Gilat issues $25 million dividend while pumping R&D

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WASHINGTON — Satellite network and hardware provider Gilat said its decision to pay shareholders a $25 million dividend this quarter still leaves ample cash for acquisitions and other investments.

CEO Yona Ovadia said Gilat had $104 million on hand as of Dec. 31 and will have sufficient resources for significant financial plays even after subtracting the dividend.

In a Feb. 12 earnings call, Ovadia said Petah Tikva, Israel-based Gilat is still searching for the right “nonorganic” acquisition to make, while bumping up research and development (R&D) spending.

Driving Gilat’s R&D are two topics now on the minds of most satellite communications companies: non-geosynchronous satellite constellations and high-speed 5G cellular networks.

Ovadia said Gilat boosted R&D spending from 9.9 percent of revenues in 2017 to 12.4 percent in 2018. The company will pour even more into R&D this year, he said, to cement its position with constellation operators and in 5G network backhaul.

Gilat tested one of its modems with inflight connectivity provider Global Eagle Entertainment and Canadian fleet operator Telesat in October, proving the equipment could support live video streams between an aircraft and Telesat’s prototype low-Earth-orbit broadband satellite. Last week Gilat announced another modem test, this time with an unnamed maritime connectivity provider that operates a teleport in Northern Europe.

Telesat is not the only company Gilat is working with on non-geosynchronous constellation equipment, Ovadia said, though he declined to name any others.

“A significant amount of our investment in R&D is directed toward that type of constellation, and we are optimistic that we will get a portion of this business as those constellations mature, reach decisions and start to launch,” he said.

Gilat released an upgraded version of its SkyEdge 2-c solution last month that supports 5G backhaul. Cellular companies are beginning to deploy 5G networks, which offer substantially higher throughputs and drastically reduced lag time for communications traffic.

Gilat reported a 6 percent decrease in revenue to $266.4 million for 2018, but projected higher revenues for this year of between $275 million and $295 million.

Ovadia said the reason for last year’s revenue drop was an incomplete terrestrial connectivity project in Peru.

Adi Sfadia, Gilat’s chief financial officer, said Fitel, Peru’s Telecommunications Investment Fund, found issues with the Gilat-supplied network that require fixing, and has yet to finish payment as a result. Gilat is implementing those fixes, he said, and hopes to have the network completed in the coming quarter.

Sfadia said Gilat projects recurring service revenue from Fitel’s network in excess of $23 million a year. Additional Peruvian networks coming online should generate $50 million in annual service revenue, he said.

Ovadia highlighted China as another growth market for Gilat. In 2018, fleet operator China Satcom selected Gilat to provide the ground network for ChinaSat-18, a satellite that will complete the operator’s high-throughput coverage of China.

China Satcom chose Gilat in 2015 to provide the ground network for ChinaSat-16, a high-throughput satellite that launched in 2017. Ovadia said those endorsements give Gilat a foothold in China — a market not easily cracked by satellite communications companies.