Gilat Satellite Networks - Q1 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to Gilat's first quarter 2023 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded May 9th, 2023. By now, you should have all received the company's press release. If you have not received it, please contact Gilat Investor Relations team at EK Global Investor Relations at 1-646-688-3559, or view it in the new 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?

Ehud Helft (Managing Partner and Investor Relations Representative)

Good morning and good afternoon, everyone. Thank you for joining us today for Gilat's first quarter 2023 results conference call and webcast. A recording of this call will be available beginning at approximately 12:00 P.M. Eastern Time today, May 9th, as a webcast on Gilat website for a period of 30 days. Please note that investors are urged to read the forward-looking statements in Gilat's earnings release with a reminder that statement made on this 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 the 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. The company explicitly disclaims any obligation to do so. More detailed information about risk factors can be found in Gilat's report 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, Gilat's CFO. I would now like to turn the call over to Adi Sfadia. Adi, the floor is yours.

Adi Sfadia (CEO)

Thank you, Ehud, and good day to everyone. I want to thank you for joining us today for our first quarter of 2023 earning call. 2023 started very well for Gilat. The first quarter of 2023 was another quarter in which we showed solid year-over-year revenue growth. Our growth was broad across multiple business areas and totaled 15% compared to the same quarter last year. Adding to that, the significant improvement in our pro-profit margins with gross margin reaching a multi-year high of 42% and Adjusted EBITDA of $8.4 million, more than tripled the Adjusted EBITDA of the same quarter last year. As you can imagine, I am very pleased with the results of the first quarter. Looking ahead, we are increasing our profitability expectation for the year.

We expect GAAP operating profit of between $16 million and $20 million and Adjusted EBITDA of between $31 million and $35 million, while keeping the revenues guidance at the same level of between $260 million and $280 million. 2023 is turning out to be a very strong and profitable year for Gilat. I am pleased to highlight three major activities achieved this quarter. First, we continue to make great progress with our strategy to be the partner of choice for the satellite operators. Second, we signed this quarter a strategic agreement with a leading IFC service provider with the potential of tens of millions of dollars for the development and supply of electronically steered antenna.

Third, we signed an agreement to acquire DataPath, Inc, a U.S. defense integrator, to significantly boost our defense offering, focusing on the U.S. Department of Defense. I will now focus on some additional business achievements and opportunities. The new era of satellite communications continue to be a primary focus for Gilat. We strengthened and expanded our strategic relationship with the satellite operators, SES and Intelsat, receiving orders of tens of millions of dollars during the first quarter of 2023. During the first quarter, Hispasat, a leading global satellite operator based in Spain, chose SkyEdge IV, Gilat's next-generation platform, for its new highly flexible and efficient Amazonas Nexus satellite. This is further testament to the great market acceptance of SkyEdge IV as we experience additional operators choosing Gilat's next-generation platform.

We have a growing pipeline of operators that see the value of the SkyEdge IV, which was designed to meet the need for VHTS, multi-orbit, software-defined satellite and serves multiple applications. Particularly noteworthy is the expanded strategic partnership with SES to include O3b Classic, SES's existing MEO constellation, in addition to SkyEdge IV already being the platform of choice for the O3b mPOWER and SES-17. Furthermore, Intelsat is strengthening its strategic partnership with Gilat, enjoying the multi-service capabilities of Gilat's platforms and terminals, such as in-flight connectivity and cellular backup. As a reminder, SkyEdge IV was chosen for Intelsat's high-throughput satellite, IS-40e, which was launched last month. In our SSPA product line, we are on track with previously reported project with significant potential for large NGSO constellation. The IFC segment remains a strategic market and significant growth engine.

As I mentioned earlier, I'm excited to share the win for a major ESA project with the potential of tens of millions of dollars. Leading IFC service provider. The ESA terminal will enable us to increase our IFC presence with an additional product and to enter a new market segment, such as IFC for business jets, as well as connectivity for government and military aviation. This third ESA project is an important turning point and growth engine as we enter to the new promising and growing ESA market. Furthermore, we are collaborating with our partners on several potential projects for both ESA and IFC transceivers product line. In addition, Intelsat continue to expand its global IFC network to include both SkyEdge IV and SkyEdge II-c working together. This demonstrates a great advantage to our partners on upward compatibility while protecting their past investments.

