Gilat Satellite Networks Ltd 6-K, filed Aug 9, 2022
Gilat Satellite Networks Ltd (GILT)
6-K
2022-08-09
For: 2022-06-30
View Original
Added on
April 10, 2026
About this 6-K
Gilat Satellite Networks Ltd filed this 6-K on August 9, 2022.
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report on Foreign Issuer
Pursuant to Rule 13a – 16 or 15d – 16
of the Securities Exchange Act of 1934
For the Month of August, 2022
(Translation of Registrant’s Name into English)
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Attached hereto as Exhibits 99.1 and 99.2 are Registrant’s Condensed Interim Unaudited Consolidated Financial Statements as of June 30, 2022 and for the Six Months ended June 30, 2022 and June 30, 2021 and Operating and Financial Review and Prospects.
The contents of this Report on Form 6-K, including Exhibits 99.1 and 99.2 annexed hereto, are incorporated by reference into the Registrant’s Registration Statements on Form F-3 (Registration No. 333-266044) and on Form S-8 (Registration Nos. 333-180552, 333-187021, 333-204867, 333-210820, 333-217022, 333-221546, 333-223839, 333-231442, 333-236028, 333-253972, 333-255740 and 333-264974), and shall be a part thereof from the date on which this Form 6-K is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Gilat Satellite Networks Ltd.
(Registrant)
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Dated August 9, 2022
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By:
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/s/ Gil Benyamini
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Gil Benyamini
Chief Financial Officer
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2
GILAT SATELLITE NETWORKS LTD.
6-K Exhibits
3
Exhibit 99.1
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2022
UNAUDITED
IN U.S. DOLLARS
INDEX
Page | |
F - 2 - F - 3 | |
F - 4 | |
Condensed Interim Consolidated Statements of Comprehensive Income (Loss) | F - 5 |
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity | F - 6 |
F - 7 - F - 8 | |
Notes to Condensed Interim Consolidated Financial Statements | F - 9 - F - 27 |
- - - - - - - - - -
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
|
June 30,
|
December 31,
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|||||||
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2022
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2021
|
|||||||
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Unaudited
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Audited
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|||||||
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ASSETS
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||||||||
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CURRENT ASSETS:
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||||||||
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Cash and cash equivalents
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$
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$
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||||
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Short-term deposits
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|
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||||||
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Restricted cash
|
|
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||||||
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Trade receivables, (net of allowance for credit losses of $
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|
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||||||
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Contract assets
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||||||
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Inventories
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||||||
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Other current assets
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||||||
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Held for sale asset
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||||||
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Total current assets
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||||||
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LONG-TERM ASSETS:
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||||||||
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Restricted cash
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||||||
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Long-term contract assets
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||||||
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Severance pay funds
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||||||
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Deferred taxes
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||||||
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Operating lease right-of-use assets
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||||||
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Other long-term assets
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||||||
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Total long-term assets
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||||||
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PROPERTY AND EQUIPMENT, NET
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||||||
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INTANGIBLE ASSETS, NET
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||||||
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GOODWILL
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||||||
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Total assets
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$
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$
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||||
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 2
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
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June 30,
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December 31,
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|||||||
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2022
|
2021
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|||||||
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Unaudited
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Audited
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|||||||
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LIABILITIES AND SHAREHOLDERS' EQUITY
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||||||||
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CURRENT LIABILITIES:
|
||||||||
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Trade payables
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$
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$
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||||
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Accrued expenses
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|
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||||||
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Advances from customers and deferred revenues
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|
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||||||
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Operating lease liabilities
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||||||
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Other current liabilities
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||||||
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Total current liabilities
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||||||
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LONG-TERM LIABILITIES:
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||||||||
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Accrued severance pay
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||||||
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Long-term advances from customers
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||||||
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Operating lease liabilities
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||||||
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Other long-term liabilities
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||||||
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Total long-term liabilities
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||||||
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COMMITMENTS AND CONTINGENCIES
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||||||||
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SHAREHOLDERS' EQUITY:
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||||||||
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Share capital -
Ordinary shares of NIS
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|
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||||||
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Additional paid-in capital
|
|
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||||||
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Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
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||||
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Accumulated deficit
|
(
|
)
|
(
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)
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||||
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Total shareholders' equity
|
|
|
||||||
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Total liabilities and shareholders' equity
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$
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|
$
|
|
||||
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 3
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands (except share and per share data)
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Six months ended
June 30,
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||||||||
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2022
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2021
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|||||||
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As Restated (1)
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||||||||
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Revenues:
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||||||||
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Products
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$
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|
$
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||||
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Services
|
|
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||||||
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Total revenues
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|
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||||||
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Cost of revenues:
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||||||||
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Products
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||||||
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Services
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||||||
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Total cost of revenues
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||||||
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Gross profit
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||||||
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Operating expenses:
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||||||||
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Research and development, net
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||||||
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Selling and marketing
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||||||
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General and administrative
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|
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||||||
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Impairment of held for sale asset
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||||||
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Total operating expenses
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|
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||||||
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Operating income (loss)
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|
(
|
)
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|||||
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Financial expenses, net
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(
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)
|
(
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)
|
||||
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Loss before taxes on income
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(
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)
|
(
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)
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||||
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Taxes on income
|
|
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||||||
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Net loss
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$ |
(
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)
|
$ |
(
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)
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||
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Loss per share (basic and diluted)
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$
|
(
|
)
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$
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(
|
)
|
||
|
Weighted average number of shares used in computing loss per share:
|
||||||||
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Basic
|
|
|
||||||
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Diluted
|
|
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||||||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 4
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
|
Six months ended
June 30,
|
||||||||
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2022
|
2021
|
|||||||
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As Restated (1)
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||||||||
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Net loss
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$
|
(
|
)
