Stellar Blu's team, its leadership, its offering and its go-to-market strategy. This acquisition will position us as a market leader for aviation ESA a market that we believe is set to explode in the coming years. In the longer term, we can leverage the technology portfolio into other large adjacent markets. Overall, I believe this acquisition can transform Gilat into a high-growth company for the years to come, and I look forward to welcoming Stellar Blu's team to Gilat once we close. As for 2024 outlook, we are reiterating the guidance we gave earlier this year in February 2024. I would note that once we close the Stellar Blu acquisition, we will provide updated guidance to account for the contribution from Stellar Blu in 2024. Now let's move to the business review of the second quarter of 2024. In the very high throughput satellite, the VHTS and the non-geostationary satellite the NGSO constellations market, we continue to lead the market and grow our business with follow-on multimillion dollar orders from our strategic partners, the satellite operators, which mainly include SCS and Intercept among others. This is driven by increasing demand for Gilat's Sky edge platforms as satellite operators expand their networks and deliver a wider range of application to a growing number of users. Recently, we announced that the company was awarded over $9 million in cumulative orders from multiple satellite operators to expand their global SatCom networks by utilizing Gilat's innovative and field-proven solutions. Gilat Solutions will enable a wide range of services and applications of GEO, MEO and LEO, including in-flight connectivity, maritime, land mobility, cellular backhaul, enterprise services and more. Also during the quarter, we announced that SES OSB Empower launched its services via Gilat Sky platform. Scratch from the industry-first multi-orbit MEO-GEO system is enabling SCS OCB mPOWER software-driven constellation to deliver services with unparalleled flexibility and scale. Our increased focus on the defense market is already bearing fruits. During the second quarter, we announced that Nicole Robinson has been appointed President of DataPath. Ms. Robison is an international satellite industry executive with a proven record of driving growth, managing global sales and operational teams and deploying next-generation technology for the benefit of government and defense organizations, businesses and communities globally. Q2 was also our second full quarter of consolidating revenues from DataPath into the defense sector under the satellite network segment. Furthermore, we recently announced several new projects that we were awarded to DataPath and Wavestream. DataPath received over $9 million in orders in support of the U.S. Department of Defense and other agencies participating in field service and technical service program worldwide. DataPath is deploying technical services and field services in Europe, the Middle East and the United States to support U.S. defense end users critical connectivity requirements. These orders include both contract extensions and new contracts from various partners and agencies. DataPath also awarded a multiyear contract of over $5 million from national defense organization to upgrade their ticket transportable satcom network hubs. DataPath multi-band tactical Dicaterminal delivered operation flexibility, capacity, connectivity, rapid deployability and control required to support demanding communication in remote locations. Decoterminals deliver secure, reliable communication anywhere needed to establish network connectivity to support emission with minimal manpower. In addition, Wavestream one of our U.S.-based subsidiaries received a significant order from a Tier 1 U.S. global military terminal provider for the micro stream solid-state power amplifier for satellite communication terminals sold to military throughout the world. We continue to make great progress in the mobility sector, demonstrating solid year-over growth, developing more products, adding more customers and supporting more verticals. During the second quarter, we received over $14 million in orders from several prominent service providers and system integrators for the IFC products and solutions. This includes network recruitment, VSATs, up, Solidor Amplify and additional IFC auxiliary products. These orders from new partnership and existing customers demonstrate the company's leadership position in the growing IFC market for commercial and business aviation. During the quarter, SES announced its open Orbis initiative, which will allow the use of Ka networks for global IFC connectivity. I'm optimistic that this initiative will be part of our significant growth in this market. In Peru, we are progressing faster than planned in implementing the Amazonas region $17 million expansion project. We expect to finish the implementation of this expansion before the end of the year. In addition, we expect to move to the operational phase in the 6 regions project of Ponte in the Amazonas region during the third quarter. This follows the completion of the acceptance process, which is currently underway. During the quarter, we received the follow-on orders from -- for over $10 million from Internet Para Todos IPT consortium comprised of Telefonica and Meta Facebook to deliver several backhaul services across rural areas in Peru. IPT is a global collaborative initiative to bridge the digital divide in Latin America under a sustainable model that would allow to overcome the obstacles of bringing connectivity to rural and geographic geographically complex areas. Gilat will provide access to high-speed terrestrial connectivity to over 1 million more people living in rural areas. Furthermore, in Peru, we are expecting additional progress in the next few months. This includes the maturity of several large RFPs resonate and the Peruvian government as well as several project extensions. We are very pleased with the strong pipeline in Peru for the rest of the year. To conclude, the second quarter has been very valuable for Gilat. Our acquisition of Stella Blu Solutions has been -- has the potential to be a significant growth engine for Gilat and it will establish us as the market leader for Aviation Esa a market that we believe is set to explode in the coming years. I am pleased with our second quarter results which include the contribution of our acquisition of DataPath and strong momentum in our defense business. We continue to lead with our next-generation platform, the SkyEdge IV, which support multiple orbits, verticals and applications, including our strategic markets of mobility, ferrule backhaul and defense. We are particularly proud of our contribution to the SCS OBMpower service launch. During the second quarter, we made significant progress in expanding our IFC footprint into business and commercial aviation, including the SCS open orbits initiative. We have a strong pipeline and expect a materialization of important deals over the coming months. With that, I will hand over to Gil Benyamini, our CFO.

