Gilat Satellite Networks Ltd. (NASDAQ, TASE: GILT), a worldwide leader in satellite networking technology, solutions and services, today reported its results for the second quarter ended June 30, 2020.
Key Financial Highlights:
-- Revenues for Q2 2020 totaled $38.3 million compared with $59.7 million for Q2 2019.
-- Q2 2020 - GAAP operating loss was $3.5 million compared to operating income of $4.9 million in Q2 2019. Q2 2020 Non-GAAP operating loss was $2.6 million compared to Non-GAAP operating income of $6.3 in Q2 2019.
-- Q2 2020 GAAP net loss was $4.2 million, or loss of $0.08 per diluted share, compared with net income of $3.4 million, or income of $0.06 per diluted share in Q2 2019. Q2 2020 non-GAAP net loss was $3.3 million, or $0.06 per diluted share, compared with net income of $4.8 million, or $0.09 per diluted share, in Q2 2019.
-- Q2 2020 Adjusted EBITDA was $0.1 million compared with Adjusted EBITDA of $8.9 million in Q2 2019.
Adi Sfadia, Gilat's interim CEO, commented:
"The COVID-19 pandemic continued to affect Gilat's second quarter 2020 results, as we continued to see postponements and delays in orders. However, during the second quarter we began to see and are continuing to see a recovery in most of our areas of operations which is demonstrated by a significant increase in pipeline opportunities. We believe that as a result of these trends, coupled with the cost reduction initiatives we have executed and are continuing to execute, the second half of 2020 will be meaningfully better than the first half, for Gilat.
"I am pleased to report that Bosmat Halpern, Gilat's AVP Finance has been appointed as Gilat's interim CFO, and I am confident in her ability to wisely navigate Gilat's finances through these unprecedented times."
Comtech Transaction and Litigation
The acquisition of Gilat by Comtech Telecommunications Corp ("Comtech") remains subject to certain conditions to closing, including regulatory approvals in Russia. As previously reported, Comtech filed a complaint against Gilat in the Delaware Court of Chancery seeking declaratory judgments that certain actions, if taken by Gilat in connection with Russia regulatory approval would breach Gilat's obligations under the Merger Agreement and that Gilat has suffered a Material Adverse Effect, as defined in the Merger Agreement, as a result of the COVID-19 pandemic. As a consequence, Comtech contends that it is not required to consummate the merger.
Gilat strongly rejects all such allegations, and on July 21, 2020, Gilat filed a complaint against Comtech in the Delaware Court of Chancery, seeking a Court order requiring Comtech to specifically perform its obligations under the merger agreement, including using its reasonable best efforts to obtain regulatory approval as soon as practicable (as well as seeking all other relief deemed proper, including damages). The Complaint also seeks a declaratory judgment that, if Russian regulatory approval is not obtained by the termination date of the merger agreement, satisfaction of the Russian regulatory condition be excused, and a declaratory judgment that Gilat has not suffered a "Material Adverse Effect". Trial is scheduled for early October 2020.
Key Recent Announcements
-- Gilat Awarded Over $10 Million for a Five-Year Service Project for 4G Backhaul Services in Latin America
-- US Tier-1 Mobile Operator Awards Gilat a Multi-Million Dollar Service Contract for Cellular Backhaul
-- Africa Mobile Networks (AMN) Extends Gilat's Contract of Powering Africa's Largest Satellite Cellular Backhaul Network
-- Gilat Awarded Cellular Backhaul Project for Kcell, Kazakhstan's Largest Mobile Network Operator
-- Gilat Selected to Extend and Expand Managed Service Cellular Backhaul Project by a Leading Mobile Operator in Mexico
-- Telefonica International Wholesale Services (TIWS) Selects Gilat for Broadband and Cellular Backhaul Project in Argentina
-- Gilat's Airborne Technology Enables Opening-up of the Chinese Ka-Band IFEC Market and Driving a Multi-Million Dollar Market Opportunity
-- Gilat Announces Availability of its Flagship VSAT, Achieving Half a Gigabit of Concurrent Speeds
The attached summary unaudited financial statements were prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). To supplement the consolidated financial statements presented in accordance with GAAP, the Company presents Non-GAAP presentations of net income, operating income, Adjusted EBITDA and earnings per share. The adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results, trends and performance. Non-GAAP financial measures mainly exclude the effect of stock based compensation, amortization of purchased intangibles, lease incentive amortization, litigation expenses, income related to trade secrets claims, restructuring and reorganization costs, merger and acquisition costs and initial recognition of deferred tax asset with respect to carry-forward losses.
