Gilat Satellite Networks Ltd. Q2 2010 Earnings Call Transcript

Gilat Satellite Networks Ltd. Q2 2010 Earnings Call Transcript
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Gilat Satellite Networks Ltd. (GILT)

Q2 2010 Earnings Call Transcript

August 10, 2010 09:30 am ET

Executives

Tom Watts - Watts Capital Partners

Amiram Levinberg - CEO

Ari Krashin - CFO

Analysts

James Breen - William Blair

Presentation

Operator

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Welcome to Gilat Satellite Networks Second Quarter 2010 Results Conference Call. All participants are present in listen-only mode. Following managements formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions)

As a reminder this conference is being recorded August 10, 2010. I would now like to turn the call to Tom Watts from Watts Capital Partners to read the Safe Harbor statement. Tom, please go ahead.

Tom Watts

Thank you. Good morning and good afternoon. Thank you for joining us today for Gilat’s second quarter 2010 results conference call. A recording of this call will be available beginning at approximately 12:00 PM Eastern Time today, August 10, 2010 through August 12, 2010 at 12:00 PM. Our earnings press release and website provide details on accessing the archived call.

Investors are urged to read the forward-looking statements in our earnings release that say that statements made on this earnings call, which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All forward-looking statements, including statements regarding future financial operating results, involve risks and uncertainties, and contingencies many of which are beyond the control of Gilat and which may cause actual results to differ materially from anticipated results.

Gilat is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our report, 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 the highlights of the quarter, which include corporate updates of the settlement agreement, a run down of our second quarter results, followed by a more detailed review of our business during the quarter. Following the quarterly review, I will take you through the detailed financial results. We will then open the call for questions.

In the second quarter, revenues decreased compared to the second quarter 2009, and we finished with the loss of $1.4 million. During this period, we continued to increase our R&D expenses as planned. The effect of this was somewhat offset by the improvement in the growth margin, which grew compared to the respective quarter in 2009.

Today we also published a press release announcing that we signed a settlement agreement with each of the purchasers against whom we had filed lawsuit in 2008. You will recall that the lawsuit were filed against the parties that had guaranteed the payments of approximately $47 million as a termination fee under the merger agreement that was approved by the company’s shareholders in July 2008.

Under the terms of the settlement agreement, the investors will pay Gilat an aggregate approximately $20 million over the half of which will be paid by October 3, 2010 and the remainder could be paid in installment ending in October 2013. The settlement agreement will reach as part of a mediation proceedings that began in April 2009.

The agreement has being signed those certain formalities such as filings in the Israeli court, still need to be completed. As its common settlement document agreement, we are bound by terms of confidentiality and so I trust you would appreciate that I can’t provide details beyond our press release on this matter.

The quarter was also highlighted by the completion of the acquisition RaySat Antenna Systems. This is following the announcement we have on March 17 that we reached an agreement to acquire the company. As a reminder, RaySat Antenna Systems provided low profile and light weight antennas as various complete system solutions to the rapidly growing SatCom on The Move market.

The antennas are critical in meeting the stringent requirement of the US DoD which is already a customer operator antenna system. The product portfolio includes different sized antenna to meet varying customer requirements. Following the closing of the acquisition on July 1st, the US operations of RaySat antenna system now operates under the basic integrated government solutions as the international business operates within Gilat’s world wide operations. SIGS was established during 2009 to provide fully integrated end-to-end communication solutions for defense, intelligence, homeland security, public safety, federal and civilian government agencies.

As part of the RaySat Antenna Systems deal, we also entered into a definitive agreement to acquire from its sister company RaySat, a research and development center in Bulgaria in addition to certain intellectual property rights. The R&D center will continue to focus on the development of state-of-the-art, low profile antenna systems for Ku, Ka and X-band for the SatCom On The Move market and has award leading grow profile antenna design team of over 60 skilled engineers out of approximately 100 employees in total.

This second acquisition is almost completed waiting for certain approvals required in Bulgaria. We are very excited about the acquisition and expect this move to assist us in expanding our penetration of the defense and government sectors world wide. The market condition in the US continues to be challenging, and there was a decline in second quarter revenues from the US compared to the comparable quarter in 2009. Having said that, we continue to sign new contracts and extensions to existing contracts, during the quarter. Spacenet announced actually today that we signed a contract with Valero to serve as a provider for to serve as a provider for managed network services and also connectivity to its nation wide rented wholesale locations.

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