We expect even further expansion as IFC picks up and Intelsat broadens the global coverage with increased capacity to serve additional aircraft. The Gilat platforms will operate on multiple satellites, including Intelsat IS-40E, Eutelsat Nexus IS-40C, and EUTELSAT 10B. During the first quarter, we signed an agreement to acquire DataPath, Inc, a U.S. defense satellite integrator. This is a major step in our initiative to increase our presence in the strategic growing defense market. The acquisition is an important milestone for the expansion of Gilat's business into the U.S. DoD and government sectors, as well as into other international governments and defense markets. The acquisition price is a fixed component and an earn-out component that together total to an enterprise value of up to $45 million.

As part of the acquisition, Gilat will assume approximately $50 million of DataPath's debt made into banks, and most of the remainder of the purchase price of up to $30 million, including the earn-out portion, will be paid in Gilat shares. I am pleased that we are progressing well with the closing of the transaction that is subject to certain regulatory approvals, mainly CFIUS approval in the U.S. We expect our revenues in the defense sector to increase by approximately $50 million on a yearly basis following the closing of the acquisition, which is expected in the third quarter of 2023. This quarter, we launched two new products for the defense market that we expect to further enhance our offering.

First is the Endurance, a modular hot-swappable high-power amplifier solution designed to disrupt the industry by its ability to replace existing SATCOM solution based on cube technology. The U.S. DoD is already evaluating this SSPA for a significant SATCOM program. Once certified, we expect follow-on orders valued at $ millions per year in the coming few years. The ability to pursue additional USD and commercial programs. The second addition to our portfolio for the military and government market is the new satellite modem, SkyEdge IV Taurus-M. This new modem can also operate with SkyEdge II-c. As such, protects past investments of customers who've already adopted Gilat leading platform. In our strategic cellular backhaul growth engine, we continue to expand our global presence with $ multi-million of orders.

We continue to receive orders from leading mobile network operators, as well as from satellite operators who have chosen Gilat as the lead technology for cellular backhaul, including this quarter in Australia, Latin America, and Africa. In the enterprise market, two deals stood out during the quarter. First, in Asia, a multi-million dollar order was received to expand an advanced disaster response national network to ensure service continuity. Second, in Latin America, a world-leading financial service company is deploying millions of dollars of Gilat technology across the country for communication backup over satellite to expand the reliability and robustness of the network. In Peru, we made progress this quarter with PRONATEL accepting the network in our fifth project in the Ica region. This will allow us to shift to the operation phase and to provide services to customers.

I am pleased to report that in January this year, Gilat Peru received about $3.2 million as initial payment for the first arbitration of the two arbitrations once again PRONATEL and the Peruvian Ministry of Transportation and Communications in 2018 and in 2022 for a total amount of approximately $29 million. To conclude, I believe that Gilat today is in its best position it has been in a long time. Revenue is growing strongly with bookings, backlog and pipeline at a very healthy level. This is due primarily, but not solely, to the strengthening of and growing of the relationship with the satellite operators to significantly build our position in the defense market with the agreement to acquire DataPath and to embarking on an ESA terminal project for IFC with the potential of tens of millions of dollars.

Just as important, looking ahead, we are well on track with our revenue expectation for 2023 of between $260 million-$280 million, representing year-over-year growth in revenues of 13% at the midpoint. We are increasing our profitability expectation. GAAP operating profit of between $16 million-$20 million and Adjusted EBITDA of between $31 million-$35 million, representing year-over-year growth of 31% at the midpoint. I am looking forward to a successful year in materializing many of the opportunities discussed, as well as capturing additional large projects. With that, I hand over to Gil Benyamini, our CFO. Gil?

Gil Benyamini (CFO)

Thank you, Adi. Good morning and good afternoon to everyone. I would like to remind everyone that 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 the effect of stock-based compensation, amortizations of purchased intangibles, lease incentive amortization, litigation, income or expenses, income related to trade secrets claims, restructuring reorganization costs, merger, acquisition, and related litigation income or expenses, impairment of held-for-sale assets, other expenses, income tax effects on adjustments, one-time changes of deferred tax assets, and one-time tax expense related to the release of historical tax dropped earnings. 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 2023.

