Ladies and gentlemen, thank you for standing by. Welcome to Gilat's First Quarter 2021 Results Conference Call. All participants are present in a listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. 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 and Public Relations at 1-six forty six-six eighty eight-three thousand five hundred and fifty nine or view it in the News section of the company's website at www.gilat.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helf, 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 Q1 2021 results conference call and webcast. A recording of this call will be available beginning at approximately noon 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 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 expressly disclaims any obligation to do so. More detailed information about which sectors can be found in Gilat's reports filed with And with that, let me turn to introductions. On the call today are Mr. Adi Fadia, Gilat's CEO And Mrs.
Basmat Harpen, Gilat's CFO. I would now like to turn the call over to Adi Sadia. Adi, you are ready to begin.
Thank you, Ehud, and good day to everyone. I would like to thank you for joining us today for our Q1 of 2021 earnings call. I am encouraged by the improvement of our Q1 of 2021 revenues versus the previous quarter. While the Q1 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 $44,700,000 which were 5% better than the previous quarter and slightly below the same quarter last year As last year, we benefited from IFC 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 Significant growth for our company as our NGSO projects will materialize and we believe that IFC will recover. On the bottom line, our adjusted EBITDA loss in Q1 was $1,400,000 compared with a loss of $5,000,000 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 increase in expenses And the less favorable dollar shekel exchange rate. Expenses are higher because thankfully life in Israel are mostly returned to normal And our employees are back to full time work mainly from the office with the associated expenses. We have very important projects Mainly in LEO and MEO Constellations in which we are currently investing significant R and D efforts and which will enable us We also see many opportunities ahead of us and want to make sure We are well positioned to capitalize on those as well and therefore we are investing increased efforts in R and D in order to better support our future growth. Now I'd like to focus on some of the business achievements and highlights. The non gestationary orbit satellite constellation The very high throughput satellites continue to be a major strategic focus area and growth engine for Gilat.
This quarter We received additional multimillion dollar order from a leading satellite operator for support of low earth orbit constellation. As we reported in the past, Gilat subsidiary waste stream was chosen as a vendor of choice to supply Gateway solid state power amplifiers for this project. In addition, we are on schedule with the development of the ground segment for the SCS 03B EMPOWERS satellite constellation and expect to start seeing significant revenue from this project in the upcoming quarters. As a leading provider for NGSO and VHTS market, we see significant growth potential for Gilat Comprising of 100 of 1,000,000 of dollars of market opportunities, we believe that we are well positioned to win additional NGSO and VHTS business As the opportunities mature Gilat continued to lead the cellular backhaul industry and according to a new report by industry analyst NSR, Gilat is the number one vendor in modem shipments with a market share of approximately 40%. According to Gilat analysis based on the NISAR report, We continue to lead the 4 gs market with 80% market share.
Furthermore, as we reported Gilat was awarded Over $5,000,000 from Tier 1 mobile network operator in Japan for cellular backhaul expansion to quickly provide coverage to rural areas and In addition, we are seeing significant expansion and follow on orders From our Tier 1 MNOs around the globe, including in Latin America, Europe, Australia and from leading mobile operators in Japan. This is a testament to the great value our customers see in our solutions as they continue to expand their networks. We are confident in our ability to continue to lead the industry with the transition to 5 gs. For this, We launched this quarter our next generation family of VSATs, Aquarius, in support of 5 gs networks and NGSO constellations. The multi orbit ultra performance VSATs provide over 2 gigabit per second of concurrent speed and support seamless satellite handles.
As we stated previously, we see 5 gs we view 5 gs adoption as a market with huge potential for Gilat. The addressable market size is expected to reach more than $300,000,000 per year for satellite equipment only for 4 gs and 5 gs cellular back on And more than $6,000,000,000 a year for satellite equipment and services including satellite capacity in few years. We believe that the 5 gs adoptions initially in cities We'll drive significant 4 gs deployment over satellite backhauling in the southern and rural areas where terrestrial coverage is less feasible. At the 2nd stage, 5 gs deployment of the satellite will spread to rural areas as well, answering the promise of universal coverage. In the enterprise segment, Gilat just announced a strategic agreement Value the tens of 1,000,000 of dollars including potential of significant projects expansions with a large government cooperation in Asia Pacific.
