KVH Industries, Inc. (Nasdaq: KVHI) reported financial results for
the quarter ended March 31, 2020 today. The company will hold
a conference call to discuss these results at 9:00 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 2020 Highlights
- Total revenue from continuing
operations increased by 1% in the first quarter of 2020 to $36.6
million compared to $36.4 million in the first quarter of
2019.
- AgilePlans, our Connectivity as a
Service program for the commercial maritime sector, amounted to 78%
of total commercial maritime mini-VSAT Broadband shipments, and 63%
of the total mini-VSAT Broadband shipments for the quarter.
- AgilePlans revenues were up more
than 85% compared to the first quarter of 2019 and now represent
29% of subscribers.
- Overall, total mini-VSAT Broadband
product shipments for the first quarter were up 12% over the prior
year period.
- Our mini-VSAT Broadband airtime
revenue increased $0.9 million or 5%, in the first quarter of 2020
compared to the first quarter of 2019, driven primarily by a 10%
increase in subscribers and continuing success of our AgilePlans
and HTS airtime services.
- Fiber optic gyro (FOG) product
sales increased $0.4 million, or 9% in the first quarter of
2020, and TACNAV product sales increased $0.4 million or 46% in the
first quarter of 2020 compared to the first quarter
of 2019.
- Net loss from continuing operations
in the first quarter of 2020 was $6.2 million, or $0.35 per share,
compared to a net loss of $6.5 million, or $0.38 per share in the
first quarter of 2019.
- Non-GAAP net loss from continuing
operations in the first quarter of 2020 was $4.3 million, or $0.25
per share, compared to $3.8 million, or $0.22 per share in the
first quarter of 2019.
- Non-GAAP adjusted EBITDA from
continuing operations in the first quarter of 2020 was a loss of
$3.7 million, compared to a loss of $2.8 million in the first
quarter of 2019.
Commenting on the quarter, Martin Kits van
Heyningen, KVH’s chief executive officer, said “Despite the impact
of the COVID-19 global pandemic at the end of the quarter, we are
pleased that we delivered first quarter results largely in line
with our expectations. We made good progress on all our key
strategic initiatives this quarter, particularly with respect to
our new PIC-based FOG, and we shipped our first PIC product at the
end of March. We continue to expect that all our FOG products will
include the PIC technology by the end of 2020. Shipments of our
AgilePlans grew substantially, almost 20% compared to the 2019
first quarter, and our AgilePlans revenue grew more than 85%. We
continue to pursue our IoT initiative and are receiving positive
feedback from customers and the overall market, supporting our
confidence in the potential of this business.
“While we got off to a very good start this
year, our business now faces unprecedented and unforeseen
challenges as a result of the COVID-19 pandemic. At this point, it
is simply not possible to estimate how extensively or for how long
this global health care crisis will continue, but we have seen
enough to know that we can no longer be confident in our previous
2020 revenue and earnings guidance. Accordingly, we are withdrawing
our previous guidance and refraining from providing updated
guidance until we have a clearer picture of how significantly the
pandemic will affect us. That said, we ended our first quarter with
more than $41 million in cash, and we are taking multiple steps to
align our costs with the business economics to ensure that we have
ample cash and other liquidity as the pandemic continues. These
steps include reducing compensation and cutting costs. We will
continue to monitor our financial situation on an ongoing basis and
may find it necessary to take additional measures to weather the
pandemic as best we can, while executing on the strategic
initiatives that we expect to drive our growth in the years to
come.”
The company continues to classify the results of
the Videotel business as a discontinued operation and therefore
Videotel is excluded from the segment information below.
The company operates in two segments, mobile
connectivity and inertial navigation. In the first quarter of 2020,
net sales for the mobile connectivity segment was flat compared to
the first quarter of 2019. Mobile connectivity sales were flat,
primarily due to a $0.9 million increase in mini-VSAT Broadband
airtime revenue, offset by a $0.7 million decrease in marine mobile
product revenue and a $0.2 million decrease in land mobile product
revenue. In the first quarter of 2020, net sales for our inertial
navigation segment increased $0.2 million, or 3%, compared to the
first quarter of 2019. Inertial navigation sales increased due to a
$0.4 million increase in TACNAV sales and a $0.4 million increase
in FOG sales, partially offset by a $0.5 million decrease in
contracting engineering sales.
