Gilat Acquisitions Position Israeli Firm To Enter U.S. Defense Market

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PARIS — Satellite broadband hardware and service provider Gilat Satellite Networks on Nov. 17 reported slightly higher revenue for the three months ending Sept. 30 after one-time gains are excluded and said its recent acquisitions have positioned the company to enter the U.S. defense market.

Petah Tikva, Israel-based Gilat said growth in commercial and government data networks in Europe and Africa offset declines in North America and the Asia-Pacific region.

In a conference call with investors, Gilat Chief Executive Amiram Levinberg said the $130 million acquisition of satellite ground system power-amplifier manufacturer Wavestream Corp. of San Dimas, Calif., caps a two-year effort to give Gilat access to U.S. military satellite telecommunications contracts.

The U.S. Defense Department is Wavestream’s principal market for its Ka-, Ku-, X- and C-band solid-state power amplifiers and block upconverters, which convert satellite uplink signals from one frequency to another. The Wavestream purchase, expected to close by January, will give an immediate boost to Gilat’s financial performance, Gilat Chief Financial Officer Ari Krashin said during the call.

Wavestream, which has 160 employees and is profitable, is expected to report $70 million in 2010 revenue and is likely to boost revenue in 2011 by 10 percent, Levinberg said.

The Wavestream purchase follows the acquisition earlier this year of RaySat Antenna Systems, whose core market is likewise the U.S. and other defense agencies. Gilat in 2009 created the Spacenet Integrated Government Solutions division in the United States to go after U.S. defense contracts, a market that Gilat in the past had left to its competitors.

Krashin said RaySat contributed about $3 million to Gilat revenues in the three months ending Sept. 30. Removing that amount, Gilat reported revenue of $55 million, up marginally over the previous three-month period but a 6.2 percent increase compared with the same period a year earlier.

Excluding one-time gains from a court-ordered settlement Gilat won against former investors and cash from Gilat’s sale of its shares in two small companies, the company reported an operating loss of $700,000, down from a loss of $1.4 million a year ago.

During the three months ending Sept. 30 Gilat reported contracts including a $7.5 million grant from the U.S. Rural Utilities Service, which is distributing broadband stimulus monies from the American Recovery and Reinvestment Act, to deploy satellite broadband to rural areas in Alaska and Hawaii.

The grant, of $1,500 per subscriber, is more generous for these states, where hard-to-reach customers presumably are more expensive to connect than elsewhere in the United States.

Levinberg said Gilat’s U.S. subsidiary, Spacenet of McLean, Va., will be offering broadband access, including hardware delivery and installation, for no down payment by customers. Subscriptions will start at $50 per month.

Levinberg said Gilat’s contract to deliver satellite links to Colombian sites under a government contract — a contract that has caused Gilat trouble in the past with payment freezes and disputes about service delivery — is proceeding without incident and should generate $12 million in revenue in 2010. Whether it will be extended beyond its nominal cutoff date of December remains to be seen, Levinberg said.

Gilat reported that it had cash and equivalent liquidity totaling $148.6 million at Sept. 30, with debt of $25.9 million. Krashin said the company could finance the Wavestream purchase from this cash reserve, or seek financing.