- Record revenue of $50.4 million for the fourth quarter,
up 29% from a year ago
- Net income of $1.0 million, EPS $0.06, non-GAAP net
income of $4.5 million, and non-GAAP EPS of $0.29
KVH Industries, Inc., (Nasdaq:KVHI) reported financial results for
the fourth quarter ended December 31, 2014 today. The company will
hold a conference call to discuss these results at 4:30 p.m. ET
today, which can be accessed at investors.kvh.com. Following the
call, a replay of the webcast will be available through the
company's website.
Recent Business Highlights
- mini-VSAT Broadbandsm Q4 airtime revenue continues to show good
growth, up 16% year-over-year
- Including the impact of Videotel™, strong year-over-year growth
in subscription-based service revenue, which represented 47% of
total revenue in Q4, up from 43% a year ago
- Adjusted EBITDA in the fourth quarter of $7.4 million was up
from $2.4 million in the comparable quarter last year
"We delivered a strong finish to fiscal 2014 which led to top
line performance at the high end of our fourth quarter guidance
range," said Martin Kits van Heyningen, KVH's chief executive
officer. "The investments we've made across our business to develop
innovative solutions continued to bear fruit during the fourth
quarter. With the operational launch of our IP-MobileCast™ content
delivery system during the quarter I am pleased with the reception
the service has received in the market and the differentiation it
gives us going forward. Our market focus of delivering premium
content to maritime customers, including airtime, VoIP phone
service, entertainment, ECDIS chart updates, real-time weather
updates, e-Learning and safety content, has clearly provided
differentiating features for our overall service. We also just
announced that we have shipped our 5,000th TracPhone® antenna for
the mini-VSAT network, reinforcing our leadership position in the
maritime market."
|
|
|
|
|
Financial
Highlights (in millions, except per share data) |
|
|
|
|
|
|
Quarter
Ended |
Year
Ended |
|
December 31, 2014 |
December 31, 2013 |
December 31, 2014 |
December 31, 2013 |
GAAP Results |
|
|
|
|
Revenue |
$ 50.4 |
$ 38.9 |
$ 172.6 |
$ 162.3 |
Net income (loss) |
$ 1.0 |
$ (0.4) |
$ 0.0 |
$ 4.5 |
Net income (loss) per share |
$ 0.06 |
$ (0.02) |
$ 0.0 |
$ 0.30 |
|
|
|
|
|
Non-GAAP Results |
|
|
|
|
Net income |
$ 4.5 |
$ 0.9 |
$ 9.5 |
$ 9.2 |
Net income per share |
$ 0.29 |
$ 0.06 |
$ 0.62 |
$ 0.61 |
Adjusted EBITDA |
$ 7.4 |
$ 2.4 |
$ 18.2 |
$ 17.7 |
|
|
|
|
|
Items reflected in our non-GAAP financial measures have changed
from our previous presentation. For more information regarding
our non-GAAP financial measures, see the tables at the end of this
release.
Fourth Quarter Financial Summary
Revenue was $50.4 million for the fourth quarter, an increase of
29% compared to the fourth quarter of 2013. Fourth quarter
product revenues of $25.3 million were 34% higher than the prior
year quarter, primarily driven by a 98% year-over-year increase in
guidance & stabilization hardware sales. The fourth
quarter was particularly strong for TACNAV® shipments. Service
revenues in the fourth quarter were $25.2 million, an increase of
25% compared to the fourth quarter of 2013, and includes $5.1
million of revenues from our July 2014 acquisition of
Videotel. Airtime service revenues, which include mini-VSAT
Broadband airtime revenues, were up 14%
year-over-year. Content and services revenues, which includes
our Videotel entertainment and new e-Learning and safety content,
were up 44% in the fourth quarter of 2014 compared to the fourth
quarter of 2013.
For the fourth quarter, net income on a GAAP basis was $1.0
million, or $0.06 per diluted share, while non-GAAP net income was
$4.5 million or $0.29 per diluted share. A discrete tax charge
of $0.9 million was recorded during the fourth quarter of 2014
resulting from a change to Rhode Island tax law that impacted our
ability to realize certain tax credits recorded in prior
periods. As a result of this change in tax law, we expect our
effective tax rate in 2015 to be lower than in 2014. During
the same period last year, the company reported a GAAP net loss of
$0.4 million, or $(0.02) per share, and a non-GAAP net income of
$0.9 million, or $0.06 per diluted share.
