管理層發言
Ladies and gentlemen, thank you for standing by. Welcome to Gilat's Second Quarter 2025 Results Conference Call. As a reminder, this conference is being recorded on August 26, 2025. By now, you should have all received the company's press release. If you have not received it, please 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. Alex Villalta of Alliance Advisors IR. Mr. Villalta, would you like to begin, please?
Thank you, operator, and good day to everyone. Thank you for joining us for Gilat Satellite Networks Earnings Conference Call for the second quarter of 2025. With us on today's call are Mr. Adi Sfadia, Gilat's CEO; and Mr. Gil Benyamini, Gilat's CFO. The earnings press release was issued earlier today, and if anyone has not received a copy, I invite you to visit the company's website at gilat.com, where you'll find the release in the Investor Relations section. Before turning the call over to management, I'd like to remind everyone that some statements made during the conference call contain forward-looking statements based on current expectations. Actual results could differ materially from these projections as a result of various risks and uncertainties. The potential risks and uncertainties could cause actual results to differ materially include uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spend, acceptance of our new products on a global basis, and disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under our control.
The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Gilat's financial results is included in the company's filings with the SEC, including the latest quarterly report on Form 10-Q. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Gilat's CEO, Adi.
Thank you, Alex, and good day, everyone. Thank you for joining us today to discuss Gilat's second quarter 2025 results. Please note that we are posting a PowerPoint presentation on our website with all the data we will discuss today. The second quarter not only showed strong performance but also validated our growth strategy across each of our growth engines. Our priorities in 2025 remain on capturing the growing opportunities emerging from our acquisition of Stellar Blu earlier this year and investing in Gilat Defense to better position to drive revenue growth in 2026. These drivers, along with our strong presence in VHTS and NGSO constellations, continue to fuel our growth and strengthen our market leadership. Second quarter revenues reached $105 million, a 37% increase year-over-year, which includes about $36 million in revenues from Stellar Blu. Adjusted EBITDA was $11.8 million, 17% above the same quarter last year, including Stellar Blu's expected ramp-up losses of about $1.5 million.
Excluding Stellar Blu's loss, our adjusted EBITDA for the second quarter was about $13.3 million, representing a 32% year-over-year increase. Stellar Blu's yearly performance remains on track with a revenue expectation of between $120 million and $150 million. Now on to the business review. In the second quarter, our Defense division continued to set the foundation for future growth. Continuing geopolitical tension and shifting global security priorities are promoting governments to increase their defense spending and allocate more of their budget to secure satellite communications. This is generating increased interest in mission-critical SATCOM solutions, and Gilat Defense is well-positioned to meet these evolving operational needs. We are seeing active engagement from customers across multiple regions, including North America, Europe, and Asia Pacific. Gilat Defense is also extending our global footprint by leveraging top-line synergies between Gilat DataPath and Wavestream by offering a broader range of solutions to defense customers.
In the second quarter, over $8 million of Gilat DataPath systems were ordered by the Israeli Ministry of Defense, demonstrating the strong value of our technology and the applicability of our solutions to diverse mission requirements. During the second quarter, Gilat DataPath was awarded a contract to provide field service and technical services in support of the U.S. Army. The award includes an initial order of more than $7 million with an option to extend the program for up to 5 years, reaching an estimated order of up to $70 million. With a clear strategy, a growing global presence, and an unwavering focus on mission-critical connectivity, Gilat Defense is positioned for substantial growth and long-term impact in this essential sector. Turning to our commercial business. Q2 was a milestone quarter, driven by strong bookings, strategic wins, and continued adoption of our next-generation satellite communication platform.
Our momentum reflects both the accelerating transformation of the industry and Gilat's success in aligning technology and solutions with the needs of our customers. One of the most significant announcements this quarter was the signing of a $40 million contract for a virtualized SkyEdge IV platform. This landmark agreement not only demonstrates the trust our customers place in Gilat but also highlights the critical industry shift in our satellite communications infrastructure being deployed. SkyEdge IV virtualization empowers operators to move to cloud-native, software-defined environments designed for scale, agility, and interoperability with next-generation satellites. Evolving to a software-only cloud-based platform elevates Gilat's positioning with higher value, improved margins, and provides the option to sell through a platform as a service business model. During the second quarter, we announced over $47 million in orders from Tier 1 satellite operators.