Financial Highlights - From Continuing
Operations (in millions, except per share data)
|
Quarter EndedMarch 31, |
|
2020 |
|
2019 |
GAAP
Results |
|
|
|
Revenue |
$ |
36.6 |
|
|
$ |
36.4 |
|
Net loss |
$ |
(6.2 |
) |
|
$ |
(6.5 |
) |
Net loss per share |
$ |
(0.35 |
) |
|
$ |
(0.38 |
) |
|
|
|
|
Non-GAAP
Results |
|
|
|
Net loss |
$ |
(4.3 |
) |
|
$ |
(3.8 |
) |
Net loss per share |
$ |
(0.25 |
) |
|
$ |
(0.22 |
) |
Adjusted EBITDA |
$ |
(3.7 |
) |
|
$ |
(2.8 |
) |
|
|
|
|
|
|
|
|
For more information regarding our non-GAAP
financial measures, see the tables at the end of this release.
First Quarter Financial Summary
Revenue was $36.6 million for the first quarter
of 2020, an increase of 1% compared to $36.4 million in the first
quarter of 2019.
Product revenues for the first quarter of 2020
were $13.1 million, 1% lower than the prior year quarter, due to a
$0.8 million decrease in mobile connectivity product sales and a
$0.7 million increase in inertial navigation product sales. Mobile
connectivity product sales decreased primarily due to a $0.7
million decrease in marine mobile product sales. The decrease in
marine product sales was primarily due to a decrease in the marine
leisure market. Inertial navigation product sales increased
primarily due to an increase of $0.4 million in TACNAV sales and a
$0.4 million increase in FOG sales.
Service revenues for the first quarter of 2020
were $23.5 million, an increase of 1% compared to the first quarter
of 2019, primarily due to a $0.8 million increase in mobile
connectivity service sales and a $0.5 million decrease in inertial
navigation service sales. Airtime service revenues, which include
mini-VSAT Broadband airtime revenues, increased by 5% in the first
quarter of 2020 compared to the first quarter of 2019 primarily due
to a 10% increase in subscribers. Our engineering service revenues
decreased by $0.5 million compared to the first quarter of 2019
primarily due to the timing of an engineering and services
development contract with a major U.S. defense contractor, which
began in the fourth quarter of 2018 and will continue through
December 2020.
Our operating expenses increased $0.4 million to
$19.4 million for the first quarter of 2020 compared to $19.0
million for the first quarter of 2019. The key drivers were an
increase in salaries, benefits and taxes of $0.3 million, along
with a $0.3 million increase to bad debt expense, partially offset
by a $0.3 million decrease in computer expenses.
Other Recent Announcements
- KVH appoints Robert Tavares to the Board of Directors.
Please review the corresponding press releases
for more details regarding these developments.
Conference Call Details
KVH Industries will host a conference call today
at 9:00 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 Measures
This release provides non-GAAP financial
information, which may include constant-currency revenue, non-GAAP
net income (loss), non-GAAP diluted EPS, and non-GAAP adjusted
EBITDA, as a supplement to our condensed consolidated 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. 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. Management generally uses these non-GAAP financial
measures to facilitate financial and operational decision-making,
including evaluation of our 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 our
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 our 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 expense, transaction-related and other non-recurring
legal fees, non-recurring inventory reserve and other non-recurring
costs, foreign exchange transaction gains and losses, the tax
effect of the foregoing and certain discrete tax charges, including
changes in our valuation allowance and other tax adjustments.
- Non-GAAP adjusted EBITDA represents
net income (loss) before interest income, interest expense, income
taxes, depreciation, amortization, stock-based compensation,
transaction-related and other non-recurring legal
fees, foreign exchange transaction gains and losses,
non-recurring inventory reserves and other non-recurring
costs.
