LOGAN, Utah — Satellite broadband equipment provider Gilat Satellite Networks said it has its board’s approval to use its cash to search for M&A opportunities and so will not be paying a dividend anytime soon.
The company reaffirmed its 2018 growth target and said LTE satellite backhaul and commercial airline in-flight connectivity continue to be growth vectors.
In particular, Gilat said its relationship with in-flight-connectivity (IFC) provider Gogo Inc. continues to grow and has not been affected by Gogo’s repositioning under new management.
“We are pleased to say that we have seen no adverse impact government situation to our business” from Gogo’s re-evalation of its spending, Gilat Chief Executive Yona Ovadia said in an Aug. 7 conference call with investors. “One of the things that has been working for them is their engagement with Gilat and the performance of the modems that we’re providing them. As a matter of fact, they are looking for ways to accelerate the rate of installations…. [W]e see no adverse impact to our business.
“We continue to provide them good service, good products, and they continue to buy and pay.
Beyond Gogo, Ovadia said Gilat is negotiating other contracts. “We are optimistic. I think that we will see continued momentum in this growth engine,” he said.
Gilat reported $95.8 million in cash as of June 30 but said it had its board’s backing, and specifically the support of its largest shareholder — Israeli investment fund FIMI, which owns 34% of Gilat’s equity — to pursue acquisitions and other growth investments.
“We have the maneuvering room to make organic and inorganic moves,” Ovadia said. “Definitely it’s on our agenda. And if we find the right opportunity and we believe that this is something that will contribute and accelerate our growth, we will do it. We have the full support of FIMI and the board for that. With the right opportunity, we will make use of the cash we have for that purpose.”
Gilat’s long-running FITEL broadband ground network installation project in Peru often progresses more slowly than expected but is nonetheless making headway. Gilat previously reported four regional FITEL projects with a total value of $400 million, and in July won two more regions with a value of $154 million. It’s 65% construction, 35% operations revenue over 10 years.
Revenue recognition from this piece of the contract is expected to start before the end of this year. For final payments, FITEL needs to inspect the sited before moving to the operational phase begins and operational revenues flow.
Gilat during the quarter announced two LTE backhaul contracts, one with Australia’s Telstra and another with an undisclosed company in Latin America.
Spanish satellite fleet operator Hispasat, which does most of its business in Latin America, contracted with Gilat to build an LTE backhaul network in Brazil. A previous Hispasat contract to Gilat was for a similar network in Mexico. Gilat did not provide an estimated value for the Brazil contract as “tens of millions of dollars over the life of the project.”
As a non-U.S. supplier of broadband equipment, Gilat is free to pursue business in China in a way that U.S. suppliers are not. China has embarked on a large broadband-deployment program using satellites
“We are doing good business in China,” Gilat Chief Financial Officer Adi Sfadia said during the call. “We have business for Chinasat 16, they are buying VSATs. There is some traction in the Chinese market although we haven’t announced anything recently. As a non-US company we have some advantage versus the US companies in trying to sell to China, but currently we don’t see anything beyond this.
Gilat earlier in the year said it thought at least one mega-constellation of low-orbiting broadband satellites would be built and that it was positioning itself accordingly.
The company in July won funding from the Canada-Israel Industrial Research and Development Foundation (CIIRF) to work on technologies for Canada-based Telesat’s constellation.
CIIRDF President Henri Rothschild said the financing “will advance the technological capabilities of low Earth orbit satellites, and help Telesat and Gilat capture new opportunities in this global commercial market. Downstream, this powerful cooperation will translate into new jobs and revenues that further strengthen economies of Israel and Canada.”
Gilat did not say whether a future collaboration on Telesat’s commercial constellation would require an equity investment by Gilat in the project. Contractors Airbus Defence and Space and a team of Thales Alenia Space and Maxar Technologies — owner of SSL and MDA Corp. — are working on competition design studies for the Telesat project.