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$
|
(
|
)
|
||
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Other comprehensive loss:
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||||||||
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Foreign currency translation adjustments
|
|
(
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)
|
|||||
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Change in unrealized loss on hedging instruments, net
|
(
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)
|
(
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)
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||||
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Less - reclassification adjustments for net loss (gain) realized on hedging instruments, net
|
|
(
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)
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|||||
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Total other comprehensive loss
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(
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)
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(
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)
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||||
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Comprehensive loss
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$
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(
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)
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$
|
(
|
)
|
||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 5
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands (except number of ordinary shares data)
|
Number of
Ordinary shares
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Accumulated
deficit
|
Total
shareholders' equity
|
|||||||||||||||||||
|
As Restated (1)
|
||||||||||||||||||||||||
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Balance as of December 31, 2020 (1)
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
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Stock-based compensation of options
|
-
|
-
|
|
-
|
-
|
|
||||||||||||||||||
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Exercise of stock options
|
|
|
(
|
)
|
-
|
-
|
-
|
|||||||||||||||||
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Comprehensive loss (1)
|
-
|
-
|
-
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||
|
Balance as of June 30, 2021 (1)
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Number of
Ordinary shares
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Accumulated
deficit
|
Total
shareholders' equity
|
|||||||||||||||||||
|
Balance as of December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Stock-based compensation of options
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-
|
-
|
|
-
|
-
|
|
||||||||||||||||||
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Exercise of stock options
|
|
|
(
|
)
|
-
|
-
|
-
|
|||||||||||||||||
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Comprehensive loss
|
-
|
-
|
-
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||
|
Balance as of June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 6
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
|
Six months ended
June 30,
|
||||||||
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2022
|
2021
|
|||||||
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As Restated (1)
|
||||||||
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Cash flows from operating activities:
|
||||||||
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Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||
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Depreciation and amortization
|
|
|
||||||
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Impairment of held for sale asset
|
|
|
||||||
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Stock-based compensation of options
|
|
|
||||||
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Changes in operating assets and liabilities:
|
||||||||
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Accrued severance pay, net
|
|
(
|
)
|
|||||
|
Deferred taxes, net
|
|
|
||||||
|
Increase in trade receivables, net
|
(
|
)
|
(
|
)
|
||||
|
Decrease (increase) in contract assets
|
(
|
)
|
|
|||||
|
Increase in other assets and receivables
|
(
|
)
|
(
|
)
|
||||
|
Decrease (increase) in inventories, net
|
(
|
)
|
|
|||||
|
Increase (decrease) in trade payables
|
|
(
|
)
|
|||||
|
Decrease in accrued expenses
|
(
|
)
|
(
|
)
|
||||
|
Increase (decrease) in advances from customers and deferred revenues
|
|
(
|
)
|
|||||
|
Decrease in other liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) operating activities
|
(
|
)
|
|
|||||
|
Cash flows from investing activities:
|
||||||||
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Purchase of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Repayment of (investment in) short term deposits
|
|
(
|
)
|
|||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Dividend payment
|
|
(
|
)
|
|||||
|
Repayment of long-term loan
|
|
(
|
)
|
|||||
|
Net cash used in financing activities
|
|
(
|
)
|
|||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
(
|
)
|
|||||
|
Decrease in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at the end of the period (C)
|
$
|
|
$
|
|
||||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 7
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands
|
Six months ended
June 30,
|
|||||||||
|
2022
|
2021
|
||||||||
|
Supplementary disclosure of cash flows activities:
|
|||||||||
|
(A) |
Cash paid during the period for:
|
||||||||
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Interest
|
$
|
|
$
|
|
|||||
|
Income taxes
|
$
|
|
$
|
|
|||||
|
(B) |
Non-cash transactions:
|
||||||||
|
Purchases of property and equipment that were not paid for and reclassification from inventories to property and equipment
|
$
|
|
$
|
|
|||||
|
New operating lease assets obtained in exchange for operating lease liabilities
|
$
|
|
$
|
|
|||||
|
(C) |
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed interim consolidated balance sheets: |
||||||||
|
June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash - Current
|
|
|
||||||
|
Restricted cash - Long-Term
|
|
|
||||||
|
Cash, cash equivalents and restricted cash
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
F - 8
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
| NOTE 1: - |
GENERAL
|
| a. |
Organization:
Gilat Satellite Networks Ltd. and its subsidiaries (the "Company") is a global provider of satellite-based broadband communications. The Company designs and manufactures ground-based satellite communications equipment, and provides comprehensive solutions and end-to-end services, powered by its technology. The Company’s portfolio includes a cloud-based satellite network platform, Very Small Aperture Terminals ("VSATs"), amplifiers, high-speed modems, high-performance on-the-move antennas, high power Solid-State Power Amplifiers ("SSPAs"), Block Up Converters ("BUCs") and Transceivers. The Company’s solutions support multiple applications with a full portfolio of products to address key applications including broadband access, cellular backhaul, enterprise, In-Flight Connectivity ("IFC"), maritime, trains, defense and public safety. The Company also provides connectivity services, internet access and telephony, to enterprise, government and residential customers utilizing both its own networks, and other networks that it installs, mainly based on Build Operate Transfer ("BOT") and Build Own Operate ("BOO") contracts. In these projects, the Company builds telecommunication infrastructure typically using fiber-optic and wireless technologies for the broadband connectivity. The Company also provides managed network services over VSAT networks owned by others.
The Company was incorporated in Israel in 1987 and launched its first generation VSAT in 1989.
The Company operates in three business segments consisting of Satellite Networks, Integrated Solutions and Network Infrastructure and Services. For additional information, including major customers, geographic and segment information, see Note 10.
|
|
| b. |
The Company depends on major suppliers to supply certain components and services for the production of its products or providing services. If these suppliers fail to deliver or delay the delivery of the necessary components or services, the Company will be required to seek alternative sources of supply. A change in suppliers could result in product redesign, manufacturing delays or services delays which could cause a possible loss of sales and additional incremental costs and, consequently, could adversely affect the Company's results of operations and financial position.
|
| c. |
The ongoing COVID-19 pandemic continues to have an adverse effect on the Company’sindustry and the markets in which the Company operates. The COVID-19 outbreak significantly impacted the travel and aviation markets in which the Company’s significant IFC customers operate and has resulted in a significant reduction of the Company’s business with some of these customers. The Company has also experienced postponed and delayed orders in certain other areas of its businesses. Further, the guidance of social distancing, lockdowns, quarantines and the requirements to work from home in various key territories such as Israel, Peru, California, Australia, Bulgaria, China and other countries, in addition to greatly reduced travel globally, has resulted in a substantial curtailment of business activities, which has affected and is likely to continue to affect the Company’s ability to conduct fieldwork as well as deliver products and services in the areas where restrictions are implemented by the local government. In addition, certain of the Company’s sales and support teams are unable to travel or meet with customers and the pandemic threat has caused operating, manufacturing, supply chain and project development delays and disruptions, labor shortages, travel and shipping disruptions and shutdowns (including as a result of government regulation and prevention measures). As a result, the Company experienced a significant reduction in business in 2020. Despite the recovery in the Company’s business in 2021 and in the six months ended June 30, 2022, revenues have not yet reached the 2019 level. In the six months ended June 30, 2022 the Company’s revenues were $
|
|
F - 9
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
NOTE 1:-GENERAL (Cont.)
COVID-19 related government assistance
Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") the Company was eligible for a refundable Employee Retention Credit subject to certain criteria. As of June 30, 2022 and December 31, 2021, the Company had a $952
| d. |
Against the backdrop of the military conflict between Russia and the Ukraine and the rising tensions between the U.S. and other countries, on the one hand, and Russia, on the other hand, major economic sanctions and export controls restrictions on Russia and various Russian entities were imposed by the U.S., European Union and the United Kingdom commencing in February 2022, and additional sanctions and restrictions may be imposed in the future. Theses sanctions and restrictions may materially restrict the Company’s business in Russia which mainly includes exports to Russia, which amounted to revenues of approximately $
|
F - 10
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 2: - |
SIGNIFICANT ACCOUNTING POLICIES |
a.Unaudited condensed interim consolidated financial statements:
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information. In the opinion of management, the unaudited condensed interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company's consolidated financial statements.
The balance sheets as of December 31, 2021 have been derived from the audited consolidated financial statements of the Company at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements.
The accompanying unaudited condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on May 16, 2022. The significant accounting policies applied in the Company’s audited 2021 consolidated financial statements and notes thereto included in the Annual Report are applied consistently in these unaudited condensed interim consolidated financial statements.
Restatement of previously issued condensed interim consolidated financial statements
The Company restated its condensed interim consolidated statements of income (loss) and comprehensive income (loss), condensed interim consolidated statement of changes in shareholders’ equity, and the condensed interim consolidated statement of cash flows for the six months ended June 30, 2021.
A summary of adjustments to certain previously reported financial information for comparative purposes is included in Note 13.
For further information regarding the restatement to our condensed interim financial statements for the six months ended June 30, 2021, please refer to Note 2 in the accompanying notes to the audited consolidated financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on May 16, 2022.
F - 11
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b.Use of estimates:
The preparation of the condensed interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Main areas that require significant estimates and assumptions by the Company’s management include contract costs, revenues (including variable consideration, determination of contracts duration, establishing stand-alone selling price for performance obligations) and profits or losses, application of percentage-of-completion accounting, provisions for uncollectible receivables and customer claims, impairment of inventories, impairment and useful life of long-lived assets, goodwill impairment, valuation allowance in respect of deferred tax assets, uncertain tax positions, accruals for estimated liabilities, including litigation and insurance reserves, and stock-based compensation. Actual results could differ from those estimates.
c.Principles of consolidation:
The condensed interim consolidated financial statements include the accounts of Gilat Satellite Networks Ltd. and its subsidiaries in which the Company has a controlling voting interest. Inter-company balances and transactions have been eliminated upon consolidation.
d.Recently issued accounting pronouncements – not yet adopted:
In March 2020, the FASB issued Update ASU 2020-04 'Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting' which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform. The amendments apply only to contracts and transactions that reference LIBOR or another reference rate expected to be discontinued as part of the reform. This ASU applies only to contracts or transactions entered into or evaluated before December 31, 2022. The Company continues to monitor what impact the discontinuance of LIBOR or another reference rate will have on the Company’s contracts and other transactions.