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 Adjustments
Future 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 our
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 our reported results
of operations, management strongly encourages investors to review
our 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, Inc., is a global leader in
mobile connectivity and inertial navigation systems, innovating to
enable a mobile world. The market leader in maritime VSAT, KVH
designs, manufactures, and provides connectivity and content
services globally. KVH is also a premier manufacturer of
high-performance sensors and integrated inertial systems for
defense and commercial applications. Founded in 1982, the company
is based in Middletown, RI, with research, development, and
manufacturing operations in Middletown, RI, and Tinley Park, IL,
and more than a dozen offices around the globe.
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 investment plans, our development goals, 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
results projected in or implied by the forward-looking statements
made in this press release. Factors that might cause these
differences include, but are not limited to: the adverse impact of
the COVID-19 pandemic, as well as governmental, business and other
responses thereto and the resulting economic slowdown, on our
revenues, results of operations and financial condition, which
could be material (particularly for our media and other
travel-related businesses); decreased profitability and cash flow
resulting from the sale of our Videotel business, a history and
expectation of continuing losses as we increase investments in
various initiatives, including the photonic chip and KVH Watch
technology; increased costs arising from our new AgilePlans dealer
incentive program; increased advisory and other costs arising in
connection with potential shareholder activism; potential
liabilities arising from our sale of Videotel; the uncertain
duration of the initial adverse impact on our overall revenues of
our new AgilePlans and KVH Watch, under which we recognize no
revenue for product sales, either at the time of shipment or over
the contract term; increased costs arising from the HTS network;
potential challenges or delays in the transition of customers from
our legacy network to our HTS network; the impact of recent changes
in revenue recognition and lease accounting standards, including
potential changes in the interpretation of those standards;
potential adverse events arising out of accounting errors and the
correction thereof, including adverse reactions from investors,
research analysts, regulators and others, including adverse changes
in our projected financial performance; the uncertain impact of tax
reform, and federal budget deficits, government shutdowns and
Congressional deadlock; the uncertain impact of changes in trade
policy, including actual and potential new or higher tariffs and
trade barriers, as well as trade wars with other countries;
unanticipated obstacles in our photonic chip and other product and
service development efforts; 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 commercialize
our new initiatives without unanticipated additional expenses or
delays; 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-HTS 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, weather-related, seasonal, and other
factors, particularly with respect to the TracPhone V-HTS series,
including with respect to new pricing models; increased price and
service competition in the mobile connectivity market; increased
competition for content services; ongoing fluctuations in
engineering service revenues, which can vary significantly from
period to period; exposure for potential intellectual property
infringement; potential additional litigation expenses; 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 our Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on February 28, 2020. 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 but not limited to the following marks:
KVH, TracVision, TracPhone, TACNAV, KVH Watch, mini-VSAT Broadband
and AgilePlans. Other trademarks are the property of their
respective companies.