The equipment and the multiyear managed service contract will enable connectivity for multiple applications across the nation. In addition, we saw significant achievements in Latin America with several projects totaling multimillion dollars In support of broadband connectivity for education to the most remote regions of the continent. With these efforts, we join our partners in a common goal Of bridging the digital divide and promoting the vision of equal opportunity for children everywhere. Among other enterprise projects around the globe, Gilat was chosen to provide a satellite network of thousands of VSATs To energy plants of a multinational leading energy company, we are also seeing growing opportunities in the IoT market segment for which our solution is an excellent fit. We secured a large expansion order for an IoT project in Latin America and we are increasing our pipeline with prospects in Europe and Asia Pacific.
As is well known and we mentioned in our previous conference calls, The Mobility Markets segment, especially IFC and Maritime was mostly heavily hit by the COVID-nineteen pandemic. Saying that, we continue to view this segment as strategic for Gilat and view the pandemic effect as temporary. Upon an industry recovery, We expect this segment to grow in importance as air passengers increasingly demand reliable high speed Internet connection during travel. We expect this trend to be further strengthened with the introduction of free Wi Fi for IFC, which will significantly increase Take up rates and will provide a strong tailwind to the industry and to Gilat. During the quarter, Gilat reached an important milestone in achieving DO-one hundred and sixty gs certification is successfully tested by Global Eagle Entertainment.
The major IFC service provider tested The high power IFC transceivers developed and manufactured by our subsidiary WaveStream. Production units are planned to be shipped Global Eagle for usage in commercial aircraft later this year and onwards. In Peru, I am pleased to report that we have now passed The acceptance test in the region of Cusco, the 4th project that was awarded in late 2015, Both with the transport and the access networks, followed by a payment of more than $12,000,000 in early April and additional payment of about $7,000,000 to be further in the coming few weeks. Following this acceptance, we are now in the operational phase of 4 out of 6 bridges we were awarded. This is a very significant step towards achieving our goal of recurring revenues of over $60,000,000 in Peru.
We are also progressing with the additional 2 last regions awarded us in 2018. Although this progress is Significantly affected by the pandemic restriction in Peru, which are still very much in effect, we do expect to finish the construction phase Of these last two regions in early 2023. As we reported last quarter, we see growing opportunities in defense segment worldwide. We are making significant progress in materializing these opportunities and I expect to be able to report further progress and wins in the near future. In summary, we are bidding to and continue to win new projects across all our target markets.
We have a lot to look forward to in the quarters ahead. Specifically looking Improvements will benefit our profitability throughout the current year. At the same time, we are focused on capitalizing and staying ahead of many opportunities that we see In our end markets, which we believe will further secure our long term future growth. I'm excited with our potential for the coming quarters and years. With that, I'd like to hand over to Rosemarie.
Rosemarie, we are now ready for your report. Please go ahead.
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, we 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 incentives, litigation expenses or income related to trade secrets claims, reorganization costs, merger acquisition and related litigation costs and settlement and 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 Q1 of 2021. Overall, as Adi mentioned, Our quarterly results showed an improvement in revenue over the previous quarter and this is already the 2nd quarter with continued sequential growth. We see the trends going in the right direction and the stabilization of our end markets. The exception Remains the inflight connectivity or IFC vertical, which we believe will start to recover towards the end of the year.
Revenues for the Q1 were $44,700,000 compared to $47,700,000 in the Q1 of 2020. We saw an increase in our revenue from enterprise broadband and cellular backhaul solutions compared to the Q1 of last year. However, the decline versus last year primarily reflects the impact of the COVID-nineteen 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 Q1 last year. Revenues in the current quarter were slightly improved over that of the previous quarter, which were $42,600,000 In terms of the revenue breakdown by segment, fixed network segment revenues were $25,300,000 Compared to $23,000,000 in the same quarter last year, we saw a slight improvement compared with the previous quarter where fixed networks revenues With $25,100,000 I remind everyone that Q1 is usually the weakest quarter of the year, while Q4 is the strongest.
In 2021, we believe that this segment will show significant improvement over 2020. Mobility Solutions segment revenues were $11,100,000 compared to $19,200,000 in the same quarter last year. The decrease mainly in the IFC market. Compared to previous quarter, we saw a slight decrease from $11,800,000 Terrestrial Infrastructure Projects segment revenues which include the construction revenues for our projects for Fronatell in Peru were $8,300,000 Receiving the acceptance for the transport network of Cusco, our 4th awarded region in Peru and after the end of the quarter in April, We also received the acceptance of the access network of the same region. This milestone is very important from a business perspective Since this marks the start of the operational phase for this region on top of the first three regions which we are already operating and also from a cash perspective Since a significant part of our payments for this project are based on achieving this milestone.
