KVHI

KVH Industries, Inc. (KVHI)

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KVH Industries Inc. (KVHI)

Q2 2008 Earnings Call

July 22, 2008 10:30 am ET

Executives

Pat Spratt - CFO

Martin Kits van Heyningen - President, CEO and Chairman of the Board

Analysts

Jim McIlree - Colin Stewart

Chris Quilty - Raymond James

Rich Valera - Needham & Company

Tom Watts - Cowen and Company

Presentation

Operator

Good day, everyone, and welcome to the KVH Industries Q2 conference call. Today's conference is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Pat Spratt, Chief Financial Officer. Please go ahead, sir.

Pat Spratt

Thank you, and good morning. I am Pat Spratt, Chief Financial Officer of KVH Industries. And with me today is Martin Kits van Heyningen, Chief Executive Officer.

This call will address the second quarter earnings release that we issued earlier this morning. Copies of the release are available on our website, 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 free to submit questions related to the content of today's discussion to ir@kvh.com, and we will 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 discussions.

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 10-Q filed with the SEC on May 7th, 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 would like to turn the call over to Martin to begin today's discussion. Martin?

Martin Kits van Heyningen

Thanks, Pat. Thank you all for joining us today. So despite challenging economic conditions, we achieved solid top line results and earned record profits during the second quarter, as our long-term strategic growth drivers began to hit their stride.

We received new orders for our fiber optic gyros that helped growth in demand for remote weapon station. Our airtime business is striving to become a significant contributor to our revenues, and which are the major step towards the global expansion of the mini-VSAT Broadband service.

Our diversification with multiple markets and emerging revenue sources enable us to meet or beat our expectations, despite maybe a fewer challenges in some markets. As a result, I'm very pleased with our overall performance.

For the quarter, we achieved revenues of revenues of $22.3 million and generated EPS of $0.14 per share on a record profit of $2.0 million. For the first half of the year, total revenue was up 4% to $45.4 million with net profit of $3.6 million. Earnings per share for the first six months were $0.24. That's a $0.14 increase over the first half of 2007. In fact, we are on track to double EPS this year.

In the mobile communications market, revenue increased 4% over last year. Land mobile sales were down 37% year-over-year, a reflection of the current challenges faced by the RV industry. Sales of Class A recreational vehicles are down 40% this year as a result of record high fuel prices, declining consumer confidence and challenging consumer credit markets.

Consumer behavior is also changing with RV owners traveling regionally rather than nationally and spending more time camping rather than driving, meaning our viewers are still enjoying satellite television on their vehicles. Nevertheless, we see this market continuing to be a challenge going forward. However, our overall positive results for the quarter in spite of the decline in our RV business speaks of the strength of the diversification of our business model. Currently, the land business represents about 15% of total company revenues.

In the marine market, for Q2, our marine satellite sales were up 22% with good growth both domestically and internationally. While the same economic factors affecting the RV market are at work in the marine sector primarily at the lower end of market, strong sales of our TracPhone satellite communication systems and rapidly expanding airtime revenue more than offset a modest year-over-year decline in Satellite TV sales.

During Q2, we shift our Inmarsat-compatible TracPhone FB250 system for the first time, but the real highlight was the continued success of the TracPhone V7 and the mini-VSAT Broadband service. During the second quarter, we saw continued strong demand and we're meeting our sales and production goals.

Maritime businesses like land-based businesses continue to integrate the internet and mobile communications in every facet of their operations. This is a long-term trend that benefits us and spurs demand for high-speed data systems. Response from commercial operators has been extremely positive.

The TracPhone V7 with its relatively low hardware cost, high-data speed and affordable airtime is proving itself more than capable of supporting two key requirements for commercial operators. They're supporting shipboard operations and maintaining crew morale by enabling email and internet access.

Airtime revenue led by the mini-VSAT Broadband and Inmarsat subscriptions is a rapidly growing and very exiting part of our business. During the second quarter, we took an important step to accelerate the expansion of the mini-VSAT service. We achieved a major strategic milestone in this effort when we signed a new 10-year agreement with ViaSat to roll out the mini-VSAT globally.

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