Adjusted EBITDA is presented to compare the Company's performance to that of prior periods and evaluate the Company's financial and operating results on a consistent basis from period to period. The Company also believes this measure, when viewed in combination with the Company's financial results prepared in accordance with GAAP, provides useful information to investors to evaluate ongoing operating results and trends. Adjusted EBITDA, however, should not be considered as an alternative to operating income or net income for the period and may not be indicative of the historic operating results of the Company; nor is it meant to be predictive of potential future results. Adjusted EBITDA is not a measure of financial performance under GAAP and may not be comparable to other similarly titled measures for other companies. Reconciliation between the Company's Operating income and Adjusted EBITDA is presented in the attached summary financial statements.
Non-GAAP presentations of net income, operating income, Adjusted EBITDA and earnings per share should not be considered in isolation or as a substitute for any of the consolidated statements of operations prepared in accordance with GAAP, or as an indication of Gilat's operating performance or liquidity.
Gilat Satellite Networks Ltd. (NASDAQ: GILT, TASE: GILT) is a leading global provider of satellite-based broadband communications. With 30 years of experience, we design and manufacture cutting-edge ground segment equipment, and provide comprehensive solutions and end-to-end services, powered by our innovative technology. Delivering high value competitive solutions, our portfolio comprises of a cloud based VSAT network platform, high-speed modems, high performance on-the-move antennas and high efficiency, high power Solid-State Amplifiers (SSPA) and Block Upconverters (BUC).
Gilat's comprehensive solutions support multiple applications with a full portfolio of products to address key applications including broadband access, cellular backhaul, enterprise, in-flight connectivity, maritime, trains, defense and public safety, all while meeting the most stringent service level requirements. Gilat controlling shareholders are the FIMI Private Equity Funds. For more information, please visit: www.gilat.com
Safe Harbor Statement
Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties that could cause the actual results, performance or achievements of Gilat, or the expected results of the proposed transaction with Comtech to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Due to such uncertainties and risks, no assurances can be given that such expectations will prove to have been correct, and readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. The forward-looking statements contained herein include, but are not limited to, statements about the results, performance or achievements of Gilat, Gilat's plans, objectives and expectations for future operations, the expected completion of the proposed transaction with Comtech, the satisfaction or waiver of any conditions to the proposed transaction, and other events relating to the proposed transaction. Forward-looking statements are often characterized by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue," "believe," "should," "intend," "plan," "project" or other similar words, but are not the only way these statements are identified. These forward-looking statements are based upon Gilat's management's current estimates and projections of future results or trends. In addition to the risks and uncertainties described in the Annual Report on Form 20-F for the year ended December 31, 2019 and in the proxy statement/prospectus dated April 3, 2020 and those described in any other documents filed with the Securities and Exchange Commission, such risks and uncertainties include, among others, (i) changes in general economic and business conditions, (ii) the inability to maintain market acceptance of Gilat's products, (iii) the inability to timely develop and introduce new technologies, products and applications, (iv) rapid changes in the market for Gilat's products, (v) loss of market share and pressure on prices resulting from competition, (vi) introduction of competing products by other companies, (vii) the inability to manage growth and expansion, (viii) loss of key OEM partners, (ix) the inability to attract and retain qualified personnel, (x) the inability to protect the Company's proprietary technology, (xi) risks associated with Gilat's international operations and its location in Israel and (xii) risks relating to the Merger of wholly owned subsidiary of Comtech with and into Gilat (the "Merger"), including, among others: (1) the risk that the conditions to the closing of the are not satisfied, including the risk that required approvals for the Merger from governmental authorities are not received; (2) changes or circumstances that could give rise to the termination of the Merger Agreement; (3) the risk that the value of the stock merger consideration will fluctuate over time; (4) litigation relating to the Merger; (5) uncertainties as to the timing of the consummation of the Merger and the ability of each party to consummate the Merger; (6) risks that the proposed Merger disrupts the current plans and operations of Gilat or Comtech, or both; (7) the ability of Gilat and Comtech to retain and hire key personnel; (8) competitive responses to the proposed Merger and the impact of competitive products; (9) unexpected costs, charges or expenses resulting from the Merger; (10) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger; (11) the combined company's ability to achieve the financial and operating results, growth prospects and synergies expected from the Merger, as well as delays, challenges and expenses associated with integrating the existing businesses of Comtech and Gilat; (12) the combined company's ability to maintain and improve relationships with customers, suppliers and other third parties following the Merger; (13) the terms and availability of the indebtedness that may be incurred in connection with the Merger; (14) the timing and funding of government contracts; (15) risks associated with international sales; (16) risks associated with legal proceedings, customer claims for indemnification and other similar matters; (17) risks associated with Comtech's obligations under its credit facility; (18) risks associated with the outbreak and global spread of the coronavirus (COVID-19) pandemic; and (19) legislative, regulatory, technological, political and economic developments, including changing business conditions in the industries in which Comtech and Gilat operate and the overall economy. as well as the financial performance and expectations of Comtech's and Gilat's existing and prospective customers.
