Gilat Satellite Networks (NASDAQ:GILT) Q3 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. Welcome to Gilad's third quarter 2020 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 November 10, 2020. If you have not received it, please contact Gilad's investor relations team at GK Investor and Public Relations at 1-646-688-3559 or view it in the news section of the company's website www.gilad.com. I would now like to hand over the call to Mr.

0:49 Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin please? Good morning and good afternoon everyone. Thank you for joining us today for Gilad's third quarter 2020 conference call and webcast. A recording of this call will be available beginning at approximately noon Eastern time today, November 10th, and will be available for a telephone replay until November 13th at noon. The webcast will be archived on Gilad's website for a period of 30 days. Also, please note that investors are urged to read the forward-looking statements in Gilad's earnings release, with a reminder that the statements made on this earning call are not historical facts and may deem forward-looking statements with the meaning of the Private Security Litigation Form Act of 1995. All such forward-looking statements, including statements regarding future financial operating results, involve risks, uncertainties, and contingencies, many of which are beyond the control of Gilad and which may cause actual results to differ materially from anticipated results.

1:52 Gilad is under no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise, on the company's explicit disclaimer as any obligation to do so. More detailed information about the risk factors can be found in Gilad's reported file with the Securities and Exchange Commission. With this, let me turn to introductions. On the call today are Mr. Adi Sfadia, Gilad's Interim CEO, and Mrs. Basmat Halperin, Gilad Interim CFO. I would now like to turn over the call to Adi Sfadia. Adi, you are ready to begin. Thank you, Ehud, and good day everyone. I would like to thank you for joining us today as we resume our quarterly updates which we were not able to hold over the past year due to the pending acquisition agreement with Comtec.

2:40 Last month, on October 5th, we reported that the merger agreement with Comtec signed on January 29, 2020 was terminated and a settlement was reached on all pending litigation for a payment of $70 million to Gilad by Comtex. We recently announced our plan to share a $55 million dividend with our shareholders, derived mainly from this termination fee. A cash dividend of $20 million was declared and will be paid on December 2, 2020, and an additional $35 million will be declared subject to court approval. Moving ahead, we are continuing at full force to implement our strategy, which we believe will generate long-term value to our shareholders.

3:25 I would like to briefly summarize that strategy for those of you who are new to our story and to remind those of you that have not met us for a while. Gilad is a leading global provider of satellite-based broadband communications. We have over 30 years of experience designing and manufacturing cutting-edge ground segment equipment and provide comprehensive solutions and N2N Services powered by our innovative technology. Our main gross engines are Cellular Backhaul Over Satellite, In-Flight Connectivity or IFC and the ground segment for Non-Geostationary Orbit Satellites or NGSO and Very High Throughput Satellites or VHTS for short. Cellular Backhaul is part of our fixed network segment.

4:11 Our customers include T1 Mobile Network Operators or MNOs usually requiring Satellite Backhauling to Extender Networks to Rural Areas and Other Remote Locations such as Islands, Highways and Parks where terrestrial coverage is prohibitively expensive to lay out. In addition, we are increasingly seeing the need for cellular backhaul over satellites for emergency response and as a backup to terrestrial lines. This quarter we won several important and strategic managed service deals in cellular backhaul which we believe will continue to be a strong, profitable growth engine for the foreseeable future. In addition, our fixed network segment includes our broadband solutions for enterprise and consumer, including our services in Peru. Now turning to IFC, which is part of our mobility solutions segment.

5:07 Our largest customers in this segment are Gogo, one of the largest IFC service providers, and Honeywell, one of the largest global system integrators. Though COVID-19 has a devastating impact on travel and aviation in general, IFC is expected to grow in importance as the industry recovers and passengers require high-speed internet connections. The mobility solution segment includes also our on-the-move products and solutions for defense, maritime and trains. In addition, the mobility solution segment includes our U.S. subsidiary, Wavestream, which design and manufactures high-speed, high-power, solid-state power amplifiers for ground, sea, and airborne satellite communication systems. Wavestream focuses on providing solutions for IFC, defense applications, and NGSO gateways.