Adjusted EBITDA was $7.4 million for the fourth quarter of 2014
compared to $2.4 million in the prior year quarter. Included
in adjusted EBITDA was $1.5 million and $0.5 million related to the
amortization of intangible assets for the three months ended
December 31, 2014 and 2013, respectively. The acquisition of
Videotel on July 2, 2014 generated the year-over-year increase in
intangibles amortization.
Full Year Financial Summary
For the year ended December 31, 2014, revenue was $172.6
million, up 6% compared to $162.3 million for the year ended
December 31, 2013. Product revenues of $81.2 million in 2014
were 10% lower than in 2013, which was driven primarily by an 11%
decline in guidance & stabilization product revenues
year-over-year. Service revenues of $91.4 million in 2014 were
27% higher than in 2013. Airtime service revenues in 2014
increased 21% year-over-year while content and service revenues
increased 40%, reflecting the addition of Videotel and a full year
contribution from KVH Media Group, offset by a decline in services
to support the Saudi Arabian National Guard program which was
completed in early 2014.
The company reported GAAP net income of $0.0 million for the
year ended December 31, 2014, or $0.0 per diluted
share. During that same period, the company reported non-GAAP
net income of $9.5 million, or $0.62 per diluted share. In
2013, the company reported GAAP net income of $4.5 million, or
$0.30 per diluted share, and non-GAAP net income of $9.2 million,
or $0.61 per diluted share. The adjusted EBITDA for 2014 was
$18.2 million compared to $17.7 million in 2013, which was due in
part to the contribution of the two businesses acquired in 2013 and
2014.
Speaking about the company's financial performance, Peter
Rendall, KVH's chief financial officer, said, "We were particularly
pleased with the financial performance of our services business,
which generally attracts higher margins than our product
revenues. In the fourth quarter of 2014, our service revenues
generated a gross profit margin of 48%, compared to 40% in the
comparable period last year. This increase was driven
primarily by new content services derived from the Videotel
acquisition. The gross profit margin on product revenues in
the fourth quarter of 2014 was 42% compared to 39% a year earlier
and reflects the impact of higher TACNAV revenues in the fourth
quarter of 2014. The net impact of these factors was that the
company's overall gross profit margin for the fourth quarter of
2014 was 45% compared to 40% a year ago."
First Quarter 2015 and Full Year 2015
Outlook
Overall KVH expects continued growth and improving profitability
as we progress throughout the year. Similar to 2014, recently
announced defense orders are scheduled to be delivered late in 2015
resulting in a revenue pattern that we currently anticipate will be
skewed towards the second half of the year. We expect solid
growth in our marine VSAT business and relatively flat defense
business. A portion of our revenues and costs are denominated
in pounds sterling, and there have recently been significant
fluctuations in currency movements relative to the U.S.
dollar. Significant changes to currency exchange rates,
particularly between the U.S. dollar and the pound sterling, may
have a material impact on our earnings. Based on these
factors, the Company's guidance for the first quarter of 2015 and
the full year is as follows:
- Revenue for the full year is projected to be $190 million to
$210 million.
- For the full year, the adjusted EBITDA is projected to be $25.0
million to $27.5 million with GAAP EPS to be in the range of
$0.30-$0.40. Non-GAAP EPS for the full year is projected to be
in the range of $0.81 to $0.91.
- Revenue for the first quarter is projected to be in the range
of $40 million to $44 million.
- For the first quarter, adjusted EBITDA is projected to be in
the range of $2.5 million to $3.4 million and the GAAP net loss per
share for the first quarter is projected to be in the range of
$(0.10) to $(0.06). Non-GAAP EPS for the first quarter is
projected to be in the range of $0.03 to $0.07.
Other Recent Announcements
- Announced the shipping of our 5,000th TracPhone system for the
mini-VSAT Broadband network.
- Introduced an enhanced VoIP service for mini-VSAT Broadband
customers.
