After Disappointing Quarter, Gilat Sells Spacenet Business

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PONTE VEDRA, Fla. — Satellite broadband terminal and service provider Gilat Satellite Networks is selling its Spacenet commercial services division to focus on hardware manufacturing following lower revenue for three months ending June 30 that the company attributed to continued U.S. Defense Department budget cuts.

Spacenet is being sold to Tulsa, Okla.-based SageNet for about $16 million. Gilat said it will report between $1 million and $3 million in bank and legal fees associated with the sale.

Petah Tikva, Israel-based Gilat lowered its forecast for full-year 2013 revenue and gross profit but said it remains optimistic about contract opportunities for civil, commercial and military customers.

Gilat announced the Spacenet sale Aug. 19, five days after it reported what Chief Executive Erez Antebi acknowledged were “softer-than-expected” financial results for the three months ending June 30.

In an Aug. 14 conference call with financial analysts, Antebi said the uncertainty surrounding U.S. military spending in the coming months is the main reason the company is lowering its forecasts for revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) for the full year.

Gilat had predicted revenue of around $355 million for 2013, with EBITDA equivalent to 9 percent of revenue. The new forecast is for $340 million in revenue and a 7 percent EBITDA margin.

In announcing the divestiture of the McLean, Va.-based Spacenet business, Antebi said Gilat is focusing on its core technologies. Spacenet has evolved into a managed services provider that uses Gilat technology for more than 20 separate satellite communications networks with a total of more than 100,000 VSAT, or very small aperture terminal, units.

Gilat said Spacenet reported about $77 million in revenue in 2012 but had an operating loss of $2 million. 

Spacenet “is expected to become a major customer for Gilat and it continues to offer services based on Gilat’s products,” Gilat said in a statement announcing the sale, which is expected to close within three months.

In the Aug. 14 conference call, Gilat Chief Financial Officer Yaniv Reinhold said budget uncertainty and across-the-board budget cuts affecting the U.S. Defense Department, coupled with the end of a long-term contract for VSAT networks in Colombia, accounted for a 6 percent drop in revenue for the three months ending June 30.

Total Gilat revenue was $80.2 million compared with $85.3 million for the same period last year. Gilat reported a net loss of $1.9 million, down from net income of $3.2 million a year ago.

Antebi said that notwithstanding the second-quarter figures, the global market for Gilat technology for commercial networks, government connectivity projects and military applications is growing. He asked investors to view the turmoil in U.S. military spending as a temporary phenomenon that does not change the long-term demand for satellite bandwidth by military organizations worldwide.

Gilat is moving to cut costs and recently has shifted production of its RaySat antennas, whose biggest market is military, from Israel to Bulgaria.

On the commercial side, Gilat said it had delivered 10,000 Ka-band terminals for the consumer satellite broadband service of satellite fleet operator SES of Luxembourg, which is gradually migrating customers from Ku- to Ka-band. Gilat said most of these units have been installed and are now operational.

Gilat and its partner, satellite fleet operator Thaicom of Thailand, are continuing to provide Ku-band consumer broadband services to Australia’s NBN Co., which has ordered two all-Ka-band satellites of its own.

Gilat has delivered 32,000 terminals to operate with Thaicom’s IPStar satellite, which unlike most of today’s high-throughput spacecraft operates in Ku-band. How NBN Co. will manage the transition from Ku- to Ka-band remains unclear. 

Like its competitors, Gilat is positioning its product line for growth in Ka-band broadband satellite applications for fixed and mobile services.

The company provides amplifiers to Honeywell of Morris Township, N.J., which is the exclusive provider of Ka-band business-jet satellite terminals for London-based Inmarsat’s Global Xpress service. The three Global Xpress satellites are scheduled for launch by late 2014.

Antebi said the amplifiers for the Honeywell-provided aeronautical terminals sell for “in the low tens of thousands of dollars” each.