As for the remaining two regions, Although the progress has been affected by the pandemic restrictions in Peru, we do expect to finish the construction phase of these last two regions in early 2023. As we have discussed previously, during the construction phase, revenues from Pointer Tel will vary quarter to quarter depending on the percentage of the project's completion And on receiving acceptance for the different regions, to summarize the quarterly GAAP results, our GAAP gross margin was 28% Compared to 19% in the same quarter last year and 31% in the previous quarter, GAAP operating loss was $3,700,000 Compared to operating loss of RMB10.8 million in the same quarter last year and operating income of RMB62.7 million in the previous quarter, which included income related to the legal settlement with Comtech net of related expenses of $64,800,000 GAAP net loss in the Q1 was $5,100,000 or loss of $0.09 per share compared with a net loss of $11,800,000 or loss of $0.21 per share in the same quarter last year. In Q4, Gilat had a GAAP net income of $62,400,000 or $1.12 in diluted earnings per share And this included the net income from the settlement with Comtech.
Now looking at our quarterly results on a non GAAP basis. Non GAAP gross margin was 28% compared to 19% in the same quarter last year and 31% in the previous quarter. Non GAAP operating loss for the quarter was $3,800,000 ahead of an operating loss in the same quarter last year of $7,600,000 And in the previous quarter, the operating loss was $1,600,000 I note that we had 16 point $2,000,000 in operating expenses in the quarter compared with $16,500,000 in the Q1 of last year and $15,000,000 in the previous quarter. Our operating expenses were higher than those of the previous quarter, mainly due to the fact that we returned our staff to full time work from December 2020 And also due to inferior dollar shekel exchange rate. As Adi mentioned before, we are investing significant efforts in R and D To ensure timely delivery of existing large projects, we have been awarded mainly in Lyon and Mio constellations And also to capture additional significant opportunities we see ahead of us.
Non GAAP net loss in the quarter was $5,200,000 or $0.09 per share. In the same quarter last year, we reported net loss of $8,600,000 or $0.15 per share. In the prior quarter, we reported a net loss of $1,900,000 or $0.03 per share. Adjusted EBITDA for the quarter of 2021 was a loss of $1,400,000 compared with an adjusted EBITDA loss of $5,000,000 in the same quarter of last year. In the prior quarter, we reported an adjusted EBITDA profit of $1,100,000 Moving to our balance sheet.
As of March 31, 2021, our total cash and cash equivalents including restricted cash were $75,600,000 a decrease of $40,400,000 from that of year end 2020. The decrease was primarily due to the payment of a dividend to shareholders of $35,000,000 and the last payment due on our loan of $4,000,000 in January 2021. I would like to point out that in the past two quarters we have paid a total of $55,000,000 or $0.99 per share In special dividends to shareholders, in terms of operating cash flow, we generated around $300,000 from operating activities. After the end of the quarter, we received a payment of approximately $12,400,000 and expect to receive in the next few weeks Additional payment of around $7,000,000 in Peru after achieving the milestone of the 4th network. DSOs, which include our Fixed Networks and Mobility Solutions segments and exclude receivables and revenues of our Terrestrial Infrastructure Project segment, increased to 77 days compared to 76 days in the previous quarter.
Our shareholders' equity at the end of the first quarter totaled $228,100,000 compared with $233,800,000 at the end of 2020. Looking ahead, all in all, we are encouraged with what is now a second quarter of a gradual Sequential improvement in our revenues. We view 2021 as a year of recovery in which we will emerge from the COVID-nineteen crisis. We look forward to continued sequential revenue growth and improved profitability for 2021 and much more so in 2022. That concludes my financial review.
I would like now to open the call for questions. Operator, please?
Thank Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question is from 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, from our perspective, is a one time construction revenues. I remind you that we were awarded 6 regions in Peru around $550,000,000 Which around $230,000,000 or so, our one time construction revenues over the period of 3 years, 3 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, dollars 222,000,000 is operational revenues For activating and maintaining the network for a period of 10 years.
Now each region has 2 networks. 1 is the Transport and the other one is access networks and the $220,000,000 is for operating only the access networks. As for the transport network, the Pronatello, the government need to issue RFP or to award it to Gilat later on To operate the transport, this is another potential for Gilat of several $1,000,000 Operational revenues for each region.