- Introduced a new low-profile TracVision® A9 product for SUVs,
charter buses and emergency vehicles to receive satellite TV
programming from DIRECTV® and DISH Network®.
- We offered a new Ebola safety video free to mariners to
highlight the dangers of Ebola and its impact on ships and
seafarers.
- We tripled our mini-VSAT Broadband network capacity in South
America.
Please review the corresponding press releases for more details
regarding these developments.
Conference Call Details
KVH Industries will host a conference call today at 4:30 p.m. ET
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.
Non-GAAP Financial Measures
Provided in this release is non-GAAP financial information,
including non-GAAP net income, non-GAAP diluted EPS, and adjusted
EBITDA, as a supplement to the condensed financial statements,
which are prepared in accordance with generally accepted accounting
principles ("GAAP"). Management uses these non-GAAP financial
measures internally in analyzing financial results to assess
operational performance and liquidity. The presentation of
this financial information is not intended to be considered in
isolation or as a substitute for the financial information prepared
in accordance with GAAP. KVH believes that both management and
investors benefit from referring to these non-GAAP financial
measures in assessing performance and when planning, forecasting,
and analyzing future periods. KVH believes these non-GAAP
financial measures are useful to investors because they allow for
greater transparency with respect to key financial metrics used in
making operating decisions and because its investors and analysts
use them to help assess the health of its business.
Some limitations of non-GAAP net income, non-GAAP diluted EPS,
and adjusted EBITDA include the following:
- Non-GAAP adjusted EBITDA represents net income (loss) before
interest income, interest expense, taxes, depreciation,
amortization, stock-based compensation, acquisition-related
expenses, and adjustments resulting from the application of
purchase accounting in connection with acquisitions.
- Non-GAAP net income (loss) and diluted EPS excludes
acquisition-related expenses, adjustments resulting from the
application of purchase accounting in connection with acquisitions,
adjustments related to stock-based compensation and intangible
amortization, all net of tax, and also excludes any discrete tax
items.
Other companies, including companies in KVH's industry, may
calculate these non-GAAP financial measures differently or not at
all, which will reduce their usefulness as a comparative
measure.
Because of these limitations, investors should consider these
non-GAAP financial measures together with other financial
performance measures, including net income, diluted net income
(loss) per share, and KVH's other financial results presented in
accordance with GAAP. See the GAAP to non-GAAP reconciliations
below for further details.
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, entertainment, and training 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, competitive
positioning, profitability, and product orders. The actual
results 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 motor vehicles
and marine vessels; 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 economic, seasonal, and other factors,
particularly with respect to the TracPhone V-IP series, including
with respect to new pricing models; recent increases in airtime
termination rates and lower unit sales in our mobile business;
increased price and service competition in the mobile
communications market; potential reduced sales to companies in or
dependent upon the oil industry as a result of declining oil
prices; exposure for potential intellectual property infringement;
continued substantial fluctuations in military sales, including to
