- VSAT business continues to grow strongly; unit
shipments up 77% YOY
- Signed a multi-year service and support contract with
LiveTV for aviation satellite TV antennas
KVH Industries, Inc., (Nasdaq:KVHI) today reported financial
results for the third quarter ended September 30, 2011. Revenue for
the third quarter of 2011 was $25.6 million, down 8% from the
quarter ended September 30, 2010. Diluted earnings per share for
the quarter totaled $0.04 on net income of $0.6 million. During the
same period last year the company reported net income of $0.6
million or $0.04 per diluted share on revenues of $27.8 million.
Excluding transaction costs associated with the acquisition of
Virtek Communication, and a change to the deferred income tax
valuation allowance, 2010 quarterly adjusted net income was $1.6
million, and adjusted diluted EPS was $0.11.
For the nine months ended September 30, 2011, revenue was $80.6
million, down 5% compared to $85.2 million for the nine months
ended September 30, 2010. KVH reported a net loss of $0.7
million or $0.05 on a per share basis for the first nine months of
2011. During the same period last year, the company reported
net income of $8.0 million or $0.54 on a per diluted share basis.
Excluding transaction costs associated with the acquisition
of Virtek Communication and changes to the deferred income tax
valuation allowance, 2010 nine months year to date adjusted net
income was $5.0 million, and adjusted diluted EPS was $0.34.
"Although total revenue for the third quarter was lower than
expected, we saw continued strong growth in our mini-VSAT Broadband
business, which increased 51% year over year," said Martin Kits van
Heyningen, KVH's chief executive officer. "Unit sales of our
mini-VSAT Broadband TracPhone® systems were up 77% compared to the
same quarter last year. Revenue from our fiber optic gyro
(FOG) solutions was well below our expectations, due primarily to
delays in customer programs."
In the third quarter of 2011, mobile communications revenue was
$17.9 million, a 17% increase on a year-over-year basis.
KVH's guidance and stabilization revenue from the company's
fiber optic gyro (FOG) solutions, TACNAV® military navigation
systems, and related services was $7.7 million in the third quarter
of 2011, down 38% on a year-over-year basis.
"Clearly the weak economy and continued uncertainty impacted our
results in the third quarter," explained Mr. Kits van Heyningen.
"Going forward, we are assuming that decision cycles for some
commercial and government projects will take longer in the current
economic environment and we are planning accordingly. However,
we are entering the fourth quarter with a stronger order backlog
that gives us better visibility than we had in the third
quarter.
Our FOG and TACNAV businesses continue to have excellent
potential. Our new DSP-1750 fiber optic gyro is generating a
good deal of interest and KVH FOGs are being designed into
important new programs. Our TACNAV business continues to show
signs of resurgence, and we anticipate significant follow-on orders
during the coming quarters. Although we had no product revenue
from our aeronautical business in the third quarter, we entered
into a three year service and support agreement with LiveTV and
began to see service revenue from this agreement in September."
Addressing the company's financial results, Patrick Spratt,
KVH's chief financial officer, said, "For the quarter, gross margin
of 40.6% was better than expected and showed an improvement of 140
basis points over the second quarter. This was, in part, the
result of the growth of our mini-VSAT Broadband airtime services
and the associated positive leverage of our network infrastructure,
improved manufacturing efficiencies and some favorable overall
product mixes.
The sequential improvement in our mini-VSAT Broadband airtime
service gross margin was quite positive. Compared to the
second quarter of this year, gross profit from our VSAT airtime
services approximately doubled, and the gross margin percentage
improved by about 800 basis points. We also slowed some of
our operating spending plans as we saw signs that revenue for the
quarter might be below our expectations.
The third quarter EPS included the benefit that resulted from
reaching agreement with LiveTV relative to the termination of our
original antenna development and production agreement. This
benefit was approximately $840,000 and was recorded as Other
Income. During the quarter we repurchased approximately
282,000 shares of our common stock. The repurchase program
has continued in the fourth quarter."
Looking ahead to the fourth quarter, Mr. Spratt said, "We expect
to see continuing strong year-over-year growth in our mini-VSAT
Broadband business, with both total revenue and unit sales
exceeding the growth rates we reported for the third quarter.
We also have a substantial backlog for fourth quarter
delivery of our TACNAV military navigation products. On the
other hand, we have lowered our expectations for near-term revenue
from the CROWS II program because the visibility to demand is
currently very limited. With these factors as the basis,
fourth quarter revenue is projected to be in the range of $31 to
$34 million, and the bottom line earnings are projected to be in
the range of $0.08 to $0.14 per share. Our effective tax rate
for the year is projected to be modestly negative. We expect
that our strategic growth businesses, along with anticipated new
orders for our TACNAV products, will drive solid top line growth
and improved margins in 2012. The recurring nature of our
airtime services revenue stream provides a solid base of business
for the future. If the worldwide economies show any signs of
improvement, we believe we are positioned to leverage that to our
benefit as well."
