Gilat Satellite Networks Ltd. (NASDAQ:GILT)
Q4 2015 Earnings Conference Call
February 17, 2016 09:30 ET
Phil Carlson - Investor Relations
Dov Baharav - Interim Chief Executive Officer and Chairman
Adi Sfadia - Chief Financial Officer
Ladies and gentlemen, thank you for standing by. Welcome to Gilat’s Fourth Quarter and Year End 2015 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, February 17, 2016. I would now like to turn the call over to Phil Carlson of KCSA to read the Safe Harbor statement. Phil, please go ahead.
Thank you. Good morning and good afternoon everyone. Thank you for joining us today for Gilat’s fourth quarter and year end 2015 results conference call. Recording of this call will be available beginning at approximately noon Eastern Time today, February 17 until February 20 at noon.
Our earnings press release and website provide details on accessing the archived call. Investors are urged to read the forward-looking statements in our earnings releases, which state that statements made on this earnings call, which are not historical facts maybe 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.
With that said, on the call today is Dov Baharav, Gilat’s Interim CEO and Chairman of the Board and Adi Sfadia, Chief Financial Officer. Dov, Please go ahead.
Thank you, Phil and good day everyone. I would like to begin with the word about our financial results followed by high level business overview. Following my remarks, Adi will discuss our quarterly and yearly results in greater detail. I will then conclude and open the call for questions.
From a financial perspective, 2015 was a challenging year for Gilat. However, the year ended with a strong fourth quarter, demonstrated in wins, revenue and profit. 2015 was also characterized by successfully laying down the infrastructure for the future profitable growth of the company by adapting a new strategy. In the second half of 2015, this strategy was translated into major wins in our core growth areas as I will explain later.
Looking at the full year, 2015 ended with revenue of $197.6 million, 16% lower than 2014 revenue with reduced profitability. Revenues for the fourth quarter of 2015 were $67.7 million by far higher than the first three quarters of 2015 and compared to $73.1 million for the same period in 2014. EBITDA for the quarter was $11.1 million compared to $10.4 million for the same period in 2014. The revenue for the fourth quarter were lower than estimated as Adi will elaborate later. We entered 2016 with high backlog. And as such, we have set our management revenue objectives for 2016 to range between $290 million to $310 million with EBITDA between $18 million to $24 million.
Let me now elaborate regarding our wins in the fourth quarter, which are in line with our strategic direction. Our impact on activity initiatives, a major pillar of our strategy took off in 2015 and accelerated in the fourth quarter. Our Wavestream transceivers are second to standout for ISP as evidenced by growing number of orders from Honeywell. Earlier in the year, we entered into a dual-band antenna development project with the major satellite broadband provider. And finally, during the quarter, we have also entered into a deal for the continued development of our Electronically-Steered/Phased-Array Antenna. We believe these forward-looking technologies have huge market potential moving forward.
China is the second important pillar for our strategy, in which we captured substantial wins with two of the country’s leading edge based operator, ChinaSat in the third quarter and Synertone in the fourth quarter. To some extent, we became the de facto HTS solution in China. Our mobility solution in China have also gained a lot of traction as demonstrated by the cooperation with CRRC, China Railway Rolling Stock Corporation, the largest rolling stock manufacturer in the world for our Internet connectivity solution for trains.
In rural broadband, our third pillar, Gilat was awarded an additional $108 million project as part of the Fitel regional infrastructure project in Q4. Our goal in 2015 Gilat won four regional projects for Fitel valued at approximately $400 million. We expect rural broadband projects to continue generating meaningful recurring revenue after the installation phase for a period of 10 years. As a reminder, these initiatives will bring broadband Internet connectivity of both fiber optics and wireless network to schools and government institutions in rural areas throughout Peru.
In our fourth strategic focus area, HTS, we developed and successfully launched Gilat’s cloud-based distributed X-Architecture, the cutting edge in HTS ground equipment technology. Our X-Architecture enables marketer application such as IFC, maritime, trains, enterprise, cellular backhaul and consumer on a single platform. Our architecture was embraced by the marketplace with order received from major operators in China as mentioned earlier in addition to Europe, Latin America and Asia.
In the fourth quarter of 2015, Gilat’s backhaul solution for cellular networks have been selected by a number of major worldwide telecommunication operators in Asia and Latin America who are recognizing Gilat’s SkyEdge II-c Capricorn as fastest CDMA VSAT on the market with speed of up to 200 megabit per second. A prime example is SoftBank who selected Gilat for satellite-based cellular backhaul to LTE sites in Japan. Gilat’s SkyEdge II-c Capricorn platform was tested with several type of LTE network equipment and is first to deliver a carrier-grade 4G handset speed via satellite for user experience on par with terrestrial networks.
The fifth pillar of our strategy, managed services is continuing to generate interest from and resonate with key telcos worldwide. The business model of deals includes 3 to 5 years agreement, in which the client pays a periodic fee. In return for this recurring revenue, Gilat will provide the required solution, including equipment as well as service elements. This concludes our business overview.