Overall, as Adi mentioned earlier, we are very pleased with the strong start of 2023. We reported a 15% year-over-year growth in revenue and a significant improvement in profitability. Non-GAAP growth margin was at a multi-year high at 42% and our Adjusted EBITDA reached $8.4 million, more than 3x over Q1 last year. We're well on track with our revenue targets for the year, and today we also increased our GAAP operating profit and Adjusted EBITDA guidance, which I will cover later. In terms of our financial results, revenues for the first quarter were $59 million, 15% higher than those of the first quarter of last year, which were $51.4 million. The improvement was driven by growth in the satellite network segment, mainly from the VHTS and NGSO, IFC, and cellular backhaul verticals.

In terms of the revenue breakdown by segment, Q1 2023 revenues of the satellite network segment were $33.5 million compared to $24.8 million in the same quarter last year. Significant increase mainly resulted from the large deals delivered this quarter to our strategic customers in the IFC and maritime markets. Q1 2023 revenues of the integrated solutions segment were $12.9 million compared to $13.7 million in the same quarter last year. Q1 2023 revenues of the networks infrastructure and services segment were $12.5 million compared to $12.9 million in the same quarter last year. I would now like to summarize our first quarter, both GAAP and non-GAAP results. Our GAAP gross margin in Q1 2023 improved to 42% compared to 32% in the same quarter last year.

The improvement in our gross margin was due to a particularly favorable product and services mix recognized this quarter and the higher level of revenue. Please be aware that revenue margins and profitability may fluctuate between quarters and as an outcome of the revenues volume and deal mix. It is recommended to analyze the profitability according to the trailing four quarters and in light of the annual guidance. The gross margin in the trailing four quarters was 38.6% compared to 33.4% in the trailing four quarters that ended on March 31, 2022. GAAP operating expenses in Q1 2023 were $17.7 million in the quarter at a relatively similar level of those of the same quarter last year.

We've received a first payment of approximately $3 million for the first of two arbitrations won against PRONATEL and the Ministry of Communications in Peru in 2018 and in 2022 for a total amount of approximately $29 million, which is included only in the GAAP numbers and offsets much of the increase in the operating expenses in the quarter. GAAP operating income for the quarter improved to $7 million compared to an operating loss of $1 million in the same quarter last year. GAAP net income in the first quarter was $5.6 million or diluted earning per share of $0.10. This is compared to a GAAP net loss of $2.5 million or a loss per share of $0.04 in the same quarter last year. Moving to the non-GAAP results.

Our non-GAAP gross margin in Q1 2023 improved to 42% compared to 32% in the same quarter last year. Non-GAAP operating expenses in Q1 2023 were $19.5 million compared with $16.7 million in the same quarter last year. The increase was mainly due to an increase in R&D expenses to support our long-term business growth. Non-GAAP operating income for the quarter improved to $5.3 million compared to an operating loss of $0.3 million in the same quarter last year. Non-GAAP net income in the first quarter was $3.8 million, or a diluted earnings per share of $0.07. This is compared with a net loss of $1.8 million, or a loss per share of $0.03 in the same quarter last year.

Adjusted EBITDA for the quarter was $8.4 million, over 3x improvement compared with an Adjusted EBITDA of $2.5 million in the same quarter last year. Moving to our balance sheet. As of March 31, 2023, our total cash and cash equivalents, including restricted cash, were $89.7 million, compared with $87.1 million on December 31, 2022, and compared to $75.1 million as of March 31.

In terms of cash flow, we generated $6.2 million in operating activities during the first quarter of 2023. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were 77 days, higher than previous quarters DSO, which were of 72 days. The increase was impacted by a decrease in revenues, partially offset by a decrease in receivables due to higher collection in the quarter. Our shareholders equity as of March 31st, 2023, totaled about $260 million, compared with $244 million at the end of December 2022. Looking ahead, as I already mentioned, we have increased our GAAP operating income and EBITDA guidance for the year.

Our expectations remain for a strong 2023, with revenues of between $260 million-$280 million, representing year-over-year growth of 13% at the midpoint. GAAP operating income of between $16 million-$20 million, representing year-over-year growth of 81% at the midpoint, and Adjusted EBITDA between $31 million-$35 million, representing year-over-year growth of 31% at the midpoint. That concludes my financial review. I would now like to open the call and would be happy to take your questions. Operator.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Quilty of Quilty Space. Please go ahead.

