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KVH Industries (KVHI)
Q3 2008 Earnings Call
October 21, 2008 10:30 am
Martin A. Kits Van Heyningen - CEO and President
Patrick J. Spratt - Chief Financial Officer
Chris Quilty - Raymond James
Jim McIlree - Colin Stewart
Rich Valera - Needham & Company
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Good morning. I am Patrick Spratt, Chief Financial Officer of KVH Industries and with me today is Martin Kits Van Heyningen, Chief Executive Officer.
This call will address the third quarter earnings release that we issued earlier this morning. Copies of the release are available on our web site, KVH.com and are also available from our investor relations department. This call is being simulcast on the internet, and will also be archived on our website for future reference.
For those of you listening via the web, feel to submit questions related to the content of today’s discussion to IR@KVH.com and we’ll be happy to answer them following the call.
This conference call will contain certain forward looking statements that involve risks and uncertainties. For example, statements regarding financial and product development goals are forward looking. The company’s future results may differ materially from the projections described in today’s discussion.
Factors that might cause these differences include, but are not limited to, those mentioned in today’s call and risk factors described in our quarterly report on form 10Q filed with the SEC on August 8, 2008. The company’s SEC filings are directly available from us, from the SEC, or from the investor information section of our website.
Now, I’d like to turn the call over to Martin to begin today’s discussion of results. Martin.
Martin Kits Van Heyningen
Thanks, Pat. Thank you all for joining us today.
You know, during times like these in the global economy, a company’s health and long-term prospects depend on being well positioned. Overall, KVH is probably more diversified and better positioned to weather these economic storms, than any company our size. Since we address multiple market segments, like military, marine, land mobile, and even commercial aviation. In fact, our military group has further diversified into satellite, fiber optic gyros, and tactical navigation products.
In all, because we’re not dependent on a single market or product line, we have positioned KVH so that we can weather this recession. We’ve managed KVH conservatively for the last few years. We’ve invested in new business opportunities. But, we have also conserved our cash. With nearly $50 million on hand, and virtually no debt, we have the financial strength some of our competitors lack.
All in all, I feel very comfortable about where we are and what we have in our portfolio. Not that KVH won’t be impacted just like everyone else, but we have the diversity of products, markets, and customers to fair it better than most.
We have a strong backlog going into Q4 and into 2009. Right now, the easing of fuel prices could help some of these segments recover while the credit crisis and the stock market crash are hurting other parts of our business.
We do expect continued growth in the fourth quarter and return to profitability despite some of our markets declining dramatically, declines that are being more than offset by dramatic growth in other parts of our business.
While I feel comfortable saying that about Q4, obviously, the markets are far too volatile to give any specific guidance for 2009 at this point. We’ll just have to wait and see how things develop.
As for the quarter we just finished, there were a number of things that went well and a couple that didn’t. The most important point about Q3 is that most of the revenue miss came from the fiber optic group, where we had two major programs that were delayed.
We expect both of these to be sorted out shortly, and be back on track for Q4. In fact, we expect to begin shipping the remote weapon station gyro orders, that didn’t ship in Q3, in the next few weeks.
On the satellite side, the marine business held up surprisingly well. Overall revenues were up 22% year-over-year. We did see some softness right at the end of September. That coincided with the acceleration of the world’s macro economic problems.
And even so, our new TracFone V7 is selling well, driving our growth for Q3, a trend that we expect to continue in Q4. These products also address the commercial marine markets that are less volatile than the recreational or leisure markets. Our expansion into the Pacific Ocean should also help grow the shipping market segment.
On the land side, revenue was down 56% year-over-year. And the RV portion of it was down even more than that. At this point, the land business represents only about 10% of total revenue. And so it’s not nearly as meaningful as it was just a couple of years ago.
The total Q3 revenues were 15.7 million and that was down about 10% from the prior year. On the bottom line, we had a net loss of $800,000 or $0.06 per share compared to break even results during Q3 of last year.
For the first 9 months of the year our total revenue was 61.2 million roughly flat with last year. However, our net income of $2.8 million or $0.19 per share is a marked improvement from the same period last year where we had net income of 1.5 million or $0.10 per share.