Gilat widens profit margins despite lower revenues in Q4
By Ami Ginsburg and Shirley Yom Tov/ Haaretz
Until four years ago, Gilat Satellite Netwoks was considered the classic Israeli dream company. It had excellent technology for satellite communications using very small aperture terminals, founders with big dreams of conquering the communications world via satellite and an uncompromising growth strategy. Unfortunately, the dream turned into almost $1 billion in losses in two and half years.
A year and half ago, the tide turned. Gilat parted ways with central founders Yoel Gat and Yehoshua and Amiram Levinberg, and Shlomo Rodav took over as chair and implemented a recovery program.
Right now it looks like it is working. Gilat has given up its focus on dreams and begun focusing on the mundane: maintaining income, cash flow, cost-cutting measures, and getting out of unprofitable markets.
Investors are expressing increasing interest in the company, mostly due to its stabilization. The big question is whether Rodav can translate the recovery program into sustainable growth in the coming years and substantial net profits.
For now, the fourth quarter of 2004, Gilat realized $1.6 million operating profit, after significantly widening its gross margins. Its achievement is all the more notable in view of the fact that revenue dropped from the prior quarter. At the bottom line, Gilat posted a loss of $1 million, or 4 cents per share.
Despite this, shares slumped by 6 percent on the Tel Aviv Stock Exchange yesterday, and over 5 percent later on the Nasdaq.
In the fourth quarter, Gilat sold $61.8 million, up 46 percent from the parallel quarter but down 5 percent from the previous quarter. The company attributes the drop in sales to the new mix, as it reduced less profitable sales and the portion of revenue from sales with more promising gross margins expanded.
This is evident in gross margins of 38 percent of turnover, from 33 percent in the third quarter and 11 percent in the parallel quarter of 2003. This is very good news from a company that struggled to keep margins over 30 percent in the past.
For the year 2004, Gilat's revenue grew 27 percent to $241.5 million, while its net loss remained wide at $9.5 million, or 42 cents per share.
During the year Gilat wrote off inventory and took other charges amounting to $4.2 million in total. Its operating loss for the year narrowed to $8.6 million, compared with $93 million in 2003.
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