Gilat Satellite Networks (NASDAQ:GILT) Management Interview

Gilat Satellite Networks
CFO: Ari Krashin
Glenn Katz Pres & COO (Spacenet)

Interview Transcripts:

Juan Costello: Good day from Wall Street. This is Juan Costello, senior analyst at the Wall Street Reporter and joining us today is Ari Krashin, the CFO for Gilat Satellite Networks along with Glenn Katz, the president and COO of the company’s subsidiary Spacenet. And the company trades on NASDAQ, Ticker Symbol is GILT. Thanks for joining us today there gentleman.

Glenn Katz: Thank you.

Ari Krashin: Good morning.

Glenn Katz: Good Morning, yes.

Juan Costello: Great. Now, starting off can you tell us about the recent contract extension for Spacenet.

Glenn Katz: Yeah, sure. This is Glenn, I can address that question. Pretty important contract for our company, the customer is a longtime customer of ours. They are a growing, large retailer here in United States and what is nice and unique about this opportunity is that it hits all the strategic areas that Spacenet is expanding its business here in the U.S. It’s a satellite based business continuity application supporting multi cast as well as a full managed network service utilizing satellite connectivity. It is an extension of five years to an existing contract which still had two years left to it. So, in essence we have a seven year contract with this large retailer. I think it speaks very well to the partnership that we’ve had with them and the service levels that we have provided them over the last seven or eight years.

Juan Costello: Well, great. And so can you talk a little bit more about, you know, what Spacenet does in regards to converged voice and data application services?

Glenn Katz: Spacenet is a full service broadband manage network service provider. And we basically serve two major markets here in the U.S. The first and largest is the enterprise market, second is a growing market for us; the civilian government public safety sector as well as the industrial oil and gas sector. What we provide to companies or agencies in these sectors is an agnostic approach to their telecommunication needs. We can provide satellite services or broadband services, any combination of satellite and broadband services, and we’ll fully integrate those services, delivering connectivity and managing that network for the particular customer.

Some of those services include security, PCI compliance, and any services of that nature that an enterprise or a governing entity requires to keep the mission or applications running and growing as the bandwidth needs increase overtime. Now, there is one point here, Spacenet moved strategically into this area in a big way the last year or so and part of that strategic move was an acquisition to help fill some of the gaps that we had allowing us to provide broadband services other than satellite which historically has been the services that we have provided here in the U.S. for over 30 years.

And with that, we acquired a Virginia based company; called CICAT Network. CICAT Networks is a company that provides broadband services of all types as well as billing, provisioning and helpdesk services. So, that acquisition along with Spacenet’s 30 years of managed network services in satellite based networks completed our portfolio to allow us to move in a very large way into a much bigger market than we have been in the last few years. This market is called the managed network service or managed VPN market.

Juan Costello: Well, great. And, so in terms of Gilat and the sky edge platform can you guys bring up the speed on the – some of the recent contract including the education program?

Glenn Katz: Yes, absolutely. First of all I would like to clarify. Spacenet, as you mentioned earlier, is a 100 percent owned subsidiary of Gilat Satellite Networks and Gilat Networks is an international company, that overall has three main areas that it provides services to. The first is satellite technology for commercial use, otherwise known as VSAT. Second, is an area of strategic growth for the company; and we’ve invested in that area in a very large way, is for specialized satellite communication technology into the defense sector both in the United States for the DOD market as well as international.

Both of those sectors require satellite communications, communications on the move and technologies of that sort. Spacenet itself, as we’ve mentioned before, is really a service provider focusing mostly on North America. Now, in those areas Gilat has been very successful over the last few years. As of late internationally, you may have heard that we won a large contract with Optus in Australia under their national broadband plan called NBN. In that we’re supplying sky edge VSAT equipment as well as hub operations and installation services for thousands of consumers or customers in that country. Following that, we’re on the edge of one of the leading trends worldwide both here in United States as well as in Europe and eventually in the emerging markets, and that is the introduction of what’s called Ka-band Multi-Spotbeam Satellite.

These type of satellites allow much higher broadband capacity at extremely lower cost than what you have seen in the market historically. Gilat recently signed a very important deal with a company called SES, as part of their Astro II connect initiative in Europe. We’ll be developing Ka-band sky edge satellite communications equipment to supply to SES for them to provide high speed broadband over Ka-band satellite broadband services in Europe to consumers as well as businesses. I think these two projects are good examples of how we’ve been able to grow and expand satellite based communications internationally as well as the Ka-band Multi-Spotbeam market that is now emerging.

Juan Costello: Right. And so, can you guys talk a little bit more about some of the trends in the sector whether be in the broadband, SATCOM or VSAT sectors and how opposition the company is to capitalize on them?