6:00 Another important focus is the NGSO and the VHTS solutions. Our major win last year to provide the ground segment for the SCS-03B Empire satellite constellation has put us at the forefront of the basement providers for NGSO. An additional business for Gilad is providing terrestrial telecommunication infrastructure projects in Peru for Pronatel, a government-owned company, as well as operating parts of the network and selling additional services in support of the Peruvian population. The construction phase of these networks is reported under our terrestrial infrastructure project segment while the operational phase and the additional services provided on top of the networks are reported under our fixed network segment.

6:49 Our target in Peru is to reach a run rate of $50 million in annual recurring revenues, which we believe can be reached by the end of 2022. As of today, we have in our backlog a run rate of yearly service revenues in Peru of more than $30 million. There is no question that the COVID-19 pandemic has and continues to affect our 2020 results. This is primarily in the mobility segment which is dominated by the IFC market. Having said that, during the third quarter, we began to see recovery in most of our other business areas. This is demonstrated by a solid increase in our backlog. Thanks to our cost-cutting initiative, we were able to show a slight improvement in our adjusted EBITDA. In the current quarter, adjusted EBITDA stood at about $600,000 compared with the previous quarter's adjusted EBITDA of about $100,000.

7:43 In the fourth quarter, I expect that we will show an improvement both in the revenue level and profitability compared with this quarter. Summarizing our financial performance in the third quarter, revenue totaled $37.3 million, GAAP operating loss totaled $10.9 million and adjusted EBITDA was about $600,000. Bosmat will elaborate on our financial performance in a few minutes. I will now move on to review our third quarter business achievements. I will start with the mobility segment and our IFC business. Even though the COVID-19 pandemic has impacted the global aviation market, Gilad has not changed its overall mobility strategy. We expect that upon industry recovery, IFC will be even more important as passengers who throughout the pandemic came to rely heavily on always connected experience will continue to demand reliable high-speed internet connections.

8:41 In addition, we believe that the introduction of widespread free Wi-Fi will significantly increase take-up rates and will provide a strong tailwind to the industry and to Gilad. We are working closely with our customers and partners to enable them to meet the expected increase in bandwidth requirements and passengers' connectivity demands. In China, we announced this summer an important milestone as a driver of opening up the Chinese KA Band for in-flight entertainment and connectivity market for a multi-million dollar market opportunity. The announcement was made with our partners China Satcom and FTS, a leading Chinese system integrator who received the STC certification for in-flight entertainment and connectivity earlier this year. Gilad has already received initial orders out of the multi-million dollar potential for its flagship aero modems.

9:37 The non-geostationary orbit satellite constellation and the very high throughput satellite continue to be a major strategic focus area for Gilad. We are on track with the platform development for the EMPIRE-MEO constellation. We are working closely with SCS on additional program needs. Recently, we expanded the O3B EMPIRE partnership with SCS under a multi-million dollar follow-on order for high-speed modems. The modems will deliver multi-gigabit throughput targeting high-end services over the constellation. Furthermore, we believe that we are well positioned to win additional NGSO Business as the opportunities mature. Gilad's only-owned U.S. subsidiary, WaveStream, is a trusted supplier to the U.S.

10:24 Department of Defense, providing high-quality military communication products. In the third quarter, WaveStream received further multi-million dollar orders from the U.S. Department of Defense, demonstrating their continued faith in WaveStream's ability to execute at a high level and support their needs for years to come. In Cellular Beckholz, one of our strategic growth engines, we are continuing to excel and have maintained our global market leadership. According to a 2020 report by market analyst NSR, Gilad leads with 44% market share in modern shipments. This superiority is furthered with impressive 5G technical achievements. As a matter of fact, this quarter we successfully demonstrated 5G traffic carrying with outstanding performance over TICON GEOS HTS Satellite.

