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    Gilat Satellite Networks Ltd (GILT)

    Q2 2024 Summary

    Published Jan 14, 2025, 4:08 PM UTC
    Initial Price$5.53April 1, 2024
    Final Price$4.40July 1, 2024
    Price Change$-1.13
    % Change-20.43%

    What went well

    • The Stellar Blu acquisition is expected to significantly boost revenues and margins, with projected revenues of $25-35 million in Q4 2024 and $120-150 million in 2025, EBITDA margins above 10%, recent certifications received, and production ramp-up expected to reach over 100 units per month by the second half of next year.
    • Completion of the Amazonia region infrastructure construction by the end of the year will transition to higher-margin services phase, leading to increased gross margins in this segment next year.
    • Strong momentum in key partnerships, such as with SES's Open Orbis initiative and defense growth through DataPath and Wavestream, indicates that the company is on track with expectations, with significant opportunities ahead.

    What went wrong

    • Negative Organic Revenue Growth: The company's organic growth was negative 4% on a quarterly basis, indicating a decline in its core business performance.
    • Dependence on Acquired Growth: Most of the revenue growth came from the acquisition of DataPath, suggesting reliance on acquisitions rather than organic expansion to drive growth.
    • Headwinds in the Defense Sector: The company is facing headwinds in the defense market, which could impact future revenues and growth prospects in this sector.

    Q&A Summary

    1. LEO Market Opportunities
      Q: What's your outlook on the LEO market?
      A: Gilat sees significant opportunities in the LEO market, notably with two large projects: OneWeb Gen2 and Iris Square. Gilat is one of two finalists for OneWeb Gen2 and expects a decision soon. They anticipate substantial business from LEO constellations in the coming quarters, including SSPAs, networks, modems, and antennas.

    2. Stellar Blu Revenue Guidance
      Q: What's the updated revenue outlook for Stellar Blu?
      A: Gilat upgraded its initial forecast for Stellar Blu's 2025 revenues from $100–150 million to $120–150 million, reflecting increased confidence as the company moves from development to production.

    3. DataPath Cross-Selling Progress
      Q: Can you update us on cross-selling DataPath equipment?
      A: Cross-selling efforts are progressing better than expected. Gilat is engaging with DoD agencies to bring Gilat's equipment into the DoD and is promoting DataPath equipment worldwide. A $12 million order was received last quarter from the collaboration between Wavestream and DataPath, and a developing pipeline may yield several awards soon.

    4. Organic Growth vs. Acquired Growth
      Q: What's the organic growth excluding DataPath?
      A: This quarter, most growth came from DataPath. Organic growth was negative 4% quarterly but plus 4% over six months. Gilat prefers long-term analysis due to delivery timing shifts and is on track overall.

    5. Defense Market Expansion
      Q: How will you increase DataPath's international defense sales?
      A: Historically, about 10% of DataPath's business was international. With Gilat's global presence, they expect to accelerate penetration in Asia, Latin America, and elsewhere, potentially doubling DataPath's revenues both in the U.S. and internationally.

    6. Cellular Backhaul Market Outlook
      Q: Has the cellular backhaul market slowed down?
      A: Last quarter was slower but not indicative of a trend. Gilat expects the market to grow from $150 million today to $350–400 million in seven years. They see a strong pipeline and new 5G opportunities that will drive significant growth.

    7. Stellar Blu Production Ramp-Up
      Q: What are the challenges in ramping up Stellar Blu production?
      A: The main challenge is executing the transition from development to full-scale production. Stellar Blu is ramping up from delivering a few units per month to tens, aiming for over 100 units per month by the second half of next year.

    8. R&D Expense Fluctuations
      Q: Why did R&D expenses decrease?
      A: R&D expenses fluctuated due to equipment consumption and the portion classified under COGS in NRE projects. Higher grants this quarter also reduced net R&D expenses slightly.

    9. Supplemental Type Certificate (STC) Process
      Q: How is the STC process progressing?
      A: The STC process is on track, led by Stellar Blu and their customers. Recent certifications have been achieved, and it's not delaying deliveries. Production is ramping up as planned.

    10. Business Aviation ESA Products
      Q: What's the opportunity for Gilat's ESA in business jets?
      A: Gilat's ESA solutions, known as the ESA family, are tailored for specific customers in a large market with room for multiple players. They acknowledge competition but see significant potential in business aviation.

    11. Supply Chain Impact
      Q: Are there supply chain challenges affecting production?
      A: Gilat isn't experiencing specific supply chain issues. The challenges are typical of ramping up new product introductions and manufacturing processes.

    12. Aviation Communication Opportunities
      Q: Can Gilat serve operational communications between aircraft and control?
      A: Gilat's terminals currently serve passengers and, while they can be used by crew, are not designed for secure communication between aircraft and air traffic control. They recognize potential opportunities in adjacent markets and may explore this in the future. ,

    13. Stellar Blu's Expected EBITDA
      Q: What margins do you expect for Stellar Blu?
      A: Once Stellar Blu reaches its capacity milestone in the second half of next year, they expect it to achieve above 10% EBITDA.

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