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KVH Industries Reports Second Quarter 2010 Results


26 July 2010


KVH Industries, Inc., /quotes/comstock/15*!kvhi/quotes/nls/kvhi reported financial results for the second quarter ended June 30, 2010. Revenue for the second quarter of 2010 was $29.5 million, up 35% from the quarter ended June 30, 2009. Diluted earnings per share for the quarter totaled $0.36 on net income of $5.3 million. Net income resulted from pre-tax earnings of $2.0 million and a $3.3 million income tax benefit. Excluding the income tax benefit from the change in deferred income taxes valuation allowance, quarterly adjusted net income was approximately $1.3 million, and adjusted EPS was $0.09. During the same period last year the company reported net income of $0.2 million or $0.01 per diluted share, on revenues of $21.9 million.

 

For the six months ended June 30, 2010, revenue was $57.5 million, up 43% compared to $40.1 million for the six months ended June 30, 2009. KVH reported net income of $7.4 million or $0.50 on a per diluted share basis for the first six months of 2010. Excluding the income tax benefit from the change in deferred income taxes valuation allowance, year to date adjusted net income was approximately $3.4 million, and year to date adjusted EPS was $0.23 per diluted share. During the same period last year, the company reported a net loss of $2.4 million or $0.17 on a per share basis.

 

"Strong performance in each of our major markets during the second quarter led to our second consecutive record for quarterly revenue as well as a better-than-expected bottom line bolstered by a sizable tax benefit. Even without the income tax benefit, our income from operations was still higher than anticipated. Our strategic initiatives in fiber optic gyros (FOGs) and global satellite communications continued to drive our growth. We also enjoyed renewed growth from some of our other business areas that have been stressed by the economy for quite a while," explained Martin Kits van Heyningen, KVH's chief executive officer.

 

KVH's defense-related guidance and stabilization revenue from the company's FOG solutions, TACNAV(R) military navigation systems, and related services was approximately $12.8 million in the second quarter of 2010, up 38% on a year-over-year basis. "With product sales of roughly $10.6 million, a 49% increase from the same period last year, our FOG business set a new sales record while making a significant contribution to our top and bottom line success. We are sustaining this momentum with recent orders for more than $9.0 million in FOGs for remote weapon stations. We also experienced success in the commercial FOG market spurred by the strong demand for our compact and affordable three-axis inertial navigation systems," said Mr. Kits van Heyningen.

 

In the second quarter of 2010, mobile communications revenue from marine, land, and aeronautical products and services was $16.7 million, up 33% on a year-over-year basis. Mr. Kits van Heyningen commented, "With our mini-VSAT Broadband(SM) satellite communications service, we set ourselves apart from the competition by building the only seamless global multi-megabit spread spectrum network for ships and planes. As a result, second quarter airtime revenue from mini-VSAT Broadband showed strong year-over-year and sequential growth. Mobile communications sales also benefitted from roughly $1.5 million in shipments of our aviation satellite TV system as well as a gratifying uptick in sales of our land mobile satellite TV systems for recreational vehicles."

 

Speaking about the company's financial results, Patrick Spratt, KVH's chief financial officer, said, "Our second quarter performance was once again strong and exceeded our expectations on both the top and bottom lines. In spite of the generally weak global economic conditions, we have continued to grow. Our strategic initiatives are progressing well. While gross margin for the quarter was slightly lower than expected, operating expenses were in line. The higher-than-anticipated revenue level contributed to operating earnings that exceeded what we had anticipated for the quarter. The balance sheet remained quite strong with our cash, cash equivalents, and marketable securities position increasing $3.7 million since March 31, 2010, to more than $45 million. At the end of the quarter, we concluded that it is more likely than not that we will be able to realize the majority of our deferred tax assets over the next several years. As a result, we recorded an income tax benefit of $4.0 million related to the release of the associated deferred tax asset valuation allowance."

 

Looking ahead to the remainder of the year, Mr. Spratt said, "For the third quarter we expect revenue to again show solid growth in the range of 18-26% compared to the third quarter of 2009. We anticipate a sequential decline compared to the second quarter of 2010 because, as planned, there will be no shipments for our aviation TV antenna, and we expect to see the normal seasonal decline in demand in the leisure marine markets. This sequential decline, along with continuing investments in the mini-VSAT Broadband global infrastructure are expected to result in EPS in the range of $0.05 to $0.10. Full year 2010 is developing a little better than our original expectations. We anticipate that in the fourth quarter we will see a sequential increase in revenue and EPS, leading into what we expect will be a long-term trend of operating profit growth, driven by the growth of our strategic businesses but still subject to historical patterns of seasonality."