These orders underscore the surging demand for Gilat multi-orbit ground segment technologies, driven by increasing demand for IFC solutions and the widespread adoption of GEO, MEO, and LEO architectures. Operators are making substantial investments in ground systems that can seamlessly manage multi-orbit connectivity across a range of use cases, including fixed broadband mobility solutions and critical government services. These orders also span multiple regions and program types, including both network expansions and new deployments, highlighting the global relevance of our technology and the growing trust in our platform to support mission-critical services. Moving on to Stellar Blu, we announced receiving $27 million in orders from our Stellar Blu portfolio. With more than 150,000 community flight hours and deployment of over 225 terminals, Gilat Sidewinder ESA terminal is exceeding expectations for performance, reliability, and user experience.
Production ramp-up is progressing slowly, and we expect to see more units delivered in Q3 and Q4 this year with better margins. Stellar Blu continues to work closely with its partners to secure new fleet wins. We are confident these efforts will yield positive results soon. Looking ahead, we remain focused on expanding our leadership across key verticals and deepening our relationships with strategic partners. With strong customer demand and a differentiated technology portfolio, we believe Gilat is well-positioned for continued growth in our commercial business. Q2 was an outstanding quarter for Gilat Peru, highlighted by the award of more than $60 million in new orders from Pronatel. As a reminder, these orders were delayed last quarter. The awards are for upgrading the regional network infrastructure that was originally awarded to us in 2016, bringing high-speed Internet to more than 800 public institutions, including schools, healthcare, and police stations across more than 280 localities.
This award reflects Gilat Peru's continued partnership with the Peruvian state and our long-standing commitment to digital inclusion, demonstrating once again the key role Gilat Peru plays in delivering meaningful nationwide impact. Digital inclusion is a key priority worldwide, and the expertise developed by Gilat Peru in connecting remote and underserved communities is now being leveraged in other regions around the world, allowing us to replicate proven models and accelerate similar projects globally. In Peru, we still expect to receive several large RFPs and orders from existing project expansions and renewals in the coming few quarters. I am pleased to say that we continue to have a strong backlog and a healthy pipeline of opportunities in all divisions. On the strength of our results year-to-date, improved visibility, and business momentum, we are resetting our full-year guidance. We are narrowing our revenue range to $435 to $455 million for a higher revenue growth rate of approximately 46% at the midpoint.
We have also narrowed our adjusted EBITDA guidance range, now targeting between $50 million to $53 million for a higher growth rate of approximately 22% at the midpoint. Gilat remains strategically well-positioned for sustained growth, supported by strong demand for secure high-performance connectivity across commercial and defense markets. As satellite networks evolve, expanding in capacity, shifting to multi-orbit GEO, MEO, and LEO architectures, and moving towards software-defined infrastructure, our portfolio is uniquely equipped to meet the emerging requirements with the scalability, flexibility, and reliability our customers expect. Gilat Defense continued with a focused roadmap and expanding sales resources to broaden engagement and awareness of our technological expertise and our role in supporting the mission-critical satellite connectivity needs of governments and defense agencies in the U.S. and allied countries.
In our Commercial division, we are meeting the growing industry demand for virtualized software-defined ground infrastructure that enables more agile, scalable network deployments. Our multi-bit platforms are delivering seamless connectivity across GEO, MEO, and LEO constellations, positioning Gilat as a key enabler of next-generation satellite networks. At the same time, Gilat Sidewinder ISA terminal continues to gain traction with ongoing progress in integration and certification across multiple aviation segments. In Peru, we play a vital role in expanding access to digital inclusion services, strengthening public infrastructure, and supporting long-term national connectivity growth. Our local presence and trusted partnership with the Peruvian state remains a key differentiator as we help close the digital divide in underserved regions. We are very happy with the progress we are making across the company and remain focused on advancing our priorities, deepening customer relationships, and delivering meaningful results as we support the evolving needs of a rapidly changing satellite communication market. And with that, I will hand over the call to Gil Benyamini, our CFO. Gil, please go ahead.