11:15 Superior user experience was recorded using Gilad Capricorn Plus VSAT. With this successful test, we have declared Gilad's cellular backhaul solution operational and ready for implementation in the 5G architecture. Gilad's strategy of providing the cellular backhaul over satellite solution as a managed service has proven successful and is beneficial for both the MNOs and Gilad. MNOs are free to focus on their core competencies while leaving the complexity of the satellite communication to the satellite expert. Gilad, on the other hand, provides an end-to-end service enjoying a larger contract with recurring revenue. I am pleased to report that this quarter Gilad won several multi-million dollar managed service deals which included new MNOs as well as substantial contract renewal extensions and extensions.

12:07 In North America, we had two major achievements this quarter. Gilad was awarded $20 million for a three-year managed service contract renewal and expansion from Tier 1 MNOs in the United States. With this, Gilad becomes the MNO's sole vendor to provide end-to-end services for LTE backhauling and disaster recovery while replacing existing satellite technologies. This contract is a testament to the MNO's appreciation of Gilad's proven service and technological capabilities. In addition, we were awarded a three years managed service contract by Southern Link for coverage to remote areas as well as emergency response. On top of securing a new MNO in the United States, this achievement further validates Gilad proven technologies I would like to share that we extended another Satellite Backwell managed service contract with the leading MNO in Mexico and have a healthy pipeline of additional such deals worldwide and I hope to announce additional success in the near future.

13:29 We also closed several important Satellite Backwell equipment deals, among others one with AMN, Africa Mobile Networks, which extended Gilad's contract for Africa's largest solar background network over satellite, and another contract with KSL, Kazakhstan's largest mobile network operator. In the area of broadband connectivity, we continue this quarter to strengthen our presence in Latin America with important wins in Peru and Argentina. In Argentina, We were selected by Telefonica International Allsales Services, a subsidiary of Telefonica Group, to deliver broadband services to rural areas. In Peru, we were awarded a three-year service deal for a nationwide enterprise.

14:15 Both of these projects were particularly challenging due to the pandemic, and Gilad's local team and partner excelled in timely deployment in difficult rural terrains. As we have reported in the past, our business in Peru in the first three regions awarded in early 2015 moved into operational phase and are now delivering services to half a million people. Also, we are in an acceptance process regarding the fourth region that was awarded in late 2015. We expect to finish the acceptance no later than the end of Q1 2021, which will allow us to enter the operational phase and enable us to start recognizing the related recurring service revenues. We are progressing with the additional two regions which were awarded in 2018 slightly slower than expected due to the pandemic restriction in Peru.

15:05 This quarter, Gilad was awarded a substantial five years expansion contract by IPT, a consortium consisting of Telefonica and Facebook, among others. In a festive signing event, Mrs. Nakagawa, Vice Minister of Communications said, and I quote, The expansion of these services will benefit around half a million people. Gilad accepted the challenge to work on a regional project in an extremely difficult area, and we should praise its impeccable work. This milestone proves that the investment in private entities generates the expected value for the citizens, especially during the current worldwide pandemic where we need internet access to stay connected. We believe that further to this expansion, which includes hundreds of additional sites, there is still significant potential to increase and expand to additional regions as well as to extend the deal over time. This deal demonstrates our ability to execute our vision of profitable recurring revenues in Peru.

16:09 In closing, I am pleased to share with you that even though the industry continues to deal with the COVID-19 pandemic, we had some very significant achievements this quarter which will support our long-term growth. As we move into Q4, we are beginning to see the light at the end of the tunnel and are cautiously optimistic. However, we are watching the pandemic closely as a second wave hits many parts of the world. We, like others, have learned to conduct business with the pandemic and I am pleased with our accomplishment and with a healthy pipeline of significant and large opportunities. On a personal note, I am optimistic about the great future for Gilad. I am fully committed, supported by my dedicated management team and talented employees to bring Gilad back to growth and profitability and to surpass our success from before the pandemic.

