KVH Industries Inc. on Oct. 16 said it posted a slight loss for
the third quarter, snapping a string of quarterly profits.
Middletown-based KVH had warned investors more than two weeks earlier that
a delay in an expected military contract, valued at roughly $1 million, would
weigh on its results. The company lost $150,000 for the quarter, or 1 cent a
share.
For Leaders Who Don't Have Time to Get Sick
Top performers guard their calendars, delegate relentlessly and optimize every hour of the day. Health,…
Learn More
During a conference call with analysts, KVH President and Chief Executive
Officer Martin Kits van Heyningen emphasized that military sales are difficult
to forecast, but “the overall long-term trend continues to be extremely positive.”
Specifically, KVH officials sought to reassure investors that it has ramped
up production to meet demand for its new A5 satellite TV system for SUVs and
minivans. It began shipping the $3,500 units to retailers last month.
Kits van Heyningen, who called the system “the largest, most ambitious product”
KVH has ever rolled out, said the product has been shipped to 740 retailers
so far. The company is manufacturing 250 units a week and expects to have worked
through its order backlog by the middle of the fourth quarter, he said.
KVH expects to ship between 2,000 and 3,000 of the A5 units during the fourth
quarter.
J.P. Mark, an analyst at Farmhouse Equity Research in Portsmouth, predicts
KVH will sell 20,000 of the A5 units during 2004, which he says is at the high
end of analysts’ estimates. The company has not forecast A5 sales beyond the
fourth quarter.
“It’s a real consumer product with huge mass-market opportunity,” Mark said.
“There are a lot of people out there who haven’t heard of the product, but when
they see it and see they can get DirectTV in their cars, I think that kind of
thing feeds on itself.”
Kits van Heyningen said the product has been “generating a lot of excitement”
and recently was featured on NBC’s “Today” show and “CNN Headline News.”
“People compare it to the first time they used a cell phone or Wi-fi on their
laptop,” he said.
He added that KVH is in discussions with satellite service providers, such
as DirecTV, on some sort of joint pricing or marketing deal. “Hopefully we’ll
have something to say about that shortly,” he told analysts.
Overall, KVH’s third-quarter revenue was up 8 percent to $13.5 million. Sales
of defense-related products fell 40 percent, although that was offset by a 44
percent surge in satellite TV products, bolstered by sales of a new satellite
antenna for boats.
One highlight for the company’s military business was a contract to sell satellite
navigation systems to the Taiwan army. Kits van Heyningen said the deal includes
the possibility of follow-on sales that could reap as much as $10 million in
coming years.
Indeed, Kits van Heyningen said the company could have “its best year ever”
for sales of defense-related products in 2004.
KVH expects 30 to 50 percent revenue growth during the fourth quarter, driven
primarily by sales of the A5 product, officials said. But the company expects
only a small profit for the quarter, primarily because of low margins for the
A5 and high startup costs associated with its rollout. Margins should improve
sharply in coming quarters, Kits van Heyningen said.
Mark said that KVH investors are more likely to focus on news about the A5
product, rather than the falloff in military revenue or the small quarterly
loss.
“The military business has a lot of potential, but it’s very lumpy and hard
to predict. I think investors realize that it’s not the reason you want to own
the stock right now,” he said. “Clearly, the reason is the A5.”
KVH’s share price has more than tripled this year, closing at $27 on Oct.
20.
For the complete current issue, visit our subscription Web site, or call (401) 273-2201, ext. 227 or 234.
