- GAAP EPS: $0.00, Non-GAAP EPS: $0.05
- mini-VSAT Broadband Q2 airtime revenue up 24%
year-over-year
KVH Industries, Inc. (Nasdaq:KVHI) today reported financial results
for the second quarter ended June 30, 2014. The company reported
second quarter revenue of $40.9 million, net income on a generally
accepted accounting principles (GAAP) basis of $0.1 million or
$0.00 per diluted share, and non-GAAP net income of $0.8 million or
$0.05 per diluted share. The non-GAAP net income excludes one-time
costs, net of tax benefit, associated with the acquisition of
Videotel, which closed on July 2, 2014, and a discrete tax event.
During the same period last year the company reported GAAP net
income of $1.5 million, or $0.10 per diluted share, on revenues of
$43.2 million.
"Overall, we continue to be pleased with the growth in our
maritime VSAT airtime revenues, which in the second quarter
increased 24% compared to the same period last year," said Martin
Kits van Heyningen, KVH's chief executive officer. "During the
quarter, we successfully launched our global IP-MobileCast™ content
delivery system. We are now delivering to ships at sea a wide range
of operational and entertainment content that was never before
possible over satellite Internet connections. We believe this
exciting new capability will prove popular with our customers and
initial feedback has been highly positive. Some have even called it
a fundamental change in the quality of life at sea."
Commenting on the guidance and stabilization market, Mr. Kits
van Heyningen said, "We had a strong quarter for TACNAV® revenues
which, in part, offset continued softness in our fiber optic gyro
(FOG) business."
For the six months ended June 30, 2014, revenue was $77.9
million, down 6% compared to $83.1 million for the six months ended
June 30, 2013. KVH reported a GAAP net loss of $1.1 million for the
first six months of 2014, or $0.07 per share. Excluding the
Videotel acquisition-related costs, net of tax benefit, and the
discrete tax event, the company recorded a non-GAAP net loss of
$0.3 million or $0.02 per share. During the same period last year,
the company reported GAAP net income of $3.5 million, or $0.23 per
diluted share.
A reconciliation between net income (loss) on a GAAP basis and
net income (loss) on a non-GAAP basis is provided below.
KVH's mobile communications revenue was $29.7 million for the
second quarter of 2014, a 9% year-over-year increase. Combined,
mini-VSAT Broadbandsm airtime and TracPhone® product revenues in
the second quarter amounted to $18.6 million, up 8% compared to the
same period last year. Maritime satellite TV sales of $4.1 million
were approximately flat with the prior year, in part because the
launch of an entirely new TracVision® satellite TV line towards the
end of the quarter resulted in backlog being carried into the third
quarter, all of which is expected to be shipped in the third
quarter.
KVH's guidance and stabilization revenue, which relates to FOG
solutions, TACNAV military navigation systems, and related
services, was $11.2 million in the second quarter of 2014, down 30%
year-over-year. TACNAV product revenues were $5.7 million, up 15%
from the same quarter last year. During the second quarter, sales
of the company's FOG solutions were down 44%, at $4.5 million,
compared to the same period last year. A significant contributor to
this year-over-year decrease is attributed to lower military FOG
sales to U.S. defense customers.
Speaking about the company's financial performance, Peter
Rendall, KVH's chief financial officer, said, "The increase of our
TACNAV product sales helped us to meet our profitability targets in
the second quarter. Our gross profit margin for the second quarter
of 43% was 101 basis points higher than the second quarter last
year."
"Compared to the same period last year, gross profit dollars
from our mini-VSAT Broadband airtime were approximately 23% higher
in the current second quarter. Continuing the trend we've seen
throughout the year, approximately 80% of our FOG product sales
were for commercial applications. Second quarter operating expenses
of $16.8 million were $1.1 million higher sequentially, primarily
due to acquisition-related Videotel expenses and sales-related
commissions on higher TACNAV sales. Excluding $0.5 million of
Videotel acquisition-related expenses this quarter and $0.9 million
of Headland Media (now known as KVH Media Group)
acquisition-related costs in the prior year quarter, our operating
expenses increased by $1.5 million year-over-year. This increase is
largely as a result of having a full quarter of KVH Media Group
operating expenses in 2014 as the acquisition closed midway through
the second quarter last year.
