Gilat 1Q Revenue Up 40 Percent Despite Defense Slowdown

by

PARIS —Satellite broadband hardware and service provider Gilat Satellite Networks reported double-digit increases in revenue and operating profit for the three months ending March 31 and said the results came despite a minimal contribution from a new subsidiary focused on the U.S. military space market.

Petah Tikva, Israel-based Gilat said Wavestream Corp. of San Dimas, Calif., which Gilat purchased in late 2010 for $130 million, did not contribute as much as foreseen in the first three months of 2011 because of a budget-related slowdown in U.S. Defense Department contracts.

With the most recent U.S. budget crisis now passed, Wavestream, a maker of solid-state power amplifiers and satellite signal converters, should improve its results with renewed spending authorization by defense program managers, Gilat Chief Executive Amiram Levinber said in a May 17 conference call with investors.

At the time of the purchase, Gilat officials said Wavestream was expected to increase its revenue by 10 percent, to around $77 million, in 2011. Levinberg did not repeat that forecast in the conference call but said Wavestream’s performance will pick up in the second half of the year. He also said Gilat would seek to broaden Wavestream’s customer base to include nondefense-related commercial business.

Gilat Chief Financial Officer Ari Krashin said during the conference call that Gilat’s core businesses, excluding Wavestream, accounted for $65 million in revenue for the first three months of the year — a 14 percent increase over the same period in 2010. Wavestream accounted for the remaining $15 million of first-quarter 2011 revenue.

While waiting for Wavestream to reach its expected cruising altitude, Gilat’s other business this year is performing well, Levinberg said. Companywide revenue for the three months ending March 31 totaled $80 million, up 40 percent from the same period a year ago. Operating income was $800,000, compared to $100,000 a year ago.

A key business area for Gilat is providing rural connectivity in developing nations through VSAT, or very small aperture terminal, satellite networks, usually as part of government programs to extend broadband and telephone access to the hinterlands.

While the company has had its share of payment disputes with some of these contracts in the past, notably Colombia, it has not reported such problems of late and Colombian authorities in January extended their existing contract by one year in a deal valued at $21 million.

Earlier this year the Agency of Private Investment in Peru, ProInversion, selected Gilat to provide Internet and telephone access to rural areas in a contract valued at $14.5 million. Telecom Namibia is using Gilat hardware to replace older-generation satellite gear at hundreds of sites to provide broadband.

In one of its biggest contract wins in recent months, Gilat was selected by Australia’s National Broadband Network to provide Ku-band broadband equipment to link with Australia’s Optus and Thailand’s Thaicom spacecraft for five years while Australia considers a future Ka-band satellite system. Gilat estimates the value of this contract at up to $120 million for five years if all options are exercised.

The company’s improved profitability was in part due to the mix of equipment sales, which during the first three months of the year was weighted toward higher-margin products.

Levinberg said that with Gilat’s Wavestream-aided positioning in the U.S. military space market and continued growth in providing cellular-backhaul services for wireless networks, Gilat is on track to meet its forecast of more than $330 million in revenue, and gross-profit margins of 10 percent, for 2011.