Gilat Satellite Networks Ltd. (GILT)

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Gilat Satellite Networks Ltd. (GILT)

Q2 2011 Earnings Conference Call

August 10, 2011 9:30 AM EST


Rob Fink – KCSA

Amiram Levinberg – Chairman of the Board and CEO

Ari Krashin – CFO


Louie DiPalma – William Blair

Chris Quilty – Raymond James



Ladies and gentlemen, thank you for standing by.

Welcome to Gilat’s Second Quarter 2011 Results Conference Call.

All participants are at present in listen-only mode. Following the management’s formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the call over the call to Rob Fink of KCSA to read the Safe Harbor statement. Rob, please go ahead.

Rob Fink

Thank you, Rachael. Good morning and good afternoon. Thank you all for joining us today for Gilat’s second quarter 2011 results conference call.

A recording of this call be available beginning at approximately noon Eastern Time today, August 10th until August 12th at noon. Our earnings press release and website provide details on accessing the archived call.

Investors are urged to read the forward-looking statements and our earnings release which states 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, 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. We expressly disclaim any obligation to do so.

More detailed information about risk factors can be found in our reports filed with the Securities and Exchange Commission.

That said, on the call today 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, Rob. Good day, everyone. Before going into our regular call agenda on reviewing the results of the second quarter, I would like to highlight the recent development.

On August 1st, we announced the signing of a strategic contract with SES ASTRA2Connect in Ka-band. This is a significant project which opens new opportunities for us in a rapidly growing segment of the market. We are excited about this project and I will go into further details about this later in my comments.

The second quarter was highlighted by a strong financial performance in our core business. This quarter’s revenue increased to $81.7 million compared to $51.8 million in the second quarter of 2010. Gross margin in the second quarter was 36% compared to 33% in the comparable quarter in 2010 and EBITDA was $6.6 million compared to $2.2 million in the second quarter of 2010. On a non-GAAP basis, our operating income for the quarter was $2.7 million, up from a non-GAAP operating loss of $1 million in the comparable quarter of 2010. I will provide you with further details on our quarterly results later in the call.

Our North American business was strong in the second quarter, led by Spacenet's commercial activity. We received orders in the energy sector from customers such as ConocoPhillips, [inaudible] pipeline and Sunoco. And Spacenet also received extensions from its gaming and enterprise customer.

In the second quarter, we also announced the acquisition of CICAT Networks. A US nationwide provider of broadband network solutions. This acquisition is part of Spacenet strategy to expand its business in the broadband managed network services market and further leverage its core network management, call center, and field services capabilities. We have begun the integration of CICAT Networks with Spacenet’s enterprise business and has received significant orders for broadband connectivity. One such order for broadband connectivity was received from CICAT partner IBM for advanced auto parts, a leader in the automotive market and retail store nationwide.

Wavestream contributed meaningfully to our revenue and profitability this quarter. However, the uncertainty and concerns surrounding the US Government budget continues. We have been expanding Wavestream’s business to new opportunities such as commercial satellite broadcast, digital satellite news gathering, and airborne communication. During the quarter, Wavestream received orders for products that will be used in commercial airlines and in UAVs. In addition, Wavestream’s expansion to the international market continued to profit.

Moving to our international VSAT business, this quarter we announced a significant transact with Optus to provide a VSAT’s hubs operation, installation, and maintenance for a major network in Australia. Optus will provide broadband services for a Australian consumers in remote areas as part of NBN Co’s First Release Satellite Services, FRSS. As a reminder, National Broadband Network is an Australian Government initiative to deliver a nationwide broadband network for all Australians with the planned investment of up to 43 billion Australian dollars over eight years. NBN initiated the FRSS as an interim solution to provide high-speed broadband connectivity to remote Australian residences, small businesses and indigenous communities. The first pilot customers have already begun receiving service and the initial feedback we have received is positive.

This quarter we also announced a contract with HISPASAT for consumer services focused on the residential market in Spain. We had strong demand for SCADA enterprise in USO applications, including several similar backhaul deals both for our SkyAbis solution and SCPC modems.

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