Chris Quilty (President and Co-Founder)

Thanks, guys. Great quarter here. Just want to follow up on the Satellite Networks business, which seem to be the real revenue strength. I think you mentioned that there were a couple of, you know, large programs in IFC and Maritime, I think. You know, should we view that as sort of a one-time lift there, or do you feel good about sort of an upward trajectory through the balance of the year?

Adi Sfadia (CEO)

Hi, Chris. It's Adi. Indeed, we said last time that we had a record year, both in IFC and cellular backhaul in orders in 2022. We are now seeing the outcome in revenues. We had also a very strong quarter, both in IFC and cellular backhaul during this quarter. We'll see continued strong revenues from both cellular backhaul and IFC during the year. We also have maritime revenues, but it's not as high yet. It will take time to be a significant growth engine. We see a lot of business from the satellite operators for NGSO and VHTS satellites, related or not related to IFC and cellular backhaul.

All together, drives the growth in revenues this quarter and the growth in profitability.

Chris Quilty (President and Co-Founder)

Great. I think one more launch with O3b mPOWER SES expects to turn on service in Q3. You know, how does that impact you in terms of, you know, terminal sales? Are you seeing a pull, you know, now in advance of shipments, or do you expect that to happen more in line with service launch?

Adi Sfadia (CEO)

I think it's a combination. First, I know the SES and satellite operator needs to be ready for service launch, so they need to deploy a lot of equipment, especially on the gateway side. The modems, I guess we'll see more revenues once the service is launched, when they will start to deploy with customers.

Chris Quilty (President and Co-Founder)

where are you with the gateway rollout on mPOWER?

Adi Sfadia (CEO)

Progressing. You know, there is two types of gateways, the regional one and the local one. The regional ones are already deployed, and the local ones, it depends on the business SES brings from each and every country. It's vary between their expectations for a new business over there.

Chris Quilty (President and Co-Founder)

Good. I noticed that the inventories were up a little bit in Q1. Was that a timing-related issue, or do you have big orders going out in Q2?

Adi Sfadia (CEO)

I think it's a combination of the two. First, we are now seeing the increase, after we said in the last, I think, 18 months, that we are starting to buy inventory for 24 months because of the lead time. We are starting to see inventory coming to our warehouses. There are several projects-Inventoring, we'll see the revenues in the coming few quarters. Illy, you have something to add?

Gil Benyamini (CFO)

Yes. I can say that in general, our inventory management is based on the delivery forecast, and it also reflects our actual growing business. As Adi said, part of the growth is due to the mitigation of the supply chain issues that we've dealt with.

Chris Quilty (President and Co-Founder)

Great. While I have you, just a question on the OpEx. You know, it looks like both R&D and SG&A were up, you know, pretty big on a % basis year-over-year, but it's more flattish on a sequential basis. Is it fair to assume that this is a better run rate through the balance of the year for a lot of the OpEx? Are there any seasonal issues or whatnot we should look for?

Adi Sfadia (CEO)

I think on terms of sales and marketing and SG&A, it should be give or take flattish throughout the year. We do expect R&D on a yearly basis to grow. We have several large projects that we need to deliver. We are getting awards of additional projects that will require us to continue and recruit headcount. I expect R&D to grow. You know, just as a reference, we have tens of open positions in R&D, both in Israel and worldwide, just to accelerate development and be able to deliver what we promise to our customers. It's already factored in in our guidance.

Chris Quilty (President and Co-Founder)

Great. Final question and, I guess a little bit, forward-looking, when the DataPath acquisition closes, is it fair to assume that all those revenues will get folded into integrated solutions?

Adi Sfadia (CEO)

Good question. It's still under discussion here. We haven't decided yet how it will reflect it in the segments. I guess that once we'll be close to the acquisition, we'll advise on that.

Chris Quilty (President and Co-Founder)

I guess maybe to follow on that, I mean, you already have the Wavestream business here in the U.S. How will, you know, is there any opportunities for integrating the overhead or facilities or anything between those two?

