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KVH Reports 14% Revenue Growth and Increased Profitability in Second Quarter

07.17.03

  • Record Quarterly Revenues of $14.4 Million; EPS $0.04
  • Company Reaffirms 2003 Growth Expectations

KVH Industries (Nasdaq: KVHI), 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, 2003. Net income for the period was $0.4 million, or $0.04 per diluted share. By comparison, KVH recorded a net loss of ($0.8) million, or ($0.07) per share, during the same period last year. Revenue for the period was $14.4 million, up 14% from $12.6 million for the second quarter ended June 30, 2002.

For the six months ended June 30, 2003, revenue increased 23% to $27.5 million from $22.3 million for the six months ended June 30, 2002. KVH also reported a net profit of $0.6 million or $0.05 per share for the period, versus a net loss of ($2.0) million, or ($0.18) per share in the prior year.

"We had another record-breaking quarter and made excellent progress in our principal business areas," said Martin Kits van Heyningen, KVH president and chief executive officer. "These gains were driven by solid year-over-year growth that was well balanced across our satellite, defense, and fiber optic markets. Looking ahead, we are on track for strengthened profitability and solid revenue growth in the second half of the year as our major new satellite antenna product, the TracVision A5, enters volume production."

Overall, the company's satellite products recorded year-over-year revenue growth of 18% for the second quarter, with revenue of $9.3 million. Sales of defense-related solutions rose 13% over the same period last year on revenue of $3.3 million. Year over year, second quarter sales of fiber optic products were up 11% on revenue of $1 million while KVH's legacy products, which include OEM sensors and marine navigation systems, declined approximately 14% for the quarter on revenue of $0.8 million.

"Our existing satellite business continued to thrive thanks to new marine product introductions and consistent growth in our sales to the RV manufacturers and aftermarket resellers," continued Mr. Kits van Heyningen. "In the automotive market, I'm pleased to report that we are on track with the update we provided on June 30, 2003, and have now built the first TracVision A5 production units. These initial systems will be used for product demonstrations for key accounts, strategic partners, and service providers. At the same time, we are preparing to begin volume production of the TracVision A5 later this quarter as planned."

Commenting on the company's defense-related business, Mr. Kits van Heyningen remarked, "The performance of our TACNAV systems aboard combat vehicles in Iraq clearly illustrates the value and capabilities of our systems in the field and has supported the trend of strong defense-related sales. During the second quarter, we also received our first-ever production order for our new fiber optic gyro-based inertial measurement unit (IMU). The rapid acceptance of our new IMU for production marks a milestone for KVH as we apply our fiber optic technology for use in high-performance, integrated systems such as smart munitions, torpedoes, unmanned aerial vehicles, platform stabilization, and integration within our TACNAV product line."

With regard to the company's financial results, Pat Spratt, chief financial officer, said, "We continued to show improvement in essentially all areas of operations and asset management. Product cost initiatives contributed to a strong increase in gross profit, which rose 24% to $6.6 million in the second quarter compared with the same period last year. Gross margin also increased to 46%, up from 42% in the same quarter last year. We had indicated previously that gross margin would not be quite this strong. However, we exceeded our expectations for product cost improvements in the quarter, and benefited from the incremental leverage that came with higher than expected total volume. Operating expenses, measured as a percentage of revenue, declined to 42% compared to 48% in the second quarter of 2002. Inventory was $0.9 million lower than at the end of the second quarter of 2002 and resulted in annualized inventory turns of 7.5, or almost two full turns greater than last year. Cash provided by operations was $1.2 million for the quarter."

Mr. Spratt added, "We anticipate that revenues for the next two quarters will be up sequentially and reflect solid year-over-year growth. For the same period, gross margin will likely be 1 to 2 points lower than the third and fourth quarters of last year due to shifts in our product mix, and we will experience year-over-year growth in sales and marketing expenses to support higher sales volumes and the TracVision A5 roll-out."

Mr. Kits van Heyningen concluded, "Thanks to the strength of our established product lines and the anticipated revenue from TracVision A5 sales, I remain confident that we will see ongoing improvement in earnings during the remainder of the year supported by revenue growth that is in line with our objective of 20 to 30% growth for the year as a whole."

Second Quarter Highlights:

  • On May 6, 2003, KVH received a $1.4 million order from the U.S. Special Operations Command (SOCOM) for the company's TACNAV military vehicle navigation system. This order was the latest component of a large-quantity, multi-year SOCOM program for the purchase and fielding of TACNAV systems potentially worth in excess of $10 million over the life of the program.
  • On June 26, 2003, KVH announced that Tweeter Home Entertainment Group had signed on as the first nationwide retailer for the new TracVision A5 satellite TV antenna. Tweeter will sell, install, and support the TracVision A5 through a retailer network composed of 147 stores under the Tweeter, HiFi Buys, and Sound Advice names in the New England, Texas, Southern California, Mid-Atlantic, Chicago, Southeast and Florida markets.
  • Throughout the quarter, KVH expanded its OEM customer base in the land mobile marketplace as it announced that RV manufacturers Monaco, Triple E RV, Fleetwood, and Forest River had all selected KVH's TracVision line of satellite TV antennas for 2004 model year vehicles.

