Gilat Again Lowers Revenue Forecast, Cites Snag in Spacenet Sale

by

PARIS — Satellite broadband hardware and services provider Gilat Satellite Networks lowered its 2013 revenue and profit forecast for the second time in four months as expected Latin American contracts were delayed and its U.S. Defense Department business continued to suffer from pressure on U.S. military spending.

Petah Tikva, Israel-based Gilat also said the sale of its U.S.-based Spacenet broadband satellite services division to SageNet has been stalled following late-minute objections by SageNet.

Gilat and Tulsa, Okla.-based SageNet jointly announced in August a “definitive” agreement under which SageNet would pay about $16 million to purchase Spacenet, which in 2012 reported an operating loss of $2 million on revenue of $77 million.

Privately owned SageNet said at the time that the Spacenet purchase would bring the company’s total annual revenue to more than $100 million.

In a Nov. 13 filing to the U.S. Securities and Exchange Commission, Gilat said the U.S. Federal Communications Commission had approved the transaction the week of Nov. 4, and that Gilat informed SageNet that the deal could now close.

But SageNet was “not willing to proceed to closing at the time based on several assertions,” Gilat said. “Gilat rejects all of SageNet’s assertions and believes them to be unfounded.”

In response to SpaceNews inquiries, SageNet President Daryl Woodard issued a statement Nov. 20 saying: “We are still working toward closing. We hope to have the transaction close soon.”

The Spacenet issue came in the wake of what Gilat Chief Executive Erez Antebi said was a disappointing financial performance for the company in the three months ending Sept. 30, which followed a similar revenue and profit shortfall during the previous three months.

Revenue fell 20 percent, to $71.3 million, in the three months ending Sept. 30 compared with the same period a year ago, and 11 percent from the three months ending June 30 this year.

Gilat, which in August lowered its full-year revenue forecast by 4 percent, to $340 million, on Nov. 13 lowered it by another 9 percent, to $310 million for the year. EBITDA, or earnings before interest, taxes, depreciation and amortization, was also lowered again, from 9 percent of revenue expected earlier in the year to 7 percent in August, to the latest forecast of a 6 percent margin.

In a conference call with investors, Antebi said the underperformance this summer was mainly due to delays in two contracts for South American customers with a combined value of $21 million. 

Antebi said a $12.8 million project to install broadband satellite terminals in schools in Peru is behind schedule because the sites selected by the Peruvian Ministry of Education were not ready for the installation of the Gilat hardware.

The holdups in South America, he said, are not contract losses or cancellations, but delays. Both should be back on track in the first half of 2014.

Gilat has invested in technologies particularly suited to communications on the move for military customers, with the U.S. Defense Department as the principal target.

U.S. military budget cuts and the still-cloudy near-term U.S. defense spending picture have kept Gilat’s defense division revenue down. “We are still not achieving the revenue we hoped to achieve,” Antebi said. He insisted that this business holds long-term promise once the budget uncertainty clears.

Antebi said that in response to the recent financial setbacks, Gilat is cutting its global workforce and trimming nonessential costs — but preserving its core research and development spending on broadband technologies. The effect should be about $9 million in annual savings, he said.

On a more positive note, Gilat said its strategic partnership with satellite fleet operator Thaicom of Thailand for satellite broadband using Thaicom’s IPStar Ku-band high-throughput satellite has booked its first order and that distribution of terminals has begun.

Thaicom and Gilat are providing services and hardware, respectively, to Australia’s NBN Co. as an interim consumer-broadband offering while NBN awaits the launch of its two all-Ka-band satellites.

It remains unclear how NBN will manage the transition from the Thaicom and Gilat interim service, which also includes capacity from Australia’s Optus satellite operator, to the Ka-band service.

Gilat said it had already installed 42,000 satellite broadband terminals under the NBN contract, valued at up to $120 million, and that the remaining 6,000 should be in place by mid-2014. It remains possible that NBN will order additional terminals, Gilat said.

Gilat said it had delivered 12,000 terminals to Luxembourg-based SES Broadband Services for that company’s transition from Ku- to Ka-band in Europe as of Sept. 30. The contract, signed in 2011, was valued at up to $70 million over five years.

Gilat said the Colombian government is planning a nationwide rural broadband project to service schools in six regions under a project budgeted at $290 million. Bidders can win contracts for no more than two regions, or up to $100 million. Contracts should be awarded by the end of this year, Antebi said.

 

Follow Peter on Twitter: @pbdes