F - 12
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 3:- |
INVENTORIES
|
Inventories are comprised of the following:
|
June 30,
|
December 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Raw materials, parts and supplies
|
$
|
|
$
|
|
||||
|
Work in progress and assembled raw materials
|
|
|
||||||
|
Finished products
|
|
|
||||||
|
$
|
|
$
|
|
|||||
Inventory net write-offs amounted to $1,593 and $2,386 during the six months ended June 30, 2022 and 2021, respectively.
| NOTE 4:- |
PROPERTY AND EQUIPMENT, NET
|
Property and equipment, net consists of the following:
|
June 30,
|
December 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Cost:
|
||||||||
|
Buildings and land
|
$ |
|
$ |
|
||||
|
Computers, software and electronic equipment
|
|
|
||||||
|
Network equipment
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Vehicles
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
|
|
|||||||
|
Accumulated depreciation
|
|
|
||||||
|
Depreciated cost
|
$ |
|
$ |
|
||||
Depreciation expenses amounted to $5,461 and $4,425 during the six months ended June 30, 2022 and 2021, respectively.
During the year ended December 31, 2021, a property of the Company in Germany was classified as held for sale. As the sale is highly probable, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year. The Company recognized an impairment of $439 in the condensed interim consolidated statements of income (loss) for the six months ended June 30, 2022.
| NOTE 5:- |
DEFERRED REVENUES
|
Deferred revenues as of June 30, 2022 and December 31, 2021 were $
F - 13
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 5:- |
DEFERRED REVENUES (CONT.)
|
The balance of deferred revenues approximates the aggregate amount of the billed and collected amount allocated to the unsatisfied performance obligations at the end of reporting period.
The aggregate estimated amount of the transaction price allocated to performance obligations from contracts with customers that have an original expected duration of more than one year and that are unsatisfied (or partially unsatisfied) as of June 30, 2022 is approximately $410,300 . Such unsatisfied performance obligations, other than for large scale governmental projects (expected to be recognized over periods of approximately 8 -12 years), principally relate to contracts in which the Company committed to provide customer care services, extended warranty on equipment delivered to its customers or other services for an original period of more than one year.
The Company elected to use the exemption of not disclosing the prices allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period, that are part of contracts that have an original expected duration of one year or less.
For information regarding disaggregated revenues, please refer to note 10 (e).
| NOTE 6:- |
COMMITMENTS AND CONTINGENCIES
|
| a. |
Litigations:
|
|
1.
|
In 2003, the Brazilian tax authority filed a claim against the Company’s inactive subsidiary in Brazil, SPC International Ltda. (the "Brazilian Subsidiary"), for the payment of taxes allegedly due from the Brazilian Subsidiary. After numerous hearings and appeals at various appellate levels in Brazil, the Supreme Court ruled against the Brazilian Subsidiary in final non-appealable decisions published in June 2017. As of June 30, 2022, the total amount of this claim, including interest, penalties and legal fees is approximately $
|
F - 14
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
NOTE 6:-COMMITMENTS AND CONTINGENCIES (Cont.)
|
2.
|
In 2014, the Company’s Peruvian subsidiary, Gilat To Home Peru S.A., ("GTH Peru"), initiated an arbitration proceedings in Lima against the Ministry of Transport and Communications of Peru, ("MTC"), and the Programa Nacional de Telecomunicaciones ("PRONATEL"). The arbitration was related to the PRONATEL projects awarded to the Company in the years 2000-2001. Under these projects, GTH Peru provided fixed public telephony services in rural areas of Peru. GTH Peru main claim was related to damages caused by the promotion of mobile telephony in such areas by the Peruvian government in the years 2011-2015. In June 2018, the arbitration tribunal issued an arbitration award ordering MTC and PRONATEL to pay GTH Peru approximately $
|
|
3.
|
In October 2019, GTH Peru initiated additional arbitration proceedings against MTC and PRONATEL based on similar grounds for the years 2015-2019. Evidentiary hearings took place in August and October 2021. In February 2022, the parties submitted their closing arguments. The final hearing took place on March 23, 2022. On June 16, 2022, the arbitration tribunal issued an arbitration award ordering MTC and Pronatel to pay GTH Peru approximately $
|
|
4.
|
In 2018, Gilat Networks Peru S.A. ("GNP"), the Company’s subsidiary in Peru, won a government bid for two additional regional projects in the Amazonas and Ica regions in Peru for PRONATEL with a contractual value of approximately $
|
|
|
F - 15
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
NOTE 6:-COMMITMENTS AND CONTINGENCIES (Cont.)
The Company is also in the midst of different stages of audits and disputes with various tax authorities in different parts of the world. Further, the Company is the defendant in various other lawsuits, including employment-related litigation claims and may be subject to other legal proceedings in the normal course of its business. While the Company intends to defend the aforementioned matters vigorously, it believes that a loss in excess of its accrued liability with respect to these claims is not probable.
| b. |
Guarantees:
|
As of June 30, 2022, the aggregate amount of bank guarantees outstanding in order to secure the Company's various obligations was $91,012 , including an aggregate of $87,851 on behalf of its subsidiaries in Peru. In order to secure these guarantees the Company provided a floating charge on its assets as well as other pledges, including a fixed pledge, on certain assets and property. In addition, the Company has $1,205 of restricted cash to secure these guarantees.
All of the above guarantees are performance guarantees for the Company's own performance, in accordance with ASC 460, "Guarantees" ("ASC 460"), such guarantees are excluded from the scope of ASC 460. The Company has not recorded any liability for such amounts, since the Company expects that its performance will be acceptable. To date, no guarantees have ever been exercised against the Company.
| c. |
Commitments:
|
During the six months ended June 30, 2022, the Company has not entered into any new commitments with material effect on the Company’s condensed interim consolidated financial statements.
| NOTE 7:- |
DERIVATIVE INSTRUMENTS
|
The Company has entered into several foreign currency hedging contracts to protect against changes in value of forecasted foreign currency cash flows resulting from salaries and related payments that are denominated in NIS. These contracts were designated as cash flow hedges, as defined by ASC 815, as amended, are considered highly effective as hedges of these expenses and generally mature within twelve months.
The Company recognized loss related to derivative instruments, within payroll expenses in the condensed interim consolidated statements of income (loss) of $626 and $48 for the six months ended June 30, 2022 and 2021, respectively.
The fair value of derivative instruments in the condensed interim consolidated balance sheets amounted to ($1,747 ) and $24 as of June 30, 2022 and December 31, 2021, respectively.
F - 16
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 7:- |
DERIVATIVE INSTRUMENTS (CONT.)
|
The estimated net amount of the existing loss that are reported in accumulated other comprehensive loss as of June 30, 2022 that is expected to be reclassified into the condensed interim consolidated statement of income (loss) within the next twelve months is $1,747 .
| NOTE 8:- |
SHAREHOLDERS' EQUITY
|
|
a.
|
Share capital:
|
Ordinary shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.
| b. |
Stock option plans:
|
In October 2008, the compensation committee of the Company's Board of Directors approved the adoption of the 2008 Stock Incentive Plan (the "2008 Plan") with 1,000,000 shares or stock options available for grant and a sub-plan to enable qualified optionees certain tax benefits under the Israeli Income Tax Ordinance. Among the incentives that may be adopted are stock options, performance share awards, performance share unit awards, restricted shares, RSUs awards and other stock-based awards. During the years commencing in 2010 and through June 30, 2022, the Company's Board of Directors approved, in the aggregate, an increase of 8,146,362 shares to the number of shares available for grant under the 2008 Plan, bringing the total number of shares available for grant to 9,146,362 . As of June 30, 2022, an aggregate of 169,375 shares were available for future grants under the 2008 Plan.
The options granted under the 2008 Plan during the six months ended June 30, 2022 have vesting restrictions, valuations and contractual lives in similar nature to those described in Note 11 of the Notes to Company’s consolidated annual financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021.
Options granted to employees:
The fair value of the Company's stock options granted in the six months ended June 30, 2022 and 2021 was estimated using the following weighted average assumptions:
|
Six months ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Risk free interest
|
|
|
||||||
|
Dividend yields
|
|
|
||||||
|
Volatility
|
|
|
||||||
|
Expected term (in years)
|
|
|
||||||
F - 17
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
NOTE 8:-SHAREHOLDERS' EQUITY (Cont.)