foreign customers; unanticipated expenses associated with the
launch of the IP-MobileCast service; the unpredictability of
defense budget priorities as well as the order timing, purchasing
schedules, and priorities for defense products, including possible
order cancellations; the uncertain impact of potential budget cuts
by government customers; potential litigation expenses; and
currency fluctuations, export restrictions, delays in procuring
export licenses, and other international risks. These and
other factors are discussed in more detail in KVH's Quarterly
Report on Form 10-Q filed with the Securities and Exchange
Commission on November 10, 2014. Copies are available through
its Investor Relations department and website,
http://investors.kvh.com. KVH does not assume any obligation
to update its 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, Videotel, 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 |
Year
Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Sale: |
|
|
|
|
Product |
$ 25,276 |
$ 18,862 |
$ 81,143 |
$ 90,295 |
Service |
25,158 |
20,086 |
91,448 |
71,993 |
Net Sales |
50,434 |
38,948 |
172,591 |
162,288 |
|
|
|
|
|
Costs and expenses: |
|
|
|
|
Costs of product sales |
14,664 |
11,519 |
48,843 |
51,518 |
Costs of service sales |
13,203 |
12,039 |
50,301 |
45,058 |
Research and development |
3,269 |
3,453 |
14,101 |
12,987 |
Sales, marketing and
support |
9,724 |
7,964 |
32,976 |
28,792 |
General and administrative |
7,148 |
4,680 |
24,448 |
17,764 |
Total costs and
expenses |
48,008 |
39,655 |
170,669 |
156,119 |
|
|
|
|
|
Income (loss) from
operations |
2,426 |
(707) |
1,922 |
6,169 |
|
|
|
|
|
Interest
income |
157 |
85 |
738 |
657 |
Interest
expense |
426 |
187 |
1,296 |
637 |
Other income,
net |
31 |
204 |
(39) |
494 |
|
|
|
|
|
Income (loss) before income tax
expense (benefit) |
2,188 |
(605) |
1,325 |
6,683 |
Income tax expense (benefit) |
1,230 |
(240) |
1,284 |
2,150 |
Net income
(loss) |
$ 958 |
$ (365) |
$ 41 |
$ 4,533 |
|
|
|
|
|
Net income (loss) per common
share: |
|
|
|
|
Basic |
$ 0.06 |
$ (0.02) |
$ 0.00 |
$ 0.30 |
Diluted |
$ 0.06 |
$ (0.02) |
$ 0.00 |
$ 0.30 |
|
|
|
|
|
Weighted average number of common
shares outstanding: |
|
|
|
|
Basic |
15,480 |
15,245 |
15,420 |
15,144 |
Diluted |
15,639 |
15,245 |
15,605 |
15,341 |
|
|
|
|
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
CONDENSED
CONSOLIDATED BALANCE SHEETS |
(in thousands,
unaudited) |
|
|
|
|
December 31, |
December 31, |
|
2014 |
2013 |
ASSETS |
|
|
|
|
|
Cash, cash equivalents and
marketable securities |
$ 49,802 |
$ 55,744 |
Accounts receivable, net |
39,936 |
27,549 |
Inventories |
17,424 |
18,255 |
Other current assets |
2,953 |
3,784 |
Deferred income taxes |
2,772 |
3,060 |
Total current
assets |
112,887 |
108,392 |
|
|
|
Property and
equipment, net |
41,696 |
37,142 |
Goodwill |
40,454 |
18,281 |
Intangible
assets, net |
33,641 |
14,987 |
Other non-current
assets |
7,159 |
5,047 |
|
|
|
Total
assets |
$ 235,837 |
$ 183,849 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Accounts payable and accrued
expenses |
$ 33,708 |
$ 23,329 |
Deferred revenue |
7,791 |
4,858 |
Current portion of long-term
debt |
6,188 |
1,272 |
Total current
liabilities |
47,687 |
29,459 |
|
|
|
Other long-term
liabilities |
1,459 |
204 |
Non-current deferred tax
liability |
5,464 |
625 |
Long-term debt, excluding
current portion |
64,687 |
37,094 |
Stockholders' equity |
116,540 |
116,467 |
|
|
|
Total liabilities and
stockholders' equity |
$ 235,837 |
$ 183,849 |
|
|
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
RECONCILIATION OF GAAP
NET INCOME (LOSS) TO NON-GAAP ADJUSTED NET INCOME
(LOSS) |
(in thousands, except
per share amounts, unaudited) |
|
|
|
|
|
|
Three Months
Ended |
Year
Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Net income (loss) -
GAAP |
$ 958 |
$ (365) |
$ 41 |
