KVH Industries, Inc., (Nasdaq:KVHI) reported financial results for
the quarter ended March 31, 2017 today. The company will hold a
conference call to discuss these results at 10:30 a.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.
First Quarter 2017 Highlights
- Revenue was $40.2 million, a decrease of less than 1%, from
$40.4 million in the first quarter of 2016. Excluding foreign
exchange translation, revenue increased 2%.
- mini-VSAT Broadband Airtime revenue grew $1.0 million or 7%,
compared to the first quarter of 2016. Usage based airtime plans
grew to 59% of all airtime plans, helping to increase airtime gross
margin to a record 38% from 36%.
- Inertial Navigation revenue increased 16% driven by higher FOG
sales.
- Net loss was $4.9 million, or $0.30 per share, compared to net
loss of $2.8 million, or $0.18 per share, in the first quarter of
2016.
- Non-GAAP net loss was $1.4 million, or $0.09 per share,
compared to non-GAAP net loss of $0.6 million, or $0.04 per share
in the first quarter of 2016.
- Non-GAAP adjusted EBITDA was a loss of $0.8 million, compared
to earnings of $1.0 million in the first quarter of 2016.
- The company’s long term debt, including the current portion,
decreased $9.2 million to $48.9 million at March 31, 2017, compared
to $58.1 million at December 31, 2016, and cash, cash equivalents,
and marketable securities decreased $6.0 million to $46.1 million
at March 31, 2017 compared to $52.1 million at December 31,
2016.
Commenting on the quarter, Martin Kits van Heyningen, KVH’s
Chief Executive Officer, said, “We are particularly pleased with
the growth in our Airtime service revenues and margins, and with
our strong cash flow which allowed us to reduce our net debt by
over $3.0 million at the end of the quarter. In addition, we have
recently launched our new subscription-based Connectivity as a
Service program, AgilePlans by KVH, and the preliminary feedback we
have received from potential customers is quite positive. We
reached an important milestone this quarter having shipped our
7,000th mini-VSAT Broadband system.”
The company operates in two segments, mobile connectivity and
inertial navigation. Net sales for the mobile connectivity segment
decreased $1.0 million, or 3%, as compared to the first quarter of
2016 due to lower mini-VSAT Broadband product sales, and lower
content and training revenues driven primarily by the weakness in
the British Pound, partially offset by higher airtime revenues. Net
sales for our inertial navigation segment increased $0.8 million,
or 16%, compared to the first quarter of 2016, due to an increase
in fiber optic gyro (FOG) sales and contracted engineering
services.
Financial Highlights (in millions, except per
share data)
|
|
Quarter Ended March
31, |
|
|
2017 |
|
2016 |
GAAP
Results |
|
|
|
|
Revenue |
|
$ |
40.2 |
|
|
$ |
40.4 |
|
Net loss |
|
$ |
(4.9 |
) |
|
$ |
(2.8 |
) |
Net loss per diluted
share |
|
$ |
(0.30 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
Non-GAAP
Results |
|
|
|
|
Net loss |
|
$ |
(1.4 |
) |
|
$ |
(0.6 |
) |
Net loss per share |
|
$ |
(0.09 |
) |
|
$ |
(0.04 |
) |
Adjusted EBITDA |
|
$ |
(0.8 |
) |
|
$ |
1.0 |
|
For more information regarding our non-GAAP financial measures,
see the tables at the end of this release.
First Quarter Financial SummaryRevenue was
$40.2 million for the first quarter of 2017, a decrease of less
than 1%, compared to $40.4 million in the first quarter of 2016,
notwithstanding weakness in the British Pound, which negatively
impacted consolidated revenue in 2017 by $1.0 million, or 2%. First
quarter product revenues of $14.9 million were 3% lower than the
prior year quarter, due to a decrease in mobile connectivity
product sales of $0.9 million, primarily due to a decrease in
mini-VSAT Broadband product sales as a result of continued weakness
in the European maritime markets and a decrease in our land mobile
product sales. Partially offsetting these decreases was an increase
in inertial navigation product sales of $0.3 million, which was
primarily due to an increase in sales of FOGs. Service revenues for
the first quarter of 2017 were $25.3 million, an increase of 1%
compared to the first quarter of 2016. Airtime service revenues,
which include mini-VSAT Broadband airtime revenues, increased 7% in
the first quarter of 2017 compared to the first quarter of 2016.