Thank you, Adi. Good day to everyone. I would like to remind everyone that our financial results are presented on both 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 that 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 if and when applicable, the effect of noncash stock-based compensation expenses, amortization of purchased intangibles, lease incentive amortization, other nonrecurring expenses, other integration expenses, onetime changes of deferred tax assets, other operating income net and income tax effect on the relevant adjustments. The reconciliation table in our press release highlights this data, and our non-GAAP information presented exclude these items. Before moving to the financial highlights, I would like to review the Stella Blu acquisition and provide you with more financial information on the consideration components of the deal. The initial consideration at closing is $98 million. This will be financed from both internal resources as well as the bank loan, ensuring that we continue to maintain a strong level of working capital. The deal is structured with incentives to deliver accelerated growth with a focus on 3 main areas: Parts 1 and 2 of the earn-out, which totals to $48 million covers the ability of the company to successfully execute its plans for the near future and requires that Stellar Blu ramp up its production line and deliver a great number of ISA terminals, not less than specific margin. And that Stellar Blu brings additional new orders at agreed margins, equivalent more or less to its existing backlog. These conditions, combined with the existing backlog, support our expectations of between $120 million to $150 million outlook for revenues for 2025 and provide further grounds for future growth within the existing markets and customers. Parts 1 and 2 of the earn-outs are expected to be paid if due 12 and 18 months post signing respectively. Part 3 of the earnout, which totaled an additional up to $99 million is conditioned upon engaging in new strategic customer agreements with enhanced product offerings, both in and beyond the is, both in and beyond the IFC market. These envision agreements would build upon Stellar Blu's proven multi-orbit platform, but applied to new service providers and mobility market with an opportunity for significantly higher margins, all within 2 years from signing of the purchase agreement. As Adi mentioned, we believe that this acquisition transforms Gilat to a high-growth company for the years ahead. I will now move to our financial highlights for the second quarter of 2024. Overall, as Adi mentioned earlier, we are very pleased with a strong start of 2024. We reported a 13% year-over-year growth in revenue. This was driven mainly by our current recent acquisition of data pass -- non-GAAP gross margin was 37% and our adjusted EBITDA reached $10.1 million, 10% growth over Q2 of last year. We are optimistic about our prospects in the quarters ahead, and we reiterated our guidance for 2024, which I'll cover later. In terms of our financial results in more detail. Revenue for the second quarter was $76.6 million, 13% higher than those of second quarter of last year, which were $67.6 million. The improvement was driven by growth in the satellite network segment. In terms of the revenue breakdown by segment, Q3 '24 revenues of the Satellite Network segment were $50.6 million compared to $40.7 million in the same quarter last year. Q2 '24 revenues of the Integrated Solutions segment were $13 million compared to $12.7 million in the same quarter last year. And Q2 '24 revenues of the Networks Infrastructure & Services segment was $13.1 million compared to $14.2 million in the same quarter last year. The decrease was due to lower services revenue this quarter. I would now like to summarize our our second quarter, both GAAP and non-GAAP results. Our GAAP gross margin for Q2 24 was 34.7% compared to 37.8% in the same quarter last year. The reduction in our gross margin was mainly due to the DataPath gross margin, which are lower than the Gilat average and the depreciation of a backlog intangible assets associated with the acquisition of DataPath. This was partially offset due to a favorable product and services mix in the current quarter compared to Q2 of last year. GAAP operating expenses in Q2 '24 were $23.8 million, an increase of $3.7 million versus the same quarter last year. This quarter, we have the impact of approximately $2.4 million of amortization of purchased intangibles and other acquisition-related expenses. This impacts are included only in the GAAP numbers. I also note that this quarter, we have the operational expenses related to DataPath, which we didn't have in the second quarter of last year. GAAP operating income for the quarter is $2.8 million compared to $5.4 million in the same quarter last year. GAAP net income in the second quarter was $1.3 million or $0.02 per diluted share. This is compared to a GAAP net income of $4.3 million or diluted earnings per share of $0.08 in the same quarter last year. Moving to the non-GAAP results. Our non-GAAP gross margin in Q2 '24 was 36.8% compared to 37.9% in the same quarter last year. As I mentioned earlier, this difference is mainly due to DataPath's lower gross margin compared to the last average. Non-GAAP operating expenses in Q2 '24 were $20.9 million compared with $19.6 million in the same quarter last year, primarily due to the consolidation of DataPath's expenses. Non-GAAP operating income for the quarter improved to $7.3 million compared to $6.1 million in the same quarter last year. Non-GAAP net income in the quarter was $5.6 million or diluted earnings per share of $0.10. This is compared with $4.9 million or diluted earnings per share of $0.09 in the same quarter last year. Adjusted EBITDA for the quarter improved to $10.1 million, an increase of 10% compared with adjusted EBITDA of $9.2 million in the same quarter of last year. Moving to the balance sheet. As of June 24, our total cash increase equivalents and restricted cash net of short-term debt were $94.6 million compared with $98.5 million on March 24 and compared to $87.8 million as of June 30, '23. In terms of cash flow, we used $3.5 million by operating activities during the second quarter of '24 due to changes in working capital, we expect an operating cash inflow in the next quarter. We also made a net repayment of loans of $4.6 million this quarter. DSOs, which excludes receivable and revenues of our terrestrial network construction project in Peru were 88 days higher than previous quarter's DSO, which was 76 days. This KPI is in our normal range of up to 90 days. Our shareholders' equity as of June 30, '24 increased to $283 million compared with $281 million at the end of March 24. Looking ahead, we reiterate our guidance for the year. Our expectations remain for revenue of between $305 million to $325 million, representing year-over-year growth of 18% at the midpoint. GAAP operating income of between $15 million to $19 million and adjusted EBITDA of between $40 million to $44 million, representing year-over-year growth of 15% at the midpoint. That concludes my financial review. I would now like to open the call and we'll be happy to take your questions. Operator, please.