Good morning, and good afternoon to everyone. Before I dive into the numbers, I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis. I will now walk through our financial highlights for the second quarter of 2025. As Adi mentioned, we are very pleased with our second quarter performance. We closed the second quarter and the first half of the year, delivering sustained improvements in our results, giving us strong momentum going forward. In terms of our financial results, revenues for the second quarter were $105 million, a 37% increase compared to $76.6 million in Q2 '24. In terms of revenue breakdown by segments, Q2 '25 revenues for the Commercial segment were $69.1 million compared to $43.4 million in the same quarter last year. The 59% increase was primarily due to the contribution of Stellar Blu, which we acquired in early January this year.
Stellar Blu generated $36 million, which was partially offset by the termination of our activity in Russia in 2024. Q2 '25 revenues for the Defense segment were $20 million, similar to the second quarter last year. Q2 '25 revenues for the Peru segment were $15.9 million compared to $13.9 million in Q2 '24. Our GAAP gross margin in Q2 '25 decreased to 30.4% compared to 34.7% in Q2 '24. The decrease is primarily due to lower margins in Stellar Blu as it ramps up production as well as amortization of purchased intangibles. GAAP operating expenses in Q2 '25 were $26.2 million compared to $23.8 million in Q2 '24. The increase is primarily due to consolidation of Stellar Blu, amortization of purchased intangibles, partially offset by other income, which included proceeds from an arbitration that were recognized in Q2 '25. As a result, GAAP operating income in Q2 '25 was $5.7 million compared to GAAP operating income of $2.8 million in Q2 '24.
GAAP net income in Q2 '25 was $9.8 million or a diluted income per share of $0.17 compared to GAAP net income of $1.3 million or diluted income per share of $0.02 in Q2 '24. Moving to our non-GAAP results. Our non-GAAP gross margin in Q2 '25 decreased to 32.9% compared to 36.8% in Q2 '24. Non-GAAP operating expenses in Q2 '25 were $25.2 million compared to $20.9 million in Q2 '24. The non-GAAP operating income in Q2 '25 was $9.3 million compared to $7.3 million in Q2 '24. Non-GAAP net income in Q2 '25 was $12 million or a diluted income per share of $0.21 compared to a net income of $5.6 million or income per share of $0.10 in Q2 '24. Adjusted EBITDA in Q2 '25 was $11.8 million compared to an adjusted EBITDA of $10.1 million in Q2 '24. Our Q2 '25 organic adjusted EBITDA, excluding Stellar Blu losses, was approximately $13.3 million, a 32% increase compared with Q2 '24. Moving to our balance sheet.
On January 6, '25, the company secured a $100 million credit line from a Bank Consortium from which we utilized $60 million to finance the acquisition of Stellar Blu. As a result, as of June 30, '25, total cash, cash equivalents, and restricted cash were $65.4 million or approximately $5.5 million net of loans compared to $3.8 million on March 31, '25. In terms of cash flow, we provided $5.1 million from operating activities in Q2 '25. DSOs, excluding receivables and revenue of our terrestrial network construction projects in Peru, were 60 days, a decrease from 75 days in the previous quarter. Our shareholders' equity as of June 30, '25, totaled to $316 million compared with $300 million at March 31, '25. Looking ahead, as Adi mentioned, we are narrowing our guidance range and raising the guidance midpoints for 2025 revenue and EBITDA. Revenue is now expected to be between $435 million and $455 million, representing year-over-year growth of 46% at the midpoint.
The adjusted EBITDA is expected to be between $50 million and $53 million, representing year-over-year growth of 22% at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please.
分析師問答
The first question is from Ryan Koontz of Needham & Co.
I wanted to ask about the ramp at Stellar Blu, obviously doing well there. How are you feeling about the second half ramp, your ability to meet customer demand? And then from a margin perspective, improving margins on Stellar Blu, can you give us a rough idea of where those margins are at today and where you expect them to be at the end of the year, and particularly on a non-GAAP basis would be really helpful.
