KVH Reports Third Quarter Results
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- Quarterly Revenue of $17.6 Million
- Breakeven on an Earnings per Share Basis
MIDDLETOWN, R.I., Oct. 18 -- KVH Industries, Inc., today reported financial results for the third quarter ended September 30, 2007. Revenue for the third quarter of 2007 was $17.6 million, down 9% from the third quarter ended September 30, 2006. On a per-diluted share basis, earnings were $0.00. During the same period last year the company reported net income of $0.6 million, or $0.04 on a per-diluted share basis.
For the nine months ended September 30, 2007, revenue was $61.2 million, compared to $61.5 million in the nine months ended September 30, 2006. KVH reported net income of $1.5 million or $0.10 on a per-diluted share basis for the 2007 period, versus net income of $3.6 million or $0.24 on a per-diluted share basis in the year-ago period.
"Overall, our net results exceeded our expectations for what we knew would be a challenging quarter. Despite the previously announced delays in defense- related orders, strong operational performance allowed us to beat our bottom line expectations despite lower revenue," said Martin Kits van Heyningen, KVH's chief executive officer.
In the third quarter of 2007, mobile communications revenue was $13.0 million, up 1% on a year-over-year basis. Defense-related sales, including those for KVH's fiber optic gyro (FOG) solutions and TACNAV(R) military navigation systems, were approximately $4.5 million, down 29% on a year-over- year basis.
"Solid international business helped drive our marine sales up 5% over the same quarter last year," Mr. Kits van Heyningen continued. "Within the land mobile market, quarterly revenue was down 6% with growth in the recreational vehicle (RV) market offset by a year-over-year decline in sales to the automotive market. We continue to see solid interest in our new HDTV-ready SlimLine family of TracVision(R) satellite TV systems, which are now being installed by leading RV manufacturers such as Monaco and Fleetwood on many of their 2008 model year vehicles.
"Within our mobile communications business, the initial reception to our TracPhone(R) V7 and mini-VSAT Broadband service in the marine industry has been very positive and we achieved our third quarter bookings goal. Production of the TracPhone V7 started in late September and initial shipments to customers began during the first week of October. As a result, we did not see any hardware or airtime service revenue from this product during the third quarter. Service is now live in the United States, Caribbean, and South America and our coverage of the North Atlantic and Europe is expected to come on line next. In addition, we are actively working on expanding future service coverage into the Pacific Ocean and Asian regions. I believe the TracPhone V7 is one of the most important products we've introduced in quite some time. It is a breakthrough high-speed Internet product for the leisure market that also enables us to enter the commercial shipping market for the first time."
Turning to the defense business, Mr. Kits van Heyningen remarked, "As we indicated in our last quarterly guidance, overall revenue declined 29% for the quarter due in part to the rescheduling of some tactical navigation orders. Navigation sales were down 41% while fiber optic gyro sales were down 21% vs. the third quarter of 2006. Although we did not see any FOG revenue from stabilized remote weapon programs during the third quarter, the growing demand for these programs and expectations for several major new contract awards in the future lead us to believe that KVH will be participating to a meaningful degree. We anticipate that KVH's fiber optic gyros will be in demand and emerge as a significant growth driver for the company because of their excellent performance, price, and reliability."
Commenting on the company's financial results for the third quarter, Patrick Spratt, KVH's chief financial officer, said, "Despite lower-than- anticipated revenues, our bottom line was stronger than we initially expected thanks to improved operational execution with regard to our efficiency and cost improvement efforts. Gross margin was 40%, which was better than anticipated, and we kept operating expenses in check. While operating expenses were affected by the costs associated with the final resolution of the patent litigation, we are very pleased that this issue has now been resolved in our favor. Our total cash balance increased sequentially by roughly $2 million, driven by effective collections of accounts receivable.
"Looking forward to the fourth quarter, we expect a return to positive top line growth compared to the prior year, primarily driven by solid growth in mobile communications sales, especially in our maritime markets. The fourth quarter will also be our first quarter of TracPhone V7 shipments, although we may be somewhat volume constrained by our modem supplier as production ramps during the quarter. We do not anticipate any sales in the fourth quarter related to stabilized remote weapon programs. Given this visibility, we expect that the revenue for the fourth quarter to be approximately $19 million and earnings to be approximately $0.04 per share vs. $17.4 million and $0.01 per share in the fourth quarter of 2006."