"Planning for the remainder of 2014, there are a number of
accounting factors related to the acquisition of Videotel that may
impact our results. We have not completed our purchase
accounting review of Videotel, including the valuation of
intangibles and therefore the impact of future intangible
amortization charges on our results. The guidance below is based on
a preliminary review of intangibles that could be materially
different from the final analysis.
"Videotel's operations will be included in our results for
almost all of the third quarter and are expected to have an
accretive impact on quarterly EPS. We do expect that there will be
some increased operating costs in sales and product development
related to Videotel integration during the third quarter. We
expect our mini-VSAT Broadband business to show solid
year-over-year growth, particularly as we saw an uptick in new
customer activations in the second quarter. Although we are
confident about some large TACNAV orders being announced in the
coming weeks, we still remain cautious as to the timing of product
deliveries under those contracts. We continue to be conservative in
our forecasts for sales of our FOG products, but do expect a modest
increase in the second half of the year. Included in the EPS
guidance below is approximately $1.4 million of intangible
amortization for both the third and fourth quarters.
"Within this context, we expect our third quarter revenue to be
in the range of $43 million to $47 million, and reflecting the
contribution of Videotel, our GAAP net income for the third quarter
to be in the range of $0.03 to $0.08 per diluted share. For
the fourth quarter, we expect to see an improvement in both revenue
and EPS growth. Our revenue guidance for the fourth quarter is in
the range of $47 million to $51 million while GAAP net income for
the fourth quarter is expected to be in the range of $0.10 to $0.15
per diluted share."
Mr. Kits van Heyningen concluded, "With the successful launch of
IP-MobileCast and the recent acquisition of Videotel, we expect to
see a change in the trajectory of our broadband business. We also
expect our service revenues, the vast majority of which are
subscription-based, to be approaching 60% of total revenues in the
third quarter."
Recent Operational Highlights:
7/16/14 |
Chris Holm Joins KVH to Direct Human
Resources Initiatives |
7/03/14 |
KVH Industries Acquires Leading Maritime
Training Service Producer Videotel |
6/16/14 |
KVH Introduces TACNAV 3D Inertial Navigation
System with Embedded GPS/GNSS |
6/12/14 |
KVH Crewtoo Named Most Popular Maritime
Website |
6/02/14 |
KVH to Transmit AWT's High-Resolution Weather
Data via the IP-MobileCast Content Delivery Service |
5/29/14 |
KVH Introduces TracVision RV1 Advanced
In-motion Satellite TV Antenna for Vehicles |
5/15/14 |
KVH Receives $5.2 Million Order for Military
Navigation Systems |
5/14/14 |
KVH IP-MobileCast Content Delivery Service
Goes Live with News and Entertainment Content for Ships at Sea |
5/06/14 |
KVH Doubles mini-VSAT Broadband Network
Capacity in Africa to Support Offshore Oil and Gas Industry |
Please review the corresponding press releases for more details
regarding these developments.
KVH is webcasting its second quarter conference call live at
10:30 a.m. Eastern time today through the company's website. The
conference call can be accessed at investors.kvh.com and listeners
are welcome to submit questions pertaining to the earnings release
and conference call to ir@kvh.com. The audio archive and an MP3
podcast will also be available on the company website within three
hours of the completion of the call.
About KVH Industries, Inc.
KVH Industries is a leading manufacturer of solutions that
provide global high-speed Internet, television, and voice services
via satellite to mobile users at sea, on land, and in the air, and
is a leading news, music, and entertainment content provider to
many industries including maritime, retail, and leisure. KVH
Industries is also a premier manufacturer of high-performance
sensors and integrated inertial systems for defense and commercial
guidance and stabilization applications. KVH is based in
Middletown, RI, with research, development, and manufacturing
operations in Middletown, RI, and Tinley Park, IL. The company's
global presence includes offices in Belgium, Brazil, Cyprus,
Denmark, Hong Kong, Japan, the Netherlands, Norway, Singapore, and
the United Kingdom.
