MIDDLETOWN – Mobile technology company KVH Industries Inc. (Nasdaq: KVHI) today posted a third-quarter loss of $812,000, compared with a year-ago loss of $20,000, on revenue that fell 10.39 percent to $15.74 million. Per diluted share, KVH posted a net loss of 6 cents, compared with the year-ago period’s roughly 0 cents per share. The company cited the “challenging” economy and delays in two key contracts.

The results – although a sharp contrast to the second quarter’s record profit of $2 million, or 10 cents per diluted share – were in line with the revised forecast issued Oct. 1, when the company predicted total revenue for the fiscal period ended Sept. 30 would amount to between $15.6 million and $16 million. (READ MORE)

“A combination of challenging economic conditions and a delay in two fiber-optic gyro (FOG) programs contributed to a third quarter that did not meet our expectations,” CEO Martin A. Kits van Heyningen said in a statement this morning.

“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,” he said, adding that, “at the same time, we achieved major strategic milestones – including signing a new agreement to expand our mobile broadband service into the Pacific Ocean(READ MORE); adding defense-related backlog for 2009 and beyond (READ MORE); and making good progress in the development of our aeronautical satellite TV system (READ MORE).”

Mobile communications revenue fell 6 percent year-over-year to $12.3 million, as an increase in sales to boaters was outweighed by a sharp decline in the recreational-vehicle market. "Within the land mobile market, quarterly revenue was down 56 percent … substantially lower than our earlier, conservative projections,” as high fuel prices and consumer pessimism continued to slash sales of RVs and accessories, Kits van Heyningen said. “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.”

Yet in the marine market, KVH mobile communications revenue rose 22 percent, “with strong sales overseas and domestically,” Kits van Heynigen said. “Among the key drivers in this market were TracPhone V7 antenna sales and the growth of our airtime service, which is steadily becoming a substantial recurring revenue source.”

Going forward, he added, “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” in the marine and aviation mobile communications markets. “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.”

Defense technology revenue – including sales of KVH’s fiber-optic gyro guidance and stabilization systems, and its TacNav military navigation systems – fell 23 percent year over year to about $3.4 million, the company said. Revenue from TacNav shipments and product refurbishment continued to rise. But that growth was more than offset by two delays in KVH’s fiber-optic business, Kits van Heyningen said.

“First, the final qualification process for KVH’s fiber-optic gyros 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,” he said.

“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.” But those contract talks have since been resolved, “and we anticipate resuming shipments of the TG-6000 by the end of the quarter,” Kits van Heyningen said.

Patrick J. Spratt, KVH’s chief financial officer, stressed that the setbacks were only temporary. “Gross margin was better than expected, at 41 percent, thanks to a more-favorable mix of product sales. We also continued to demonstrate good operating expense control,” Spratt said, concluding that: “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,” Kits van Heyningen said, “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,” he added, “we still expect to return to year-over-year growth in the fourth quarter.” For the October through December period, the company now predicts revenue of $20 million to $23 million and earnings of 1 cent to 5 cents per diluted share.

KVH Industries Inc. (Nasdaq: KVHI) is a maker of live mobile media systems and navigation and guidance systems for defense and civilian use. Information about KVH’s fiber-optic gyro (FOG) systems is available at www.fiberopticgyro.com, while information about defense navigation and guidance products is available at www.tacnav.com. Additional information about the company is available at www.kvh.com.