Gilat Telecom in the First Quarter: Defense Satellite Profit Carries the Quarter as Internet ARPU Falls
Gilat Telecom opened 2026 with higher revenue, stronger profit and a materially cleaner capital structure. The more important split sits below the headline: commercial and government satellite activity carries almost all direct segment profit, while internet adds subscribers and fiber lines at a lower ARPU and with cash still absorbed by leases and prepaid costs.
Gilat Telecom opened 2026 with a quarter that confirms an important part of the 2025 turnaround: revenue rose to NIS 68.5 million, net profit rose to NIS 7.35 million, and equity jumped to NIS 119 million. The split below the headline is sharper than the consolidated number: the commercial and government satellite segment generated NIS 20.2 million of direct profit, while the internet and cloud segment generated only NIS 0.7 million despite strong subscriber growth. That partially closes an open point from the previous annual analysis, because defense and communications orders are now becoming revenue. Growth quality is uneven: the internet activity already had more than 25 thousand active lines under the Bezeq agreement at the report date, but quarterly ARPU fell to NIS 73.2, below the company's targets. Cash flow also limits the interpretation: operating cash flow of NIS 4.6 million became negative free cash flow of NIS 4.9 million after capex and lease payments. The next quarters need to prove that defense demand and backlog keep converting into collection, and that the internet activity can lift price and profitability without stopping customer acquisition.
The Company Is Now Measured Through Two Engines
Gilat Telecom is still a relatively small communications company in the capital market, with a market value of roughly NIS 273 million at the end of May 2026, but the current report no longer reads like the report of a historical Africa-focused satellite operator only. Starting in 2026 the company reports in shekels, and the move is explained by a larger Israeli operation, agreements with Bezeq, and material shekel-denominated debt against which it holds shekel deposits. The currency change signals that the business center of gravity has moved toward Israel and local communications contracts.
The new segment split sharpens the company's economics. Commercial and government satellite includes satellite communications services, equipment and integration solutions for government, defense and commercial customers. Internet and cloud communications includes the Israeli internet activity, including the fiber agreement with Bezeq. In this type of communications business, value is created through capacity utilization, direct contract profit, customer collection and management of a heavy lease layer. Backlog and active lines matter, but the thesis depends on what remains after capacity costs and lease payments.
Profit Comes From Satellite, Internet Needs A Higher Price
Consolidated revenue rose 18.7% year over year, and gross profit rose 30.1%, with gross margin improving from 28.2% to 31.0%. Operating profit rose from NIS 5.6 million to NIS 9.4 million, and adjusted EBITDA rose from NIS 9.8 million to NIS 14.2 million. The numbers are strong, and the segment split shows who created them.
| Segment | Q1 2026 revenue | Year over year change | Q1 2026 direct profit | Direct margin | Meaning |
|---|---|---|---|---|---|
| Commercial and government satellite | NIS 58.7 million | 20.9% | NIS 20.2 million | 34.5% | The company's main profit source |
| Internet and cloud communications | NIS 9.8 million | 7.4% | NIS 0.7 million | 7.4% | Operating growth that has not yet become high profitability |
In commercial and government satellite, direct profit rose from NIS 11.9 million to NIS 20.2 million, an improvement of roughly 70%. The driver is not only volume, but also service revenue and one-time equipment revenue, higher-margin transactions, and stronger demand for defense-related services and products following Operation Roaring Lion and the geopolitical environment. The company also points to significant orders from Israeli customers for satellite communication services totaling roughly NIS 110 million for the coming year including VAT, a three-year Vodacom renewal for roughly USD 45 million, and signed contract backlog of roughly NIS 182.2 million through 2029.
The internet activity shows strong customer momentum and weaker economics. At quarter-end, the residential subscriber base stood at 21,850, compared with 8,664 at the end of the comparable quarter and 17,929 at the end of 2025. At the report date the company already refers to roughly 23.8 thousand residential customers, more than 350 business customers and more than 25 thousand active lines under the Bezeq agreement. ARPU fell to NIS 73.2 from NIS 96.63 in the comparable quarter and NIS 86.85 in 2025, while the company targets NIS 80 in the medium term and NIS 90 in the long term. Direct internet profit fell from NIS 1.8 million to NIS 0.7 million, so in this quarter the Bezeq agreement still looks like a capacity advantage waiting for proof of price and profitability.
The Balance Sheet Is Cleaner, Cash After Leases Is Still Negative
Liquidity is much better than a year ago. At quarter-end the company had cash, designated cash, deposits and restricted cash of roughly NIS 90.6 million, and it reports a net financial asset position of roughly NIS 50 million. Consolidated working capital is positive by roughly NIS 62.2 million. Against that, a capacity-heavy communications company should be tested by what remains after investment, leases and debt, not only by the cash balance.
All-in cash flexibility after the quarter's real cash uses starts with operating cash flow, deducts property and other asset investment, and deducts actual lease payments. Here, lease payments mean total lease cash paid, principal plus lease interest. On that basis, the quarter still did not release free cash.
The company also presents positive free cash flow of NIS 2.9 million after excluding prepaid expenses. That is a legitimate metric for timing and seasonality, especially because the first quarter is usually weak for cash flow. It does not replace the full calculation. In a quarter in which customers increased by NIS 10.3 million, deferred expenses increased by NIS 8.5 million and lease payments totaled NIS 8.9 million, profit still needs balance-sheet support before it becomes surplus cash after all uses.
The capital structure is already more comfortable. The functional-currency change to shekels reclassified the conversion components of Series C and Series D bonds from liability to equity, and the equity statement shows a NIS 17.5 million reclassification to the equity component of a compound financial instrument. Together with quarterly profit and bond conversions, equity rose to NIS 119.0 million from NIS 77.6 million at the end of 2025. Covenant headroom is wide, so the bottleneck has moved from survival to execution quality.
What Decides The Rest Of 2026
The first quarter gives Gilat Telecom a stronger base than it had a year ago: higher profitability, a larger backlog, higher equity, and a cash position that allows it to operate without immediate refinancing pressure. The current read is positive on the capital structure and satellite segment, and more mixed on internet and cash flow. The company has proven demand and the ability to bring orders into the income statement, and it needs to prove that the Bezeq agreement creates profit per customer and not only customer volume.
The strongest counter-thesis is that the internet weakness is temporary: new customers pull ARPU down early, higher-speed packages can still improve price, and the Bezeq agreement may start showing a cost advantage as lines fill up. That is possible, and the current balance sheet gives the company time to prove it. The inflection point will be if two of three things happen over the next quarters: ARPU moves back toward NIS 80, direct internet profit rises above the current level, and free cash flow after leases and investment turns positive. If the satellite segment remains almost the only profit source, while internet keeps growing at a low price and narrow direct profit, the market will see a company with a stronger balance sheet but a less balanced business.
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