Mr. Kits van Heyningen concluded, "We are fully confident in the
development of our strategic businesses. Our products and
services are being broadly adopted in the markets in which we
compete, and we continue to increase our market share. We
fully expect to see continuing strong long-term growth in each of
our strategic markets."
Recent Operational Highlights:
- On October 20, 2011, KVH Industries Pte Ltd., opened our new
Asia-Pacific headquarters office, which features a showroom, test
center, and training center for partners and customers in this key
region.
- On September 21, 2011, KVH announced that MOL (LNG), subsidiary
of leading Japanese multi-modal transport company MOL, chose KVH's
TracPhone V7 and global SATCOM service to enhance business and crew
communications aboard its tankers.
- On September 14, 2011, KVH introduced the 1-meter TracVision
HD11, the world's most sophisticated marine satellite TV system,
which allows boaters to enjoy HDTV programming from services around
the world using an exclusive, digitally programmable multi-beam
Universal World LNB.
- On September 6, 2011, KVH announced that mini-VSAT Broadband
service was live and available in South America, completing the
global rollout plan and making mini-VSAT Broadband the world's
largest marine Ku-band network.
- On August 22, 2011, KVH produced its 50,000th fiber optic gyro,
reinforcing its reputation as a key provider of guidance and
stabilization solutions for military and commercial
applications.
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 at
http://investors.kvh.com 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.
About KVH Industries, Inc.
KVH Industries is a leading manufacturer of solutions that
provide global high-speed Internet, television and voice services
via satellite to mobile users at sea, on land, and in the air.
KVH is also a premier manufacturer of high performance
sensors and integrated inertial systems for defense and commercial
guidance and stabilization applications. The company is based
in Middletown, RI, with facilities in Illinois, Denmark, Norway,
and Singapore.
This press release contains forward-looking statements that
involve risks and uncertainties. For example, forward-looking
statements include statements regarding our financial goals for
future periods, anticipated revenue growth, anticipated
profitability, anticipated orders for our mobile communication,
guidance and stabilization products, and anticipated improvements
in our competitive position. The actual results we achieve
could differ materially from the statements made in this press
release. Factors that might cause these differences include,
but are not limited to: the impact of extended economic weakness
and increasing fuel prices on the sale and use of motor vehicles
and marine vessels; the need to increase sales of the TracPhone V7
and TracPhone V3 and related services to improve airtime gross
margins; the need for or delays in qualification of products to
customer or regulatory standards; unanticipated declines or changes
in customer demand, due to economic, seasonal and other factors,
particularly with respect to the TracPhone V7 and V3; the
unpredictability of defense budget priorities as well as the order
timing, purchasing schedules and priorities for our defense
products, including possible order cancellations; the uncertain
impact of potential budget cuts by government customers; potential
reductions in our overall gross margins in the event of a shift in
product mix; and currency fluctuations, export restrictions, delays
in procuring export licenses, and other international risks.
These and other factors are discussed in more detail in our
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 4, 2011. Copies are available
through our Investor Relations department and website,
http://investors.kvh.com. We do not assume any obligation to
update our forward-looking statements to reflect new information
and developments.
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, Tri-Americas, CommBox, TACNAV, DataScope and
the DataScope logo, Sailcomp, mini-VSAT Broadband and the mini-VSAT
Broadband logo, E•Core, and the banded, dome-shaped housing of its
satellite antennas. Other trademarks are the property of
their respective companies.