So I think that the production ramp-up in Stellar Blu is progressing. As you remember, last quarter we said that there is one specific component that our vendors are struggling with. So, we are seeing better results in the third quarter. And our internal solution is in the certification stages and will be ready for shipment towards the end of this quarter. So we definitely see a ramp-up in Stellar Blu's ability to deliver in the third quarter and even more in the fourth quarter. As for the overall margins, I will let Gil to give you the input.
So, our margins are ramping up a bit slower than expected, mainly due to the component challenge. We see them ramping. We started the year still at the low-rate pace, and now we're moving to a regular production pace. So, I guess that we'll see towards the third and even more in the fourth quarter, and in the beginning of next year, we'll see a more material improvement in the margin of the product.
Great. That's helpful. And then on your virtualization win for SkyEdge IV, what's the fulfillment model look like there? Are you just shipping software to COTS hardware? Are you having to ship appliances with that? And then how do you think about pricing and utilization there? Do you sell licenses? Can it be sold on a consumption-based or even a subscription-based model? What's happening with the virtualized SkyEdge IV, please?
The initial order we received is primarily for running our software on commercially available cloud equipment. From a revenue recognition standpoint, this will be categorized as either a license sale or capital expenditure. It constitutes a one-time sale along with ongoing maintenance services. Future upgrades will also involve software, and the pricing will be roughly equivalent to that of hardware sales. However, in this scenario, the customer is responsible for providing their own hardware. Typically, many customers prefer to establish their own private cloud, although it can also operate on a public cloud. We offer various flexible business models, including options where we create the cloud for customers, provide them with licenses, and offer platform services or subscription-based and consumption-based models. Historically, most customers tend to prefer a capital expenditure approach, but we are also open to a recurring revenue business model.
That's great. I have one last question about Peru. Are there any significant decisions expected in the second half of this year that could enhance the business's top line?
Yes. I think that the order that we received this quarter were delayed at least from late December and will help us ramping up Peru's revenues in 2025. But we do expect another large order in the next few weeks or the next 2 months. And in addition, there are several large RFPs that are expected to be issued by the Peruvian government, and we expect to participate in those RFPs. And even if we take some of them, it will help us to generate significant growth in Gilat Peru.
The next question is from Louie DiPalma of William Blair.
What are the main contributors to the improved outlook that weren't in the prior guidance or the different assumptions? And should we assume that the new programs that you've won in terms of the revenue carries over into 2026?
Can you repeat the first question? You were a bit disconnected.
Yes, no problem. What are the main contributors to the improved guidance?
So the main contributor, we started the year with a relatively high range of guidance because of the acquisition of Stellar Blu and the unknowns in this acquisition. Today, we have much better visibility both to Stellar Blu and Gilat. The recent business award, the significant award that we announced, and the backlog that we have, including the opportunities that we feel comfortable with in our pipeline gave us the assurance that we can increase our guidance for the year. Now as for your second question, some of the awards that we recently received will be dragged into 2026, and some of it even further like Peru, which is building the network or upgrading the network and then another 4 to 5 years of recurring services.
You mentioned that there are now 225 Stellar Blu Sidewinder terminals deployed, which I assume means they are operational. What is the current backlog for future shipments? It seems that you have announced several new contracts today and you also have existing contracts with American Airlines, Air Canada, and Alaska Airlines. Can you share what the backlog was at the end of the quarter?
So it's not data we are providing on a quarterly basis. When we acquired Stellar Blu, we mentioned that we had close to slightly below 1,000 aircraft in backlog. You can do the calculations. There are additional awards that our customers have received but haven't yet placed a purchase order with Gilat. We do expect to have large orders in the next few weeks or the coming quarter.
And also related to Stellar Blu, what is the status of the different milestone payments associated with the acquisition?