Content and training revenues, which include our entertainment,
e-Learning, and safety content, decreased by 13% in the first
quarter of 2017 compared to the first quarter of 2016; however, on
a constant-currency basis, these revenues decreased by only 1%.
Weakness in the British Pound negatively impacted content and
training revenues by $1.0 million, or 12%. Our engineering service
revenues more than doubled as a result of a substantial contract
which began in the first quarter and is expected to continue
through the third quarter of 2017.
Our operating expenses increased $0.8 million year-over-year to
$20.9 million, primarily due to an increase in consulting,
salaries, and associated compensation expenses due to increased
headcount to support our strategic initiatives.
Second Quarter 2017 and Full Year 2017
OutlookWe continue to expect that 2017 will be an
important year of strategic investment in certain initiatives that
we believe have the potential to result in significant revenue
growth in 2018 and beyond. These initiatives include the rollout of
new high throughput satellite service and hardware, the ongoing
launch of AgilePlans by KVH, an innovative subscription option for
the commercial maritime sector, development of a low-cost FOG for
autonomous vehicles, and enhancements to our TACNAV technology to
support the critical military demand for assured position,
navigation, and timing. We are making incremental investments in
these initiatives this year in order to put ourselves in the best
position to benefit from their success in 2018 and beyond.
Consequently, our guidance for 2017, which is unchanged from the
guidance provided earlier this year, anticipates only moderate
growth in revenue with a fairly large increase in operating
expenses as we fund these programs. Further, we have included only
a limited number of TACNAV systems from the anticipated large
orders in the pipeline. Specifically, our guidance for the second
quarter and full year of 2017 is as follows:
(in millions,
except per share data) |
|
Second Quarter |
|
Full Year |
|
|
From |
|
To |
|
From |
|
To |
Revenue |
|
$ |
40.0 |
|
|
$ |
42.0 |
|
|
$ |
170.0 |
|
|
$ |
190.0 |
|
GAAP EPS |
|
$ |
(0.27 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.69 |
) |
|
$ |
(0.38 |
) |
Non-GAAP EPS |
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.07 |
|
|
$ |
0.27 |
|
Non-GAAP Adjusted
EBITDA |
|
$ |
0.5 |
|
|
$ |
1.2 |
|
|
$ |
8.5 |
|
|
$ |
13.5 |
|
The outlook for the second quarter revenue and earnings per
share is below 2016 levels primarily as a result of the higher
level of TACNAV orders recorded in the second quarter of 2016.
Other Recent Announcements
- KVH Announces New Connectivity as a Service (CaaS) Offering -
AgilePlans by KVH
- KVH Receives $3.5 Million Order for TACNAV Tactical Navigation
Systems
- KVH Ships its 7,000th mini-VSAT Broadband System, Continuing
its Dominant Role in the Maritime VSAT Market
- KVH Announces New Versions of its DSP-1760 High-performance
Single- and Multi-axis Gyros
- Pacific Basin Completes KVH mini-VSAT Broadband System
Deployment on 99 Vessels
Please review the corresponding press releases for more details
regarding these developments.
Conference Call DetailsKVH Industries will host
a conference call today at 10:30 a.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 will be available on the company website within three hours
of the completion of the call.