A summary of employee and director option balances under the 2008 Plan as of June 30, 2022 and changes during the six months then ended are as follows:
|
Number of options
|
Weighted-average exercise price
|
Weighted- average remaining contractual term
(in years)
|
Aggregate intrinsic value
|
|||||||||||||
|
Outstanding at January 1, 2022
|
|
$
|
|
|
$
|
|
||||||||||
|
Granted
|
|
$
|
|
|||||||||||||
|
Exercised
|
(
|
)
|
$
|
|
||||||||||||
|
Forfeited
|
(
|
)
|
$
|
|
||||||||||||
|
Outstanding as of June 30, 2022
|
|
$
|
|
|
$
|
|
||||||||||
|
Exercisable as of June 30, 2022
|
|
$
|
|
|
$
|
|
||||||||||
The weighted-average grant-date fair value of options granted to employees during the six months ended June 30, 2022 was $3.18 . The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that date. These amounts change based on the fair market value of the Company's stock. Total intrinsic value of options exercised for the six months ended June 30, 2022 was $549 .
| c. | Dividends: |
|
1.
|
In the event that cash dividends are declared by the Company, such dividends will be declared and paid in Israeli currency. Under current Israeli regulations, any cash dividend paid in Israeli currency in respect of ordinary shares purchased by non-residents of Israel with non-Israeli currency, may be freely repatriated in such non-Israeli currency, at the exchange rate prevailing at the time of repatriation.
|
|
2.
|
In January 2021, the Company distributed a cash dividend in the amount of $
|
|
3.
|
Pursuant to the terms of a bank agreement, the Company is restricted from paying cash dividends to its shareholders without initial approval from the bank; which was received for the above mentioned dividend.
|
F - 18
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 9:- |
OTHER COMPREHENSIVE INCOME (LOSS) |
The following table shows the changes of accumulated other comprehensive loss, for the six months ended June 30, 2022:
|
Six months ended
June 30, 2022
|
||||||||||||
|
Foreign currency translation adjustments
|
Unrealized losses on cash flow hedges
|
Total
|
||||||||||
|
Beginning balance
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Other comprehensive loss before reclassifications
|
|
(
|
)
|
(
|
)
|
|||||||
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|||||||||
|
Net current-period other comprehensive loss
|
|
(
|
)
|
(
|
)
|
|||||||
|
Ending balance
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
| NOTE 10:- |
CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION
|
| a. |
The Company applies ASC 280, "Segment Reporting" ("ASC 280"). Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker ("CODM"). The CODM is the Company’s Chief Executive Officer. The Company's CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment. |
| b. |
From 2018 until December 31, 2021, The Company had three operating segments: Fixed Networks, Mobility Solutions and Terrestrial Infrastructure Projects.
|
| c. |
Commencing in the first quarter of 2022, in order to reflect the Company’s new management’s approach in the management of the Company’s operations, organizational alignment, customer base and end markets, the Company operates in three new operating segments, as follows:
|
|
•
|
Satellite Networks is focused on the development and supply of networks that are used as the platform that enables the latest satellite constellations of HTS, VHTS and NGSO opportunities worldwide. The segment provides advanced broadband satellite communication networks and associated professional services and comprehensive turnkey solutions and managed satellite network services solutions. Segment’s customers are service providers, satellite operators, MNOs, Telcos, large enterprises, system integrators, defense, homeland security organizations and governments worldwide. Principal applications include In-Flight-Connectivity, cellular backhaul, maritime, social inclusion solutions, government, defense and enterprise networks and are driving meaningful partnerships with satellite operators to leverage the segment’s technology and breadth of services to deploy and operate the ground-based satellite communication networks. The segment’s product portfolio includes a leading satellite network platform with high-speed VSATs, high performance on-the-move antennas, BUCs and transceivers.
|
F - 19
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 10:- | CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.) |
|
•
|
Integrated Solutions is focused on the development, manufacturing and supply of products and solutions for mission-critical defense and broadcast satellite communications systems, advanced on-the-move and on-the-pause satellite communications equipment, systems and solutions, including airborne, ground-mobile satellite systems and solutions. The segment’s product portfolio includes leading high-efficiency, high-power SSPAs, BUCs and transceivers with a field-proven, high-performance variety of frequency bands. The segment’s customers are satellite operators, In-Flight Connectivity service providers, defense and homeland security system integrators, and NGSO gateway integrators.
|
|
•
|
Network Infrastructure and Services is focused on telecom operation and implementation of large-scale networks projects in Peru. The segment provides terrestrial (fiber optic and wireless network) and satellite network construction and operation. The segment serves customers through technology integration, managed networks and services, connectivity services, internet access and telephony over the segment’s networks. The segment implements projects using various technologies (including the Company’s equipment), mainly based on BOT and BOO contracts.
|
The Company evaluated whether the change in its operating segments, as described above, affects goodwill assignment to reporting units and concluded no re-assignment is needed. The carrying amount of the goodwill is associated with the Satellite Networks and Integrated Solutions segments.
| d. |
Information on the reportable operating segments:
|
|
1.
|
All the above segments changes were reflected through retroactive revision of prior period segment information.
|
|
2.
|
The measurement of operating profit (loss) in the reportable operating segments is based on the same accounting principles applied in these condensed interim consolidated financial statements and includes certain corporate overhead allocations.
|
|
3.
|
Financial information relating to reportable operating segments:
|
F - 20
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 10:- | CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.) |
|
Six months ended
June 30, 2022
|
||||||||||||||||||||
|
Satellite Networks
|
Integrated Solutions
|
Network Infrastructure and Services
|
Unallocated
|
Total
|
||||||||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating profit (loss)
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||
|
Financial expenses, net
|
(
|
)
|
||||||||||||||||||
|
Loss before taxes on income
|
(
|
)
|
||||||||||||||||||
|
Taxes on income
|
|
|||||||||||||||||||
|
Net loss
|
(
|
)
|
||||||||||||||||||
|
Depreciation and amortization Expenses
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Six months ended
June 30, 2021
|
||||||||||||||||||||
|
Satellite Networks
|
Integrated Solutions
|
Network Infrastructure and Services
|
Unallocated
|
Total
|
||||||||||||||||
|
As Restated (1)
|
||||||||||||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating profit (loss)
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||
|
Financial expenses, net
|
(
|
)
|
||||||||||||||||||
|
Loss before taxes on income
|
(
|
)
|
||||||||||||||||||
|
Taxes on income
|
|
|||||||||||||||||||
|
Net loss
|
(
|
)
|
||||||||||||||||||
|
Depreciation and amortization Expenses
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
F - 21
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 10:- | CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION (Cont.) |
| e. |
Disaggregation of Revenues:
|
Revenues attributed to geographic areas, based on the location of the end customers and in accordance with ASC 280, are as follows:
|
Six months ended
|
||||||||
|
June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
As Restated (1)
|
||||||||
|
Latin America *)
|
$
|
|
$
|
|
||||
|
Asia Pacific
|
|
|
||||||
|
United States and Canada
|
|
|
||||||
|
Europe, the Middle East and Africa **)
|
|
|
||||||
|
$
|
|
$
|
|
|||||
*) Revenues attributed to Peru in the six months ended June 30, 2022 amounted to $ 25,839 .
**) Revenues attributed to Israel in the six months ended June 30, 2022 amounted to $ 1,390 .
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
| f. |
The table below represents the revenues from major customers and their operating segments:
|
|
Six months ended
June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
As Restated (1)
|
||||||||
|
Customer A - Network Infrastructure and Services
|
|
%
|
|
%
|
||||
|
Customer B - Integrated Solutions
|
|
%
|
|
)
|
||||
|
Customer C - Satellite Networks
|
|
%
|
|
)
|
||||
*) Less than 10%
Customer A is located in Peru, Customer B is located in the European Union and Customer C is located in the United States.