Ari Krashin: Basically, while talking about Gilat and the market we should probably mention three main growth engines for Gilat, that are an outcome of strategic planning over the last two years. The first one, as Glenn mentioned, is the international VSAT business and the increasing demand for satellite capacity. Mainly in the Ka satellite and targeting consumer in the Ka market space. An example is the recent award by SES as Glenn mentioned, as well as other Ka satellite initiatives that are taking place around the world.

The expectation is that those new Ka satellites which carry higher capacity will lead to higher demand both for services and equipment. In Gilat, we can provide superior equipment, which users should benefit from.

The second growth engine is the defense market both in the U.S. and internationally. We believe that today we have the top of the line products such as Raysat Antenna Systems low profile antennas and solid state power amplifiers manufactured by one of our subsidiaries – Wavestream in California. We have a unique military modem and other custom products and services for the defense market.

We believe that the defense market is a growing market with a growing demand for broadband connectivity in general and specifically communication on the move. Gilat, products are positioned very well in this market.

The third growth engine, also mention by Glenn, is the managed network services market for enterprises in the U.S. There are not many companies today that are able to offer a complete end to end solution for enterprises customers covering terrestrial communication and wireless communication including satellite.

We can include on top of that a complete manage network services offering. Today, Spacenet and Gilat are able to compete with other companies and to offer other solutions that even companies much larger than Gilat are not able to offer.

Juan Costello: Certainly. And what would you guys say are some of the factors that makes the company unique from some of the other players in the sector?

Ari Krashin: We are very much diversified – we believe we offer the top of the line VSAT network products and solutions such as SkyEdge II, Prysm Pro, Net Edge, Web Enhance and other unique products. We have the low profile antennas manufactured by RaySat and other systems that are in demand for Military applications with filed proven performance out in the market today. We have the solid state power amplifiers manufactured by Wavestream which again is a top of the line product. We have the capabilities of Spacenet to provide managed network services including terrestrial broadband, wireless and satellite. Many unique offerings and products that not many companies at all are able to offer today.

Juan Costello: Well, great. And since I have you both on the line perhaps you guys can walk us through your background and experience and talk a little bit about the key management team there.

Ari Krashin: I’ve been with Gilat since 2000. Prior to joining Gilat, I was a CPA at Price Waterhouse Coppers Israel. During the past 11 years in Gilat, I have been through most of the positions in the finance department in Gilat and currently serving both as the corporate CFO and Spacenet CFO.
Glenn Katz: I’m an electrical engineer by trade and I’ve been with Gilat since 1993 in several of its subsidiaries all over the world including Gilat Israel as well as what was Gilat Latin America. And now here in the United States at Spacenet. Before that I worked for Scientific Atlanta in Atlanta and another company called Digital Transmission Systems. So, I have a fair amount of experience both in providing equipment as well as services to companies worldwide. As far as our executive team that Ari and I work with, our chairman and chief executive officer is Amiram Levinberg and he is the co-founder of the company, Gilat was founded in 1987. He previously held position as Gilat’s president and chief operating officer and Vice President of engineering. Prior to that he served in an intelligence R&D unit in the Israel defense forces.

Another key executive in our company is a gentleman named Jaron Lotan, he is Gilat’s Chief Operating Officer. He joined us in Gilat in 2010 before that he served as the
Chairman and Director of Negevtech, Radview and Magink. Prior to that he was the President and Chief Executive Officer of Tecnomatix Technologies Ltd. which was also a public company on NASDAQ. Prior to that Mr. Lotan held various executive positions at Orbotech.

Ari Krashin: He is the guy in charge of the Gilat international business.

Glenn Katz: Exactly. Here also in Spacenet we have Andreas Georghiou the Chief Executive Officer of Spacenet. He joined Gilat and Spacenet in 2006. Prior to that he held executive positions at SES Americom, and also GE for over 20 years. One of the newest members of our team which I think speak very much to our move in a strategic way to the international and domestic defense business. A gentleman named Moshe (Chico) Tamir, he is the Vice President of our defense and homeland security division. He joined Gilat in 2011 and prior to that he held positions as a Division Commander and Brigade Commander in the Israeli Defense Forces. So, that pretty much makes up the essence of the Gilat Spacenet executive team.

Juan Costello: Well, great. And so what are some of the goals and milestones that the team there is hoping to accomplish over the course of the next year?