Non-GAAP Financial MeasuresThis release
provides non-GAAP financial information, including
constant-currency revenue, non-GAAP net income, non-GAAP diluted
EPS, and non-GAAP 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 (only in the case of
non-GAAP adjusted EBITDA) liquidity. Constant-currency revenue is
calculated on the basis of local currency results, using foreign
currency exchange rates applicable to the earlier comparative
period, and management believes that presenting information on a
constant-currency basis helps management and investors to isolate
the impact of changes in those rates from other factors. 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. The non-GAAP
financial measures used in this press release adjust for specified
items that can be highly variable or difficult to predict. The
company generally uses these non-GAAP financial measures to
facilitate management’s financial and operational decision-making,
including evaluation of the company’s historical operating results,
comparison to competitors’ operating results, and determination of
management incentive compensation. These non-GAAP financial
measures reflect an additional way of viewing aspects of the
company’s operations that, when viewed with GAAP results and the
reconciliations to corresponding GAAP financial measures, may
provide a more complete understanding of factors and trends
affecting the company's business.
Some limitations of non-GAAP net income (loss), non-GAAP diluted
EPS, and non-GAAP adjusted EBITDA, include the following:
- Non-GAAP net income (loss) and diluted EPS exclude amortization
of intangibles, stock-based compensation, certain discrete tax
items, acquisition-related compensation, and other discrete
charges.
- Non-GAAP adjusted EBITDA represents net income (loss) before
interest income, interest expense, income taxes, depreciation,
amortization, stock-based compensation, acquisition-related
compensation and other discrete charges.
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.
Future Non-GAAP AdjustmentsFuture GAAP diluted
EPS may be affected by changes in ongoing assumptions and
judgments, and may also be affected by non-recurring, unusual or
unanticipated charges, expenses or gains, which are excluded in the
calculation of the company's non-GAAP diluted EPS guidance as
described in this press release.
Because non-GAAP financial measures exclude the effect of items
that will increase or decrease the company’s reported results of
operations, management strongly encourages investors to review the
company’s consolidated financial statements and publicly filed
reports in their entirety. Reconciliations of the non-GAAP
financial measures to the most directly comparable GAAP financial
measures are included in the tables accompanying this release.
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 and on land 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,
India, 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, the success of our new initiatives, our anticipated
revenue and earnings and the impact of our future initiatives on
revenue, competitive positioning, profitability, and product
orders. Actual results could differ materially from the
forward-looking statements made in this press release. Factors that
might cause these differences include, but are not limited to:
delays in the receipt of anticipated orders for our products and
services, including significant orders for TACNAV products, or the
potential failure of such orders to occur at all; continued adverse
impacts of currency fluctuations, particularly the British Pound;
risks associated with the impact of Brexit on sales and operations
in the U.K. and Europe and on the overall global economy; our
ability to successfully implement our new initiatives without
unanticipated additional expenses; potential reduced sales to
companies in or dependent upon the turbulent oil and gas industry;
continued substantial fluctuations in military sales, including to
foreign customers; 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; the impact of extended economic weakness on
the sale and use of marine vessels and recreational vehicles; the
potential inability to increase or maintain our market share in the
market for airtime services; the need to increase sales of the
TracPhone V-IP series products and related services to maintain and
improve airtime gross margins; the need for, or delays in,
qualification of products to customer or regulatory standards;
potential 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 connectivity market; potential increased
expenses associated with investments in new technology; exposure
for potential intellectual property infringement; potential
additional litigation expenses; fluctuations in interest rates;
potential changes in tax and accounting requirements or
assessments, including management’s assessment of the probability
and effect of future events; stock price volatility; and export
restrictions, delays in procuring export licenses, and other
international risks. These and other factors are discussed in more
detail in KVH’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 9, 2017. 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 but not limited to the following marks: KVH,
TracVision, TracPhone, CommBox, TACNAV, IP-MobileCast, Videotel,
mini-VSAT Broadband, NEWSlink, KVH OneCare, and AgilePlans by KVH.