This press release contains forward-looking statements that
involve risks and uncertainties. For example, forward-looking
statements include statements regarding our financial goals for
future periods, and our anticipated revenue growth, earnings,
competitive positioning, profitability, and the likelihood and
timing of product orders. The actual results we achieve could
differ materially from the statements made in this press release.
Factors that might cause these differences include, but are not
limited to: the impact of extended economic weakness and high fuel
prices on the sale and use of marine vessels, particularly in
Europe and Asia; potential unanticipated technical or legal
impediments that could delay or impede new service rollout plans or
expected strategic relationships; the need to increase sales of the
TracPhone V-IP series products and related services to improve
airtime gross margins; the need for, or delays in, qualification of
products to customer or regulatory standards; unanticipated
declines or changes in customer demand, due to competitive,
economic, seasonal, and other factors, particularly with respect to
the TracPhone V-IP series products and the mini-VSAT Broadband
service; potential further declines and unpredictability in
military sales, including to foreign customers; the
unpredictability of defense budget priorities as well as the order
timing, purchasing schedules, and priorities for our defense
products, including possible order cancellations; the uncertain
impact of actual and potential budget cuts by government customers,
including the effects of sequestration; potential reductions in our
overall gross margins in the event of a shift in product mix;
unanticipated increases in media costs or loss of distribution
rights; and currency fluctuations, export restrictions, delays in
procuring export licenses, and other international risks.
These and other factors are discussed in more detail in our
annual report on Form 10-K filed with the Securities and Exchange
Commission on March 17, 2014. Copies are available through our
Investor Relations department and website,
http://investors.kvh.com. We do not assume any obligation to
update our forward-looking statements to reflect new information
and developments.
KVH Industries, Inc., has used, registered, or applied to
register its trademarks in the USA and other countries around the
world, including the following marks: KVH, KVH logo, Azimuth,
TracVision, TracPhone, Tri-Americas, CommBox, TACNAV,
IP-MobileCast, Sailcomp, mini-VSAT Broadband and the mini-VSAT
Broadband logo, E•Core, Crewtoo, Muzo, and the banded, dome-shaped
housing of its satellite antennas. Other trademarks are the
property of their respective companies.
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(in thousands, except
per share amounts, unaudited) |
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2014 |
2013 |
2014 |
2013 |
Sales: |
|
|
|
|
Product |
$ 20,998 |
$ 25,886 |
$ 39,005 |
$ 51,102 |
Service |
19,924 |
17,311 |
38,902 |
32,022 |
Net sales |
40,922 |
43,197 |
77,907 |
83,124 |
|
|
|
|
|
Costs and expenses: |
|
|
|
|
Costs of product sales |
12,078 |
14,310 |
23,410 |
28,219 |
Costs of service sales |
11,359 |
10,860 |
22,419 |
21,110 |
Research and development |
3,882 |
3,250 |
7,549 |
6,200 |
Sales, marketing and
support |
7,677 |
7,541 |
15,147 |
14,484 |
General and
administrative |
5,252 |
4,936 |
10,402 |
8,310 |
Total costs and
expenses |
40,248 |
40,897 |
78,927 |
78,323 |
|
|
|
|
|
Income (loss) from
operations |
674 |
2,300 |
(1,020) |
4,801 |
|
|
|
|
|
Interest income |
205 |
204 |
415 |
373 |
Interest expense |
186 |
186 |
377 |
261 |
Other (expense) income,
net |
(21) |
54 |
86 |
78 |
|
|
|
|
|
Income (loss) before
income tax expense |
672 |
2,372 |
(896) |
4,991 |
Income tax expense |
617 |
824 |
172 |
1,479 |
Net income
(loss) |
$ 55 |
$
1,548 |
$ (1,068) |
$
3,512 |