[Operator's Instructions]. The first question is from Ryan Koontz of Needham & Company.

Can you just maybe on what your view is of cross-selling the DataPath. You made some comment in the prepared remarks, I think, I didn't quite capture within tension your commentary was. I know that was something that you're working on and sattelite more of a '25 type opportunity. Maybe can you update us on that?

Indeed, the cross-selling DataPath equipment, it goes both ways. They abuse to bring Gilat's equipment into the DoD and Gilat to sell DataPath equipment worldwide. We are progressing. We are starting to have a dialogue both with some of the DoD agencies and promoting data past equipment worldwide. To be honest, we are more optimistic. These days, we see much more potential than we thought we'll see at the first year from signing. The first collaboration was between Wavestream and DataPath. It's a $12 million order that we received last quarter. Other than that, there is a pipeline that is developing. And I hope that we'll be able to announce several awards soon.

Great. That makes a lot of sense. On the infrastructure business, it sounds like you're progressing there with your customer approvals. How should we think about the gross margin outlook there post approval of the Amazonia region?

So usually, that construction phase is associated with a lower gross margin than the service or operation part of this business. So we expect to finish the construction or almost all of it by the end of this year. And naturally, this will push up the gross margin of this segment to be higher next year.

That's great. And on your progress in the LEO market, I wonder if you could share any anecdotes where they're customer-specific or general. Obviously, OneWeb has begun their commercial launch. How should investors think about your current mix of business relative to the LEO market? And how do you see that market developing over the next 18 months from Gilat's perspective?

So up until today, most of the business we got on the LEO segment relates to solid-state power amplifiers for Constellation gateways. We are not allowed to name names, but we are working with the big players in this segment. Right now, we see 2 very large opportunities from our perspective on the LEO segment, which includes SSPA, networks, modems and also antennas. One of them is one we Gen2 and the other one is Iris Square, which is a European initiative to launch LEO constellation. We are 1 of the 2 finalists in OneWeb, and I believe that they should take a decision in the coming quarter or so. Iris, we answered the RFIs, and we expect -- we expect them to launch the RFPs soon -- and we are eligible to participate because we have a large operation in Europe. In addition, what we see on the LEO side that it's driven a lot of IFC business. For example, Intersat bought from OneWeb capacity, and it will drive a lot of business in the IFC, especially in the electronic steel antenna, which is part of the main motivation and rationale for the stellar Blu acquisition. So to summarize, I think that we are expecting a lot of business from LEO in the coming few quarters. I forgot to mention that also the Satcom Direct antenna development award that we got about a year ago, it also related to the one with constellation over there. We are developing an ESA terminal for business aviation over OneWeb. So all in all, we are seeing very nice business. And with the 2 opportunities, they are very significant for Gilat.

