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    Gilat Satellite Networks Ltd (GILT)

    Q3 2024 Summary

    Published Jan 14, 2025, 4:08 PM UTC
    Initial Price$4.44July 1, 2024
    Final Price$5.13October 1, 2024
    Price Change$0.69
    % Change+15.54%

    What went well

    • Acquisition of Stellar Blu Solutions is expected to significantly boost revenues and profitability, with anticipated revenues of $25 million to $35 million in Q4 2024 and $120 million to $150 million in 2025, and is expected to be accretive to non-GAAP results and achieve over 10% EBITDA ratio once maximum production capacity is reached in the second half of next year.
    • Increased opportunities in the defense sector, with Gilat exploring DoD projects through DataPath and Wavestream, and expecting significant progress in 2025 due to increased interest in Gilat's solutions within the DoD.
    • Focus on operational efficiencies and cost reductions is helping to improve profitability, with adjusted EBITDA expectations maintained at around €42 million at the midpoint despite a narrowing revenue guidance, driven by better gross margins on the current mix of products and operational efficiencies.

    What went wrong

    • Gilat is ceasing operations in Russia, which previously contributed approximately $10 million in annual revenue, potentially impacting organic revenue growth.
    • In the cellular backhaul market, Gilat is experiencing project delays with no new big initiatives, indicating potential stagnation in this segment.
    • The acquisition of Stellar Blu Solutions is delayed due to pending regulatory approvals, possibly affecting the expected revenue contribution from this acquisition.

    Q&A Summary

    1. Stellar Blu Acquisition
      Q: Is the Stellar Blu acquisition on track, and what are its prospects?
      A: The closing is taking longer due to regulatory approvals, mainly CFIUS in the U.S. , ,. They expect Stellar Blu to deliver revenues of $25 million to $35 million in Q4 and between $120 million to $150 million in 2025, which should be accretive to non-GAAP results ,. They believe the acquisition will drive significant growth in in-flight connectivity, both top line and bottom line.

    2. Iris Square Constellation Opportunity
      Q: What is Gilat's position regarding the Iris Square constellation, and how do they view competition?
      A: Gilat sees Iris Square as a positive development, offering a non-U.S. LEO constellation ,. They have subsidiaries in the EU, with their Bulgarian facility approved to participate. They expect to answer RFPs soon. Competition may include ST Engineering iDirect and others, but Gilat is well-positioned. Significant revenues are expected mainly in the next 3 to 4 years, primarily from NRE initially.

    3. EBITDA Guidance Amid Revenue Narrowing
      Q: Despite narrowing revenue guidance, why is EBITDA expectation still strong?
      A: It's due to a mix of better gross margins from a favorable product mix and improved operational efficiency. The company is prioritizing efficiency and cost reductions, leading to increased profitability even with lower revenues.

    4. Russia Exit Impact on Business
      Q: How does the exit from Russia affect the organic business?
      A: Gilat stopped selling to Russia and does not expect new revenues from Q3. Russia was approximately a $10 million per year business. Excluding Russia, this amount needs to be adjusted when comparing prior years.

    5. Peru Business Developments
      Q: Can you recap the recent developments in the Peru business?
      A: Gilat is building and operating several networks for the government in Peru. They started the acceptance process for an expansion project. They have five regions operational, with another starting soon. About 80% of Peru revenues are recurring and highly profitable.

    6. SES mPOWER Program Progress
      Q: How is the SES mPOWER program progressing for Gilat?
      A: Gilat is supporting SES with their service launch, having deployed equipment in all SES gateways. They see expansions and expect significant growth as SES adds satellites and ramps up sales.

    7. Cellular Backhaul Market Trends
      Q: What are the trends in the cellular backhaul market?
      A: Projects are mainly shifting to the right with no new big initiatives currently. There are some expansions and technology refreshes, but nothing significant at the moment.

    8. SkyEdge IV Virtualization Efforts
      Q: Is Gilat moving towards virtualization with SkyEdge IV?
      A: Yes, they aim to shift SkyEdge IV into a native cloud environment ,. They are also working on a virtualized modem to run multiple waveforms on the same hardware platform.

    9. CFIUS Approval Delay
      Q: Is there any specific reason for the delay in CFIUS approval?
      A: No specific reason; CFIUS is taking longer than anticipated. They have responded to all inquiries and expect approval before the 45-day extension ends.

    10. U.S. Administration Impact on DataPath
      Q: Will the U.S. administration change affect DataPath business?
      A: Gilat doesn't believe the change will affect DataPath. The DoD budget remains substantial, and they see high potential for revenue growth. They expect greater success next year selling DataPath solutions and Gilat equipment to the U.S. Army and DoD.

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