KVH Executives Plan Aggressive Mini-VSAT Campaign to Build on 2011 Growth

[Satellite News 02-13-12] KVH Industries is riding a considerable wave of growth in the mini-VSAT broadband market, which CEO Martin Kits van Heyningen attributed to a 94 percent increase in its TracPhone system sales during its fourth fiscal quarter of 2011.

   “We are seeing continued momentum in our mini-VSAT business. With our recently announced TracPhone V11 and C-band airtime service, we believe we are on a path to further disrupt the maritime communications market while also expanding our addressable market,” Kits van Heyningen said in a statement to Satellite News.
   KVH’s 2011 fourth quarter revenue jumped 18 percent to $31.9 million on net income of $1.6 million compared to $200,000 in the same period last year. KVH mobile communications and satellite television products produced a 21 percent year-over-year revenue increase to $17.5 million.
   The company’s year-end revenue and profit were $112.5 million and $8.3 million, respectively. KVH’s profit tally excluded both transaction costs associated with its acquisition of Virtek Communication last year and changes to the deferred income tax valuation allowance.
   KVH CFO Patrick Spratt said that despite the high level of temporary seasonal service suspensions it typically sees during this time of year, the company’s mini-VSAT Broadband airtime service growth demonstrated the strength of its business model.
   “Compared to the second quarter of this year, quarterly gross profit from our VSAT airtime services was approximately double, and the gross margin percentage was about 800 basis points higher,” Spratt told Satellite News. “Operating expenses were higher than previous quarters largely due to direct costs related to the relatively large TACNAV shipments in the fourth quarter. The fourth quarter results also included tax benefits related to the facility and equipment investments that we made during the year."
   KVH, however, generated a 15 percent revenue increase from its TACNAV line of military vehicle navigation systems in the 2011 fourth quarter, due primarily to acceleration in customer programs that offset a decline in its Fiber-Optic Gyro (FOG) business.
   “Our TACNAV business could have some additional upside in the coming quarters, but given that these are foreign military sales, we are being cautious due to potential timing issues,” said Kits van Heyningen. “For 2012, we expect our mini-VSAT broadband business to show strong year-over-year growth, and the FOG business to benefit from many new customer applications entering production stages later this year. We will continue to be cautious with respect to expectations for growth in leisure markets, due to ongoing challenges in global economies.”
   The company also announced Feb. 13 that it reached an agreement with Iridium Communications to offer an integrated service package that combines its mini-VSAT broadband service and the Iridium OpenPort broadband service. The integrated shipboard system will use common below-deck user interface equipment for voice and data connections, combining the Iridium OpenPort and KVH TracPhone V3 or V7 terminals.
   In a statement, Iridium Executive Vice President of Global Distribution Channels Greg Ewert said the service would be fully supported by Iridium’s next-generation satellite constellation, Iridium NEXT, which is set for deployment in early 2015.
   “We have optimized the Iridium OpenPort system to seamlessly integrate with a vessel’s VSAT platform,” said Ewert. “The VSAT/Iridium solution eliminates the coverage gaps, data-rate limitations and comparatively high prices of other L-band mobile satellite service providers.”
   While forecasting KVH’s progress in 2012, Spratt said the company intends to continue its aggressive long-term growth strategy with a primary emphasis on mobile broadband products and services. “With these as major drivers, based on the information currently available to us, we anticipate that our total sales will more than double over the next four-to-five years, and our operating margins will expand to 15 percent or greater over that period. Our VSAT business should achieve very strong year-over-year growth.”

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