Adi Sfadia (CEO)

Facilities is going to be a bit challenging because it's a two different location. From a overhead perspective, no doubt that we'll try to optimize and share relevant resources. We have no intention of reducing headcount, mainly because of the fact that we are very lean and mean in our day-to-day management. We haven't increased our headcount when everyone did that. We are doing it only based on relevant needs. I think that there is a lot of synergies between DataPath and Wavestream, and DataPath and satellite networks, and we'll optimize on that. I think that the most synergy that we see is on the top line, where we can drive our revenues into the defense market.

Chris Quilty (President and Co-Founder)

Gotcha. I forgot one last important question. Obviously a big announcement around the IFC and the flat panel antenna contract. If I recall, you know, a couple of years ago, you guys were primarily looking at that product line. You had it built out, you know, and designed to a certain point, but had indicated that you really weren't gonna make big investments until you saw a direct customer opportunity. Obviously that opportunity has arrived. Is it fair to assume that you'll have some incremental R&D to bring that product up to operational specs, or is there some NRE involved in there?

Adi Sfadia (CEO)

It's a combination of increasing our R&D NRE revenues, and it's about, you know, 24 months development and certification cycle, and then a significant amount of units to be delivered every year. It's a very large potential for us, and it opened the door for us for a future investment in this growing ESA market segment. Everything is already factored in the guidance that we gave.

Chris Quilty (President and Co-Founder)

Great. Remind me, this is a KU or a KA antenna?

Adi Sfadia (CEO)

This is a KU.

Chris Quilty (President and Co-Founder)

Great. Thank you.

Adi Sfadia (CEO)

Thank you.

Operator (participant)

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

Gunther Karger (President and Founder)

Yes, thank you. Thank you, and again, congratulations on an excellent quarter, Adi. Two questions. Question one, with the upcoming merger between SES and Intelsat, will that have any material impact, positive or negative on ELOP? The second question is regarding defense business globally, do you care to make any comment on any specific new projects globally in the defense?

Adi Sfadia (CEO)

Hi, Gunther. Nice to hear from you again. I think both the SES and Intelsat are a strategic customer for us. Such a merger, the combined company will be even significant larger customer. I think it's early to say what such move will do to our business on the long term. I think on the short and the mid-term, I don't expect any change in their purchasing decisions. We work closely with both of them. Their product is part of our roadmap. We have a lot of backlog to deliver, and we have a lot of expectation from them to the next few quarters of the years. In general, we see this as a positive in many ways.

At the end, it's always easier to interact with one large customer on all fronts. On the other hand, it's always one customer, it poses additional risk. You know, to make a long story short, we consider this as a positive effect on Gilat. As for your second question about the large defense program, there are a lot of programs that we are participating in their RFP. Several of them are very large, but we cannot at this point give more information on them. I hope that soon we'll be able to announce some awards. Then we'll see where we are going to.

Gunther Karger (President and Founder)

Thank you, Adi. With regard to the defense question, I meant to include also the homeland security and disaster recovery type of programs. Any thing in that area.

Adi Sfadia (CEO)

Disaster recovery, we do see a lot of business, especially in Asia. We even announced a month ago, a program like that. Usually it's not a huge program. It's several million dollars per year. We saw that in back in the Philippines and other countries, and we are tracking those project. Some of them are considered to be cellular backup, like cellular on wheels and solutions like that.

Gunther Karger (President and Founder)

Thank you, and continue. Good luck.

Adi Sfadia (CEO)

Thank you, Gunther.

Operator (participant)

The next question is from Alon Lior of Meitav. Please go ahead.

Alon Lior (Sell-Side Equity Analyst)

Hi, can you hear me?

Adi Sfadia (CEO)

Hi, Alon. How are you?

Alon Lior (Sell-Side Equity Analyst)

Good, thank you. Thank you for having the option to ask questions. First of all, about the guide, I mean, $260 million-$280 million, does it include any portion of DataPath revenues or it is not? If so, why is it increasing? If not, what should be the prospect for that, assuming that the QC, the deal is closed?

Gil Benyamini (CFO)

In general, the numbers are pre-DataPath acquisition. You know, once the deal will close, we will update our guidance, but I expect around $60 million per year. You know, now you can divide it in the quarterly, so around $12 million-$15 million per quarter.