I would like now to turn the call over to Adi Sfadia, our CFO, who will review the financials. Adi, please.
Thank you, Dov and good morning everyone. I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis. The GAAP financial results include the effect of stock-based compensation, amortization of purchased intangibles, impairment of goodwill and long-lived assets, restructuring costs and net income or loss from discontinued operations. Reconciliation table in our press release highlights this data and our non-GAAP information is presented, excluding these items. I will start with some brief highlights of our 2015 full year results.
Total 2015 revenues were $197.5 million, 16% lower than previous year. On a GAAP basis, we are reporting yearly operating loss of $43.7 million, a net loss of $52.3 million or a loss of $1.19 per diluted share. This compares with operating income of $5 million, a net loss of $1.5 million or a loss of $0.04 per diluted share in the previous year. On a non-GAAP basis, we are reporting yearly operating loss of $4.2 million and net loss of $12.6 million or a loss of $0.29 per diluted share. This compares with operating income of $13.1 million and net income of $7.4 million or $0.17 per diluted share in 2014.
Moving to our financial highlights for the fourth quarter of 2015, revenues for the fourth quarter of 2015 were $67.7 million compared to $73.1 million in the same quarter last year and $40.3 million in the previous quarter. In the fourth quarter, we had better than expected revenues both in mobility and commercial segments, offset by lower than expected revenues in the Fitel projects in Peru mainly due to temporary delays resulting from some regulatory issues. During the fourth quarter, we recorded impairment of long-lived assets of $10.1 million related to our Colombia Kioscos project due to expected future losses from this project. As a result, gross margin in the fourth quarter on a GAAP basis was reduced to 15%. Excluding this impairment charge our gross margin was 30% compared to 35% in the same quarter last year and 24% in the previous quarter.
R&D expenses excluding rent were $5.7 million compared to $6.8 million in the same quarter of last year and $6.1 million in the previous quarter. During the fourth quarter, we recorded about $2 million of R&D grant as an outcome of approval of additional R&D projects by the office of the Chief Scientist in Israel. Certain marketing expenses were $6.1 million, same as previous quarter. Certain marketing expenses for the comparable quarter last year were $7.3 million. G&A expenses were $3.4 million compared to $6.9 million in the same quarter last year and $5.2 million in the previous quarter. The decrease in G&A expenses is mainly due to an adjustment of a contingency provision stemming from a favorable court decision.
In addition, we recorded this quarter restructuring expenses of about $500,000, which include mainly contract termination costs. Total operating expenses on a GAAP basis were $13.8 million compared to $20.3 million in the same quarter last year and $38.6 million in the previous quarter. Total operating expenses in the previous quarter includes $20.4 million of goodwill impairments. GAAP operating loss were $3.4 million compared to an operating income of $5.5 million in the same quarter last year and operating loss of $29.1 million in the previous quarter. GAAP net loss was $5.2 million or a loss of $0.12 per diluted share compared to a net income of $2.4 million or $0.06 per diluted share in the same quarter last year and net loss of $32.4 million or a loss of $0.73 per diluted share in the previous quarter.
We regularly use supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and to make operating decisions. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating performance. Non-GAAP financial measures exclude mainly the effect of stock-based compensation, amortization of purchased intangibles, restructuring expenses and impairment of goodwill and long-lived assets. Operating income on a non-GAAP basis was $8.9 million compared to an operating income of $7.5 million in the same quarter last year. Operating loss for the previous quarter was $5.8 million.
Non-GAAP net income was $7 million or $0.16 per diluted share compared to net income of $4.4 million or $0.10 per diluted share in the same quarter last year. Net loss for the previous quarter was $8.9 million or a loss of $0.20 per diluted share. EBITDA for the fourth quarter of 2015 was $11.1 million compared to EBITDA of $10.4 million in the same quarter last year. EBITDA loss in the previous quarter was $3.4 million. As of December 30, 2015 our total cash and equivalents, including restricted cash, net of short-term bank loans and credits, was $120.9 million, an increase of $32.5 million from the previous quarter. DSOs, which exclude receivable and revenues of our service segment, decreased to 100 days compared to 109 days in the previous quarter. Our shareholders’ equity at the end of the quarter totaled to about $178 million.
That concludes our financial review for the quarter and now I would like to turn the call back to Dov.
Thank you, Adi. Before we turn to your question and our answers, I would like to summarize, with a few closing remarks. We ended the year with a good fourth quarter, demonstrating strong profitability and significant wins. Our five strategic pillars IFC, China, rural broadband, HTS and managed services with the strong backlog accumulated as of December 31 give us the confidence that we can generate profitable growth in 2016. As such, we have set our management revenue objectives for 2016 to be between $290 million to $310 million with EBITDA between $18 million to $24 million.
That concludes our review. And we would now like to open the floor for questions. Operator, please.
I would like to thank everyone for joining us on this call. Thank you very much and have a good day.
Thank you. This concludes Gilat’s fourth quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect.
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