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
F - 22
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 11:- |
INCOME TAXES
|
The Company’s six months tax provision, and estimates of its annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, tax law developments, as well as non-deductible expenses, such as share-based compensation, and changes in its valuation allowance. Income tax expense was $832 and $474 for the six months ended June 30, 2022 and 2021, respectively. The income tax expense for the six months ended June 30, 2022 is primarily related to the Company’s activity in the United States and Asia Pacific.
| NOTE 12:- |
RELATED PARTY BALANCES AND TRANSACTIONS
|
|
a.
|
The Company entered into a number of agreements for the purchase of infrastructure, construction and services from C. Mer Industries Ltd. ("C. Mer"), a publicly traded company in Israel (TASE). As of June 30, 2022, the Company's largest shareholder, FIMI Opportunity Funds ("FIMI"), holds approximately
|
| b. |
In December 2015 the Company entered into a memorandum of understanding with Orbit Communication Systems, ("Orbit"), a publicly traded company in Israel (TASE), for development and manufacture of an antenna for an aggregate amount of approximately $
|
|
|
In addition, Euclid Ltd. ("Euclid"), a supplier of the Company, was fully acquired by Orbit in January 2022. The Company purchases antennas and related services from Euclid. |
||
| c. |
The transactions with Company’s related parties were approved by Company’s Audit Committee and Board of Directors in accordance with the requirements of the Israeli Companies Law. |
F - 23
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 12:- |
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
|
| d. | Transactions with the related parties: |
|
Six months ended
June 30,
|
||||||||
|
2022
|
2021*)
|
|
||||||
|
As Restated (1)
|
||||||||
|
Cost of revenues of products
|
$
|
|
$
|
|
||||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
*) Excluding transactions and balances with Euclid, which became a related party during January 2022.
| e. |
Balances with the related parties:
|
|
June 30,
2022
|
December 31, 2021 *)
|
|||||||
|
Trade payables
|
$
|
|
$
|
|
||||
|
Accrued expenses |
$
|
|
$
|
|
||||
|
Other current assets
|
$
|
|
$
|
|
||||
*) Excluding transactions and balances with Euclid, which became a related party during January 2022.
| NOTE 13:- |
RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
The following tables present the impact of adjustments made in the Company’s revenues and cost of revenues in its condensed interim consolidated financial statements for the six months ended June 30, 2021. See Note 2 for additional information.
The condensed interim consolidated statements of cash flows are not presented in the following tables because there is no impact on total cash flows from operating activities, investing activities and financing activities.
F - 24
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 13:- |
RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
Condensed Interim Consolidated Statements of Income (Loss):
|
Six months ended June 30, 2021
|
||||||||||||
|
As Reported
|
Adjustments
|
As Restated
|
||||||||||
|
Revenues:
|
||||||||||||
|
Products
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Services
|
|
(
|
)
|
|
||||||||
|
Total revenues
|
|
(
|
)
|
|
||||||||
|
Cost of revenues:
|
||||||||||||
|
Products
|
|
(
|
)
|
|
||||||||
|
Services
|
|
|
|
|||||||||
|
Total cost of revenues
|
|
(
|
)
|
|
||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Operating loss
|
(
|
)
|
|
(
|
)
|
|||||||
|
Loss before taxes on income
|
(
|
)
|
|
(
|
)
|
|||||||
|
Net loss
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
*) Adjustment for total basic and diluted loss per share is lower than $0.01
Condensed Interim Consolidated Statements of Comprehensive Income (Loss):
|
Six months ended June 30, 2021
|
||||||||||||
|
As Reported
|
Adjustments
|
As Restated
|
||||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Comprehensive loss
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
F - 25
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 14:- |
EARNINGS PER SHARE
|
The following table sets forth the computation of basic and diluted loss per share:
|
1.
|
Numerator:
|
|
Six months ended
June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
As Restated (1)
|
||||||||
|
Numerator for basic and diluted loss per share -
|
||||||||
|
Net loss available to holders of ordinary shares
|
$
|
(
|
)
|
$
|
(
|
)
|
||
(1) The Company restated previously issued condensed interim consolidated financial statements. See Note 2 and Note 13 for additional information.
| 2. |
Denominator:
|
|
Six months ended
June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Denominator for basic loss per share -
|
||||||||
|
Weighted average number of shares
|
|
|
||||||
|
Add - employee stock options
|
|
|
||||||
|
Denominator for diluted loss per share - adjusted
|
|
|
||||||
The total number of potential shares related to the outstanding options excluded from the calculations of diluted loss per share, as they would have been anti-dilutive, were 3,339,769 and 2,844,751 for the six months ended June 30, 2022 and 2021, respectively.
F - 26
GILAT SATELLITE NETWORKS LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands
| NOTE 15:- |
SUPPLEMENTARY CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS INFORMATION
|
Other current assets:
|
June 30,
2022
|
December 31,
2021
|
|||||||
|
Governmental authorities
|
$
|
|
$
|
|
||||
|
Prepaid expenses
|
|
|
||||||
|
Deferred charges
|
|
|
||||||
|
Advance payments to suppliers
|
|
|
||||||
|
Other
|
|
|
||||||
|
$
|
|
$
|
|
|||||
F - 27
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
The following discussion and analysis of our financial condition as of June 30, 2022 and results of operations for the six months
ended June 30, 2022 and June 30, 2021 should be read together with our condensed interim consolidated financial statements and related notes included elsewhere in this filing and our audited consolidated financial statements included in our Annual
Report on Form 20-F for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission ("SEC") on May 16, 2022 (the “2021 Form 20-F”). The following discussion contains forward-looking statements that reflect our current
plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed
below and elsewhere this filing and in our Annual Report on Form 20-F and other filings with the U.S. Securities and Exchange Commission.
Restatement of Previously Issued Condensed Interim Consolidated Financial Information
As set forth in our 2021 Form 20-F, In connection with the preparation of our consolidated financial statements for the year ended December 31, 2021, we
identified misstatements related to revenues and cost of revenues in the accounting treatment of our construction and operation of fiber and wireless networks in Peru for the years 2015 through 2020. We restated our condensed interim consolidated
statements of income (loss) and comprehensive income (loss), condensed interim consolidated statement of changes in shareholders’ equity, and the condensed interim consolidated statement of cash flows for the six months ended June 30, 2021.
A summary of adjustments to certain previously reported financial information for comparative purposes is included in Note 13 of our Condensed Interim Consolidated Financial Statements included
elsewhere in this filing. For further information regarding the restatement to our condensed interim financial statements for the six months ended June 30, 2021, please refer to Note 2 in the accompanying notes to the audited consolidated financial
statements for the year ended December 31, 2021, included in our 2021 form 20-F Part III, Item 18 filed with the U.S. Securities and Exchange Commission ("SEC") on May 16, 2022.
Internal Control Considerations
In the course of preparing our consolidated financial statements for the year ended December 31, 2021, we identified material weaknesses in the design and implementation of our internal controls
over the revenues recognition process of our subsidiary in Peru relating to its complex projects, as follows: (i) inappropriate control over the accounting implementation due to inaccurate interpretation of Accounting Standard ASC 606, "Revenues from
contracts with customers" which was adopted in 2018; and (ii) inappropriate control over the level of documented evidence when performing management review control over management estimates of costs. We have started working on a remediation plan to
address such weaknesses. For a discussion of management’s considerations of the Company’s disclosures controls and procedures, internal controls over financial reporting, and material weaknesses identified, refer to “Controls and Procedures” in Part
II, Item 15 in our 2021 form 20-F.
Introduction
We are a leading global provider of satellite-based broadband communications. We believe in the right of all people to be connected. Our mission is to create and deliver deep technology solutions
for satellite, ground and new space connectivity. With proven expertise, a can-do attitude and a winning global team, we aspire to be the natural partner, bringing real value in the satcom market. We design and manufacture ground-based satellite
communications equipment, and provide comprehensive solutions and end-to-end services, powered by our technology. Our portfolio includes a cloud-based satellite network platform, VSATs, amplifiers, high-speed modems, high performance on-the-move
antennas and high efficiency, high power SSPAs, BUCs and Transceivers. Our comprehensive solutions support multiple applications with a full portfolio of products to address key applications including broadband internet access, cellular backhaul over
satellite, enterprise, social inclusion solutions, In flight connectivity ("IFC"), maritime, trains, defense and public safety, all while meeting the most stringent service level requirements. We also provide connectivity services, internet access
and telephony, to enterprise, government and residential customers utilizing both our own networks, and other networks that we install, mainly based on Build Operate Transfer ("BOT") and Build Own Operate ("BOO") contracts. In addition, we provide
managed network services over VSAT networks owned by others.