|
|
|
|
|
Net income (loss) per common
share: |
|
|
|
|
Basic and diluted |
$
0.00 |
$ 0.10 |
$ (0.07) |
$ 0.23 |
|
|
|
|
|
Weighted average number
of common shares outstanding: |
|
|
|
Basic |
15,415 |
15,137 |
15,365 |
15,063 |
Diluted |
15,522 |
15,235 |
15,365 |
15,253 |
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(in thousands,
unaudited) |
|
|
|
|
June 30, |
December 31, |
|
2014 |
2013 |
ASSETS |
|
|
|
|
|
Cash, cash equivalents and
marketable securities |
$ 54,331 |
$ 55,744 |
Accounts receivable, net |
30,649 |
27,549 |
Inventories |
20,111 |
18,255 |
Prepaid expenses and other
assets |
3,833 |
3,784 |
Deferred income taxes |
3,235 |
3,060 |
Total current
assets |
112,159 |
108,392 |
|
|
|
Property and equipment,
net |
36,512 |
37,142 |
Intangible assets, net |
14,500 |
14,987 |
Goodwill |
18,737 |
18,281 |
Other non-current assets |
4,879 |
5,047 |
Total
assets |
$ 186,787 |
$ 183,849 |
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
Accounts payable and accrued
expenses |
$ 23,203 |
$ 23,329 |
Deferred revenue |
6,951 |
4,858 |
Current portion of long-term
debt |
1,293 |
1,272 |
Total current
liabilities |
31,447 |
29,459 |
|
|
|
Other long-term
liabilities |
760 |
829 |
Long-term debt, excluding
current portion |
6,443 |
7,094 |
Line of credit |
30,000 |
30,000 |
Stockholders' equity |
118,137 |
116,467 |
Total liabilities and
stockholders' equity |
$ 186,787 |
$ 183,849 |
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
RECONCILIATION OF NET
INCOME (LOSS) TO ADJUSTED NET INCOME (LOSS) |
NET INCOME (LOSS)
EXCLUDING TRANSACTION COSTS AND INCOME TAX BENEFIT |
RELATED TO BUSINESS
ACQUISITION AND INCOME TAX EXPENSE FROM |
CHANGE IN DEFERRED
INCOME TAX ASSET |
(in thousands,
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2014 |
2013 |
2014 |
2013 |
Net income (loss) -
GAAP |
$ 55 |
$ 1,548 |
$ (1,068) |
$ 3,512 |
|
|
|
|
|
Transaction costs related to
business acquisition |
463 |
865 |
463 |
865 |
Income tax benefit from
transaction costs related to business acquisition |
(33) |
(152) |
(33) |
(152) |
Income tax expense from change
in deferred income taxes valuation allowance |
322 |
-- |
322 |
-- |
|
|
|
|
|
Net income (loss) -
Non-GAAP |
$ 807 |
$ 2,261 |
$ (316) |
$ 4,225 |
|
|
|
|
|
Net income (loss) per
common share - Non-GAAP: |
|
|
|
Basic and diluted |
$ 0.05 |
$ 0.15 |
$ (0.02) |
$ 0.28 |
Note - The impact of the change in the deferred income tax asset
valuation allowance on the number of diluted shares outstanding did
not alter the diluted net income per common share result presented
for both periods. As a result, the inconsequential impact to
the diluted share number has not been included.
For the three and six months ended June 30, 2014, adjusted net
income presented in the table above excludes the transaction costs
related to the acquisition of Videotel, which closed on July 2,
2014, and an increase in the valuation allowance on a state
research and development tax credit. For the three and six
months ended June 30, 2013, adjusted net income presented in the
table above excludes the transaction costs related to the
acquisition of Headland Media Limited (now known as KVH Media
Group) in May 2013. This is a non-GAAP financial measure and
should not be considered a replacement for GAAP results. We
believe the adjusted information is useful to investors because it
is reflective of underlying operational trends, as it excludes
significant non-recurring or otherwise unusual transactions as
described above. Our criteria for adjusted net income may
differ from models used by other companies and should not be
considered as an alternative to net income prepared in accordance
with US GAAP as an indicator of our operating performance.
CONTACT: KVH Industries, Inc.
Peter Rendall
401-847-3327
prendall@kvh.com
FTI Consulting
Christine Mohrmann
212-850-5600
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