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(in thousands, except
per share amounts, unaudited) |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2011 |
2010 |
2011 |
2010 |
Sales: |
|
|
|
|
Product |
$ 17,987 |
$ 21,598 |
$ 61,203 |
$ 70,010 |
Service |
7,634 |
6,165 |
19,400 |
15,231 |
Net sales |
25,621 |
27,763 |
80,603 |
85,241 |
|
|
|
|
|
Costs and expenses: |
|
|
|
|
Costs of product sales |
9,745 |
11,688 |
33,756 |
38,498 |
Costs of service sales |
5,464 |
4,537 |
15,360 |
11,907 |
Research and development |
2,792 |
2,934 |
8,645 |
8,017 |
Sales, marketing and support |
5,614 |
4,380 |
16,790 |
13,615 |
General and administrative |
2,312 |
2,955 |
7,789 |
7,635 |
Total costs and
expenses |
25,927 |
26,494 |
82,340 |
79,672 |
|
|
|
|
|
(Loss) income from
operations |
(306) |
1,269 |
(1,737) |
5,569 |
|
|
|
|
|
Interest income |
65 |
70 |
198 |
253 |
Interest expense |
64 |
61 |
177 |
143 |
Other income (expense),
net |
872 |
(15) |
887 |
48 |
|
|
|
|
|
Income (loss) before income tax
benefit (expense) |
567 |
1,263 |
(829) |
5,727 |
Income tax benefit (expense) |
33 |
(626) |
85 |
2,301 |
Net income (loss) |
$ 600 |
$ 637 |
$ (744) |
$ 8,028 |
|
|
|
|
|
Net income (loss) per common
share: |
|
|
|
|
Basic |
$ 0.04 |
$ 0.04 |
$ (0.05) |
$ 0.56 |
Diluted |
$ 0.04 |
$ 0.04 |
$ (0.05) |
$ 0.54 |
|
|
|
|
|
Weighted average number of common
shares outstanding: |
|
|
|
|
Basic |
14,877 |
14,483 |
14,843 |
14,360 |
Diluted |
15,058 |
14,854 |
14,843 |
14,786 |
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
CONDENSED
CONSOLIDATED BALANCE SHEETS |
(in thousands,
unaudited) |
|
|
|
|
September 30, |
December 31, |
|
2011 |
2010 |
ASSETS |
|
|
|
|
|
Cash, cash equivalents and marketable
securities |
$ 32,895 |
$ 37,307 |
Accounts receivable, net |
19,272 |
18,770 |
Inventories |
19,586 |
14,765 |
Deferred income taxes |
561 |
944 |
Other current assets |
2,969 |
2,734 |
Total current
assets |
75,283 |
74,520 |
|
|
|
Property and equipment, net |
29,383 |
23,044 |
Deferred income taxes |
5,524 |
4,982 |
Goodwill |
4,572 |
4,517 |
Intangible assets, net |
2,062 |
2,272 |
Other non-current assets |
4,288 |
5,863 |
|
|
|
Total assets |
$ 121,112 |
$ 115,198 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Accounts payable and accrued
expenses |
$ 13,348 |
$ 12,814 |
Deferred revenue |
1,664 |
1,011 |
Current portion of long-term debt |
129 |
124 |
Total current
liabilities |
15,141 |
13,949 |
|
|
|
Other long-term liabilities |
8 |
1,262 |
Long-term debt, excluding current
portion |
3,586 |
3,684 |
Line of credit |
6,500 |
-- |
Stockholders' equity |
95,877 |
96,303 |
|
|
|
Total liabilities and
stockholders' equity |
$ 121,112 |
$ 115,198 |
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
RECONCILIATION OF NET
INCOME TO ADJUSTED NET INCOME |
Net Income Excluding
Transaction Costs Related to Business Acquisition and Income Tax
Benefit from Change in Deferred Income Tax Asset Valuation
Allowance (in thousands, unaudited) |
|
|
|
|
|
|
|
Three Months Ended |
Nine Months Ended |
|
September 30,
2010 |
September 30,
2010 |
|
|
|
Net Income - GAAP |
$ 637 |
$ 8,028 |
|
|
|
Transaction costs related to business
acquisition of Virtek Communication AS |
500 |
525 |
Income tax expense (benefit) from change
in deferred income taxes valuation allowance |
441 |
(3,541) |
|
|
|
Net Income - Adjusted |
$ 1,578 |
$ 5,012 |
|
|
|
Net income per common share -
Adjusted: |
|
|
Basic |
$ 0.11 |
$ 0.35 |
Diluted |
$ 0.11 |
$ 0.34 |
|
|
|
Note - The impact of the
change in the deferred income tax asset valuation allowance on the
number of diluted shares outstanding did not alter the diluted net
income per common share result presented for both periods. As
a result, the inconsequential impact to the diluted share number
has not been included. |
Adjusted net income excluding both the transaction costs related
to the acquisition of Virtek Communication AS as well as
the income tax expense (benefit) from the change in deferred
income tax asset valuation allowance for the three and nine
months ended September 30, 2010 is presented in the
table above. This is a non-GAAP financial measure and
should not be considered a replacement for GAAP results.
We believe the adjusted information is useful
to investors because it is reflective of underlying
operational trends, as it excludes significant non-recurring
or otherwise unusual transactions as described above. Our
criteria for adjusted net income may differ from models used by
other companies and should not be considered as an alternative
to net income prepared in accordance with US GAAP as an indicator
of our operating performance.
CONTACT: Patrick Spratt
KVH Industries
401-847-3327
pspratt@kvh.com
Christine Mohrmann
FTI Consulting
212-850-5600
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