We have a large installed base and have shipped more than 1.6 million satellite terminals spanning approximately 100 countries since 1989 and currently have hundreds of active networks. We have
twenty sales and support offices worldwide, three NOCs which provide Global NOC services and five R&D centers.
Our products are mainly sold to communication service providers, satellite operators, Mobile networks operators ("MNOs") and system integrators that use satellite communications to serve enterprise,
social inclusion solutions, government and residential users, MNOs and system integrators that use our technology. Our solutions and services are also sold to defense and homeland security organizations. In addition, we provide services directly to
end-users in various market segments, including in certain countries in Latin America.
From 2018 until December 31, 2021, we had three operating segments: Fixed Networks, Mobility Solutions and
Terrestrial Infrastructure Projects. Commencing in the first quarter of 2022, in order to reflect our new management’s approach in the management of our operations, organizational alignment, customer base and end markets, we operate in three new
operating segments, as follows:
Satellite Networks is focused on the development and supply of networks that are used as the platform that enables the latest satellite constellations of HTS,
VHTS and NGSO opportunities worldwide. We provide advanced broadband satellite communication networks and associated professional services and comprehensive turnkey solutions and managed satellite network services solutions. Our customers are service
providers, satellite operators, MNOs, Telcos, large enterprises, system integrators, defense, homeland security organizations and governments worldwide. Principal applications include In-Flight-Connectivity, cellular backhaul, maritime, social
inclusion solutions, government, defense and enterprise networks and are driving meaningful partnerships with satellite operators to leverage our technology and breadth of services to deploy and operate the ground-based satellite communication
networks. Our product portfolio includes a leading satellite network platform with high-speed VSATs, high performance on-the-move antennas, BUCs and transceivers.
Integrated Solutions is focused on the development, manufacturing and supply of products and solutions for mission-critical defense and broadcast satellite
communications systems, advanced on-the-move and on-the-pause satellite communications equipment, systems and solutions, including airborne, ground-mobile satellite systems and solutions. The integrated solutions product portfolio includes leading
high-efficiency, high-power SSPAs, BUCs and transceivers with a field-proven, high-performance variety of frequency bands. Our customers are satellite operators, In-Flight Connectivity service providers, defense and homeland security system
integrators, and NGSO gateway integrators.
Network Infrastructure and Services is focused on telecom operation and implementation of large-scale networks projects in Peru. We provide terrestrial (fiber
optic and wireless network) and satellite network construction and operation. We serve our customers through technology integration, managed networks and services, connectivity services, internet access and telephony over our own networks. We
implement projects using various technologies (including our equipment), mainly based on BOT and BOO contracts.
COVID-19 Pandemic
The ongoing COVID-19 pandemic continues to have an adverse effect on our industry and the markets in which we operate. The COVID-19 outbreak significantly
impacted the travel and aviation markets in which our significant IFC customers operate and has resulted in a significant reduction of our business with some of these customers. We have also experienced postponed and delayed orders in certain other
areas of our businesses. Further, the guidance of social distancing, lockdowns, quarantines and the requirements to work from home in various key territories such as Israel, Peru, California, Australia, Bulgaria, China and other countries, in
addition to greatly reduced travel globally, has resulted in a substantial curtailment of business activities, which has affected and is likely to continue to affect our ability to conduct fieldwork as well as deliver products and services in the
areas where restrictions are implemented by the local government. In addition, certain of our sales and support teams are unable to travel or meet with customers and the pandemic threat has caused operating, manufacturing, supply chain and project
development delays and disruptions, labor shortages, travel and shipping disruptions and shutdowns (including as a result of government regulation and prevention measures). As a result, we experienced a significant reduction in our business in 2020.
Despite the recovery in our business in 2021 and in the six months ended June 30, 2022, revenues have not yet reached the 2019 level. In the six months ended June 30, 2022 our revenues were $107 million, compared to $98 million in the comparable
period of 2021 and to $86 million in the comparable period of 2020. While we expect that the adverse effects of COVID-19 will be eased by global vaccination and testing and reduced restrictions on travel, it is still likely to continue to adversely
impact us by its negative impact on our ability to generate revenues due to reduced end-market demand from IFC customers, governments and enterprises and constraints on our ability to conduct fieldwork leading to order delays and cancellations. Given
the current macro-economic environment and the uncertainties regarding the potential impact of COVID-19 and its different variants on our business, there can be no assurance that our estimates and assumptions used in the measurement of various assets
and liabilities in the condensed interim consolidated financial statements will prove to be accurate predictions of the future. If our assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be
triggered and certain assets in the condensed interim consolidated financial statements may be impaired.
Conflict in Ukraine
Against the backdrop of the military conflict between Russia and the Ukraine and the rising tensions between the U.S. and other countries, on the one hand, and Russia, on the other hand, major
economic sanctions and export controls restrictions on Russia and various Russian entities were imposed by the U.S., European Union and the United Kingdom commencing in February 2022 and additional sanctions and restrictions may be imposed in the
future. Theses sanctions and restrictions may materially restrict our business in Russia which mainly includes exports to Russia, which amounted to revenues of approximately $2.2 million and $2.6 million in the six months ended June 30, 2022 and
2021, respectively, and $6.3 million in the year ended December 31, 2021, and may delay or prevent us from collecting funds and perform money transfers from Russia. While our business in Russia is limited in scope and not material to our operations,
these restrictions may cause a reduction of our sales and impact our financial results. We receive manufacturing services from a global manufacturer’s facility in Ukraine. While the manufacturer assured us that the operations of the plant have not
been interrupted by the current military situation and has a recovery plan in place, there is no assurance that negative developments in the area in the future will not disrupt and materially adversely affect our business.
Explanation of Key Income Statement Items
Revenues
We generate revenues mainly from the sale of products (including construction of networks), satellite-based communications networks services and from providing connectivity, internet access and
telephony services. We sell our products and services to enterprise, government and residential customers under large-scale contracts that utilize both our own networks and also other networks that we install, mainly based on BOT and BOO contracts.
These large‑scale contracts sometimes involve the installation of thousands of VSATs or construction of massive fiber-optic and wireless networks. Sale of products includes mainly the sale of VSATs, hubs, SSPAs, low-profile antennas and on-the-move /
on-the-pause terminals, and construction and installation of large-scale networks based on BOT and BOO contracts. Revenues for the sale of services includes access to and communication via satellites ("space segment"), installation of equipment,
telephone services, internet services, consulting, on-line network monitoring, network maintenance and repair services. We sell our products primarily through our direct sales force and indirectly through resellers or system integrators.
Costs and Operating Expenses
Cost of revenues, for both products and services, includes the cost of system design, equipment, including inventory write-off costs, satellite capacity, salaries and related costs, allocated overhead
costs, depreciation and amortization, customer service, interconnection charges and third-party maintenance and installation.
Our research and development expenses, net of grants received, consist of salaries and related costs, raw materials, subcontractor expenses, related depreciation costs and overhead allocated to
research and development activities.
Our selling and marketing expenses consist primarily of salaries and related costs, commissions earned by sales and marketing personnel, commissions to agents, trade show expenses, promotional expenses
and overhead costs allocated to selling and marketing activities, as well as depreciation expenses and travel costs.
Our general and administrative expenses consist primarily of salaries and related costs, allocated overhead costs, office supplies and administrative costs, bad debts, fees and expenses of our
directors, depreciation, and professional service fees, including legal, insurance and audit fees, net of rental income.
Our operating results are significantly affected by, among other things, the timing of contract awards and the performance of agreements. As a result, our revenues and income (loss) may fluctuate
substantially from quarter to quarter, and we believe that comparisons over longer periods of time may be more meaningful. The nature of certain of our expenses is mainly fixed or partially fixed and any fluctuation in revenues will generate a
significant variation in gross profit and net income (loss).