16:58 Bosmat, we are ready for your report. Please, go ahead. Thank you, Adi, and good morning and good afternoon to everyone. I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis. We regularly use supplemental non-GAAP financial measures internally to understand, manage, and evaluate our business and to make operating decisions. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance. Non-GAAP financial measures mainly exclude the effect of stock-based compensation, amortization of purchased intangibles, Emotization of Lease Incentive, Litigation Expenses or Income Related to Trade Secrets Claims, Reorganization Costs, Merger, Acquisition, and Related Litigation Expenses, and Initial Recognition of Deferred Tax Assets with Respect to Case Forward Losses.

18:01 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 third quarter of 2020. Revenues for the third quarter of 2020 were $37.3 million compared to $63.4 million in the third quarter of 2019. This mainly reflects the impact of COVID-19 on revenue from IFC in our mobility solution segments. However, compared to previous quarter of 2020, Revenues were similar at $38.3 million, declining by only around $1 million.

18:49 Fixed network segments revenue were $22.8 million compared to $27.3 million in the same quarter last year. The decrease is mainly due to lower revenue from our EMEA region. We saw slight improvement compared with the prior quarter were fixed networks revenues worth $21.8 million. Mobility solutions segment revenues were $9.2 million compared to $27.1 million in the same quarter last year and $14 million in the previous quarter. The decrease reflects the effect of COVID-19 on the IFC markets. Terrestrial infrastructure projects segment revenues which include the construction revenues for our projects for PRONATEL in Peru were $5.3 million compared to $9 million in the same quarter last year and $2.5 million in the previous quarter.

19:52 As we have discussed previously, during the construction phase, revenues from PRONATEL will vary quarter to quarter depending on the percentage of the project's completion. Our progress in the last two quarters has been slightly slower than expected due to the pandemic restrictions in Peru. Our gap gross margin in the third quarter of 2020 was 25% of revenues compared to 37% in the same quarter last year. The decrease in our gross margin is mainly attributable to a less favorable revenue mix as well as the lower revenue level. Our gross margin in the previous quarter was 25%. Total operating expenses on a GAAP basis for the third quarter were $20.3 million compared to $16.3 million in the same quarter of last year and $13 million in the previous quarter.

20:51 In the current quarter, we had expenses related to the contact merger and litigation amounting to $8.2 million. GAAP operating loss was $10.9 million compared to operating profit of $7 million in the same quarter last year and operating loss of $3.5 million in the previous quarter. Excluding expenses related to the contact and litigation, GAAP operating loss in the quarter was $2.7 million. GAAP net loss in the third quarter was $11.6 million or 21 cents per share compared with net income of $6.3 million, or 11 cents per diluted share, in the same quarter last year.

21:42 Net loss for the previous quarter was $4.2 million, or 8 cents per share. Now looking at our results on a non-GAAP basis. Operating loss was $1.9 million, compared with an operating income in the same quarter last year of $7.5 million. We saw an improvement compared with the previous quarter's operating loss of $2.6 million. I would like to note that we have put significant effort in matching our ongoing operating expenses with the reduced revenue and our operating expenses were $11.4 million reduced from $15.8 million in the third quarter of last year and $12.2 million in the previous quarter.

22:33 Net loss in the third quarter was $2.6 million or $0.05 per share. In the same quarter last year, we reported net income of $6.8 million or $0.16 per diluted share. We improved versus the previous quarter in which we reported a net loss of $3.3 million or $0.06 per share. Adjusted EBITDA for the third quarter of 2020 was $600,000 million compared with $10.1 million in the third quarter of last year. We saw an improvement compared with the previous quarter in which adjusted EBITDA was $100,000. As of September 30, 2020, our total cash and cash equivalents, including restricted cash, were $77.2 million, a decrease of $8.1 million, from the previous quarter. I note that we received an additional $70 million in cash at termination fee for the ComTech merger cancellation during October 2020. We recently announced our plans to distribute dividends to our shareholders in a total amount of $55 million, out of which $20 million was declared and will be paid on December 2, 2020, and additional $35 million is expected to be declared subject

24:05 to court approval at the beginning of 2021. DSOs, which include our fixed networks and mobility solution segments and exclude receivables and revenues of our terrestrial infrastructure project segment, increased to 84 days compared to 79 days in the previous quarter. Our shareholders' equity at the end of the quarter totaled $225.3 million compared with $236.9 million at the end of the previous quarter. That concludes our review. Thank you for your attention. I would like now to open the call for questions. Operator, please.

