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    Gilat Satellite Networks Ltd (GILT)

    Q3 2023 Summary

    Published Jan 14, 2025, 4:08 PM UTC
    Initial Price$6.25July 1, 2023
    Final Price$6.43October 1, 2023
    Price Change$0.18
    % Change+2.88%

    What went well

    • Strong Growth in In-Flight Connectivity (IFC) Market: Gilat is experiencing significant interest and demand in the IFC market, with major customers such as Intelsat and a large U.S. integrator. The company expects a strong year in 2023 and 2024, and anticipates additional growth in 2025 with the development of electronically steered antennas with Satcom Direct for business jets.
    • Acquisition of DataPath to Enhance Defense Segment: Gilat is progressing towards closing the acquisition of DataPath this quarter, which is expected to add approximately $50 million in annual revenue. This acquisition will significantly strengthen Gilat's defense strategy and expand their presence in the global defense market, including the U.S. Department of Defense.
    • Strong Pipeline and Growth in Peru: Gilat has a strong pipeline in Peru with upcoming bids and expected contract expansions and extensions. The company is close to completing the sixth region (Amazonas region) and expects to move into the operational phase in the first half of 2024, anticipating a strong booking quarter for Peru.

    What went wrong

    • Weakness in the Integrated Solutions segment due to delays and transitions between large projects, with expectations for uplift only towards mid or end of next year. This suggests a current slowdown in this segment's revenue.
    • Fluctuating gross margins impacted by changes in product mix and lower-margin projects like those in Peru. While there was a sequential improvement in September, gross margins are expected to step down, raising concerns about profitability consistency.
    • Potential delays in new product development and integration of acquisitions, such as antennas for commercial aviation still being in the roadmap stage, and uncertainties in integrating the DataPath acquisition, which may affect future growth and operational efficiency. ,

    Q&A Summary

    1. DataPath Acquisition Closure
      Q: Will DataPath acquisition close this year?
      A: The company expects to close the DataPath acquisition this quarter, pending final government approval anticipated in the next few weeks. They have already received CFIUS approval and foresee closing the transaction in Q4 2023. DataPath's revenue is around $50 million plus or minus 10%, contributing to next year's results. ,

    2. Orders and Bookings Trend
      Q: How are orders trending into Q4?
      A: Overall bookings are as expected from the year's start. There's strong traction in IFC and cellular backhaul. The defense pipeline is progressing slowly due to long sales cycles, but they anticipate a tailwind post-DataPath acquisition. They are experiencing slowness in integrated solutions orders but expect a ramp-up in the next quarter or two. In Peru, they expect a strong close with large RFPs and contract expansions upcoming.

    3. Integrated Solutions Slowness
      Q: What's causing weakness in integrated solutions?
      A: The slowness stems from a shift between large projects that ended in 2022 and early 2023 and new projects awarded that are expected to uplift mid to end of next year. It's a transition year impacted by both macro government purchasing environments and specific program delays.

    4. Peru Operations Update
      Q: Can you update us on Peru?
      A: Business in Peru is proceeding as usual. They are completing the sixth region, Amazonas, expecting government acceptance procedures before the end of the quarter and final acceptance by mid-next year, followed by the operation phase. Upcoming bids and contract expansions are anticipated, leading to a strong booking quarter for Peru.

    5. IFC Market Progress
      Q: How is the IFC market performing?
      A: There's substantial interest in the IFC market. Main customers include Intelsat and a large U.S. integrator bundling their SSPA with terminals. The business sees regular orders each quarter and expects a strong year in 2023 and 2024 in IFC.

    6. Satcom Direct Project
      Q: Any updates on the Satcom Direct project?
      A: They are developing an electronically steered antenna (ESA) for business jets with Satcom Direct. Revenue is expected within 18 months, so in 2025, they anticipate additional growth in this sector.

    7. Gross Margins Outlook
      Q: What's happening with gross margins?
      A: Gross margins fluctuate due to product mix and volume. Changes this year are mainly from product mix variations, delivering products like IFC and NGSO with higher margins and others with lower ones. The "Peru effect" lowered margins in Q2. Looking at year-to-date or trailing twelve months provides a better picture.

    8. Competition with Hughes
      Q: How does Satcom Direct's product compare to Hughes' recent announcement?
      A: Hughes is entering IFC as a service provider focusing on regional jets using flat panel antennas from Syncom. Satcom Direct focuses on business jets, and they are developing an ESA for them, which is a completely different type of terminal.

    9. Aquarius and SkyEdge IV
      Q: What's the status of the Aquarius product line?
      A: The Aquarius portfolio is new and dedicated to SkyEdge IV. It started with cruise applications with SES mPOWER and is now being utilized in cellular backhaul. They recently demonstrated one gigabyte per second with SES and Reliance Jio in India, showcasing high-speed performance fitting 5G requirements.

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