Gilat (GILT) Q2 2026 earnings review
Solid Top-Line Growth Masked by Severe Share Dilution and Cash Burn
Gilat delivered a seemingly strong Q2 with revenue up 17% to $122.7M and Adjusted EBITDA jumping 31% to $15.4M. However, beneath the non-GAAP headlines, the reality is more complicated. Massive share dilution from recent capital raises completely erased bottom-line growth for shareholders—while non-GAAP net income rose 30%, non-GAAP EPS actually declined from $0.21 to $0.20. Furthermore, the company burned $1.9M in operating cash this quarter, a reversal from cash generation a year ago. The upcoming Comtech acquisition will fundamentally transform the company into a $700M+ defense-heavy operation, but execution and integration risks are mounting.
🐂 Bull Case
The pending Comtech acquisition will double defense revenues and push pro forma total revenues past $700M, vastly expanding Gilat's U.S. engineering and manufacturing footprint in a booming global defense spending macro environment.
Commercial revenue surged 20% YoY to $83M, largely driven by Stellar Blu's IFC execution and ESA terminals, pulling Adjusted EBITDA margins up from 11.2% to 12.5%.
🐻 Bear Case
Diluted shares outstanding have ballooned from 57.3M to 79.4M YoY. Management is growing the pie, but slicing it much thinner, causing EPS to contract despite 30% non-GAAP income growth.
GAAP operating income fell 17% to $4.7M. The divergence is driven by a massive spike in stock-based compensation related to business combinations ($4.2M vs a $0.9M benefit last year).
⚖️ Verdict: 🔴
Neutral to Bearish. The strategic pivot towards defense via Comtech is conceptually sound, but the cost of this growth—severe dilution, deteriorating GAAP metrics, and operating cash burn—makes the stock highly speculative until integration proves accretive.
Key Themes
Comtech Acquisition Transforms the Business
Management announced the acquisition of Comtech’s Satellite & Space Communications segment. This is a massive scale-up effort that will push pro forma annual revenues above $700M. The deal directly targets the global macro environment of rising defense budgets, explicitly aiming to improve access to U.S. and allied defense programs by expanding domestic manufacturing. If executed well, this shifts Gilat from a commercial-heavy entity to a defense-first contractor.
Massive Share Dilution Nullifies Earnings Growth
A critical contradiction in the positive narrative: non-GAAP net income grew 30% YoY to $15.6M, but non-GAAP EPS fell 5% to $0.20. The culprit is a 38% increase in diluted shares (from 57.3M to 79.4M YoY) resulting from capital raises and earn-out settlements. Investors are paying the price for the M&A-driven growth strategy.
In-Flight Connectivity (IFC) Anchors Commercial Growth
The Commercial segment remains the workhorse, accelerating to $83M (+20% YoY). Demand is anchored by the Sidewinder ESA and the newly introduced Viper Ka ESA terminals, which broaden support for autonomous missions. With Boeing line-fit certification milestones advancing, Stellar Blu's integration continues to yield top-line stability.
GAAP vs. Non-GAAP Divergence is Accelerating
While Adjusted EBITDA rose 31%, GAAP operating income fell 17% YoY. The bridge between the two is widening dangerously. Total adjustments to GAAP operating income were $7.8M in Q2 2026, up from $3.6M a year ago. The primary driver is stock-based compensation related to business combinations ($4.2M). The 'adjusted' profitability is not translating to statutory bottom-line returns.
Peru Segment Provides Stable Base
The Peru segment continues to provide a stable, recurring revenue stream, growing 8% YoY to $17.2M. While subject to project lumpiness, it currently acts as a reliable funding mechanism for the company's aggressive investments in defense and space architectures.
Operating Cash Flow Reversing into the Red
Despite reporting $15.4M in Adjusted EBITDA, the company consumed $1.9M in operating cash this quarter, reversing from a $5.1M generation in Q2 2025. This cash burn was driven heavily by a $20.7M increase in inventories, suggesting aggressive stockpiling ahead of defense shipments or Stellar Blu terminal scale-ups.
Other KPIs
Stable. GAAP gross profit grew to $37.3M, maintaining a margin of roughly 30.4% (vs 30.4% a year ago). Non-GAAP gross margin came in at 31.7%.
Reversing. Gilat burned $1.9M in operating activities in Q2, compared to generating $5.1M in the prior year period. A significant buildup of working capital, specifically a $20.7M cash drain from inventory increases, drove the deficit.
Guidance
Stable. The reiterated guidance implies approximately 13% YoY growth at the midpoint ($510M) compared to FY25 actuals. It signals management's confidence in the second half of the year, likely relying on the heavily cited defense backlog.
Stable. Reiterated guidance implies roughly 19% YoY growth at the midpoint ($63.5M). Maintaining this target despite Q2 cash burn implies management expects significant margin expansion and working capital normalization in H2 2026.
Key Questions
Inventory Buildup vs. Demand
Operating cash flow turned negative due to a $20.7 million buildup in inventory. Is this buildup tied to firm, non-cancelable orders in the Defense segment, or is it speculative manufacturing for the commercial Stellar Blu rollout?
Comtech Integration Drag
The Comtech acquisition will double defense revenues. Given the current divergence between GAAP and non-GAAP metrics, what level of restructuring and integration charges should shareholders model for FY27?
Share Count Stabilization
Diluted shares have increased by 38% year-over-year, completely offsetting non-GAAP income growth on a per-share basis. At what point does management foresee the share count stabilizing so that underlying operating leverage flows through to EPS?