Critical Accounting Policies and Estimates
The preparation of the financial information in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires us to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, mainly related to trade receivables and contract assets, inventories,
deferred charges, long-lived assets, intangibles and goodwill, revenues (including variable consideration, determination of contracts duration, establishing stand-alone selling price for performance obligations) and profits (losses), stock-based
compensation relating to options, income taxes, and contingencies. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Please refer to our discussion of critical accounting policies in our 2021 Form 20-F for a discussion about those policies that we believe are the most important to the understanding of our financial
condition and results of operations as such policies affect our more significant judgments and estimates used in the preparation of the financial information included in this interim report. Results for the six months ended June 30, 2022 are not
necessarily indicative of results that may be expected for the year ending December 31, 2022 or future periods.
In March 2020, the FASB issued Update ASU 2020-04 'Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting' which provides optional expedients
and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform. The amendments apply only to contracts and transactions that reference LIBOR or another reference rate expected to
be discontinued as part of the reform. This ASU applies only to contracts or transactions entered into or evaluated before December 31, 2022. We continue to monitor what impact the discontinuance of LIBOR or another reference rate will have on our
contracts and other transactions.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenues. Revenues for the six months ended June 30, 2022 and 2021 for our three operating segments were as follows:
|
Six Months Ended
|
Six Months Ended
|
|||||||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||||||
|
As Restated (1)
|
As Restated (1)
|
|||||||||||||||||||
|
|
U.S. dollars in thousands
|
Percentage change
|
Percentage of revenues
|
|||||||||||||||||
|
Unaudited
|
Unaudited
|
Unaudited
|
||||||||||||||||||
|
|
||||||||||||||||||||
|
Satellite Networks
|
51,627
|
59,975
|
(13.9
|
)%
|
48.3
|
%
|
61.1
|
%
|
||||||||||||
|
Integrated Solutions
|
29,397
|
18,836
|
56.1
|
%
|
27.5
|
%
|
19.2
|
%
|
||||||||||||
|
Network Infrastructure and Services
|
25,839
|
19,358
|
33.5
|
%
|
24.2
|
%
|
19.7
|
%
|
||||||||||||
|
Total
|
106,863
|
98,169
|
8.9
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||||||
(1) We restated our previously issued Condensed Interim Financial Information. For additional information, see Note 2 of our Condensed Interim Consolidated Financial Statements included elsewhere in
this filing.
Our total revenues for the six months ended June 30, 2022 and 2021 were $106.9 million and $98.2 million, respectively. The increase in 2022 is attributable to an increase of $10.6 million in
Integrated Solutions revenues and $6.5 million in Network Infrastructure and Services revenues, partially offset by a decrease of $8.3 million in Satellite Networks revenues.
The decrease in our Satellite Networks segment's revenues in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is due to a high volume of
projects that ended in the first six months of 2021, as well as due to the conflict in Ukraine and the impact of COVID-19 on the global supply chain.
The increase in our Integrated Solutions segment revenues is mainly due to the increase of business volume for NGSO and improved In-Flight Connectivity markets in the six months
ended June 30, 2022, as well as the impact of COVID-19 on the IFC market in the six months ended June 30, 2021.
The increase in Network Infrastructure and Services revenues is mainly attributable to service agreements related to Programa Nacional de Telecomunicaciones, or PRONATEL,
projects, in the six months ended June 30, 2022, not yet initiated in the six months ended June 30, 2021.
Gross profit (loss). Gross profit (loss) and gross margin for the six months ended June 30, 2022 and 2021 for our three operating
segments were as follows:
|
|
Six Months Ended
|
Six Months Ended
|
||||||||||||||
|
|
June 30,
|
June 30,
|
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
As Restated (1)
|
As Restated (1)
|
|||||||||||||||
|
U.S. dollars in thousands
|
Percentage of revenues
|
|||||||||||||||
|
Unaudited
|
Unaudited
|
|||||||||||||||
|
Satellite Networks
|
21,735
|
26,907
|
42.1
|
%
|
44.9
|
%
|
||||||||||
|
Integrated Solutions
|
8,393
|
3,761
|
28.6
|
%
|
20.0
|
%
|
||||||||||
|
Network Infrastructure and Services
|
6,029
|
(1,569
|
)
|
23.3
|
%
|
(8.1
|
)%
|
|||||||||
|
Total
|
36,157
|
29,099
|
33.8
|
%
|
29.6
|
%
|
||||||||||
(1) We restated our previously issued Condensed Interim Financial Information. For additional information, see Note 2 of our Condensed Interim Consolidated Financial Statements included elsewhere in
this filing.
Our gross profit is affected period-to-period by revenues volume, the mix of our products sold, the mix of revenues between products and services, the
regions in which we operate, the size of our transactions and the timing of when such transactions are consummated. Moreover, from time to time we may have large-scale projects which can cause material fluctuations in our gross profit. We recognize a
portion of our revenues from a Peruvian governmental authority, PRONATEL, mainly with respect to six regions in Peru, or the PRONATEL Regional Projects, and in other projects in Peru, using the percentage-of-completion method, and as such any changes
to our estimated profits in these projects may cause material fluctuations in our gross profit. As such, we are subject to significant period-to-period fluctuations in our gross profit.
Our gross profit margin increased to 33.8% in the six months ended June 30, 2022 from 29.6% in the comparable period of 2021 due to increased gross profit margins in our Integrated Solutions and
Network Infrastructure and Services segments, offset by a decrease in gross profit margins in the Satellite Networks segment.
The decrease in the Satellite Networks segment gross profit margin is mainly attributable to lower revenues volume and a less favorable revenues mix.
The increase in the gross profit margin of the Integrated Solutions segment is mainly attributable to higher revenues volume and a more favorable revenues mix.
In the Network Infrastructure and Services segment, the increased gross profit margin is mainly attributable to service agreements related to PRONATEL projects in the six months
ended June 30, 2022, not yet initiated in the six months ended June 30, 2021.
Operating expenses:
|
|
Six Months Ended
|
|||||||||||
|
|
June 30,
|
|||||||||||
|
|
2022
|
2021
|
||||||||||
|
|
U.S. dollars in thousands
|
Percentage change
|
||||||||||
|
Unaudited
|
Unaudited
|
|||||||||||
|
|
||||||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development, net
|
16,386
|
15,660
|
4.6
|
%
|
||||||||
|
Selling and marketing
|
10,310
|
10,468
|
(1.5
|
)%
|
||||||||
|
General and administrative
|
8,555
|
6,938
|
23.3
|
%
|
||||||||
|
Impairment of held for sale asset
|
439
|
-
|
-
|
|||||||||
|
Total operating expenses
|
35,690
|
33,066
|
7.9
|
%
|
||||||||
Our research and development expenses, net, are incurred by our Satellite Networks and Integrated Solutions segments. Research and development expenses, net, increased by approximately $0.7 million in the six months ended June 30, 2022 compared to the six months ended
June 30, 2021. The increase is mainly attributable to higher employee related expenses, lower research and development grants, and higher services from third partied and other expenses.
Selling and marketing expenses decreased by approximately $0.2 million in the six months ended June 30, 2022 compared to the six months ended June 30,
2021.
General and administrative expenses increased by approximately $1.6 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase
is mainly attributable to stock-based compensation and employee related expenses.
Financial expenses, net. Financial expenses, net, were approximately
$1.7 million in the six months ended June 30, 2022 and $0.8 million in the six months ended June 30, 2021.The increase is primarily due to revaluation of monetary assets, net from liabilities, linked to the NIS.
Taxes on income. Taxes on income are dependent upon where our
profits are generated, such as the location and taxation of our subsidiaries as well as changes in deferred tax assets and liabilities and changes in valuation allowances attributable
to changes in our profit estimates in different regions. In the six months ended June 30, 2022, we had tax expenses of approximately $0.8 million compared to tax expenses of approximately $0.5 million in the six months ended June 30, 2021.
Net loss. Net loss was approximately $2.0 million in the six months
ended June 30, 2022 and $5.2 million in the six months ended June 30, 2021. The decrease is primarily attributed to higher gross margin partially offset by an increase in operating expenses and financial expenses, net in the six months ended June 30,
2022 compared to the six months ended June 30, 2021.
Variability of Quarterly Operating Results
Our revenues and profitability may vary from quarter to quarter and in any given year, depending primarily on the sales mix of our family of products and
the mix of the various components of the products, sales prices, and production costs, as well as our entering into new service contracts, the termination of existing service contracts, or different profitability levels between different service
contracts. Sales of our products to a customer typically consist of numerous VSATs and related hub equipment, SSPAs, BUCs and low-profile antennas, which carry varying sales prices and margins.
