KVH Industries, Inc. (KVHI)

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KVH Industries, Inc. (KVHI)

Q1 2013 Earnings Call

May 3, 2013 10:30 am ET


Martin Kits Van Heyningen - CEO

Peter Rendall - CFO


Jim Mcllree - Dominick & Dominick

Chris Quilty - Raymond James

Rich Valera - Needham & Company



Good day everyone and welcome to the KVH Industries First Quarter 2013 Earnings Announcement Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Peter Rendall, Chief Financial Officer. Please go ahead, sir.

Peter Rendall

Good morning everyone. I am Peter Rendall and with me is Martin Kits Van Heyningen, Chief Executive Officer of KVH Industries. This call will address the first quarter earnings release that we issued earlier today. Copies of the release are available on our website and also from our Investor Relations department.

This call is being simulcast on the Internet, and will be archived on our website for future reference. If you are listening via the web, feel free to submit questions to ir@kvh.com and we will answer them following this call.

This conference call will contain certain forward-looking statements that involve risk and uncertainty. 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 Annual Report on Form 10-K filed with the SEC on April 2, 2013. The company’s SEC filings are directly available from us, from the SEC, or from the Investor Information section of our website.

Now, I like to turn it over to Martin for today’s discussion of results. Martin?

Martin Kits van Heyningen

Thank you, Peter, and thank you all for joining us today.

I’m pleased to report that KVH achieved record results during the first quarter, our third record quarter in a row. Revenues of $39.9 million were up 49% from the same period last year. EPS for the quarter was $0.13 up from the loss of $0.09 per share in the first quarter of 2012.

Our continued solid revenue growth during the quarter was primarily the result of strong shipments for our guidance and stabilization business which was up 189% for the quarter and continued growth in our Maritime VSAT business which was up 42% from the same period last year.

Our TACNAV business continues to benefit from our large ongoing contract with the Saudi Arabia National Guard, our fiber optic gyro sales were also quite healthy especially commercial sales of our inertial measurement unit used in dynamic mapping systems and autonomist platform navigation. In fact, commercial FOG sales were larger than military FOG sales for the first time.

Looking at each of our markets in greater detail, starting with our satellite business, our overall mobile broadband revenues including satellite TV were $22.9 million that’s up 10% year-over-year. The mini-VSAT broadband portion of the business was up 16% overall reflecting strong airtime growth which offset a small decline in hardware sales. Hardware sales were about flat from last quarter and the drop in hardware sales year-over-year was caused primarily by a decline in our European mini-VSAT hardware business, which we believe was down due to the continuing poor economic conditions in the EU especially in Southern Europe.

As expected our Inmarsat hardware revenues were down 32% but that was offset by 11% increase in Inmarsat airtime revenues. So ironically the Inmarsat price increases that have helped drive their customers to our mini-VSAT broadband solution have also supported out overall Inmarsat revenues for the quarter.

Moving on our satellite TV business, TracVision revenues were up just 4% for the quarter over the same period in 2012 and maritime satellite TV market continues to show signs of modest improvement. According to our dealers on seasonably cool spring weather in both the U.S. and Europe as negatively impacted the overall leisure marine market. So we are still seeing some weakness but we believe we are in excellent position relative to our satellite TV competitors. We are also optimistic that some of this business wasn’t lost but merely deferred in another current quarter.

And I would like to talk a little bit about some of our new product and service plan. We have a number of major initiatives underway to improve the performance of our mini-VSAT broadband network and to enhance our competitive position.

First, the overall network from the overall network perspective, we have just about completed the full global rollout of the new variable codings, spreading and modulation technology known as VCSM. As I mentioned during our last call, VCSM has effectively doubles the capacity of our network by enhancing our efficiency by optimizing transmissions to each terminal type on our network.

In a very smooth process, we automatically upgraded our entire population of onboard terminals allowing us to support our growing user base without significant investments in new hubs and additional satellite capacity.

Later this year, the second major upgrade to the network is schedule to be brought online they will contribute another significant increase in our transmission efficiency creating another major increase in our capacity. This upgrade will also include what we believe will be a game changing capability called multicasting. This will allow us to send any data file or stream to all our customers on our network at the same time. One satellite transmission can be received by every terminal in the coverage area in much in same way that a television satellite broadcast one stream of data to millions of customers.

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