That's great. Great update there. on just a follow-up on that on your stellar Blu comments. What should we think of as the key milestones that you're tracking and what are the greatest challenges with getting the production capacity going on Stellar Blu? It sounds like with the terrific backlog, it's really just a matter of execution here? And what do you view as the biggest challenges there?

So execution is always the name of the game. And indeed, Stellar Blu is now in the midst of moving from development phase to execution delivery phase. I can share that they already delivered first unit to the customers, the best certifications and in the midst of ramping up production. And since we have much more confident today, we even a bit upgrade the initial forecast we gave for next year from $100 million to $150 million to $120 million to $150 million. It's still preliminary, of course, not a guidance. I think that as every company to execute and bring more orders, those are the 2 main challenges of Stellar Blue.

Got it. And in terms of that ramp in terms of supply chain and these sorts of things, are there real challenges there with sourcing? Or is it more challenges with regards to any new products you're kind of ramping through the production process.

No, we don't see any supply chain specific issues. It's just ramping up a new product introduction into the market, which usually takes time. It's not something that is unique to Stellar Blu. It's within every company, including with Gilat when we launched a new product at the beginning, there are challenges on the manufacturing line.

The next question is from Chris Quilty of Quilty Space.

I think nice results. Just a follow up on that last question, maybe it sounds like the supply chain and the manufacturing is going well, but can you touch on the STC process. I think you did mention you made progress there, but how broadly are you targeting SDCs,airframes? And who is leading that effort that happened internally at Stellar Blu or do you have partners working on it?

It's a combination of Stellar Blu and responsibility of the customers, and it's progressing as we expected. Recently, Stellar Blu announced that they got several certifications, and we see it on track. And I think it's not halting any deliveries. The only thing is ramping up production and starting to deliver more units per month. Now we are talking about a few units per month. Soon, we are talking about tens of units. And hopefully, by the second half of next year, we'll be able to deliver more than 100 units per month.

Great. keeping questions last quarter, you kind of gave us some breakdown of the data path contribution or the organic growth versus acquired growth. Can you share that this quarter?

Yes, sure. So this quarter, as I mentioned, most of the growth came from DataPath. If we look on a quarterly basis, the organic growth was negative 4%. On a 6-month basis, it was plus 4% as expected. And I remind everyone that we like to analyze Gilat not on a quarterly basis, but on a longer period kind of analysis due to timing of specific deliveries that might shift a bit to the right or to the left. So generally, we are on track.

Great. And is the run rate for the amortization reported in the quarter, consistent with what we should expect on a go-forward basis now that DataPath is rolled in and excluding Stellar Blu, obviously.

Yes. So in general, as I said in my script, it's about $2.4 million per Q in this quarter. Usually, there are, I would say, two components that might affect this number. First is the amortization or net income at the end of the day is also affected by Gilat share price due to the fact that part of the payment is in shares. So it may fluctuate up or down. The second thing is that part of the amortization is associated with backlog, which is usually amortized over up to 18 months. So you can expect a drop in this $2.4 million around 18 months after closing, which will be middle of next year.

I think there is a schedule in the 20th of the amortization.

Should be. Yes. But it wouldn't cover the change in the share price.

Right. And you mentioned backlog, so I'll ask, and I know you don't provide backlog, but excluding the Data Path, what are you seeing in overall trends in terms of order pipeline this year relative to your expectations? And are there any factors? We're not -- on the defense market, we're not dealing with a continuing resolution in the U.S. in the aviation market, we are dealing with Boeing and late deliveries. Are any of those macro factors impacting your outlook? Or is it more just company and deal specific?

In Gilat in most of the cases, it's company and deal specific. But what we do see is the strong momentum in the tied to Intersat and SES open space initiative. We do see a lot of headwinds in the defense, not only through data path also through Wavestream and the satellite networks at Gilat. But overall, if you look at the blended forecast, we haven't changed our guidance. That means that we are on track with our expectations.

Great. And specific to the cellular backhaul market, you were running really hot, I think a year ago or so with a lot of orders. It feels like that market has sort of slowed down a bit. Is that a correct perception? And do you see any discrete large opportunities for reasons that the market might pick up a little bit on

Yes, I agree that the last quarter on Stellar backward was a bit slower than usual. But we don't think it's a trend. We think it's a one-off in the industry. Based on the analysts who cover the market, everyone expects that this market will grow from $150 million tonne today to around $350 million, $400 million in 7 years or so. So we share the same expectation. We see a nice pipeline. So we really hope that it will return. We do see -- starting to see a lot of 5G opportunities. The 5G will drive significant growth in years to come.

