KVHI

KVH Industries, Inc. (KVHI)

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KVH Industries, Inc. (KVHI)

Q3 2013 Earnings Conference Call

October 30, 2013 10:30 AM ET

Executives

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

Peter Rendall – Chief Financial Officer

Analysts

Rich Valera – Needham & Company

Jim McIlree – Chardan Capital

Chris Quilty – Raymond James & Associates, Inc.

Presentation

Operator

Good day everyone and welcome to the KVH Third Quarter 2013 Earnings 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. Please go ahead.

Peter Rendall

Good morning. I’m Peter Rendall, the Chief Financial Officer of KVH Industries and with me today is Martin Kits van Heyningen, the Chief Executive Officer of KVH. This call will address the third 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 most recent Form 10-Q, filed with the SEC on August 9, 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 like to turn it over to Martin for today’s discussion or results. Martin?

Martin A. Kits van Heyningen

Thanks, Peter, and thank you all for joining us today. I’m pleased to report our third quarter revenues and EPS are right in line with our guidance coming in at $40.2 million and $0.09. The overall revenue growth, which was attributable to continued success in our Mobile Broadband business, which partially offset by the decline in our TACNAV sales having shipped all the product related to our record order last year to Saudi Arabia and lower than expected fiber optic gyros sales.

Our maritime VSAT revenues were up 34% from the same period last year, and we’re pleased to see a 5% improvement in our maritime satellite TV business as well. As we had anticipated, our guidance and stabilization revenues were down about 33% year-over-year.

Looking at each segment in greater detail, our overall mobile broadband revenues, not including Headland Media were $25.7 million that’s up 16% year-over-year. Headland Media’s contribution to revenues in the third quarter totaled $3.3 million.

The mini-VSAT broadband portion of the business was up 25% overall year-over-year, reflecting strong airtime growth of 34% versus the third quarter of 2012 and a growth of 11% sequentially from the second quarter of this year.

In the third quarter, monthly airtime revenues from our new dual-mode TracPhone V11 reach the level where they now cover the monthly cost of the three global C-band transponders release to provide the global service. Pretty remarkable that we’re able to enhance our network with global C-band coverage providing a major competitive advantage and then win enough customers to pay for this new service in less than a year.

During the third quarter, we also began rolling out another upgrade to the transmission technology of the mini-VSAT Broadband network called ACSM or Adaptive Coding, Spreading and Modulation, which will increase the forward link capacity of our network by between 50% and a 100% without adding any additional satellite capacity. This is improvement is on top of the significant gain, we received from deploying VCSM modulation at the beginning of the year.

Now this increase in forward link capability will be utilized for our IP-MobileCast services. Our mini-VSAT Broadband hardware sales grew 14% this year, year-over-year. This growth came from higher sales in the Americas, North and South America and the Asia-Pacific region.

We continue to see soft sales in Europe, but we believe the continuing poor economic conditions in the EU are causing shipping companies to delay equipment upgrades. Our new TracPhone VIP products, which were introduced at the end of the second quarter are performing well in the field, at the top of our mini-VSAT Broadband product line, the new TracPhone V11 is representing about 10% to 15% of unit sales with 25% of hardware revenues.

And ARPUs for the V11 are running more than double the V7s. And we’re not sure if this trend is going to continue or whether it’s a bit of self selection by early adopters, we’re also tend to be higher ARPU customers, but it’s good news and it’s better than we had anticipated. We already being rolled out on some medium size fleets with the V11 and customer level feedback, so far has been excellent.

Our smallest product, the TracPhone V3 is also selling very well and we’re selected by members of the influential National Marine Electronics Association as the best communications products for 2013 at their Annual Convention last month. This is the second year in a row that a variant of the TracPhone V3 has won this award.

Moving on to our satellite TV business, TracVision revenues were up 5% year-over-year in the marine market. As we reported in past calls, we believe our competitive position in the maritime satellite TV market continues to be strong. The overall leisure marine market has been soft, due to poor economic conditions in the key U.S. and European markets.

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