News Category

Edited Transcript of KVHI earnings conference call or presentation 1-Mar-19 2:30pm GMT

Views : 129
Update time : 2019-05-15 18:02:37

Q4 2018 KVH Industries Inc allowance Call

MIDDLETOWN Mar 8, 2019 (Thomson StreetEvents) -- Edited Transcript of KVH Industries Inc allowance meeting summon or presentation Friday, March 1, 2019 at 2:30:00pm GMT

TEXT translation of Transcript

================================================================================

Corporate Participants

================================================================================

* Donald W. Reilly

KVH Industries, Inc. - CFO

* Martin A. Kits Van Heyningen

KVH Industries, Inc. - Co-Founder, Chairman, CEO & President

================================================================================

Conference summon Participants

================================================================================

* Christopher David Quilty

Quilty Analytics, Inc. - Founder & Partner

* James Patrick McIlree

Chardan chief Markets, LLC, investigation piece - Senior investigation Analyst of Industrial and Consumer Technology

* Richard unfold Valera

Needham & Company, LLC, investigation piece - Senior Analyst

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., investigation piece - chief of Telecommunication Services Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and hail ought the KVH Industries, Inc. Fourth region and Year-end 2018 allowance meeting Call. Today's meeting is being recorded. at this time, I used to alike ought modify the meeting at ought Don Reilly, CFO.

--------------------------------------------------------------------------------

Donald W. Reilly, KVH Industries, Inc. - CFO [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, everyone. Thank you though joining us today, ought controversy KVH Industries Fourth region Results and our guidance though the 2019 first region and complete year. complete of which is included at the allowance release, we published this morning. With me at this summon is Martin Kits Van Heyningen, the company's head Executive Officer, and Brent Bruun, the company's head Operating Officer. The allowance free is available at our website, and though sound from our Investor Relations department. if you used to alike ought hear a recording of today's call, you can access our webcast replay at our website. if you're listening via the web, feel free ought comply questions ought IR at KVH.com.

This meeting summon will learn sure forward-looking statements that are puzzle ought many assumptions and uncertainties that can meditate our authentic results ought differ materially from those expressed at these statements. We undertake no duty ought update or heal any forward-looking statements.

We will though sound controversy sure non-GAAP economical measures, and you will discover definitions of these measures at our review free though sound though reconciliations of these non-GAAP measures ought alike GAAP measures. We encourage you ought review the cautionary statements made at our SEC filings, specifically those below the risks -- below the heading threaten Factors at our third region chart 10-Q filed at October 31; and our 2018 chart 10-K, which we expectation ought queue afterward today, and the company's other SEC filings available direct from the Investor news district of our website. at this time, I used to alike ought modify the summon at ought Martin. Martin?

--------------------------------------------------------------------------------

Martin A. Kits Van Heyningen, KVH Industries, Inc. - Co-Founder, Chairman, CEO & principal [3]

--------------------------------------------------------------------------------

Thanks, Don. And good morning, everyone. Thank you though joining us. Overall, we had a identical good region with revenues of $43.8 million. That's a 12% amplify from Q4 final year.

This was driven by our mist manufacture revenues, which increased 33%, over with an 87% amplify at VSAT shipments compared ought the fourth region of 2017. There was a $1.2 million mist bid that we were counting at on Q4 that came at though planned, besides the visitor pushed deliveries out into 2019. Had that shipped, we used to own been within our guidance hill though revenues and EBITDA. Everything else chiefly came at though expected though the quarter. though 2018 though a whole, we delivered hard operation with revenue up 7% ought $170.8 million in spite of the fact that we don't acknowledge any immediate revenue at VSAT shipments into our new AgilePlans program. at addition, we ended the year with 4 key strategic goals and successfully delivered at complete of them. We launched a new global HTS satellite network, pioneered and rapidly grew a new service driven commerce model, made significant headway at our TACNAV, A-PNT projects and achieved a technological breakthrough at our photonic chip technology. Now let's receive a show at each of these initiatives at our Q4 results at a part more detail. at our mobile connectivity business, we thrive ought yell on hasty uptake at our AgilePlans subscriptions. at the fourth quarter, AgilePlans shipments increased 94% at the fourth region of 2017, and represented 62% of commercial maritime VSAT shipments.