KVH INDUSTRIES, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(in thousands, except per share amounts,
unaudited)
|
Three Months
EndedMarch 31, |
|
2020 |
|
2019 |
Sales: |
|
|
|
Product |
$ |
13,094 |
|
|
$ |
13,215 |
|
Service |
23,474 |
|
|
23,161 |
|
Net sales |
36,568 |
|
|
36,376 |
|
Costs and
expenses: |
|
|
|
Costs of product sales |
9,636 |
|
|
8,284 |
|
Costs of service sales |
15,195 |
|
|
15,373 |
|
Research and development |
4,287 |
|
|
3,868 |
|
Sales, marketing and support |
8,700 |
|
|
8,130 |
|
General and administrative |
6,398 |
|
|
6,955 |
|
Total costs and expenses |
44,216 |
|
|
42,610 |
|
Loss from operations |
(7,648 |
) |
|
(6,234 |
) |
Interest income |
313 |
|
|
175 |
|
Interest expense |
4 |
|
|
385 |
|
Other income (expense), net |
1,502 |
|
|
(97 |
) |
Loss from continuing operations before income tax expense
(benefit) |
(5,837 |
) |
|
(6,541 |
) |
Income tax expense
(benefit) |
377 |
|
|
(44 |
) |
Net loss from continuing operations |
$ |
(6,214 |
) |
|
$ |
(6,497 |
) |
|
|
|
|
Income from discontinued
operations, net of tax |
— |
|
|
243 |
|
Net loss |
$ |
(6,214 |
) |
|
$ |
(6,254 |
) |
|
|
|
|
Net loss from
continuing operations per common share: |
|
|
|
Basic and diluted (a) |
$ |
(0.35 |
) |
|
$ |
(0.38 |
) |
Net income from
discontinued operations per common share: |
|
|
|
Basic and diluted (a) |
$ |
0.00 |
|
|
$ |
0.01 |
|
Net loss per common
share: |
|
|
|
Basic and diluted (a) |
$ |
(0.35 |
) |
|
$ |
(0.36 |
) |
Weighted average
number of common shares outstanding: |
|
|
|
Basic and diluted |
17,529 |
|
|
17,302 |
|
|
|
|
|
|
|
(a) Earnings per share components for 2019 do not sum due to
rounding.
KVH INDUSTRIES, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(in thousands, unaudited)
|
March 31, 2020 |
|
December 31, 2019 |
ASSETS |
|
|
|
Cash, cash equivalents and marketable securities |
$ |
41,029 |
|
|
$ |
48,272 |
|
Accounts receivable, net |
28,968 |
|
|
32,891 |
|
Inventories, net |
25,555 |
|
|
23,465 |
|
Other current assets and contract assets |
4,846 |
|
|
4,646 |
|
Total current assets |
100,398 |
|
|
109,274 |
|
Property and equipment, net |
54,756 |
|
|
53,584 |
|
Goodwill |
14,730 |
|
|
15,408 |
|
Intangible assets, net |
4,432 |
|
|
4,943 |
|
Right of use assets |
5,026 |
|
|
6,286 |
|
Other non-current assets and contract assets |
9,903 |
|
|
9,851 |
|
Non-current deferred income taxes |
40 |
|
|
45 |
|
Total assets |
$ |
189,285 |
|
|
$ |
199,391 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Accounts payable and accrued expenses |
$ |
30,242 |
|
|
$ |
31,116 |
|
Contract liabilities |
4,933 |
|
|
4,443 |
|
Current operating lease liability |
1,634 |
|
|
2,831 |
|
Total current liabilities |
36,809 |
|
|
38,390 |
|
Other long-term liabilities |
1,138 |
|
|
1,292 |
|
Long-term operating lease liability |
3,422 |
|
|
3,482 |
|
Long-term contract liabilities |
5,221 |
|
|
5,476 |
|
Non-current deferred tax liability |
818 |
|
|
762 |
|
Stockholders’ equity |
141,877 |
|
|
149,989 |
|
Total liabilities and stockholders’ equity |
$ |
189,285 |
|
|
$ |
199,391 |
|
|
|
|
|
|
|
|
|
KVH INDUSTRIES, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET LOSS FROM
CONTINUING OPERATIONSTO NON-GAAP NET LOSS FROM
CONTINUING OPERATIONS(in thousands, except per
share amounts, unaudited)
|
Three Months EndedMarch 31, |
|
2020 |
|
2019 |
Net loss from continuing operations- GAAP |
$ |
(6,214 |
) |
|
$ |
(6,497 |
) |
Amortization of intangibles |
248 |
|
|
248 |
|
Stock-based compensation expense |
805 |
|
|
874 |
|
Transaction-related and other non-recurring legal fees |
143 |
|
|
224 |
|
|
|
|
|
|
|
Foreign exchange transaction (gain) loss |
(1,185 |
) |
|
59 |
|
Tax effect on the foregoing |
(13 |
) |
|
(291 |
) |
Change in valuation allowance and other tax adjustments (a) |
1,904 |
|
|
1,536 |
|
Net loss from
continuing operations - Non-GAAP |
$ |
(4,312 |
) |
|
$ |
(3,847 |
) |
|
|
|
|
Net loss from
continuing operations per common share - Non-GAAP |
|
|
|
Basic and diluted |
$ |
(0.25 |
) |
|
$ |
(0.22 |
) |
|
|
|
|
Weighted average
number of common shares outstanding |
|
|
|
Basic and diluted |
17,529 |
|
|
17,302 |
|
|
|
|
|
|
|
(a) Represents a change in the valuation
allowance on current year United States net operating losses,
research and development tax credits and uncertain tax position
adjustments.