Okay. So I'll remind everyone that we have 3 types of earn-outs. The first earn-out milestone ended at the end of the second quarter and was to reduce the operational risk and the new product introduction risk. Stellar Blu had to deliver 350 terminals before the end of the second quarter, which they failed or Gilat failed to do. We delivered only 225 aircraft because of several reasons, but mainly because of the production ramp-up and some vendors' inability to deliver products on time. So the first earn-out payment is not going to be paid. The second earn-out is to get new orders totaling between $120 million to $140 million until the end of the fourth quarter this year. And I think it's too early to tell if we will meet the earn-out milestone or not. We do see a strong pipeline with our customers, so we do expect to get a significant amount of orders before the end of the year. I believe that there is a very good chance that Stellar Blu will be able to meet the milestone.
Of course, it needs to be in the profitability that was set in the agreement. So the cost reduction initiatives that we are taking, including shifting some of the production internally and developing some substitute products for a very expensive one needs to happen, and we are on our way to doing so. The third earn-out is until mid-2026 and involves signing up to 4 strategic agreements. Each one is about $25 million. Strategic agreements need to be at least $25 million of orders with significantly better profitability than the existing one and to be a door opener to a new market. We have ongoing discussions with several strategic customers, but it's really too early to say. There is almost a year.
Great. And that is super helpful. And one final question. It seems that Eutelsat has signed agreements to raise significant funding from different parties to support OneWeb Gen 2 or the general OneWeb constellation. And what is your view of how OneWeb Gen 2 and Iris Square will proceed? Do you believe that OneWeb Gen 2 and Iris Square are going to be the same constellation? And what are the potential opportunities for Gilat associated with both of these plans?
Based on our discussions with Eutelsat over the past few quarters, they want to integrate OneWeb Gen 2 and Iris Square with SES's MO 100. OneWeb Gen 2 and Iris Square will be linked because Iris is going to be a multi-orbit constellation. They will not make any decisions regarding OneWeb Gen 2 until they have complete clarity on Iris Square. Regarding Iris Square, we received the first RFI this quarter for the end-user terminal, and more RFIs and RFPs will follow. We believe that awards will likely not be made until mid-year next year. Iris Square is nearly fully subsidized by the EU regulator as part of the EUR 12 billion project, with about 40% of the funding coming from operators like Eutelsat and SES, while the remainder comes from the European Commission. Overall, we expect some delays with Iris Square, but they will launch the constellation, after which OneWeb Gen 2 will follow.
And one final one. The Intelsat-SES merger recently closed, and I know it only closed a few weeks ago, but have you observed any changes in customer behavior as both SES and Intelsat are fairly large customers of yours? And how would you assess the impact of the deal?
Yes. So I'll just add one small thing about Iris Square. I think it's extremely important and a very large opportunity for Gilat. We have a decent EU presence, which will give us the right qualifications to participate in the program. As such, we received the RFI. So we do see this as a top priority for Gilat to get an award over there. As for the Intelsat and SES merger, indeed, I think 3 or 4 weeks into the merger. But what we see today is that the people we used to work with on both sides are there. And from a customer perspective, the relationships are very strong. We keep on seeing a lot of interest on both sides, both from Intelsat and from SES for Gilat equipment on the terminals, on the ISA side, on the SkyEdge IV side, and also on the SkyEdge II-c for IFC side. So we do expect to see significant business from the combined company in the next few months.
The next question is from Omri Efroni of Oppenheimer.
Congrats on the great quarter. I have a few questions about Stellar Blu, similar to what other analysts have asked. Last quarter, you mentioned the guidance for Stellar Blu was between $120 million to $150 million in revenue, and you expected it to be EBITDA positive in the second half of 2025. I just want to confirm if that guidance is still in place. For my follow-up, could you provide more details about the Defense division? What trends are you observing, particularly regarding demand from the Israeli Defense Ministry and Europe?
So yes, the guidance for Stellar Blu still stays in place, $120 million to $150 million in revenues. We do expect them to significantly reduce the losses and to show a positive EBITDA. You saw in the announcement that in my script, I said that we reduced the losses from $3.5 million in the first quarter to $1.5 million this quarter, and we do expect them to progress quarter-over-quarter and show positive EBITDA in the second half of the year and even to be able to reach a 10% EBITDA ratio towards the end of the quarter. I'm not sure it will be a full quarter, but towards the end of the quarter once the cost reductions are in place, and we will be able to start delivering the replacement for the component that is developed by another vendor, we will see decent profitability from Stellar Blu. As for the Defense, we do see a lot of interest from several countries. It's mainly discussions on capabilities and things like that.