Monthly ARPUs and margins though AgilePlans subscriptions thrive ought exist higher than traditional sales. Traditional hardware sales remain a radical divide of our business, and I'm glad ought interpret that fourth region VSAT manufacture sales though sound increased more than 80% at Q4 of 2017. though a result, we shipped a record quantity of VSAT systems with an amplify of more than 87% though the fourth quarter, and more than 90% though the complete year compared ought the identical epoch at 2017.

We are though sound beginning ought yell on the benefits of compounding AgilePlans subscriptions. Together, these led ought an amplify at quarterly airtime revenue of $2.1 million, or 13% year-over-year.

Rolling out our new global HTS network and aggressively building our AgilePlans connectivity though a service commerce xerox were the sumit 2 strategic initiatives though our Mobile Connectivity business. The mixture of these 2 has proven ought exist incredibly commonplace with our customers. We though sound expectation that the margins will thrive ought vacation though our subscriber combine continues ought touch towards our mini VSAT broadband HTS network and towards AgilePlans at 2019. With the hasty growth of our AgilePlans program, we expectation the new commerce xerox ought exist cash-flow breakeven by the center of the year, just 24 months backward launch. at fact, we expectation the complete AgilePlans program ought exist coin flow definite though the complete year 2019.

To assist hasten the touch ought our HTS network, we own continued our transition ought an complete HTS manufacture family. at late 2017, we launched our 60-centimeter, 24-inch, TracPhone V7 HTS. because then, it's vacation the fastest growing SATCOM manufacture at our history because of the petition of the downloads though fast though 10 megabits per second worldwide and simultaneous tall hurry and unlimited employ news channels.

More recently, we introduced our new TracPhone V3 HTS at November. This 15-inch system is the world's fastest, lightest, smallest marine VSAT antenna. It offers download speeds though fast though 5 megabits per second, which is faster than many competing 1-meter VSAT antennas. Its size and charge hill are better though smaller leisure, fishing and commercial vessels. at shut future, we expectation ought intimate the touch ought our complete HTS quarters of products. during 2018, we had ought carefully control our wage and capacities though we launched the HTS network, nevertheless maintaining our tall wealth of service at our existing network. though we amplify subscribers, we've grown our bandwidth plans though HTS. at the identical time, we've managed our wage of customers' upgrade from the legacy network onto the new HTS network. nevertheless there's been a part of edge strain over the way, we expectation that we ought yell on amplify at edge starting at the second quarter, and ending the year significantly higher. This is about a seamless transition though we could own hoped for.

In our usage business, we've been identical successful at launching new products and capabilities at 2018. The rate at which existing maritime usage customers are upgrading toward our new Videotel operation Manager continues ought accelerate. We've already migrated more than 6,500 vessels ought the new platform. The capabilities of this system are resulting at tall levels of visitor satisfaction, reduced churn, and stabilized subscriber levels. And a competitive edge at our competition. This commerce has been declining at contemporary years, and we're optimistic that the new software capabilities will stabilize this commerce and answer us ought growth at 2019.

On the console marine side, we had a identical sound region though our TracVision in-motion satellite TV antenna systems. Bucking the trend of string cutters at land, we saw sales of our TracVision marine satellite TV systems overthrow a record tall at the fourth quarter.

Moving at ought our Inertial Navigation business. Our flow of double-digit revenue growth though our mist products continued though the eighth consecutive quarter, with a 33% amplify at Q4 of 2017. Our sound Inertial sales growth is built at an increasingly various visitor base. though example, the fiber optic gyro basis products we shipped at Q4 are being deployed at applications ranging from distant weapon stations and high-end camera stabilization ought autonomous nation movers and driverless cars. appeal is sound though our complete manufacture line, including fiber optic gyros, inertial measurement units, and our premier Inertial Navigation systems. Our customers encompass established firms, startups, commercial and military users, initiatives at land, sea and stand and both domestic and international buyers. arise is much more compatible sales pipeline, supported by a broader basis than we've had at the past.