The foregoing list of factors is not exclusive and you should not place undue reliance on any forward-looking statement. All forward-looking statements contained herein are made only as of the date of the date hereof and, except as required by law, Gilat does not undertake any obligation to update publicly any of these forward-looking statements to reflect events or circumstances that may arise after the date hereof.
For additional information regarding these and other risks and uncertainties associated with Gilat's business and the pending acquisition of Gilat by Comtech, reference is made to Gilat's reports filed from time to time with the Securities and Exchange Commission.
Gilat Satellite Networks
Doreet Oren, Director Corporate Communications
GILAT SATELLITE NETWORKS LTD. CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except share and per share data) Six months ended Three months ended June, 30 June, 30 2020 2019 2020 2019 Unaudited Unaudited Revenues $ 85,988 $ 121,794 $ 38,315 $ 59,685 Cost of revenues 67,514 76,239 28,727 37,700 Gross profit 18,474 45,555 9,588 21,985 Research and development expenses 13,773 16,492 6,139 7,635 Less - grants 472 1,094 200 539 Research and development expenses, net 13,301 15,398 5,939 7,096 Selling and marketing expenses 8,650 11,288 3,584 5,417 General and administrative expenses (*) 7,791 9,527 2,973 4,585 Merger and acquisition costs 2,951 - 546 - Total operating expenses 32,693 36,213 13,042 17,098 Operating income (loss) (14,219 ) 9,342 (3,454 ) 4,887 Financial expenses, net (1,429 ) (1,400 ) (457 ) (579 ) Income (loss) before taxes on income (15,648 ) 7,942 (3,911 ) 4,308 Taxes on income 332 1,713 314 903 Net income (loss) $ (15,980 ) $ 6,229 $ (4,225 ) $ 3,405 Basic and Diluted earnings (loss) per share $ (0.29 ) $ 0.11 $ (0.08 ) $ 0.06 Weighted average number of shares used in computing earnings (loss) per share Basic 55,499,300 55,262,453 55,505,342 55,327,318 Diluted 55,499,300 56,014,927 55,505,342 56,070,351 (*) Including restructuring cost
GILAT SATELLITE NETWORKS LTD. RECONCILIATION BETWEEN GAAP AND NON-GAAP STATEMENTS OF OPERATIONS FOR COMPARATIVE PURPOSES U.S. dollars in thousands (except share and per share data) Three months ended Three months ended June 30, 2020 June 30, 2019 GAAP Adjustments (1) Non-GAAP GAAP Adjustments (1) Non-GAAP Unaudited Unaudited Gross profit $ 9,588 54 $ 9,642 $ 21,985 312 $ 22,297 Operating expenses 13,042 (831 ) 12,211 17,098 (1,077 ) 16,021 Operating income (loss) (3,454 ) 885 (2,569 ) 4,887 1,389 6,276 Income (loss) before taxes on income (3,911 ) 885 (3,026 ) 4,308 1,389 5,697 Net income (loss) (4,225 ) 885 (3,340 ) 3,405 1,389 4,794 Earnings (loss) per share (basic and diluted) $ (0.08 ) $ 0.02 $ (0.06 ) $ 0.06 $ 0.03 $ 0.09 Weighted average number of shares used in computing earnings per share Basic 55,505,342 55,505,342 55,327,318 55,327,318 Diluted 55,505,342 55,505,342 56,070,351 56,218,672 (1) Adjustments reflect the effect of non-cash stock-based compensation as per ASC 718, amortization of intangible assets related to shares acquisition transactions, merger and acquisition costs, trade secrets and other litigation expenses and restructuring and re-organization costs. Three months ended Three months ended June 30, 2020 June 30, 2019 Unaudited Unaudited GAAP net income (loss) $ (4,225 ) $ 3,405 Gross profit Non-cash stock-based compensation expenses 49 49 Amortization of intangible assets related to acquisition transactions 5 234 Restructuring and re-organization costs - 29 54 312 Operating expenses Non-cash stock-based compensation expenses 235 373 Amortization of intangible assets related to acquisition transactions 50 49 Trade secrets and other litigation expenses - 100 Merger and acquisition costs 546 - Restructuring and re-organization costs - 555 831 1,077 Non-GAAP net income (loss) $ (3,340 ) $ 4,794
