Gilat Satellite Networks Ltd. (GILT)

Q3 2010 Earnings Call

November 17, 2010 9:30 AM ET

Executives

Tom Watts – Watts Capital Partners, IR

Amiram Levinberg – Chairman and CEO

Ari Krashin – Chief Financial Officer

Analysts

Louis DiPalma – William Blair

Gunther Karger – Discovery Group

Rami Rosen – Harel Finance

Presentation

Operator

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» Gilat Satellite Networks Ltd. Q2 2010 Earnings Call Transcript
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» Gilat Satellite Networks Ltd. Q4 2009 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to Gilat’s Third Quarter 2010 Results Conference Call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. (Operator instructions)

As reminder, this conference is being recorded November 17, 2010. I would now like to turn the call over to Mr. Tom Watts from Watts Capital Partners to read the Safe Harbor statement. Mr. Watts, please go ahead.

Tom Watts

Good morning and good afternoon. Thank you for joining us today for Gilat’s third quarter 2010 results conference call. A recording of the call will be available beginning at approximately 12 p.m. Eastern time November 17, 2010, until November 19, 2010, at 12 p.m. Eastern. Our earnings press release and website provides details on accessing the archived call.

Investors are urged to read the forward-looking statements in our earnings release to the statements made on this earnings call which are not historical facts may be deemed forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingencies, many of which are beyond the control of Gilat and which may cause actual results to differ materially from anticipated results while it’s under no obligation to update the call to our forward-looking statements, whether as a result of new information, future events or otherwise, and we expressly disclaim any obligation to do so. Our detailed information about risk factors can be found in our reports filed with the Securities and Exchange Commission.

That said, on the call this morning is Amiram Levinberg, Gilat’s Chairman of the Board and Chief Executive Officer and Ari Krashin, Chief Financial Officer. Amiram, please go ahead.

Amiram Levinberg

Thank you, Tom. Good day, everyone. I would like to begin today’s call with highlights of the quarter, which include updates of our announced agreement to acquire Wavestream, the rundown of our third quarter results followed by a more detailed review of our business during the quarter. After the quarterly review, I will take you through the detailed financial results. We will open the call for questions.

In the third quarter, revenue increased to about $58 million compared to $54.6 million in the third quarter of 2009. Our net income was about $36.2 million, mostly as a result of one-time items which will be discussed later.

On a non-GAAP basis, operating income was about $1 million compared to a loss of $0.2 million in the comparable quarter of 2009.

Looking at the highlights of the third quarter, we enjoyed growth in revenues from the international markets which were partially offset by some decline in North American revenues. We did receive orders from the defense sector in the third quarter, most of which were by RaySat Antenna Systems, which we acquired earlier this year. While these sales represent a small portion of our business right now, it is a positive sign and it is part of our growth strategy.

On the international front, we announced several new contracts in Latin America, Africa and Asia during the quarter, Telefonica International wholesale services in Brazil, Orange Business Solutions in Europe, Regis UK, Kenya Commercial Bank and a lottery network in Africa.

Revenues in Latin America and the EMEA grew this quarter compared to the comparable quarter in 2009, though this was partially offset by lower results in APAC.

Our operations in Colombia and Peru are stable. We are also meeting the operational indicators in our Colombia operations and are receiving the contractual subsidy in a timely manner. As a reminder, the current contract with the Colombian government is until the end of this year. We extended the previous contract for this year. However, we do not know if we will be able to extend this contract further.

We recently signed an agreement to acquire Wavestream. The purchase price in the transaction is approximately $130 million and an earnout of up to $7 million. For those not familiar with Wavestream, it is a privately held company with approximately 160 employees, mostly located in San Dimas, California. Wavestream designs, manufactures and sells high-powered solid state power amplifiers or SSPAs, and Block Upconverters or BUCs. The family of Ka, Ku, X and C-band SSPAs and BUCs provide systems integrators with field proven, high-performance RF solutions. These are designed for military satellite communications or MILSATCOM systems worldwide, and are also used for commercial satellite communications, such as in the broadcast and maritime sectors.

Wavestream is profitable and growing in sales with 2010 revenues expected to be about $70 million with an EBITDA margin of between 15% to 20%. The acquisition is expected to be accretive. We believe that our acquisition of Wavestream opens opportunities for us in large and relatively untapped markets from Gilat’s perspective.

As you may recall, part of our announced growth strategy is to enter the defense market and specifically to look for an entry to the US DoD market. This acquisition is a significant milestone in implementing this strategy.

We expect to be able to leverage the relationship Wavestream has with both leading system integrators and end-users to provide them with Gilat’s products and solutions. As is usually the case in transactions of this nature, the closing of the definitive agreement remains subject to customary regulatory and other approvals. The completion of the agreement is proceeding as planned, and we expect to close by the end of the year.

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