We though sound thrive ought compose good proceed at our pursuit of little military, significant military opportunities. at 2018, our TACNAV 3D system was tested at multiple sphere trials and outperformed the program specs at each occasion. And during the fourth quarter, we received an bid though about 20 TACNAV 3D, mist based systems that will exist divide of a formal contest though a big U.S. army program, which is divide of their assured place navigation and timing initiatives. We'll exist delivering these systems afterward this month, at which time, testing will begin. This program represents an opportunity though many thousands of units, larger than any program we've ever been involved with. nevertheless no at our formal guidance, we've though sound seen significant activity at the big center Eastern TACNAV project, that's been delayed though little years. We've received formal RFPs from 5 various excellent contractors, complete asking though the identical KVH mechanism with corporation delivery dates. We desire ought own farther developments ought interpret at this though the year progresses.

And finally, a key strategic initiative though 2018, was the successful development of our photonic chip technology. though promised, we shipped the first prototypes of our photonic chip based IMU ago the aim of the year ought autonomous vehicle developers though testing. These were our first IMUs built with our photonic chips, and I'm thrilled ought proclaim that they were though sound the best-performing IMUs we've ever produced.

We own key automotive OEMs, now doing side-by-side testing with this new prototype with a photonic chip inside, against our criterion fiber optic gyros that they're using today.

Our existing mist and FOG-based IMUs already supply a higher even of precision than MEMS universe inertial systems. That's why our contemporary products are at employ or being tested at more than 20 various autonomous vehicle platforms today. With the development of the photonic chip-based FOGs, we expectation it will exist capable ought supply an inertial sensor with match or greater precision ought our existing products besides at a charge that we hope will exist competitive with MEMS systems while produced at tall volumes. We count that this is indeed a disruptive technique though safe, precise, autonomous navigation. And it will though sound change our fiber optic gyros and inertial systems though other applications. We recently received our first patent at this technique and own little more at the pipeline.

We're accelerating our investment at this technique now, and we're pushing towards commercialization and mass production. We are now at discussion with little latent strategic partners that can assist us scale, and vacation a supplier ought automotive companies. We desire ought finish that endeavour at 2019. consequently at conclusion, we ended 2018 having made eminent proceed at our critical strategic initiatives. Now, we're at execution mode. building at those developments, looking ahead ought the console of 2019, we've lay aggressive strategic goals though the company. among them: ought hasten our subscriber growth at our HTS network, both over new visitor acquisitions and upgrading existing customers; further into marine IoT market, with the new subscription service; commercialize our photonic chip-based FOGs by the aim of this year; allege our momentum at pursuit of military A-PNT programs; and ought better profitability at earnings. I believe, we've got the exact products, the exact services and the exact nation ought arrive these goals. Our tactic and plans own positioned KVH sound though the future. And we will exist focused at delivering long-term shareholder value. Now I'd alike ought modify the summon undergo ought Don though the numbers. Don?

--------------------------------------------------------------------------------

Donald W. Reilly, KVH Industries, Inc. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Martin. though Martin mentioned earlier, our fourth region revenue came at can $43.8 million, which was slightly below our guidance range, mostly because of timing of a big mist order, which was at fact received during the region besides scheduled though shipment at 2019. This compares ought $39 million recorded at the fourth region of 2017. revenue from our Mobile Connectivity piece increased $2.6 million, and our Inertial Navigation revenue increased $2.2 million from the previous year fourth quarter.

Product revenue though the fourth region was $16.8 million, an amplify of $3.1 million, or 23% from $13.7 million at the fourth region the previous year. By segment, manufacture revenues at our Inertial Navigation piece increased $1.6 million, or about 22%. And at Mobile Connectivity piece increased by $1.5 million, or 24%. Within our Inertial Navigation segment, our mist commerce continued at hard sumit queue revenue growth, growing nearly 33% this quarter, nevertheless TACNAV sales decreased by 6% compared ought the 2017 fourth quarter.