GILAT SATELLITE NETWORKS LTD. RECONCILIATION BETWEEN GAAP AND NON-GAAP STATEMENTS OF OPERATIONS FOR COMPARATIVE PURPOSES U.S. dollars in thousands (except share and per share data) Six months ended Six months ended June 30, 2020 June 30, 2019 GAAP Adjustments (1) Non-GAAP GAAP Adjustments (1) Non-GAAP Unaudited Unaudited Gross profit $ 18,474 116 $ 18,590 $ 45,555 638 $ 46,193 Operating expenses 32,693 (3,937 ) 28,756 36,213 (1,906 ) 34,307 Operating income (loss) (14,219 ) 4,053 (10,166 ) 9,342 2,544 11,886 Income (loss) before taxes on income (15,648 ) 4,053 (11,595 ) 7,942 2,544 10,486 Net income (loss) (15,980 ) 4,053 (11,927 ) 6,229 2,544 8,773 Earnings (loss) per share (basic and diluted) $ (0.29 ) $ 0.08 $ (0.21 ) $ 0.11 $ 0.05 $ 0.16 Weighted average number of shares used in computing earnings per share Basic 55,499,300 55,499,300 55,262,453 55,262,453 Diluted 55,499,300 55,499,300 56,014,927 56,180,698 (1) Adjustments reflect the effect of non-cash stock-based compensation as per ASC 718, amortization of intangible assets related to shares acquisition transactions, merger and acquisition costs, trade secrets and other litigation expenses and restructuring and re-organization costs. Six months ended Six months ended June 30, 2020 June 30, 2019 Unaudited Unaudited GAAP net income (loss) $ (15,980 ) $ 6,229 Gross profit Non-cash stock-based compensation expenses 106 143 Amortization of intangible assets related to acquisition transactions 10 466 Restructuring and re-organization costs - 29 116 638 Operating expenses Non-cash stock-based compensation expenses 601 1,150 Amortization of intangible assets related to acquisition transactions 101 101 Trade secrets and other litigation expenses 11 100 Merger and acquisition costs 2,951 - Restructuring and re-organization costs 273 555 3,937 1,906 Non-GAAP net income (loss) $ (11,927 ) $ 8,773
GILAT SATELLITE NETWORKS LTD. SUPPLEMENTAL INFORMATION U.S. dollars in thousands ADJUSTED EBITDA: Six months ended Three months ended June 30, June 30, 2020 2019 2020 2019 Unaudited Unaudited GAAP operating income (loss) $ (14,219 ) $ 9,342 $ (3,454 ) $ 4,887 Add: Non-cash stock-based compensation expenses 707 1,293 284 422 Trade secrets and other litigation expenses 11 100 - 100 Restructuring and re-organization costs 273 584 - 584 Merger and acquisition costs 2,951 - 546 - Depreciation and amortization (*) 5,382 5,786 2,718 2,909 Adjusted EBITDA $ (4,895 ) $ 17,105 $ 94 $ 8,902 (*) Including amortization of lease incentive SEGMENT REVENUE: Six months ended Three months ended June 30, June 30, 2020 2019 2020 2019 Unaudited Unaudited Fixed Networks $ 44,790 $ 66,836 $ 21,779 $ 30,408 Mobility Solutions 33,207 43,499 14,006 22,587 Terrestrial Infrastructure Projects 7,991 11,459 2,530 6,690 Total revenue $ 85,988 $ 121,794 $ 38,315 $ 59,685