Alon Lior (Sell-Side Equity Analyst)

Okay, thank you. About the gross margin, you jumped there. I mean, you said that we should look at the 2012 months, but maybe some explanation, more detailed explanation about what are the specific items that contribute to the gross margin, to the very large increase in gross margin, and to what extent it should support expansion going forward?

Gil Benyamini (CFO)

As I said, before, analyzing Gilat on a quarterly basis, is a bit, or may be problematic because of the fluctuation and the way that we recognize revenues. In this quarter, comparing to Q1 of last year, most of the change was due to favorable deal mix, meaning deliveries of products with a higher growth margin and this comes mainly from the IFC, from the IFC market, which has higher growth margins than Gilat's average. You know, looking forward, we do believe that over time, the growth margin, growth margins will grow with the growth of volume.

As we discussed in the last call, in our new platform, the SkyEdge IV, we have a higher software component and as it deploys, you'll see that impact in our in our product mix, and we believe that we can reach steady growth margins in the area of 40% in the longer term. In addition, in addition to that, in the business of Peru, as Adi mentioned, we got the submission of the fifth project. Now we're on the sixth and last project, construction, and construction revenues are associated with lower gross margin.

As these will, these revenues are expected to be in the next year, then, we'll move only to the operations, with that, it will push the gross margin average higher as well.

Alon Lior (Sell-Side Equity Analyst)

Thank you. What should we assume about the capital expenditures once the Peru is done?

Gil Benyamini (CFO)

Peru expenses are not the CapEx. Our CapEx levels should be around the same level of last year.

Adi Sfadia (CEO)

Alon, I think it's important to understand that, you know, I would say that the CapEx level of Gilat, it really depends on projects, especially managed project, managed service projects. Some of them are in Peru that we need to invest at the beginning and later want to see service revenues. This can create a lot of fluctuation in the CapEx. In the regular run rate without managed service, it's between $6 million-$8 million. Then managed services, it really depend on the project. It can be a few hundreds, up to several millions. It depends on the project and the potential on the project.

Alon Lior (Sell-Side Equity Analyst)

Understood. About tax rate, we've seen a larger tax rate this quarter. Is it something that we should expect also going forward?

Gil Benyamini (CFO)

I think that the tax rates. First of all, the taxes of Gilat are comprised of many countries and so it has a impact of several tax regimes. I think that in this quarter, the tax rate is quite normal. Last quarter, we had a one-time tax expense because of releasing the trapped earnings in Israel. Looking at this quarter, this is quite normal.

Alon Lior (Sell-Side Equity Analyst)

I see. What kind of effective tax rate should we assume?

Gil Benyamini (CFO)

I would say that, we should rely on this quarter's tax rate, and we can assume it looking forward.

Alon Lior (Sell-Side Equity Analyst)

Okay. Last question. I mean, you spoke about the ESA initiative. Intelsat spoke about a project they have which should be deployed with Alaska Airlines. Maybe a bit of color to what extent there is an overlap between the projects or, it's different angle to the same segment.

Adi Sfadia (CEO)

First of all, the deal for the terminal is not with Intelsat. Intelsat, every new customer that they bring in, they need to usually increase their ground equipment with us and buy modems to be installed on the aircraft. The deal they announced will drive more business for Gilat, but not related to the ESA terminal. Intelsat buys terminals from other vendors. Their main vendor is Syncom.

Alon Lior (Sell-Side Equity Analyst)

Okay. Thank you very much.

Adi Sfadia (CEO)

Thank you, Alon.

Operator (participant)

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

Gunther Karger (President and Founder)

Yes. Thank you for taking my follow-up question. With regard to China, is there any further to add regarding the China Airlines, the IFC projects and the high-speed rail projects?

Adi Sfadia (CEO)

On the speed rail project, no, no. I would say that this project is dead a long time ago. On in-flight connectivity, we are mainly cooperating with the service providers, which has also deployment in China. If Intelsat will get an award from Chinese Airlines, they will use our equipment. We do have also baseband that we installed with ChinaSat. There are also some opportunities with the local service providers.

Gunther Karger (President and Founder)

Thank you, Adi, and good luck.

Adi Sfadia (CEO)

Thank you, Gunther.

Operator (participant)

If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. There are no further questions at this time. Mr. Benyamini, would you like to make your concluding statement?

Gil Benyamini (CFO)

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.

Operator (participant)

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