KVHI

KVH Industries, Inc. (KVHI)

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KVH Industries, Inc. (KVHI)

Q2 2013 Earnings Conference Call

July 31, 2013 10:30 AM ET

Executives

Peter Rendall – Chief Financial Officer

Martin A. Kits van Heyningen – President, Chief Executive Officer, and Chairman of the Board

Analysts

Chris Quilty – Raymond James & Associates, Inc.

Jim McIlree – Chardan Capital

Rich Valera – Needham & Company

Presentation

Operator

Good day, everyone, and welcome to today’s KVH Industries Second Quarter 2013 Earnings Announcement. As a reminder today’s call is being recorded.

At this time I would like to turn the conference over to your host for today, Mr. Peter Rendall, Chief Financial Officer. Please go ahead, sir.

Peter Rendall

Thank you, and good morning, everyone. I’m Peter Rendall, and with me is Martin Kits Van Heyningen, Chief Executive Officer of KVH Industries. This call will address the second 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, which was 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 would turn it over to Martin for today’s discussion of results. Martin?

Martin A. Kits

Thanks, Peter, and thank you all for joining us today. I’m pleased to report that we achieved record top line results during the second quarter, our fourth record quarter in a row. Revenues of $43.2 million, were up 35% from the same period last year.

Non-GAAP EPS for the quarter was $0.15, up $0.03 per share from the second quarter of 2012. Headland Media’s contribution to our revenues in the second quarter totaled $1.9 million, since the acquisition in mid-May and added approximately $0.01 to our EPS.

But even without Headland Media, we still would have achieved record results with both revenues and earnings for the second quarter above our guidance. Our continued strong revenue growth during the quarter was a result of increased shipments for our guidance in Stabilization business up a 100% from the second quarter of 2012, and continued strong growth in our Maritime VSAT Airtime business, which was up 35% 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 solid, especially commercial sales of our Inertial Measurement Unit used in dynamic mapping systems and our autonomist navigation. For the second quarter in a row, our commercial FOG sales were larger than our military FOG sales.

Looking at each segment in greater detail, our overall mobile broadband revenues, including Headland Media were $27.3 million, up 13% year-over-year. The mini-VSAT broadband portion of the business was up 17% overall reflecting strong airtime growth of 35% year-over-year, which was partially offset by a decline in hardware sales primarily in Europe. We believe our European sales continue to be down due to the continuing poor economic conditions in the EU particularly in Southern Europe.

On a positive note, we saw strong sales of our new TracPhone V11 during the quarter. Its higher average selling price led to the V11 passing the V3 in terms of revenue for the first time during the quarter. We’re looking on a number of large opportunity, then the V11 is becoming the system of choice for leading maritime companies. We do expect hardware sales to increase year-over-year again starting this quarter.

Moving on to our Satellite TV business, TracVision revenues were up in the U.S., but down overall due to very slow sales in Europe. Net was a 4% decline in the second quarter over the same period in 2012. Another factor in this we believe was the wet, cold spring both in the U.S. and Europe that adversely impacted the leisure marine market. We’re confident that our competitive position is strong and we have new products in the pipeline it should help maintain our leadership position in the global maritime satellite TV market.

In terms of strategy and longer-term positioning, we had several significant announcements in the second quarter relating to our strategy to expand our mini-VSAT Broadband service. There are many new initiatives underway to modernize the world’s commercial shipping industry, driven by a series of new regulations to reduce greenhouse gas emissions to convert electronic navigation equipment and digital charts to improve training and to enhance the living conditions of seafarers.

Meeting each of these regulations often require large amounts of digital data to be delivered to ships for things such as updating electronic chart databases and providing detailed weather forecasts, computer-based training courses and videos, and news, sports, music, and movies for crew welfare and entertainment.

These large files are now delivered on DVDs due to the high cost of sending these files individually to ships via satellite. But shipping DVDs is a slow and costly effort when you consider the need to coordinate international delivery and get them through customs, and have them available to move to ship that mail would be important for few hours. This is the important customer problem that will solve with our new content delivery solution.

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