We're having a lot of proof of concept and demo sessions, not only in Europe but worldwide. In parallel, we are building our sales force, investing a lot of money in that. You see the increase in our OpEx also in new product and solutions for defense. One of them is our next-generation tactical model, which will be one of the most advanced and resilient models in the industry. And in Israel, we announced several awards, and we still have ongoing interest. Of course, I cannot get into specifics. Sometimes I don't know all the specifics because in some cases, it's a secured project. But we are progressing very well on all fronts. Also in the U.S., we announced several large orders on the service side and on the product side. And there is a lot of business going on that we'll see in the next quarter or two.
Got it. Just to clarify, even with the component change from the other vendor that will occur at the end of the third quarter, the guidance for the Stellar Blu acquisition remains the same, despite the new component.
Yes. It still stays in place. Most of the information that I'm giving you today, we knew in advance when we gave the guidance at the beginning of the year. Development and ramp-up of production sometimes take time. But I think that we are progressing on a monthly basis, and we see the progress. You saw the significant reduction in the losses this quarter, and I'm sure we'll move to positive EBITDA during the second half of the year.
The next question is from Chris Quilty of Quilty Analytics.
I just wanted to follow up on the Stellar Blu and the order front. I know that I think last quarter, you were certified by Panasonic, which is, I think, one of your big lead customers. So fair to expect we should see something this quarter in terms of announcements. And additionally, where should we look for large follow-on orders? Are these done more directly with the airlines? Or do you have other partners you're working with?
We began working on the certification with Panasonic last quarter and are nearing completion. We have received an order for just under 100 aircraft from Panasonic prior to closing, and we anticipate additional orders. However, Panasonic, Intelsat, and other customers typically place orders back-to-back rather than in advance, with around a 9-month lead time. They also have a delivery schedule committed to the airline. Therefore, we expect to receive orders from both Intelsat and Panasonic in the next few months. Additionally, we are engaging with other players in the market, but it's still in the early stages, so it's too soon to provide more details.
I think you also indicated that with the SES Intelsat acquisition, do you think there was in advance of the close, any activities hold-up in orders as they process that may have created a little near-term backlog of potential orders going into the back half of the year? Or did you just see normal purchasing activity by both entities?
I think we saw normal purchasing activity. In some cases, we work together with our partners, helping them promote their services and our equipment. And in relatively large number of cases, the order comes back-to-back when they get orders from their customers. So we know the situation, and business is continuing as usual. We do expect to have a strong second half with the merged company.
A follow-up question on the SkyEdge IV platform and maybe a specific end market in cellular backhaul, which seems to have slowed down in the last year to 1.5 years. Are there any specific dynamics that you're seeing there? And how does the new virtualized platform help, if at all, in that particular market?
Overall, I acknowledge that there has been some slowdown in the cellular backhaul market, alongside the potential of direct-to-device technologies and LEO operators targeting this area. Currently, we are experiencing a significant decrease in new RFPs and customer extensions, as customers are postponing decisions for the 5G NTN to understand how it will integrate with their existing 5G networks. Direct-to-device solutions do not offer the same speeds as traditional cellular backhaul. While we continue to receive follow-on orders from our existing customers, they are not at the levels we previously experienced. We anticipate that it may take several more quarters for the cellular backhaul market to stabilize. The SkyEdge IV platform operates by running SkyEdge IV software on commercially available cloud equipment, and while it may not introduce new features in this sector, it will provide operators with the necessary agility and flexibility, enabling us to propose more attractive business models.
Understand. I think did I hear you say that customers are generally making a CapEx acquisition, are you selling at the same price for the software only as you would have for software hosted on a piece of hardware? Or is it something less than that? And how do we think about both revenue growth would slow if you're selling software only for less, but margins would change? Are we going to see that impact putting aside Stellar Blu in the model in '25? Or is that more out into a '26, '27 impact?