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 |
|
|
|
March 31, |
|
|
|
2017 |
|
|
2016 |
|
Sales: |
|
|
|
|
|
|
|
Product |
|
|
$ |
14,863 |
|
|
$ |
15,382 |
|
Service |
|
|
|
25,348 |
|
|
|
24,998 |
|
Net sales |
|
|
|
40,211 |
|
|
|
40,380 |
|
|
|
|
|
|
|
|
|
Costs and
expenses: |
|
|
|
|
|
|
|
Costs of
product sales |
|
|
|
10,539 |
|
|
|
10,670 |
|
Costs of
service sales |
|
|
|
13,268 |
|
|
|
12,991 |
|
Research
and development |
|
|
|
3,947 |
|
|
|
3,783 |
|
Sales,
marketing and support |
|
|
|
8,740 |
|
|
|
8,658 |
|
General
and administrative |
|
|
|
8,187 |
|
|
|
7,652 |
|
Total costs and expenses |
|
|
|
44,681 |
|
|
|
43,754 |
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
|
(4,470 |
) |
|
|
(3,374 |
) |
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
166 |
|
|
|
105 |
|
Interest
expense |
|
|
|
353 |
|
|
|
375 |
|
Other
(expense) income, net |
|
|
|
(68 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
Loss before income tax expense (benefit) |
|
|
|
(4,725 |
) |
|
|
(3,721 |
) |
Income
tax expense (benefit) |
|
|
|
160 |
|
|
|
(930 |
) |
Net loss |
|
|
$ |
(4,885 |
) |
|
$ |
(2,791 |
) |
|
|
|
|
|
|
|
|
Net loss per
common share: |
|
|
|
|
|
|
|
Basic and
diluted |
|
|
$ |
(0.30 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding: |
|
|
|
|
|
|
|
Basic and
diluted |
|
|
|
16,261 |
|
|
|
15,723 |
|
KVH INDUSTRIES, INC. AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, unaudited) |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
|
2017 |
|
2016 |
ASSETS |
|
|
|
|
|
|
|
Cash,
cash equivalents and marketable securities |
|
|
$ |
46,128 |
|
$ |
52,134 |
Accounts
receivable, net |
|
|
|
26,962 |
|
|
31,152 |
Inventories |
|
|
|
21,755 |
|
|
20,745 |
Other
current assets |
|
|
|
4,953 |
|
|
4,801 |
Total current assets |
|
|
|
99,798 |
|
|
108,832 |
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
|
37,159 |
|
|
36,586 |
Goodwill |
|
|
|
31,603 |
|
|
31,343 |
Intangible assets, net |
|
|
|
17,034 |
|
|
17,838 |
Other
non-current assets |
|
|
|
5,410 |
|
|
5,134 |
Non-current deferred income taxes |
|
|
|
24 |
|
|
24 |
Total assets |
|
|
$ |
191,028 |
|
$ |
199,757 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
$ |
27,926 |
|
$ |
25,082 |
Deferred
revenue |
|
|
|
7,156 |
|
|
6,661 |
Current
portion of long-term debt |
|
|
|
2,475 |
|
|
7,900 |
Total current liabilities |
|
|
|
37,557 |
|
|
39,643 |
|
|
|
|
|
|
|
|
Other
long-term liabilities |
|
|
|
41 |
|
|
326 |
Non-current deferred tax liability |
|
|
|
3,139 |
|
|
3,133 |
Long-term
debt, excluding current portion |
|
|
|
46,435 |
|
|
50,153 |
Stockholders' equity |
|
|
|
103,856 |
|
|
106,502 |
Total liabilities and stockholders' equity |
|
|
$ |
191,028 |
|
$ |
199,757 |
KVH INDUSTRIES, INC. AND
SUBSIDIARIES |
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET
LOSS |
(in thousands, except per share amounts,
unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2017 |
|
|
2016 |
|
Net loss -
GAAP |
|
$ |
(4,885 |
) |
|
$ |
(2,791 |
) |
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
1,068 |
|
|
|
1,283 |
|
Stock-based compensation expense |
|
|
960 |
|
|
|
1,053 |
|
Tax
effect on the foregoing |
|
|
(411 |
) |
|
|
(358 |
) |
Discrete
tax expense, net (b) |
|
|
1,849 |
|
|
|
9 |
|
Acquisition-related compensation |
|
|
- |
|
|
|
179 |
|
|
|
|
|
|
|
|
Net loss -
Non-GAAP |
|
$ |
(1,419 |
) |
|
$ |
(625 |
) |
|
|
|
|
|
|
|
Net loss per
common share - Non-GAAP: |
|
|
|
|
|
|
Basic and
diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding: |
|
|
|
|
|
|
Basic and
diluted |
|
|
16,261 |
|
|
|
15,723 |
|
(a) In 2016, consistent with the historical presentation, this
does not include the tax effect of the amortization expense related
to our intangible assets which were principally acquired in
connection with our United Kingdom acquisition with such operations
having a statutory tax rate of 20%.