Ari Krashin: When you look at Gilat today, we’re basically looking at a long term strategy. We are a leading satellite communication equipment and service provider for the enterprise market in the U.S and internationally. We have had a number of major wins. Gilat was chosen to be the VSAT provider for ASTRA2Connect Europe. We were chosen to be the equipment provider and service provider for NBN Australia. At the beginning of the year we were awarded major contracts in the gaming sector in North America to provide – over 33,000 VSATs, And we have been gaining market share in the U.S. and announced other significant awards. All this demonstrates an act of confidence from our customers, existing ones and new ones and an act of confidence in our technology and ability to deliver.

During the last few years we have invested significant efforts to enter new markets through new acquisition and internal investment in the budget. Today we have unique offerings for the defense and homeland security market; a growing market that we expected to continue to grow in the future. The increasing demand for low profile antennas is starting to show signs both internationally and in the U.S. And Gilat today is probably the only player in the market that is able to offer a reliable low profile antenna with field proven performance as we mentioned earlier. In summary, Gilat was able to increase significantly its revenues and profitability over the last few quarters by following this strategy in a growing market and we hope and believe that we will be able to continue to grow going forward.

Juan Costello: Excellent. And so when it comes to investors and the financial community, do you believe that the Gilat story and your message and ultimately the companies upside are completely understood and appreciated by them or if not what you wish investors and the financial community better understood about the company?

Ari Krashin: That’s in interesting question. And obviously, looking at the recent trends in the markets, the uncertainties and the way it is affecting Gilat, one might say that we’re not sure that the story is being told clearly or understood correctly. On the other hand we are doing all that we can to tell the story in a clear way that will be understood by everyone. We are trying to make sure people understand the potential of Gilat and its products; our recent actions, our steps into the defense market and our steps into other key markets. We operate in growing markets, and we hope we will be able to deliver benefits both to our customers and to our investors. Hopefully it will be reflected in our financial results as well.

Juan Costello: And in terms of I don’t think we spoke much about SIGS, but can you talk about some of the recent awards that were handed out to the company from some of your, some of the top clients?

Glenn Katz: Actually it’s an interesting story; it fits very well with the strategy that Ari had spoken about in terms of moving into the defense sector. Part of that move has been in terms of buying companies and also investing in our own R&D to create specialized satellite communication technology. SIGS, as a division of Spacenet – it actually stands for Spacenet Integrated Government Solutions, recently received a GSA award under a very large new contract vehicle called FCSA. And that is a significant award. This is a direct award where we are a prime contractor on that major contract.

Ari Krashin: And this is a perfect example of what we have been doing over the last few years. We just established this last year, but have put a lot of effort and investment in this company. And the recent win is just one of many that we hope will come and will help us grow the company business and Gilat together going forward.

Juan Costello: Certainly. And so, once again joining us today are the Gilat management team Ari Krashin, the CFO of the company and Glenn Katz, actually president and COO of the main subsidiary Spacenet. The company trades on NASDAQ, Ticker Symbol is GILT as well as on TASE currently trading at $3.34 a share. The market cap is north of 134 million. And before we conclude gentleman to recap some of your key points here, why do you believe that investors should consider the company as a good investment opportunity today?

Ari Krashin: Basically it’s the elements we’ve mentioned earlier, I believe that we’re taking major steps to grow the company and invest in new markets – again internationally Ka-band, domestic U.S. Managed Network Services, the defense market in the U.S. and the defense market internationally. So, we’re positioned quite well in those market, we have unique products and we are operating in some very significant and interesting growing markets. We are competing quit well in the opportunities out there. The recent rewards and the Gilat strategy are starting to show results.

Glenn Katz: And one more point I would add to Ari’s explanation is prior to these strategic moves the last two years, Gilat and Spacenet were operating in much smaller markets then they are today. So, it was important for us to seek out growing and expanding markets that are much bigger than the markets Gilat was historically active in. And these new markets are the U.S. as well as international defense communication market. And in the United States, as I mentioned earlier, the managed VPN market. Those two markets themselves are literally four to five times the size of the markets that historically Gilat and Spacenet were active in. And to do that we realigned our R&D, we purchased a few companies that had specific technologies and expertise in those areas. And I think that we are positioned very, very well with the right balance between satellite for the United States government and international government as well as managed network broadband services in the U.S. We are positioned very well technologically, in these fast growing markets. And I think that’s important.

Ari Krashin: Yes. We are much more diversified today than we used to be and we are able to offer products not many other companies can offer. So obviously we believe that we are very well positioned going forward to continuing growing this company.

Juan Costello: Well, we certainly do look forward to continue and attract the company’s growth as well as report on your upcoming progress. And I like to thank you for taking the time to join us today gentleman and update our investors on Gilat.

Ari Krashin: Thank you.

Glenn Katz: Thank you Juan, very much, very appreciated.

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