$ 4,533 |
|
|
|
|
|
Transaction costs related to
business acquisition (a) |
-- |
-- |
1,228 |
876 |
Income tax benefit from
transaction costs related to business acquisition |
-- |
-- |
(33) |
(152) |
Discrete tax expense (benefit),
net (b) |
855 |
(4) |
878 |
(4) |
Acquisition-related revenue
adjustments, net of tax |
183 |
66 |
602 |
86 |
Acquisition-related
compensation |
406 |
-- |
406 |
-- |
Stock-based compensation
expense, net of tax |
657 |
739 |
2,496 |
2,674 |
Amortization of
intangibles |
1,418 |
431 |
3,859 |
1,179 |
|
|
|
|
|
Net income - Non-GAAP |
$ 4,477 |
$ 868 |
$ 9,477 |
$ 9,191 |
|
|
|
|
|
Net income per common share -
Non-GAAP: |
|
|
|
|
Basic and diluted |
$ 0.29 |
$ 0.06 |
$ 0.62 |
$ 0.61 |
|
|
|
|
|
|
|
|
|
|
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. |
|
|
|
|
|
(a) For the three months and year
ended December 31, 2014, represents the transaction costs related
to the acquisition of Super Dragon Limited and Videotel Marine Asia
Limited, which closed on July 2, 2014. For the three months
and year ended December 31, 2013, represents the transaction costs
related to the acquisition of Headland Media Limited in May
2013. |
|
|
|
|
|
(b) Represents a change in the
valuation allowance on a state research and development tax credit,
an adjustment to the provision as a result of the filing of 2013
tax return, and uncertain tax position adjustments. |
|
|
|
|
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
RECONCILIATION OF GAAP
NET INCOME (LOSS) TO NON-GAAP |
EBITDA AND NON-GAAP
ADJUSTED EBITDA |
(in thousands,
unaudited) |
|
|
|
|
|
|
Three Months
Ended |
Year
Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
GAAP net income (loss) |
$ 958 |
$ (365) |
$ 41 |
$ 4,533 |
Income tax expense (benefit) |
1,230 |
(240) |
1,284 |
2,150 |
Interest expense (income), net |
269 |
102 |
558 |
(20) |
Depreciation and amortization (a) |
3,313 |
1,693 |
9,987 |
5,994 |
|
|
|
|
|
Non-GAAP EBITDA |
5,770 |
1,190 |
11,870 |
12,657 |
Stock-based compensation expense |
996 |
1,120 |
3,782 |
4,051 |
Transaction costs related to business
acquisition |
-- |
-- |
1,228 |
876 |
Acquisition related compensation |
406 |
-- |
406 |
-- |
Acquisition-related revenue adjustments |
277 |
99 |
912 |
130 |
|
|
|
|
|
Non-GAAP Adjusted EBITDA |
$ 7,449 |
$ 2,409 |
$ 18,198 |
$ 17,714 |
|
|
|
|
|
(a) Reflects amortization of
intangible assets resulting from the acquisition. |
|
|
|
|
|
|
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
NON-GAAP EPS
GUIDANCE |
(unaudited) |
|
|
|
|
|
|
|
First Quarter |
Full Year |
|
Fiscal 2015
(Projected) |
Fiscal 2015
(Projected) |
|
|
|
Net income per common share |
$(0.10) - $(0.06) |
$0.30 - $0.40 |
|
|
|
Estimated amortization (a) |
$0.09 |
$0.36 |
Estimated stock-based compensation expense,
net of tax |
$0.04 |
$0.15 |
|
|
|
Non-GAAP adjusted net income per common
share |
$0.03 - $0.07 |
$0.81 - $0.91 |
|
|
|
|
|
|
(a) Reflects amortization of
intangible assets resulting from acquisitions. |
|
|
|
|
KVH INDUSTRIES, INC.
AND SUBSIDIARIES |
NON-GAAP ADJUSTED
EBITDA GUIDANCE |
(in millions,
unaudited) |
|
|
|
|
First Quarter |
Full Year |
|
Fiscal 2015
(Projected) |
Fiscal 2015
(Projected) |
|
|
|
GAAP net income |
$(1.6) - $(0.9) |
$4.6 - $6.2 |
|
|
|
Estimated income tax expense |
$(0.4) - $(0.2) |
$2.6 - $3.5 |
Estimated interest expense (income), net |
$0.2 |
$1.0 |
Estimated depreciation and amortization
(a) |
$3.3 |
$13.2 |
Estimated stock-based compensation
expense |
$1.0 |
$3.6 |
|
|
|
Non-GAAP Adjusted EBITDA |
$2.5 - $3.4 |
$25.0 - $27.5 |
|
|
|
|
|
|
(a) Reflects amortization of
intangible assets resulting from acquisitions and depreciation of
fixed assets. |
|
|
|
CONTACT: KVH Industries, Inc.
Peter Rendall
401-847-3327
prendall@kvh.com
FTI Consulting
Christine Mohrmann
212-850-5600
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