24:51 Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are 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 Gunther Karger from Discovery Group. Please go ahead. Yes, thank you. First, thank you for an outstanding report given the pandemic circumstances. Secondly, a question.

25:39 With regard to GOGO and its ongoing sale of its commercial division to Intelsat, that's where they're selling the KAKU equipment to, what is the impact of If any on Gilad for that. For example, with the sale to Intelsat, I could expect there may be some expansion of service. So I would welcome any comment on that. Yes, indeed we are seeing several consolidations in the market. and Gogo CA acquisition by Intelsat is one of them.

26:28 We are working closely with Gogo and closely with Intelsat and we think that the combination of the two carries significant potential for Gilad. First of all, we consider both of them as partners and we believe that there is a potential Thank you. A follow-up question is, If I may, on the military side, Defense, you just recently appointed a head of the rejuvenated department at Gilad to deal with that sort of business.

27:32 Could you offer any comment as to what areas or what effort is ongoing at this time with that area of business? That's a good question. As you know, in the past few years, the defense business was relatively small business for Gilad, mainly tactical equipment, UAVs, antennas, and amplifiers that we develop and manufacture in WaveStream. What we see today is that we see increase in the opportunities in the market, and we thought it's a Thank you very much and good luck.

28:48 The next question is from Yuval Shine of Hebrew University. Please go ahead. Hello. With growing competition, can you say something about what is your competitive advantage and what is your goal toward the Chinese market and the old Eastern market and whether you need a A substantial amount of cash for our future growth. So in one question you capture a 30-minute semester, but I'll try to be short. First of all, our competitive advantage is we believe that our technology and our presence worldwide. We have presence in a lot of countries worldwide.

29:45 We invest heavily. in R&D, and our ability to provide not only equipment, but also services, including managed service, position us very well in the growth area that we invest in. As for the cash that we need for future expansion, we have, I think, after we include $70 million payment from ComTech and $55 million dividend. I think we have about $85 to $90 million in cash and equivalents. So it's sufficient money to support our future growth, may it be organic or inorganic growth.

30:36 Can you repeat the third question that you had? The Chinese market, I asked it for the competition aspect, about the Chinese market and the growing companies that deal with these kind of technologies. So, the Chinese market is not a simple market. We are working several years in China. We delivered a base bed for China Sat-16 and we recently announced our achievement with ChinaSat and FTS of deploying our Aero modem and I think it's the first commercial modem that fly in China using ChinaSat 16K band.

31:33 It helps that we are an Israeli company in China. Not that the Chinese are not doing business with the U.S., but sometimes it helps to be a non-U.S. company. There are several large opportunities in the coming future. China is going to launch several new satellites, and we think that we are well positioned to win them, and we are expecting the RFP to be issued probably at the second half of 2019. Thank you very much. The next question is from Asaf Barrel of Oppenheimer. Please go ahead. Hey, guys. First of all, welcome back. Good to hear from you again on a conference call.

32:39 If we could start off, I'll ask a few questions on each of the operating segments just to kind of keep it clean. So, for fixed networks, we're seeing that revenues are stabilizing and even recovering from two Q20 levels, which is pretty encouraging. To what extent is that stabilization or maybe initial signs of recovery attributable to, you know, just attribute this, give or take. Yeah, I don't actually need a dollar sign next to everything, but number one, Traditional Satellite Equipment that you guys sell. Number two, the Satellite of the Backhaul business. And then number three, the Fatal Services Revenues because when we do the comps on a year-over-year basis, we should see even an incremental gain from Fatal. So kind of break it down for us where the positive trajectory is coming from since 2Q and then some of the other moving parts.

