Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Fourth Quarter 2023 Results Conference Call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded February 26, 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 EK Global Investor Relations at1646688-3559 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 Investor Relations. Mr. Helft, would you like to begin?

Yes. Good morning, and good afternoon, everyone. Thank you for joining us today for Gilat's fourth quarter 2023 results conference call and webcast. A recording of this call will be available beginning at approximately noon eastern time today, February 26, 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 may be deemed forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements regarding statements regarding future financial operation 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 risk factors can be found in Gilat's reports filed with the Securities and Exchange Commission. And with that said, let me turn to introduction. On the call today are Mr. Adi Sfadia, Gilat's CEO; and Mr. Gil Benyamini, Gilat's CFO. I would now like to turn the call over to Adi. Adi, we're ready to begin.

Thank you, Ehud, and good day to everyone. I want to thank you for joining us today to discuss our fourth quarter and full year 2023 results. Before discussing the quarter's business results, I want to reemphasize my comments on the previous quarter that Gilat is a strong global company with operation and development centers worldwide. Our operations remain unaffected by the recent events in Israel. Now let's move to the business review of the fourth quarter of 2023 and the full year results. We are very pleased with our fourth quarter and 2023 full year results. We ended 2023 with strong Q4 results. We are reporting fourth quarter revenues of $75.6 million, bringing us to a full year revenues of about $266.1 million, which is year-over-year growth of 11%. Most importantly, we are particularly proud of the strong improvement in our profitability across the board, with fourth quarter adjusted EBITDA of about $9.4 million, bringing us to a full year adjusted EBITDA of $36.4 million, which represents a significant year-over-year growth of 44%. This is a solid demonstration of the operating leverage inherent in our business model, combined with a more favorable revenue mix sold during this year. I'm pleased with our Q4 achievements in the IFC and defense verticals. In the IFC, we managed to gain two new awards from strategic customers that extended our product portfolio. In the defense vertical, we ended the year with important wins for SkyEdge IV systems, SSPA, transportable hubs and the first order for our next-generation military model. The fourth quarter was also a strong quarter for our operations in Peru with a more than $17 million award from Pronatel to expand Amazonas regional project. Looking back over the year, we progressed with our strategy to be the partner of choice for…

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 if and when applicable, the effect of noncash stock-based compensation expenses, amortization of purchased intangibles, amortization of intangible assets related to acquisition transactions, lease incentive and amortization, impairment of held for sale assets, other expenses, onetime changes of deferred tax assets, onetime tax expense related to release of historical tax trapped earnings, other operating expenses or income and the income tax effect on the relevant adjustments. The reconciliation table in our press release highlights these data, and our non-GAAP information presented excluded these items. I will now move on to our financial highlights for the fourth quarter of 2023, followed by our full year 2023 highlights. Overall, as Adi mentioned earlier, we are very pleased with our performance in 2023. We ended the year with a continued improvement in our results and especially the strong year-over-year improvement in revenue and profitability. I'm pleased to say that despite the macroeconomic headwinds and geopolitical challenges, our performance shows that we have been able to mitigate most of these issues without a significant impact on our profitability. And even though 2024 may contain some potential macro challenges ahead, we believe that we are well positioned to overcome these challenges and continue to improve our financial performance as we move through 2024. This was a significant quarter for Gilat as we closed the strategic acquisition of DataPath, which we…

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And the first question is from Ryan Koontz of Needham & Company. Please go ahead.

Hi, thanks for the question. Let's see some housekeeping first, with respect to Q4, I assume the GAAP step-up in G&A there was mainly related to acquisition expenses. Is that correct?

Some of it is acquisition expenses and some of it - I mean, mainly it is acquisition expenses, yes.

Okay. Thanks. And on the guidance for '24, can you maybe walk us through some of the puts and takes on some of the segments. Are you still expecting in the ballpark of $50 million from DataPath? And are there other major programs or segments of the business that are contributing to the upside or we talked about the macro caution, which areas of the business you think are most affected there?

Yes. So in general, we expect growth in all of our business segments. We don't provide the guidance by segment, but we do expect growth in all of our segments, both organic and of course, inorganic by DataPath. As I mentioned, the DataPath contributed a relatively modest amount in 2023 in the last 6 weeks of the year. Next year, we expect about $45 million, as Adi mentioned, from DataPath. And of course, as it is the first year of acquiring it, we applied some conservative assumptions over that as well and reach our guidance.

Okay. That's fair. And any updates for us on some of the big drivers there for your business, whether it's sort of the LEO opportunities or some of the IFC programs you're attached to? Anything you can share there that would get investors excited about the story?

Yes. I think the main progress is that those several RFPs that we are competing on are still in progress. We believe that awards or decision is going to be towards the -- for some of them towards the mid of the second quarter and for some towards the end of the year. In fact, all of our large partners are having new RFPs for new technology and existing technology, and we expect most of it to mature during the year. In some of them, we are the incumbent, so we feel comfortable. And in some -- especially on the LEO, on OneWeb and IRIS² in Europe, we are competing against several other companies, but we believe that we have a superior technology and the potential from each and every opportunity over there is hundreds of millions of dollars and can change the future of Gilat.

Sure. That's great to hear. So it sounds like you're not baking in those assumptions into your '24 guidance, any of these changes in your current...