In our Mobile Connectivity segment, the amplify at manufacture sales was driven mostly by a $1.6 million amplify at marine manufacture sales. With reputation ought the Agile program, shipments increased 94% compared ought the fourth region of 2017, and nearly 47% of our complete unit shipments this region and 62% of our commercial shipments were at connection with this offering. Service revenue though the fourth region was $27 million, a $1.7 million amplify or 7% from $25.3 million though the previous year. Mini-VSAT broadband airtime revenue was up nearly 13% from the previous year fourth quarter, offset somewhat by lower content and usage revenue.

For the fourth quarter, our consolidated complete benefit edge decreased ought 39.1% though compared with 46% at the fourth region of final year. From a piece perspective, our Mobile Connectivity complete edge was about 39%, down 7 points from final year, chiefly because of the shock of our new HTS network. nevertheless our Inertial Navigation complete edge decreased about 6 percent points ought 41%. Mostly, or somewhat because of manufacture mix, specially the shock that, that combine had at the overhead absorption at our factories besides though sound because of much lower margins at our NRE commerce this year.

Operating expenses though the fourth region were $19 million, down slightly from $19.1 million at the fourth region of the previous year. though the fourth quarter, these changes at revenue, margins and operating expenses resulted at a loss from operations of $1.9 million compared ought the loss of $1.1 million recorded at Q4 2017. The Mobile Connectivity piece generated an operating benefit of $0.5 million compared with $2 million final year, nevertheless our Inertial Navigation piece had an operating benefit of $1.1 million though the quarter, compared with an operating loss of $100,000 final year. Our unallocated loss increased $500,000.

For the fourth quarter, our net loss is $1.8 million, though compared with a net loss of $1.7 million recorded at the identical epoch final year. at a non-GAAP basis, which excludes amortization of intangibles, stock-based compensation, employee termination and other nonrecurring costs, transaction-related fees, foreign exchange transaction gains and losses, tax consequence of the prior and the change at our valuation allowance and sure tax adjustments, we had net allowance of $200,000 compared with $2 million final year.

EPS though the fourth region was a net loss of $0.11 per piece compared with the net loss of $0.10 per piece the identical epoch final year. Non-GAAP EPS though the fourth region was allowance of $0.01 per piece compared ought $0.13 per piece final year. The reduce at non-GAAP EPS was because of the shock of a tax chop and Jobs Act, passed at December final year. though non-GAAP purposes final year, we excluded the shock of the TCJA from EPS, which nearly was $0.10. Our adjusted EBITDA though the region was $2.6 million, compared with $3.8 million recorded at the fourth region of final year. And though our intimate reconciliation of our non-GAAP measures, interest refer ought our allowance free that was published earlier this morning.

Total backlog at the aim of 2018 was a identical sound $14.5 million. Backlog though our Inertial Navigation products and services at the aim of December was $11.5 million and though our Mobile Connectivity piece was $3 million. Of that complete backlog amount, nearly $10.5 million is scheduled ought exist delivered during 2019. Our coin flow from operations was $3.4 million, an amplify of $1.3 million compared ought the 2017 fourth quarter. chief expenditures were $4.4 million, and our net debt was $13.8 million, up $9.7 million from the aim of 2017.

With that, I'll now modify ought our expectation though the first region and complete year, 2019. The guidance though the first region is though follows: revenue is estimated ought exist at the hill of $41 million ought $43 million; and GAAP EPS ought exist at the hill of a negative $0.33 ought negative $0.22 per share. Non-GAAP EPS is expected ought exist at the hill of negative $0.15 ought negative $0.08 per share, and adjusted EBITDA is estimated ought exist among negative $1 million and definite $1 million.

