KVH Industries, Inc. (KVHI)

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KVH Announces Results for Second Quarter
Thursday July 21, 7:00 am ET


MIDDLETOWN, R,I.--(BUSINESS WIRE)--July 21, 2005--KVH Industries, Inc., (Nasdaq: KVHI - News)
-- Record Quarterly Revenue of $18.8 Million

-- Profit of $1 Million and $0.06 Per Diluted Share

KVH Industries, Inc., (Nasdaq: KVHI - News), a leading provider of mobile satellite communications products and defense-related navigation and guidance systems, today reported its results for the second quarter ended June 30, 2005. Revenue for the second quarter was $18.8 million, up 29% from $14.5 million for the second quarter ended June 30, 2004. Net income for the period was $1.0 million, or $0.06 per diluted share compared to a net loss of ($4.9) million, or ($0.34) per share, during the same period last year.

For the six months ended June 30, 2005, revenue increased 13% to $36.7 million from $32.5 million for the six months ended June 30, 2004. KVH reported net income of $1.3 million or $0.09 per diluted share for the 2005 period, versus a net loss of ($4.8) million or ($0.35) per share in the year ago period.

"Strong defense revenues, combined with good growth in our mobile satellite product sales, allowed us to achieve record quarterly revenue and solid bottom line results for the quarter. In addition, we achieved improvements in all key aspects of our operations and reached exciting milestones in each of our business areas," said Martin Kits van Heyningen, KVH's president and chief executive officer.

Second quarter sales of the company's mobile satellite communications products increased 10% compared to the second quarter of 2004. Year-to-date, mobile satellite communications revenue was up 4%, compared to the first six months of 2004.

"Strong marine sales led the way with a 15% increase over last year's second quarter, thanks to growth in both our North American and European sales," explained Mr. Kits van Heyningen. "Sales in the land market increased 4% over the second quarter of last year, despite a decline in sales to the RV market. Sales of Class A RVs, the primary platforms for our TracVision® systems, are down for the year, and we are seeing a corresponding slow-down in TracVision sales to RV manufacturers as they reduce vehicle production levels."

Discussing the second quarter demand for KVH's satellite TV antenna technology within the automotive marketplace, Mr. Kits van Heyningen remarked, "Sales of the TracVision A5 rose year-over-year and helped offset the decline in sales to the RV space. We continued to record good sales through our established aftermarket retail network and made solid progress in our efforts to enroll premier Cadillac dealers as authorized TracVision A5 retailers. Late in the second quarter, we increased the visibility of the TracVision A5 among automotive consumers by bringing TracVision A5 to the rental car marketplace through a pilot program in cooperation with Avis Rent a Car. This is the first phase in what we hope is a program that will expand to include additional Avis locations and other vehicle models."

For the second quarter of 2005, defense-related sales, including those for KVH's TACNAV® military navigation systems and fiber optic gyro (FOG) solutions, were up a combined 146% on a year-over-year basis. Year to date, defense revenue was up 54% compared to the first six months of 2004.

"Along with new orders for our TACNAV vehicle navigation systems, interest in and sales of our fiber optic products remained strong," Mr. Kits van Heyningen said. "Our DSP-3000 fiber optic gyro is now an integral component in the U.S. military's Common Remotely Operated Weapon Stations (CROWS), which allow gunners to accurately shoot from inside the safety of their Humvees or other vehicles. The initial order for the DSP-3000, valued at roughly $1.5 million, is for the first 12 months of what is expected to be a 5-year program. Overall, our defense backlog almost doubled to $11.4 million compared to the end of the first quarter of 2005."

Commenting on the company's financial results, Pat Spratt, chief financial officer, said, "We remained focused on operational efficiency and cost controls and our efforts have shown meaningful benefit. For the second quarter of 2005, gross margin was 41%, reflecting an almost 2-percentage point improvement on a sequential basis and a 26-percentage point improvement on a year-over-year basis. Operating margin improved more than 3 percentage points, or more than $640,000, compared to the first quarter of 2005. Our asset management continued to improve, led by accounts receivable days sales outstanding at 50, a decline of 6 days from the first quarter and 8 days from the prior year. Inventory turns remained steady at 5.4 on an annualized basis. These factors contributed to strong second quarter positive cash flow from operations at $2.3 million."

Commenting on the company's expected performance during the second half of the year, Mr. Spratt noted, "We expect that revenue will continue to show year-over-year growth though we do anticipate a sequential decline as a result of the seasonal slow-down historically experienced in the marine market during the second half of the year. We do expect to achieve profitable results for the third quarter, although the sequential decline in revenue will likely cause net earnings to be below that of the second quarter."

"We are seeing the benefits of the successful implementation of our operational plan together with the introduction of some new products in the marine market," concluded Mr. Kits van Heyningen. "During the second quarter, several long-term program opportunities came to fruition in the defense arena, and we continue to build momentum in the auto market. I am extremely pleased with our results for the second quarter as well as the first half of the year."

Recent Highlights:

July 5, 2005 - Avis Rent A Car announced that its new Hummer H3 sport utility vehicles at Sky Harbor International Airport in Phoenix, Arizona, would now offer the TracVision A5 automotive satellite TV system and DIRECTV® satellite TV programming.
June 27, 2005 - KVH introduced new variants of its high-performance marine TracVision systems designed for use with the Sky Mexico service, the most popular satellite TV service in Mexico and offering coverage throughout Central America and the western Caribbean.
May 15, 2005 - KVH received a $1.5 million order from Recon/Optical, Inc., for KVH's high-performance DSP-3000 fiber optic gyro systems, which are being used in the U.S. Army's new Common Remotely Operated Weapon Stations.
Over the course of the second quarter of 2005, KVH received orders valued at more than $3.4 million for its TACNAV military navigation systems. These orders were placed by a variety of U.S. and foreign military customers.
KVH is webcasting its second quarter conference call live at 10:30 a.m. Eastern Time today through the company's web site. The conference call can be accessed via the company's web site at http://www.kvh.com/InvRelations. The audio archive and an MP3 podcast will also be available on the company web site within three hours of the completion of the call.