33:29 So, while Bosmat is gathering the information you asked, I'll give a high-level brief. What we saw in the market this quarter is a very decent recovery in the fixed networks, especially in terms of booking. And there is a timing issue between booking and revenues. Usually it's between three to six months. Sometimes we deliver the day after, but in most of the cases, if you buy hubs and other equipment, it takes time to manufacture, ship and install and get the acceptance. So I believe that the achievement we have made and announced this quarter, especially in cellular backhaul, which was close to 40 or 50% of our booking this quarter, we will see in the coming few quarters, especially Since it's a managed service and you will see it over a three years period.

34:35 In Peru we are progressing as planned with services for Pronatel and in addition, as I said in my script, we were awarded extension, significant extension or expansion of the IPT agreement which is a contract of tens of millions of dollars for a period of five years providing the connectivity for IPT which will use it for 4G backhauling. And this is just the beginning of those services because right now we can serve them only in three regions. Soon we'll be able to provide this also in Cusco, the fourth region.

35:23 We expect to move to operational phase early next year. And in ICA and Amazonas, the fifth and the sixth regions that we were awarded in 2018, probably only in 2022. So the potential over there is very high, and the additional costs from those revenues are relatively low because we are selling the existing capacity of the networks. In addition, there are several other large opportunities in Peru, that we hope to capture in 2021. One of them is get the award from Ponatel of services of the second half of the network that right now we are not obliged to maintain.

36:12 If you look at the fixed segment, In general, and this changes quarter over quarter in Gilad, it's important to know that quarter over quarter the revenue mix changes a lot due to different large deals. But in general, the cellular backhaul is around 30% of the revenues there. The Peru services revenue right now are around 20% to 25%, and we expect them to rise as we enter into the operational phase of the different regions. And the broadband, which is the rest, is around 45% of those revenues.

37:01 Okay, that's actually extremely helpful. Yeah, the Peru revenues actually sound, even when I'm doing the math in my head here, even a little bit better than what we had modeled pre-COVID, right? We weren't expecting to get Maybe 25% of the Satellite Networks revenues, right? Is this going better than you had expected in terms of services coming online? You're talking about the terrestrial? No, I think it's as expected, except I think that the IPT deal is very, very good beneficial deal that... I will remind you that in Peru the restrictions are still valid for almost 7 or 8 months. Peru is significantly affected by the COVID and there is still some areas that are completely closed.

38:12 We as a telecom company have the ability to move from region to region and install and provide service, but it's not as easy as it should be. Yeah, what I was referring to is just not on the construction business, right? I'm just talking about the services revenue. That's 25% what services revenue is, right? Just to be clear. Yes, out of the fixed, right. Yes, yes, yes, of course. Okay. Okay, cool. So that color is very helpful. Many of the satellite players, legacy satellite players, have come under financial pressure. This has been a long-term trend, long-term negative trend. But COVID-19 really worsened the situation for the more leveraged companies. We've had one major company actually declare bankruptcy.

38:58 What kind of impact are you guys seeing? Are you seeing a shrink in CapEx? How should we expect this to play out moving forward? Are there even maybe potentially opportunities here? Any color. Indeed, service providers, especially the big ones and the satellite operators, are highly leveraged companies. We saw at the beginning of the year chapter 11 trend when Speedcast and Global Eagle and the Intelsat and others went into the chapter 11. Most of them are on their way out. I know that Speedcast received or going to receive equity injection from their creditors and Global Eagle moved to be owned by the first lean creditors.

39:56 Intelsat received court approval to invest $400 million from the creditors in order to acquire GoGoCA. So I think all of them will move out. I think that no doubt there was effect, especially with Speedcast, where we are doing a lot of business with them in Australia. But right now, NBN, acquired Speedcast Australia and we are going to do the business directly with them so we believe that there is no business that was lost some delayed and we'll see the orders are coming probably if not this quarter then early 2021.