For the complete year, guidance is 108 -- revenue guidance is $180 million ought $195 million. Our expectations though full-year GAAP EPS is a hill of negative $0.56 ought negative $0.22 per share. Our non-GAAP EPS is expected ought exist from negative $0.07 ought definite $0.17. And adjusted EBITDA hill is from $10 million ought $16 million. at the midpoint, our 2019 revenue guidance represents an amplify of about 10% compared with 2018, and our EBITDA guidance represents an amplify of 35%. Paraphrasing our allowance free somewhat, we'll exist highly focused at migrating legacy VSAT customers ought our new HTS service at the kind of the year, which we expectation will positively shock our complete margins. Our AgilePlans program enters 2019 with large momentum, and by the aim of the year ought exist a coin generator. Our mist commerce continues ought grow, and we own a sound backlog entering the year. though Martin said, we own identical definite feedback coming from our center East customer, regarding the big TACNAV orders we own been anticipating. besides we've no included those orders at our guidance. And we will exist highly focused at investing at our new photonic chip-based mist at bid ought commercialize this new manufacture by the aim of the year. We expectation the first region ought exist the lowest of the year, and expectation ought yell on improvements at both revenues and allowance though the year progresses. This guidance assumes that there will exist no significant changes at foreign coin exchange rates. though 2019, we expectation our chief expenditures will exist at the hill of $15 million ought $20 million.

This concludes our prepared remarks, and I'll now modify the summon at ought Martin -- ought the operator ought empty the queue though Q&A meeting of this morning's call. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first issue comes from Rick Prentiss of Raymond James.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., investigation piece - chief of Telecommunication Services Equity investigation [2]

--------------------------------------------------------------------------------

A associate of quick ones ought commence off. consequently the -- obviously, the 1 bid that slipped the visitor phase besides pushed it into 2019, $1.2 million. Is that coming at 1Q or is that expected afterward at the year?

--------------------------------------------------------------------------------

Martin A. Kits Van Heyningen, KVH Industries, Inc. - Co-Founder, Chairman, CEO & principal [3]

--------------------------------------------------------------------------------

It's going ought exist disperse over the year. consequently it's their program -- it's though a defense program and their program slipped ought the exact a little bit. consequently it's complete going ought exist at 2019.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., investigation piece - chief of Telecommunication Services Equity investigation [4]

--------------------------------------------------------------------------------

Okay. And obviously, the center East TACNAV orders that we've been watching though a while, sound nevertheless definite at it. can you remember us of what the contemporary concept is, what the scale of that combined orders land exist at a revenue basis? And because there are local partners, what ought we expectation kind of the margins that you used to acquire at that mechanism land exist just though we look ought yell on if they can vacation in.

--------------------------------------------------------------------------------

Martin A. Kits Van Heyningen, KVH Industries, Inc. - Co-Founder, Chairman, CEO & principal [5]

--------------------------------------------------------------------------------

Yes, consequently at condition of overall scale, we nevertheless expectation it ought exist at the $40 million ought $50 million range. The local partners, depending at if there is any local content required, which is unclear at this stage. consequently I don't own a indeed good comment at margin. besides overall, our -- though these -- this kind of commerce is somewhat episodic the margins are at our traditional manufacture and hardware sales. consequently we expectation it ought exist perfect than the corporate median edge though sure.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., investigation piece - chief of Telecommunication Services Equity investigation [6]

--------------------------------------------------------------------------------

That helps and that's good. And obviously, it's a big bid that -- a big elephant consequently if you acquire it that used to exist good. Boring down into some of the strategic initiatives though '19, obviously, highly focused at getting the encounter ought the tall throughput satellite area. And you mentioned definite complete margins, what are the upfront costs though while distant though kind of encouraging customers ought proceed with some incentives at the equipment? Or how ought we consider about the lane over the year, that concentrate ought acquire nation at ought tall throughput satellite consequently you can kind of modify off the other network side?

--------------------------------------------------------------------------------

Martin A. Kits Van Heyningen, KVH Industries, Inc. - Co-Founder, Chairman, CEO & principal [7]

--------------------------------------------------------------------------------

Yes, consequently that's at our -- you're correct, and that is baked into our guidance. consequently we are -- that's why you yell on -- we saw lower margins at Q4, and we expectation lower margins at Q1. besides the shock throughout the year, we expectation ought exist indeed dramatic at condition of the improvement at complete edge though our VSAT airtime. So, yes, it's -- we can undergo them over upgrade plans besides we'll exist doing it selectively with customers who are big customers. consequently the net-net of that is it's going ought exist improving margins.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., investigation piece - chief of Telecommunication Services Equity investigation [8]

-------------