So with respect to pricing, the prices are similar between the CapEx hardware model and the software model. From our perspective, the prices are the same. Can you repeat the second question, Chris?
The effect on the margins.
So yes, the effect on the margins is very positive because once we develop the software, it will be more like software kind of margins rather than hard ones.
Chris, I want to mention that even now with SkyEdge IV, the balance between software and hardware has significantly shifted compared to SkyEdge II-c. Today, on the first day, we provide almost all the hardware the customer will require, and all expansions and upgrades are primarily software-based. We're beginning to notice this impact in the commercial segment. However, as you've pointed out, Stellar Blu affects this somewhat. I believe we will see gradual improvements in the commercial business margins over the next few years. The Virtu platform will be ready in two years, and I anticipate that we will truly start seeing its effects around the end of 2027.
Got it. And final question on the amplifier Wavestream business. I know there's still a large NGSO order out there. Any progress on moving on that?
Yes, there is a lot of progress on this front. We have already received more than $30 million. We are delivering orders every quarter based on the customer needs. We do expect to get additional orders in the next few months. We see also around it also defense business that can be built. So we expect also defense orders for this specific constellation. But it has its own pace. It's not everything in one day.
And I lied because I do have one final question for Gil. There were a number of gyrations on the balance sheet between contract assets, inventories, long-term receivables. Anything we should focus on there in terms of modeling?
I think that all the changes are mainly in the working capital related to deliveries. We had some reduction in the inventory due to the timing of deliveries between Q1 and Q2. It also affected AR, of course. So the changes over there are relatively large. But more than that, I wouldn't say that there is something new to take into account when you model the company.
So no material changes in either the need or cash generation from working capital as we go through the balance of the year?
No, it always depends on the, I would say, POs that we get. Some of them, like the Peruvian award that we just reported, is usually associated with advanced payments. So I would expect this to positively affect the balance sheet in the next quarter or two. But this is something that we're used to see from time to time. So I wouldn't describe it as unique, but just a reflection of orders and their timing on the balance sheet.
The next question is from Gunther Karger of Discovery Group.
I have a comment rather than a question. First, I'm particularly pleased with your progress in the defense business, which a long time ago, thought was a big piece of growth business. And secondly, to congratulate you on excellent performance. That's my comment.
The next question is from Sergey Glinyanov.
My congratulations on your performance in the second quarter. We observed that the operating margin has improved compared to the first quarter of 2025. What is the main reason for this improvement in operating margin if we exclude the effect from Stellar Blu? Perhaps you implemented some initiatives to reduce costs or something similar?
First of all, Stellar Blu has the most, I would say, substantial effect on the changes in the gross margin compared to this year and the previous year. And we also got some improvement in the gross margin of Stellar Blu compared to Q1. So I would say that this is one major driver of the change. We also had some better gross margin in Peru this quarter that also improved the weighted gross margin. So both together created a better gross margin. And of course, the revenue mix also affects the gross margin, although there are no other unique things to discuss, but it can vary and fluctuate between quarters.
And continuing the topic about your backlog, you obtained probably more than $1.5 million of new orders for the second quarter. I get that is pretty much more than a year ago and only $27 million for Stellar Blu antennas. What is the backlog volume in the commercial and defense segments now and average exercise period excluding Stellar Blu?
So I discussed Stellar Blu before about entering into the deal with about 1,000 antennas. The nature of deals there are not a monthly kind of deals. Usually, it comes in large batches. And as Adi mentioned, we're expecting to see some pretty soon. With respect to the backlog of the commercial and defense, this is a number that we don't share. I can share with you that we usually have visibility for a year that we enter of at least 50% for the upcoming year, and then some of the backlog is also relevant for the years after. So without stating any numbers, we have a decent amount of backlog that allows us to see future growth.
There are no further questions at this time. Mr. Benyamini, would you like to make your concluding statement?
Yes. Thank you. I would like 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.
This concludes Gilat's Second Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.