It's a combination of the two. The ongoing business with our strategic partners, it's baked into our guidance in a way. We are having a discussion with them and we understand what is their forecast and putting our assumption on top of it. On the LEO part, even if we get -- once we get the award, it's a matter of several years of development. So the effect on 2024 will be minimal. And then we'll have around 3 years of develop -- developing the platform. It's a completely new platform. And then we'll start seeing a significant top line contribution.

Okay. Great. That's helpful. And in terms of Peru and the network infrastructure business, how is that tracking as far as your expectations for '24? I know you're not guiding by quantitatively, but anything you can share with us about how the program is progressing?

So we have the original Amazons networks that we are in the final stages. We accepted process as part of the network and about to finish the second part of the network during Q1, and we expect to deliver the network and start operational phase by the end of the second quarter. The new award of the $17 million comprise of around 60% of construction, which should carry until early next year and then additional 10 years of operation. The rule of thumb, we expect that the Peru revenues to modestly grow in 2024, over 2023 results.

Okay. That's really helpful, Adi. Thank you. I'll get back with you.

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

Thanks. Gentlemen. I think is this the first time you've really talked about the opportunity with IRIS²? Or has that been previously in some of your expectations?

No, we are talking about IRIS² for quite some time. Last quarter, we said that we received the eligibility. We have a very large -- in order to be eligible to participate in the program, you need to have -- to be a European company, and we have significant operation in Europe, and we strengthened our operations in Europe. And we expect to continue to increase our operation. We have a large operation in Bulgaria. We are building a large operation in Madrid, in Spain. We received the eligibility. And IRIS² started to launch several RFI/RFPs and we started to answer them. But I think it's in stages, and it will take time until the final RFP and award will occur. I suspect it won't happen before the end of this year.

Got you. And when you were referring earlier to a 3-year development time frame, was that referring to the IRIS² program? Or was that one of the other NGSO programs where...

I think as a rule of thumb, developing a new platform, not enhancement to existing platform is usually around 3 years. Now there is a request in the market to shift to cloud. There is a request in the market to move to virtualization, virtual modem, SDR modems than the 5G NTN. So the shifts like this require a lot of development. And the rule of thumb, it's around 3, maybe 4 years.

Understand. So this is essentially the replacement -- future replacement for SkyEdge IV?

If you will talk to the product team, they will say no. But for IRIS², it will be a totally new platform for OneWeb Gen2, it will be a totally new platform. For our long satellite operators partners at the first stage, it will be a significant enhancement to the existing platform, shifting more and more capabilities into the public cloud. And later on, there will be a shift also to 5G.

Understand. And I think last quarter, you had mentioned possible beginning of a rollout during Q3 with one of your NGSO customers. Was that -- did that rollout happen? Or what's the progress there and expectations for incremental growth in '24?

So the rollout haven't started yet. The customer is expecting to launch service during 2026. And we expect to get production unit orders towards, let's say, before the end of the year. We do have a substantial amount of units that we need to deliver as part of the original order. And I can tell you that right now, our power amplifier is the only one that is working with the test satellite that this customer launched.

Great. And a question for you, Gil. Can you give us perhaps like a ballpark of D&A for this year with the DataPath acquisition?

Yes. We expect to see about $3 million of depreciation, plus about $5 million of stock-based related expenses to the deal. So all in all, it should be about $8 million in the GAAP expenses that we should expect to see next year with respect to the acquisition.

And that's $8 million in total or not incremental?

It's incremental. I mean, it's included obviously in the guidance for the operating income. One of the reasons that it decreased, it's incremental. And actually, it is also affected -- hugely affected by the stock price of Gilat, so it might change as well. But currently, according to our expectations, it should be around $8 million.

Understand. And when you look at the IFC market, where do you see the best opportunities there? Is that with existing players? Or have you made -- are you targeting inroads with additional systems integrators?

So we see a lot of growth with existing partners and also using our platform to shift to other application and take advantage of the fact that our platform is a multi-application platform. We are seeing nice business from several new customers on the SSPA side, but also on the network and on the modem side, not a big one yet, but each one of them can become a significant revenue generator in the next several years. So we are seeing a lot of orders for our SSPA, a lot of orders for the auxiliary for ESA, like frequency control unit and the power supply unit and things like that. And also orders from [indiscernible]. I remind you that earlier in the year, we signed the agreement with Satcom Direct. And now we are in the development phase, but we expect to see deliveries towards mid next year, which support revenue growth, especially in the IFC segment.

Great. And I guess final question here. Looking at the DataPath acquisition, that obviously brings along a higher level of backlog and perhaps orders that you can identify? Is there any intention to provide a little bit more details either book-to-bill or backlog for that business on a go-forward basis?

Yes. It's something that we are considering internally and once we will be able to share, we will share it.

Got you. And final question, Gil. I know you've provided this before, but I just want to assure where DataPath is going to land in terms of segment reporting?

It's included under the Satellite Networks segment results.

Great. Awesome. Well, thank you, gentlemen.

Thank you.

Thank you, Chris.

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

Yes. I want to thank you all for joining us on this call and for your time and attention. We hope to see you soon or speak to you at our next call. Thank you very much, and have a great day.

Thank you. This concludes Gilat's fourth quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.