Understand. And the $50,000,000 steady state Would represent only the recurring revenues and not the construction revenue?
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 Just from the projects we have more than $22,000,000 Per year, we signed several months ago agreement with the IPT, Internet Paratodos, which is a consortium of Telefonica and Facebook to support Links to 4 gs deployment worldwide sorry, not worldwide, In the regions that we were awarded, this is another more than $5,000,000 a year and we have another satellite and terrestrial Recurring revenues from old projects that we were awarded of another $5,000,000 So all in all, we are more than $30,000,000 today with Recurring revenue run rate.
Great. Just a follow-up on the inflight connectivity business. When you look at your current customers there in terms of hardware shipments, Have you gotten any indications that they're starting to lay out a roadmap of when they're going to be accepting More equipment for insulation?
Not yet. We do have a conversation with them. We do see that They ask more questions, meaning that internally there is something is starting to go into the right direction, But we haven't got yet the forecast and 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'll 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 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 they're either in terms of by end market application or by equipment slash Service revenues in that revenue bucket?
In Mobility, we mainly sell equipment. We do have around 10% of the revenue, 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 the near term?
I'm not sure I fully understand the question. Can you please repeat it? Well, I'm
saying within the mobility 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 You 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 deposit, we have our NGSO business. So in the NGSO business, we recently announced several orders with Wave U. S.
Subsidiary that provide solid state power amplifier for NGSO gateway. So This business is increasing quarter over quarter. The development of the Empower 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 In Israel and worldwide, we do have some initial success, which We will be able to announce soon and we are in RFP process of several Large opportunities, which I believe we'll 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've done had several announcements of contract wins, but 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 in 'twenty one versus 'twenty and again looking out into 'twenty two, I'm just trying to understand how that's going to stagger out over time?
I think 2 or 3 months ago, we announced that WaveStream was awarded of Agreement of more than $50,000,000 So I guess this will be spread over 2.5 years or so before significant expansion. The Empower, we haven't disclosed the amount, but it's a potential of tens of 1,000,000 of dollars Of equipment and later on services and this does not include The modems and the expansion right now it's around 10% of the constellation. So Over there, there is a significant potential and I would say that It's mainly revenues will start next year because the satellites are not yet in orbit. They haven't launched So the potential over there is big. I believe that they will rather quickly Feel a large part of them and they will need to acquire more and more visas.
There are In addition, several opportunities both on the SSPA and on the baseband that we are in RSP and bidding process and I 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 are growing.
Just to add one thing to what Adi just said, The order that we received already from Empower, most of it will be already delivered Probably in early 2022, maybe even earlier, but at least at early 2022 and this is The order that he described before.
Great. So without giving specific percentages, it appears 2021 will be up over 2020 and likewise 'twenty two will also be a growth year going forward?
Yes, I think that based on the if you saw all the information I just gave, I think that 'twenty two We see significant growth over 2021.
Great. One other IFC related question, you've 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 very good questions. In ESA, we are one of the most progressed companies with our technology. We are able to demonstrate Even on I think that the only is our slow 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 customer decision to replace or to start a new project, we reached to a point that This year, significant development need to be tied with the customer decision based on the relevant Aircraft that antenna will be installed in.
I guess maybe in 2 or 3 quarters we will know more Where we stand with the potential that we now see.
Great. And final question, you mentioned that You expect to announce or see some defense order activity picking up. Two questions. Is that The 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 segment or market geographic market that you just mentioned. Lessing the DoD, although 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 SATCOM equipment, Antennas and productizing our commercial solutions To different needs.
And so all that productization is R and D work that has been done or do you have a significant amount of work to do?
Most of the R and D is being done, but As you know, every Ministry of Defense has their own requirements. 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. Thank you.
The next question is from Gunther Karger of Discovery Group. Please go ahead.
Yes. Hello. The question concerns IFC. You had a contract Now Gogo has sold that division to Intelsat. Did your contract transfer over to Intelsat Or is 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 go go one of the largest if not the most largest satellite A network worldwide supporting more than 15 satellites I think and hundreds of beams, Everything is managed by 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 being global that actually could expand rather than contract. Would that be a correct assumption?
Correct. We believe that this will support to strengthen our relationship both with Gogo and Intelsat.
Thank you.
Thank you,
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 Q1 2021 result conference call. Thank you for your participation. You may go ahead and disconnect.