KVH INDUSTRIES, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET LOSS FROM
CONTINUING OPERATIONS TO NON-GAAPEBITDA AND
NON-GAAP ADJUSTED EBITDA FROM CONTINUING
OPERATIONS(in thousands, unaudited)
|
Three Months EndedMarch
31, |
|
2020 |
|
2019 |
GAAP net loss from continuing operations |
$ |
(6,214 |
) |
|
$ |
(6,497 |
) |
Income tax expense (benefit) |
377 |
|
|
(44 |
) |
Interest (income) expense, net |
(309 |
) |
|
210 |
|
Depreciation and amortization |
2,650 |
|
|
2,341 |
|
Non-GAAP
EBITDA |
(3,496 |
) |
|
(3,990 |
) |
Stock-based compensation expense |
805 |
|
|
874 |
|
Transaction-related and other non-recurring legal fees |
143 |
|
|
224 |
|
Foreign exchange transaction (gain) loss |
(1,185 |
) |
|
59 |
|
Non-GAAP adjusted EBITDA from continuing
operations |
$ |
(3,733 |
) |
|
$ |
(2,833 |
) |
|
|
|
|
|
|
|
|
KVH INDUSTRIES, INC. AND
SUBSIDIARIESREVENUE AND OPERATING (LOSS) INCOME BY
SEGMENT FROM CONTINUING OPERATIONS(in millions
except for percentages, unaudited)
Segment Net
Sales |
Three Months EndedMarch 31, |
|
2020 |
|
2019 |
Mobile connectivity
sales |
|
|
|
Product |
$ |
6.6 |
|
|
$ |
7.4 |
|
Service |
22.3 |
|
|
21.5 |
|
Net sales |
$ |
28.9 |
|
|
$ |
28.9 |
|
|
|
|
|
Inertial navigation
sales |
|
|
|
Product |
$ |
6.5 |
|
|
$ |
5.8 |
|
Service |
1.2 |
|
|
1.7 |
|
Net sales |
$ |
7.7 |
|
|
$ |
7.5 |
|
Operating (Loss)
Income |
Three Months EndedMarch 31, |
|
2020 |
|
2019 |
Mobile connectivity |
$ |
(2.3 |
) |
|
$ |
(1.4 |
) |
Inertial
navigation |
(0.8 |
) |
|
0.4 |
|
|
(3.1 |
) |
|
(1.0 |
) |
Unallocated |
(4.5 |
) |
|
(5.2 |
) |
Loss from operations |
$ |
(7.6 |
) |
|
$ |
(6.2 |
) |
|
Three Months EndedMarch 31, |
|
2020 |
|
2019 |
|
(percentage of total revenue) |
Mobile Connectivity
Revenue Components |
|
|
|
Product sales |
18 |
% |
|
20 |
% |
mini-VSAT Broadband airtime |
53 |
% |
|
50 |
% |
Content service |
7 |
% |
|
7 |
% |
Inertial Navigation
Revenue Components |
|
|
|
FOG-based products |
14 |
% |
|
13 |
% |
Tactical navigation products |
3 |
% |
|
2 |
% |
|
|
|
|
|
|
Contact: |
|
KVH Industries, Inc.Brent Bruun401-845-8194bbruun@kvh.com |
|
FTI ConsultingChristine Mohrmann212-850-5600 |
|
|
|
|
|
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