And remind me, is the Sky edge for fully 5G compatible? Or is that a new platform of.

No. The Sky edge is fully 5G compatible. I remind you that about a quarter ago, in India, we demonstrate together with SCS and one of the largest Indian operators, more than 600 megabit per second into the handset, which is on Sky together with the SES Empower. So from a speed perspective and latency, we are already tell. Of course, no one will get 600 megabit per second to the handset, but this is up to the operator not up to us.

So a follow-up question just on -- you had talked about the Gilat ESA ,A what are you guys coming up with an AM for that product that we don't have to call the Gilat ESA. And any update there? Obviously, you have that as a project with Satcom Direct. Hughes has sort of come into that market with OneWeb compatible ESA? What is that business jet market looking like? And what do you think the opportunity size for that product is relative to Stellar blu?

So first of all, our ESA solutions are called in general, ESA family. We see a lot of players that are getting into the market. But at the end, usually, each and every service provider has its own unique terminal. Usually, it's one terminal. In their cases, you see them working with more than one terminal. I know that HNS is cooperating with Gogo on the BA side. But give or take, this is what we see right now. The business aviation is a very large market with a lower potential. And I think that there is room for several players over there to grow.

Got you. And I guess maybe final question here. When you look at the defense market opportunity, clearly, you're still working the DataPath angle, but have they historically had international exposure for that business? Or was it overwhelmingly U.S. based? And do you have sort of the sales channel within Gilat to move those products? Or does that take some investment in sales and marketing and overseas distribution for some of those projects?

So historically, give or take about 10% of DataPath business was internationally. They have some channels worldwide, especially in Europe, and they work direct in some of the Asian countries. But now where Gilat has foot on the ground on those countries, we think that we can accelerate the penetration and increase the business. We are already seeing some opportunities in Asia and in Latin America and in other places. And I think that there is a potential to double Database revenues, both in the U.S. and internationally.

The next question is from Gunther Karger of Discovery Group.

Yes. Thank you for the question. Regarding the postal aviation communications, starting the recent shutdown, new shutdown on the commercial air transport system because of communications. Is there any opportunity will get out on the upcoming acquisition to serve that market. I'm talking about operational communications matingbetween and traffic control suffers and the aircraft in between.

Our terminals serves the passengers. Of course, they can serve also the crew, but it's not built in a way to have a secure communication between the traffic control and the code. Of course, that emergency if something doesn't work, they can try and use our equipment, but it's not built for that.

It seems like there could be an enormous opportunity before system, which is completing the problem we've had.

It's definitely opportunity. We are trying to focus right now on delivering our commitment to the customers. But we when reviewing adjacent markets and future growth engine, it's something that we're definitely going to explore.

The next question is from Serge Luciano of Freedom Brokers Capital.

In a moment, I have a couple of questions and more of them are regarding Stellar Blu. I'm just wondering what growth rate and margins do you expect this one next earlier after 2025, maybe at least round figures.

The only figures right now that we can share is what I said earlier that we expect -- assuming we closed at the beginning of Q4, we expect Stellar Blu revenues to be between $25 million to $35 million and 2015 revenues are between 2025, sorry, revenues will be between $120 million to $150 million. And once Stellar Blu reaches its capacity milestone on the second half of the year, we expect them to be at above 10% EBITDA.

The second operational expense line, there is some decrease of R&D amount as a percentage to sale or later quarters. In such situation will be stable for the next time or Gilat will need R&D of the acquisition?

So R&D changed a bit comparing to last quarter. There's some fluctuation due to the consumption of equipment and so on and the portion of R&D, which is classified to cost of goods sold in NRE projects. So it might fluctuate a bit. Another thing that affects R&D is grant, which were higher this quarter than last quarter, not materially but to some extent, higher. So all in all, this is the reason for R&D to decrease a bit.

And finally, as it was mentioned, so a minute ago. We have already had PSR 2013 and 2040 in the portfolio of ASA or business relation education. What we do think the family would be replaced by the build products? And EPS, how could it fact.

Those are two separate projects. We have no intention to replace neither of the technology. Each one is designed for its own specific customers, and we plan to keep it as is...

[Operator Instructions]. There are no further questions at this time. Mr. Benyamini, would you like to make a concluding statement?

Yes. Thank you. 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 Second Quarter 2024 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.