GILAT SATELLITE NETWORKS LTD. CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands June 30, December 31, 2020 2019 Unaudited Audited ASSETS CURRENT ASSETS: Cash and cash equivalents $ 59,601 $ 74,778 Restricted cash 25,579 27,067 Trade receivables, net 28,560 47,731 Contract assets 32,060 23,698 Inventories 32,489 27,203 Other current assets 15,581 23,007 Total current assets 193,870 223,484 LONG-TERM ASSETS: Long-term restricted cash 117 124 Severance pay funds 6,425 6,831 Deferred taxes 18,291 18,455 Operating lease right-of-use assets 6,353 5,211 Other long term receivables 9,699 10,156 Total long-term assets 40,885 40,777 PROPERTY AND EQUIPMENT, NET 78,781 82,584 INTANGIBLE ASSETS, NET 1,302 1,523 GOODWILL 43,468 43,468 TOTAL ASSETS $ 358,306 $ 391,836 GILAT SATELLITE NETWORKS LTD. CONSOLIDATED BALANCE SHEETS (Cont.) U.S. dollars in thousands June 30, December 31, 2020 2019 Unaudited Audited LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term loans $ 4,000 $ 4,096 Trade payables 20,129 20,725 Accrued expenses 48,194 54,676 Advances from customers and deferred revenues 23,124 27,220 Operating lease liabilities 2,145 1,977 Other current liabilities 10,552 12,261 Total current liabilities 108,144 120,955 LONG-TERM LIABILITIES: Long-term loans, net of current maturities - 4,000 Accrued severance pay 6,681 7,061 Long-term advances from customers 1,180 2,866 Operating lease liabilities 4,153 3,258 Other long-term liabilities 1,218 108 Total long-term liabilities 13,232 17,293 SHAREHOLDERS' EQUITY: Share capital - ordinary shares of NIS 0.2 par value 2,644 2,643 Additional paid-in capital 928,054 927,348 Accumulated other comprehensive loss (6,433 ) (5,048 ) Accumulated deficit (687,335 ) (671,355 ) Total shareholders' equity 236,930 253,588 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 358,306 $ 391,836
GILAT SATELLITE NETWORKS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Six months ended Three months ended June 30, June 30, 2020 2019 2020 2019 Unaudited Unaudited Cash flows from operating activities: Net income (loss) $ (15,980 ) $ 6,229 $ (4,225 ) $ 3,405 Adjustments required to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,271 5,681 2,667 2,859 Capital loss from disposal of property and equipment 23 - 56 - Stock-based compensation of options 707 1,293 284 422 Accrued severance pay, net 26 382 (17 ) 97 Deferred income taxes, net 140 1,385 (494 ) 702 Decrease (increase) in trade receivables, net 18,364 2,506 4,757 (5,325 ) Decrease (increase) in contract assets (8,362 ) (232 ) (3,511 ) 198 Decrease (increase) in other assets (including short-term, long-term and deferred charges) 6,710 (29 ) 5,037 50 Decrease (increase) in inventories (5,698 ) (6,137 ) 937 (2,478 ) Increase (decrease) in trade payables (510 ) 3,933 (2,885 ) 4,855 Decrease in accrued expenses (5,809 ) (7,076 ) (4,157 ) (4,907 ) Decrease in advance from customers (5,725 ) (8,405 ) (2,898 ) (5,318 ) Increase (decrease) in current and non current liabilities 685 (1,950 ) (2,126 ) (2,813 ) Net cash used in operating activities (10,158 ) (2,420 ) (6,575 ) (8,253 ) Cash flows from investing activities: Purchase of property and equipment (1,879 ) (3,587 ) (928 ) (1,573 ) Net cash used in investing activities (1,879 ) (3,587 ) (928 ) (1,573 ) Cash flows from financing activities: Exercise of stock options - 375 - 37 Dividend payment - (24,864 ) - (24,864 ) Repayment of long-term loans (4,096 ) (4,231 ) - (108 ) Net cash used in financing activities (4,096 ) (28,720 ) - (24,935 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash (539 ) 21 156 (76 ) Decrease in cash, cash equivalents and restricted cash (16,672 ) (34,706 ) (7,347 ) (34,837 ) Cash, cash equivalents and restricted cash at the beginning of the period 101,969 104,204 92,644 104,335 Cash, cash equivalents and restricted cash at the end of the period $ 85,297 $ 69,498 $ 85,297 $ 69,498