40:45 So I guess kind of on the same question because it's also going to apply to the NGSO business and moving forward You guys compete to a certain extent with the traditional satellite players on equipment, right? So, are you seeing maybe any less competition, you know, any kind of impact of you maybe being lacking in standing in certain products? I'm not sure I fully understand your question. In some cases... With satellite operators, we compete on equipment. The only satellite operators who own their own equipment, it's only Viasat, who usually doesn't sell their equipment as standalone, so it's not really a competition. It's mainly competition for our customers.

41:39 And they use network, and with them, we do compete here and there. And... Nothing beside that. We do compete with some of our customers on services, but our services today is strictly to MNOs, and we try to limit it, the managed services we are providing to MNOs, and when needed we buy the capacity from the satellite operators, so we have a customer-vendor relationship, So I think that we are managing the relationship well.

42:24 Okay, great. Yeah. How is the financial situation in Peru? We can see on the balance sheet the way receivables look in terms of the gap accounting, but do you guys feel comfortable with the situation in Peru with the government? We haven't taken a close look. That's a fiscal situation, but any caller there would be helpful. The relationship of Gilad and the government are very good. We are doing projects with the government in the last 20 years. I think we had more than 15 projects already. They are paying on time and in dollars, so we don't have the exchange rate risk. In most of the cases, they are paying in advance.

43:14 Today, in some of the regions, we are in a situation that we are, in order to achieve a milestone, we are more progress than we should based on the contract. And in those kind of cases, sometimes we need to finance it on our own. We expect a very large payment from the government once they accept CUSCO. It's close to... 20 million dollar in two payments depend on what the type of the network they accept. There are delays in accepting the networks mainly because of the COVID. They can't send people to test and accept relevant sites.

44:03 Today we are in progress with them and We believe that by the end of Q1, we'll be able to get the two acceptance both for the transport and for the access networks. So we are aiming to get payment, if not by the end of this quarter, Q4, then by Q1 2021. Okay, great. That's very helpful. Okay, I think that's enough on six networks. On the mobility business, I know that visibility is still low here, but number one, obviously revenues came down from $14 to $9 million this quarter.

44:48 To what extent is that the bottom? So that's number one. And then number two, you had mentioned that you expect, obviously, the business to return to a certain level. We were talking about maybe 2K, 2,000 airplanes being fitted, whether it be retrofitted or fresh new airplanes being equipped With in-flight connectivity, how quickly do you think we come back here? You know, even if the airlines do go back to normal business, maybe late 2021, who knows when, what's kind of the turnaround time between when business starts to normalize in terms of air traffic and then when we start to see a pickup in demand for modems?

45:35 Um... That's a good question. We are not going to give guidance for Q4 revenues. The revenue in Q3 was lower, mainly because at the beginning of the year, we delivered the order that we had in the backlog. Right now, most of the service providers and the integrators are not buying equipment. until they will see that the aviation markets return. The question when it will return, you know, I don't think anyone knows the answer.

46:21 I think everyone thinks that the earliest will be probably mid-next year. Some think that maybe 2022 or even later, it depends what is the Aspiration of each one that you talk to. We think that once the aviation will return, we believe that in the same quarter or the quarter after, all the service providers will return to buy equipment and install and increase their network deployment. We believe that the adoption of the wide adoption of free Wi-Fi is a significant opportunity for Gilad and the market.

47:13 There is a lot of potential over there. And from my discussions with analysts and CEOs of those service providers, they say that they can't predict when everything will return to normal, but they believe that within three to five years' time they will manage Five to ten times the capacity they used to manage before the pandemic. This alone is an enormous opportunity for Gilad in equipment and services. Okay, so I guess last question, if I could. We had spoken in the past, if you could just remind me, in case I missed the press release or whatever, on the situation of the antennas.

48:04 We had spoken about you guys signing a business aviation deal. Obviously, we can put that on ice, or I don't really know where that stands. But in general, kind of the future of commercial antennas. So we have an antenna for business aviation, but the project was canceled, I think, a year ago when we announced it. We announced several developments with our ESA antenna in the past few months. We are progressing, but I must be honest, very slowly, because the fact that service providers and airlines are unwilling to invest right now, that means that the opportunity will take significantly more time than originally expected.