Recent Operational Highlights:
-- September 17, 2007 - Fleetwood Enterprises selected KVH's new 12" high
SlimLine series of TracVision satellite TV systems for many of its new
2008 model year motorcoaches.
-- September 6, 2007 - Mackay Communications, the largest high-seas
service company in the United States, agreed to offer KVH's TracPhone
V7 as its exclusive maritime VSAT broadband communications solution
for the commercial marine market.
-- August 10, 2007 - A jury for the U.S. District Court for the District
of Minnesota returned a verdict in favor of KVH finding that KVH was
not liable for infringing King Controls' U.S. Patent 6,864,846. The
jury specifically found that claim 5 of the patent, the only claim at
issue, was invalid due to the existence of prior art as well as the
obviousness of the technology.
-- July 30, 2007 - KVH's Board of Directors authorized a share repurchase
program of up to 1 million shares, or approximately 6.7% of the
company's outstanding common stock.
-- July 24, 2007 - KVH reached definitive agreements to settle securities
class action claims filed in federal court against the Company and
certain of its officers in 2004 on behalf of a class of KVH
shareholders, as well as two related derivative lawsuits filed by KVH
shareholders against certain of KVH's directors and officers.
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 http://investors.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.
About KVH Industries, Inc.
KVH Industries, Inc., is a leading manufacturer of systems to provide mobile access to satellite TV, communication, and high-speed Internet, as well as navigation, pointing, and guidance solutions for defense and commercial applications. The company's products are based on its proprietary mobile satellite antenna and fiber optic technologies. An ISO 9001-certified company, KVH is based in Middletown, Rhode Island. For more information, visit http://www.kvh.com/.
KVH Industries, Inc. has used, registered or applied to register its trademarks in the USA and other countries around the world, including the following marks: KVH, KVH logo, Azimuth, TracVision, TracPhone, TACNAV, DataScope and the DataScope logo, Sailcomp, mini-VSAT Broadband and the mini- VSAT Broadband logo, mini-VSAT and the banded, dome-shaped housing of its satellite antennas.
KVH INDUSTRIES, INC. AND SUBSIDIARY
SELECTED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net sales $17,566 $19,291 $61,211 $61,548
Cost of sales 10,579 11,717 36,765 36,559
-------- -------- -------- --------
Gross profit 6,987 7,574 24,446 24,989
Operating expenses:
Research and development 2,258 1,627 6,986 5,770
Sales, marketing and support 3,534 3,441 11,324 10,714
General and administrative 1,977 2,447 6,100 6,132
-------- -------- -------- --------
Income (loss) from operations (782) 59 36 2,373
Other income, net 689 599 1,940 1,542
Income tax expense 73 (32) (438) (349)
-------- -------- -------- --------
Net income (loss) $(20) $626 $1,538 $3,566
======== ======== ======== ========
Net income (loss) per common
share
Basic and Diluted $(0.00) $0.04 $0.10 $0.24
======== ======== ======== ========
Weighted average common shares
outstanding
Basic 15,005 14,827 14,977 14,762
======== ======== ======== ========
Diluted 15,005 14,965 15,001 14,894
======== ======== ======== ========
KVH INDUSTRIES, INC. AND SUBSIDIARY
SELECTED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
September 30, December 31,
2007 2006
------------- ------------
ASSETS
Cash, cash equivalents and marketable
securities $56,192 $54,739
Accounts receivable, net 10,135 10,556
Inventories 10,061 9,043
Other assets 979 1,028
------------- ------------
Total current assets 77,367 75,366
Property and equipment, net 11,489 9,569
Deferred income taxes 3,334 3,334
Other non-current assets 52 155
------------- ------------
Total assets $92,242 $88,424
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $9,524 $8,248
Current portion of long-term debt 130 123
------------- ------------
Total current liabilities 9,654 8,371
Deferred revenue 15 99
Long-term debt, excluding current portion 2,060 2,158
Stockholders' equity 80,513 77,796
------------- ------------
Total liabilities and stockholders'
equity $92,242 $88,424
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