Annual and quarterly fluctuations in our results of operations may be caused by the timing and composition of orders by our customers and the timing of our ability to recognize revenues. Our future
results may also be affected by a number of factors, including our ability to continue to develop, introduce and deliver new and enhanced products on a timely basis and expand into new product offerings at competitive prices, to integrate our recent
acquisitions, to anticipate effectively customer demands and to manage future inventory levels in line with anticipated demand. Our results may also be affected by currency exchange rate fluctuations and economic conditions in the geographical areas
in which we operate. In addition, our revenues may vary significantly from quarter to quarter as a result of, among other factors, the timing of new product announcements and releases by our competitors and us. We cannot be certain that revenues,
gross profit and net income (or loss) in any particular quarter will not vary from the preceding or comparable quarters. Our expense levels are based, in part, on expectations as to future revenues. If revenues are below expectations, operating
results are likely to be adversely affected. In addition, a substantial portion of our expenses are fixed (e.g. space segment, lease payments) and adjusting expenses in the event revenues drop unexpectedly
often takes considerable time. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Due to all of the foregoing
factors, it is possible that in some future quarters our revenues or operating results will be below the expectations of public market analysts or investors. In such event, the market price of our shares would likely be materially adversely affected.
Impact of Inflation and Currency Fluctuations
While most of our sales and service contracts are in U.S. dollars or are linked to the U.S. dollar and most of our expenses are in U.S. dollars and NIS, portions of our projects in Latin America as
well as our operation in Australia, Asia and Europe are linked to their respective local currencies. The foreign exchange risks are often significant due to fluctuations in local currencies relative to the U.S. dollar.
The influence on the U.S. dollar cost of our operations in Israel relates primarily to the cost of salaries in Israel, which are paid in NIS and constitute a substantial portion of our expenses in
NIS. In the six months ended June 30, 2022, the rate of inflation in Israel was3.2 % and the U.S. dollar appreciated in relation to the NIS at a rate of 12.5%, from NIS 3.11 per $1 on December 31, 2021 to NIS 3.5 per $1 on June 30, 2022. Such
appreciation of the U.S. dollar in relation to the NIS mainly eases operating expenses incurred in NIS while it generates financial expenses due to revaluation of certain monetary assets, net from liabilities, linked to the NIS.
If future inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel, our results of operations
may be materially adversely affected. In 2022 and 2021, in order to limit these risks, we have entered into several foreign currency hedging contracts to protect against changes in value of forecasted foreign currency cash flows resulting from
salaries and related payments that are denominated in NIS. These contracts were designated as cash flow hedges, as defined by ASC 815, as amended, are considered highly effective as hedges of these expenses and generally mature within twelve
months. We recognized loss related to derivative instruments, within payroll expenses in the condensed interim consolidated statements of income (loss) of $626 and $48 for the six months ended June 30, 2022 and 2021, respectively. The fair value of
derivative instruments in the condensed interim consolidated balance sheets amounted to ($1,747) and $24 as of June 30, 2022 and 2021, respectively.
Our monetary balances that are not linked to the U.S. dollar impacted our financial expenses during the six months ended June 30, 2022 and June 30, 2021. This was due to heavy fluctuation in local
currency rates in certain regions in which we do business, mainly in Israel, Latin America, Australia and Europe. A devaluation of the local currency rates in relation to the U.S. dollar also has the effect of decreasing the U.S. dollar value of
any of our assets that consist of local currency or accounts receivable denominated in local currency, unless such assets or accounts receivable are linked to the U.S. dollar. Such a devaluation also has the effect of reducing the U.S. dollar
amount of any of our liabilities that are payable in local currency, unless such payables are linked to the U.S. dollar. On the other hand, any increase in the value of the local currency in relation to the U.S. dollar will have the effect of
increasing the U.S. dollar value of any unlinked local currency assets as well as the U.S. dollar amount of any unlinked local currency liabilities and expenses. There can be no assurance that our results of operations will not be materially
adversely affected by other currency fluctuations in the future.
Liquidity and Capital Resources
Since our inception, our financing requirements have been met through cash from funds generated by private equity investments, public offerings, issuances
of convertible subordinate notes, bank loans and credit facilities, operations, as well as funding from research and development grants. We have used available funds primarily for working capital, capital expenditures and strategic investments.
As of June 30, 2022, we had cash and cash equivalents of $70.1 million and short-term and long-term restricted cash of $1.3 million. As of December 31,
2021, we had cash and cash equivalents of $81.9 million, short-term and long-term restricted cash of $2.6 million and a short-term deposit of $2.2 million. As of June 30, 2022, we do not have any outstanding financial debt. We believe that our
working capital is sufficient for our requirements over the next 12 months.
In connection with the PRONATEL Regional Projects, we were required to post certain advance
payment guarantees and performance guarantees with PRONATEL. These requirements were principally satisfied through issuance of bank guarantees by the First International Bank of Israel, or FIBI, and by The Hong Kong and Shanghai Banking
Corporation, or HSBC (also through a Peruvian bank). Under the arrangements with FIBI, we are required to observe certain conditions, and under the arrangements with HSBC we are required to
satisfy certain conditions and financial covenants. As of June 30, 2022, we are in compliance with these conditions and covenants. The aggregate amount of the bank guarantees outstanding to secure our various performance obligations, issued on our
behalf by HSBC, FIBI and Scotia Bank del Peru as of June 30, 2022, was approximately $91 million, including an aggregate of approximately $87.9 million on behalf of our subsidiaries in Peru. We have provided HSBC and FIBI with various pledges as
collateral. Our credit and guarantee agreements also contain various restrictions and limitations that may impact us. These restrictions and limitations relate to incurrence of indebtedness, contingent obligations, negative pledges, liens, mergers
and acquisitions, change of control, asset sales, dividends and distributions, redemption or repurchase of equity interests and certain debt payments. The agreements also stipulate a floating charge on our assets to secure fulfillment of our
obligations to FIBI and HSBC as well as other pledges, including a fixed pledge, on certain assets and property.
The following table summarizes our cash flows for the periods presented:
|
Six months ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
U.S. dollars in thousands
|
||||||||
|
Unaudited
|
||||||||
|
Net cash provided by (used in) operating activities
|
(10,681
|
)
|
8,742
|
|||||
|
Net cash used in investing activities
|
(2,356
|
)
|
(5,731
|
)
|
||||
|
Net cash used in financing activities
|
-
|
(39,003
|
)
|
|||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
32
|
(161
|
)
|
|||||
|
Net decrease in cash, cash equivalents and restricted cash
|
(13,005
|
)
|
(36,153
|
)
|
||||
|
Cash, cash equivalents and restricted cash at beginning of the period
|
84,463
|
115,958
|
||||||
|
Cash, cash equivalents and restricted cash at end of the period...
|
71,458
|
79,805
|
||||||
Our cash, cash equivalents and restricted cash decreased by approximately $13 million during the six months ended June 30, 2022 as a result of the following:
Operating activities. Cash used in our operating activities was approximately $10.7 million in the six months ended June 30, 2022 compared to cash provided by
operating activities of approximately $8.7 million in the six months ended June 30, 2021. The cash used during the 2022 period was mainly related to changes in working capital, while the cash provided by our operating activities during the 2021
period was primarily attributable to improved collections from PRONATEL as a result of completion of the fourth awarded PRONATEL Regional Project.
Investing activities. Cash used in investing activities was approximately $2.4 million in the six months ended June 30, 2022 compared to approximately $5.7
million in the six months ended June 30, 2021. The cash used in our investing activities during the 2022 period was for the purchase of property and equipment partially offset by a repayment of a short-term deposit. During the 2021 period the funds
used in investing activities were for the purchase of property and equipment and investing in a short-term deposit.
Financing activities. Cash used in financing activities was $0 million in the six months ended June 30, 2022 compared to approximately $39 million of cash used
in financing activities in the six months ended June 30, 2021. The cash used in financing activities during the 2021 period was primarily related to a dividend payment to shareholders and the repayment of a long term loan.