48:56 So, it will take time. It's not something for tomorrow morning and Even once they will decide to invest, it's a cycle of several years until you fit the antenna to their needs, get all the certifications, so it's not an opportunity for the near future. Okay, so with that, first of all, thank you very much for the very clear, broad, clear answers. Best of luck. I look forward to talking to you guys tomorrow. Thank you very much. The next question is from Yariv Steiner. Please go ahead. Hi Adi. I wanted to ask you regarding your cash balance.

49:42 So you have a lot of cash on hand and your stock price is very undervalued. So are you thinking of making a buyback plan? One by one. We just announced that we want to share a $55 million dividend. $20 million was declared and going to be paid in three weeks' time. Another $35 million will be declared once we get approval from court to capital reduction because we don't have significant distributable profits. because the termination fee profit will be recorded in Q4 and we wanted to share the dividend as soon as possible and not wait after we report our yearly results towards the end of Q1.

50:43 So, $55 million is already there. We remain with $85 million and in the future, if we think it's appropriate, we will Discuss it in the board and if we decide that we go with it, we will announce. Right now it's not on the table. Okay, and when should we expect a return to portability? Is it next year? Can you give some timelines about it? So, it's a bit too early to give guidance for 2021. Although I can say that we are definitely going to see growth on top line and on bottom line. We show minimal adjusted EBITDA this quarter. We will show quarter over quarter progress in Q4 and later on in Q1.

51:46 2021 will be profitable. Again, we are cautiously optimistic because we see that the world... is starting to digest the situation and do business, although there is COVID and although we can't travel and meet face-to-face with customers, we can't do installation on our own and we're doing it remotely in most of the cases. So we see that acceptance is there to do business. Profitability, significant profitability, We will see once we will see the top line return to the level we used to see before the pandemic and the IFC will return.

52:35 I think that 2021 will be a significantly better year than 2020 and will show a decent double digit EBITDA, but it's too early to say more than that. Okay, thank you and good luck. Thank you very much. The next question is a follow-up question from Gunther Karger of Discovery Group. Please go ahead. Yes, thank you for taking the additional question. With the MNOs gravitating rapidly toward the 5G network systems, the emerging IoT, Internet of Things, is coming into play as well.

53:24 So my question is, As the IoT accelerates and starts generating bandwidth demand in addition to the standard network operators, will this have any positive influence on Gilad's business? So, I'll start with the 5G. No doubt 5G will be a significant growth engine in the future. But I need to be honest, 5G's material revenues, I would say it will take two to three years to see it in the PNL. From the simple fact that you first start with the cities where you have a terrestrial connection and later on you deploy in rural areas.

54:15 What we will see in the interning period is that 5G will drag a lot of 4G deployments. because a lot of MNOs who is going to deploy 5G will be required in several cases by their license to deploy 4G in the rural areas. And the fastest way and the easiest and the cheapest way to do it is with Gilad equipment. And as I said, based on the analyst report NSR, We have about 44% market share in the cellular backup, but if you look at the details and just look at the 4G, I think we have more than 80% of the market share. So I think we are well positioned to capture a lot of 4G business in the coming few years, up until 5G will be ready for satellite cellular backup. We recently announced our achievement with Tycom, which we demonstrate together with them. As for IoT, IoT, most of the applications for IoT is narrowband and not broadband.

55:39 And we are looking at this area also. I can say that today we are investing a lot in IoT. We do have some business in IoT. If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Before I ask Bosmat Halpern to go ahead with her concluding statement, I would like to remind participants that a replay of this call is scheduled to begin two hours after the conference. In the U.S., please call 1-888-326-9310.

56:37 In Israel, please call 03-9255-904. Internationally, please call 972-392-55904. Bosmat, 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. Anyone who would like to speak to us is invited to contact our investor relations team. Thank you very much and have a great day. Thank you. This concludes Gilad's third quarter 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.