By Susan A. Baird
PBN Web Editor
MIDDLETOWN – Mobile technology company KVH Industries Inc. (Nasdaq: KVHI) today posted a record profit of $2.0 million or 10 cents per diluted share for the quarter ended June 30, a 33-percent increase from its year-ago profit of $1.5 million, despite revenue that fell 4 percent to $22.3 million as high fuel prices hurt sales in the motor-home market.
“Despite challenging economic conditions, we achieved solid top-line results and earned record profits during the second quarter as our long-term strategic growth drivers began to hit their stride,” said CEO Martin Kits van Heyningen. “We also received new orders for our fiber-optic gyros, to help meet the growing demand for remote weapon stations. Our airtime business started to become a significant contributor to our revenue, and we took a major step toward the global expansion of the mini-VSAT Broadband service. As a result, we are very pleased with our overall results.”
Defense-related sales fell, dropping 30 percent year-over-year to $4.0 million, in what KVH described as an expected and short-lived decline. “As anticipated,” Kits van Heyningen said, “revenue from shipments of fiber-optic gyros to support the MK54 torpedo program and our new orders from Kongsberg were minimal in the second quarter.” But, he added, sales “are expected to ramp up significantly in the final months of the year.”
But mobile communications revenue rose 4 percent year-over-year to $18.3 million, as growth in the marine mobile market outweighed declines in the hard-hit recreational vehicle market.
“Marine revenue rose 22 percent over the same quarter last year, driven by increasing demand for Internet access and satellite communications,” Kits van Heyningen said.
As in the first quarter (READ MORE), the company credited its new TracPhone V7 satellite communications system as a key contributor to earnings. “Shipments of our TracPhone satellite communication systems – especially the TracPhone V7 – were quite strong,” the CEO said, adding that the V7’s “relatively low hardware costs, fast data speeds and affordable airtime” are helpful to commercial vessels in “supporting shipboard operations and maintaining crew morale.”
Meanwhile, he noted, “We are accelerating our planned global rollout of the mini-VSAT Broadband service through our recently announced agreement with ViaSat Inc.” The 10-year agreement, signed this month, will expand the coverage area for KVH’s TracPhone V7 and mini-VSAT Broadband maritime satellite service. (READ MORE) And that, Kits van Heyningen said, “will enable us to offer broadband connections to a growing market of commercial, leisure and government vessels worldwide and open new opportunities to build our airtime service revenue.”
Kongsberg Defence & Aerospace – a division of Norway-based Kongsberg Gruppen (OSE: KOG) – plans to use KVH fiber-optic gyros (FOGs) in its Protector family of remote weapons stations. An initial $6 million order in April was followed this month by an order for another $2 million in DSP-3100 FOGs. (READ MORE) “The full $8 million in orders is expected to ship later this year and during the first few weeks of 2009,” Kits van Heyningen said.
Second-quarter revenue in the land mobile market fell 37 percent, however, in “a reflection of the current challenges faced by the RV industry, where sales of Class A recreational vehicles are down 40 percent through the end of May 2008 as a result of record high fuel prices, declining consumer confidence and challenging consumer credit markets,” Kits van Heyningen said. “We see this market continuing to be challenging going forward.”
Other highlights of the company’s second quarter included the May 7 roll-out of the CNS-5000, a self-contained navigation system that combines the fiber-optic gyro inertial measurement technology developed by KVH with global positioning technology from GPS manufacturer NovAtel Inc.; a new leasing program for the TracPhone V7 (READ MORE); and the announcement last month of the first KVH Technology Scholar, Portsmouth High School grad Samantha Sinapi, who plans to attend Worcester Polytechnic Institute. (READ MORE)
Overall, said Patrick Spratt, KVH’s chief financial officer, “The quarter results fell just short of our expectations for the top line, while they exceeded them in terms of net profit and earnings per share. Gross margin was also somewhat better than expected, at almost 42 percent, thanks to a relatively more favorable mix of product sales along with ongoing product cost-reduction efforts. … These factors combined to generate an operating margin of approximately 9 percent for the quarter.”
Going forward, he said, “we expect to see continued strong year-over-year growth in our TracPhone satellite communications and airtime business, at a rate similar to what we saw in the first half of the year. This should offset continued low demand in the land mobile business due to the distress of the RV market as well as softness in the leisure marine satellite TV business.
“Taking into account the challenging economic conditions and their affect on the leisure land and marine markets, we are taking a cautious outlook for the remainder of 2008,” Spratt said. He predicted third-quarter revenue of about $20 million, or 10 percent to 16 percent more than in the 2007 third quarter, and quarterly earnings of 1 to 5 cents per diluted share.
“We are projecting a full-year [revenue] growth rate of roughly 10 percent,” the CFO added. “Nevertheless, we expect earnings per diluted share for the full year to be approximately 36 cents, which would be more than double the 2007 earnings per diluted share of 17 cents.”
KVH Industries Inc. (Nasdaq: KVHI) is a maker of live mobile media systems and navigation and guidance systems for defense and civilian use. Additional information about KVH’s DSP-1300 and other fiber-optic gyro systems is available at www.fiberopticgyro.com; information about the company is available at www.kvh.com.
