KVH Reports Results for Third Quarter of 2008


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MIDDLETOWN, R.I., October 21, 2008: KVH Industries, Inc., today reported financial results for the quarter ended September 30, 2008. Revenue for the third quarter of 2008 was $15.7 million, down 10% from the quarter ended September 30, 2007. Net loss for the period was ($0.8) million, or ($0.06) per share. During the same period last year the company reported earnings of $0.00 on a per share basis.

For the nine months ended September 30, 2008, revenue was $61.2 million or flat compared to the nine months ended September 30, 2007. KVH reported net income of $2.8 million or $0.19 on a per-diluted share basis for the 2008 period, versus net income of $1.5 million or $0.10 on a per-diluted share basis in the year-ago period.

"A combination of challenging economic conditions and a delay in two fiber optic gyro programs contributed to a third quarter that did not meet our expectations. However, our diversified business model, including growth in marine product and airtime sales along with an increase in military navigation revenue, helped moderate the impact of these events. At the same time, we achieved major strategic milestones, including signing a new agreement to expand our mobile broadband service into the Pacific Ocean, adding defense-related backlog for 2009 and beyond, and making good progress in the development of our aeronautical satellite TV system," said Martin Kits van Heyningen, KVH's chief executive officer.

In the third quarter of 2008, mobile communications revenue was $12.3 million, down 6% on a year-over-year basis. "Our marine revenue rose 22% over the same quarter last year with strong sales overseas and domestically. Among the key drivers in this market were TracPhone(R) V7 antenna sales and the growth of our airtime service, which is steadily becoming a substantial recurring revenue source for the company," Mr. Kits van Heyningen continued. "The expected addition of mini-VSAT Broadband coverage across the major Pacific Ocean shipping and aviation lanes in December 2008 should help us maintain our momentum. With this new coverage area, we will be capable of generating airtime revenue from a wider audience of commercial, leisure, and government vessels as well as in the future from business jets traveling through our network.

"Within the land mobile market, quarterly revenue was down 56%, with our sales into the recreational vehicle market substantially lower than our earlier, conservative projections. This market continues to be a challenge for KVH as well as others in the RV industry, where shipments of RVs are at an 11-year low through the end of August 2008."

KVH's defense-related guidance and stabilization sales, including those for KVH's fiber optic gyro solutions and TACNAV(R) military navigation systems, were approximately $3.4 million in the third quarter of 2008, down 23% on a year-over-year basis. "The growth in revenue from TACNAV shipments and product refurbishment activities was offset by two delays within our fiber optic business. First, the final qualification process for KVH's fiber optic gyros (FOGs) for use in remote weapon stations (RWS) has taken longer than expected, which prevented shipments during the third quarter. We now expect to be in full production of our RWS FOGs in the next few weeks following the anticipated successful completion of the qualification.

"Second, an anticipated follow-on order for our TG-6000 inertial measurement units was held up due to ongoing negotiations between the U.S. Navy and the prime contractor for the MK54 torpedo. Since the start of the fourth quarter, however, we have learned that the U.S. Navy has placed a new MK54 order with the prime contractor and we anticipate resuming shipments of the TG-6000 by the end of the quarter," remarked Mr. Kits van Heyningen.

Commenting on the company's financial results for the third quarter, Patrick Spratt, KVH's chief financial officer, said, "While our top and bottom lines were lower than anticipated, our strong operating model enabled us to more effectively manage the impact of the revenue shortfall. Gross margin was better than expected at 41% thanks to a more favorable mix of product sales. We also continued to demonstrate good operating expense control resulting in a year-over-year decline on a dollar basis. Although inventory levels are high due in part to FOG shipment delays, our balance sheet remains strong, allowing us to continue our investment in long-term growth drivers for the company.

"Looking ahead to the fourth quarter, we will be investing in infrastructure to support the rollout of our Pacific network hub and the start of mini-VSAT Broadband coverage in that region. While the challenging economic climate and the exact timing of the resumption of FOG shipments add a level of uncertainty to our estimates, we still expect to return to year-over-year growth in the fourth quarter with revenue in the range of $20.0 million to $23.0 million and earnings per share of roughly $0.01 to $0.05."

Recent Operational Highlights:

-- October 7, 2008 -- KVH announced that it had signed a 5-year agreement to provide mini-VSAT Broadband service coverage in the Pacific Ocean via SAT-GE's GE-23 satellite and its North Pacific beam, representing a significant expansion in service availability.

-- September 22, 2008 -- Unicom, a member of Sovcomflot, Russia's largest shipping company, selected KVH's TracVision(R) M9 satellite TV antennas to equip the Unicom fleet with entertainment at sea. A total of 60 antennas will be installed over the duration of the project, representing the largest single maritime TracVision order in KVH's history.

-- September 17, 2008 -- KVH received a new contract from a southeast Asian customer for the purchase of KVH's TACNAV military vehicle navigation systems and displays. The contract has a total value of approximately $1.3 million with shipments starting in late 2008 and extending into early 2009.

KVH is webcasting its third quarter conference call live at 10:30 a.m. Eastern time today through the company's website. The conference call can be accessed via the company's website at KVH and listeners are welcome to submit questions pertaining to the earnings release and conference call to ir@kvh.com. The audio archive and an MP3 podcast will also be available on the company website within three hours of the completion of the call.

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