(b) Represents a change in the valuation allowance on United
States net operating losses, a state research and development tax
credit, uncertain tax position adjustments, and
penalties.
KVH INDUSTRIES, INC. AND
SUBSIDIARIES |
RECONCILIATION OF GAAP NET LOSS TO
NON-GAAP |
EBITDA AND NON-GAAP ADJUSTED
EBITDA |
(in thousands, unaudited) |
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
|
|
2017 |
|
|
2016 |
|
GAAP net
loss |
|
|
|
$ |
(4,885 |
) |
|
$ |
(2,791 |
) |
Income
tax expense (benefit) |
|
|
|
|
160 |
|
|
|
(930 |
) |
Interest
expense, net |
|
|
|
|
187 |
|
|
|
270 |
|
Depreciation and amortization |
|
|
|
|
2,761 |
|
|
|
3,189 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP
EBITDA |
|
|
|
|
(1,777 |
) |
|
|
(262 |
) |
Stock-based compensation expense |
|
|
|
|
960 |
|
|
|
1,052 |
|
Acquisition-related compensation |
|
|
|
|
- |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP
adjusted EBITDA |
|
|
|
$ |
(817 |
) |
|
$ |
969 |
|
KVH INDUSTRIES, INC. AND
SUBSIDIARIES |
NON-GAAP EPS GUIDANCE |
(unaudited) |
|
|
|
|
|
|
|
Second Quarter |
|
Full Year |
|
|
Fiscal 2017 (Projected) |
|
Fiscal 2017 (Projected) |
|
|
|
|
|
Net loss per common
share |
|
($0.27) - ($0.23) |
|
($0.69) - ($0.38) |
|
|
|
|
|
Estimated amortization
of intangibles (a) |
|
$0.07 |
|
$0.28 |
Estimated stock-based
compensation expense |
|
$0.06 |
|
$0.23 |
Estimated tax
effect |
|
($0.06) |
|
($0.13) |
Discrete tax
adjustments (b) |
|
$0.13
- $0.12 |
|
$0.38
- $0.27 |
|
|
|
|
|
Non-GAAP net (loss)
income per common share |
|
($0.07) - ($0.04) |
|
$0.07 - $0.27 |
(a) Reflects amortization of intangible assets resulting from
acquisitions.(b) Represents incremental forecasted valuation
allowance that the company expects to record against additional
deferred tax assets generated in 2017.
KVH INDUSTRIES, INC. AND
SUBSIDIARIES |
NON-GAAP ADJUSTED EBITDA
GUIDANCE |
(in millions,
unaudited) |
|
|
|
|
|
|
|
|
|
Second Quarter |
|
Full Year |
|
|
|
Fiscal 2017 (Projected) |
|
Fiscal 2017 (Projected) |
|
|
|
|
|
|
GAAP net loss |
|
|
($4.3) - ($3.6) |
|
($11.1) - ($6.1) |
|
|
|
|
|
|
Estimated income tax
provision |
|
|
$0.5 |
|
$1.6 |
Estimated interest
expense, net |
|
|
$0.2 |
|
$0.7 |
Estimated depreciation
and amortization |
|
|
$3.2 |
|
$13.6 |
Estimated stock-based
compensation expense |
|
|
$0.9 |
|
$3.7 |
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA |
|
|
$0.5 - $1.2 |
|
$8.5 - $13.5 |
Contact:
KVH Industries, Inc.
Donald W. Reilly
401-608-8977
dreilly@kvh.com
FTI Consulting
Christine Mohrmann
212-850-5600
KVH Industries (NASDAQ:KVHI)
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