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 at http://www.kvh.com/InvRelations. The audio archive also will be available on the company web site within three hours of the completion of the call.

KVH Industries, Inc., designs and manufactures products that enable mobile communication, navigation, and precision pointing through the use of its proprietary mobile satellite antenna and fiber optic technologies. The company is developing next-generation systems with greater precision, durability, and versatility for communications, navigation, and industrial applications. An ISO 9001-registered company, KVH has headquarters in Middletown, Rhode Island, with a fiber optic manufacturing facility in Tinley Park, Illinois, and a European sales, marketing, and support office in Hoersholm, Denmark.

                  KVH INDUSTRIES, INC. AND SUBSIDIARY

                      CONSOLIDATED BALANCE SHEETS
                  JUNE 30, 2003 AND DECEMBER 31, 2002

                              (Unaudited)

                                              June 30,    December 31,
                                                2003         2002
Assets:
    Current assets:
        Cash and cash equivalents            $ 8,398,711   7,239,255
        Accounts receivable, net              10,482,958   9,716,292
        Costs and estimated earnings
         in excess of billings on
         uncompleted contracts                   219,146     377,058
        Inventories                            4,174,622   3,947,207
        Prepaid expenses and other deposits      636,761     587,647
        Deferred income taxes                    565,871     616,877
            Total current assets              24,478,069  22,484,336

     Property and equipment, net               7,754,280   7,384,888
     Other assets, less accumulated
      amortization                               378,213     441,225
     Deferred income taxes                     2,238,430   2,238,430
                Total assets                 $34,848,992  32,548,879

Liabilities and stockholders' equity:
    Current liabilities:
        Current portion long-term debt       $    96,574      93,262
        Accounts payable                       3,035,825   2,321,104
        Accrued expenses                       2,149,331   2,007,470
        Customer deposits                         31,230      91,665
            Total current liabilities          5,312,960   4,513,501

    Long-term debt                             2,554,756   2,603,885
                Total liabilities              7,867,716   7,117,386


    Stockholders' equity:
        Common stock                             113,973     111,498
        Additional paid-in capital            36,064,375  35,134,093
        Accumulated deficit                   (9,197,072) (9,818,025)
        Accumulated other comprehensive
         income                                       --       3,927
            Total stockholders' equity        26,981,276  25,431,493
                Total liabilities and
                 stockholders' equity        $34,848,992  32,548,879



                  KVH INDUSTRIES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF OPERATIONS

                              (Unaudited)

                        Three months ended       Six months ended
                             June 30,                June 30,
                         2003        2002        2003        2002

Net sales            $14,384,424  12,641,244  27,503,094  22,282,757
   Cost of sales       7,808,259   7,321,309  14,968,469  12,678,716
   Gross profit        6,576,165   5,319,935  12,534,625   9,604,041

Operating expenses:
   Research &
    development        2,311,062   2,432,512   4,425,564   4,766,211
   Sales & marketing   2,600,100   2,775,751   5,232,780   5,094,015
   Administration      1,101,793     813,592   2,079,618   1,532,932
Profit (loss) from
 operations              563,210    (701,920)    796,663  (1,789,117)

Other expense:
   Other expense         (44,680)    (28,632)    (46,469)    (30,656)
   Interest expense,
    net                  (39,545)    (29,985)    (78,235)    (52,634)
Profit (loss) before
 income taxes            478,985    (760,537)    671,959  (1,872,407)

Income tax expense        41,020      51,600      51,006      86,100
Net profit (loss)    $   437,965    (812,137)    620,953  (1,958,507)

Per share information:
   Profit (loss) per
    share
     Basic           $      0.04       (0.07)       0.06       (0.18)
     Diluted         $      0.04       (0.07)       0.05       (0.18)

Number of shares used
 in per share
 calculation:
   Basic              11,329,443  11,005,426  11,283,661  10,989,609
   Diluted            11,939,341  11,005,426  11,845,926  10,989,609

This press release contains certain forward-looking statements that involve risks and uncertainties. For example, the statements regarding the company's financial and product development goals for 2003 are forward-looking statements. The actual results realized by the company could differ materially from the statements made herein. Factors that might cause such differences include, but are not limited to: failure to develop and market new products successfully; lack of reliable vendors, service providers, and outside products; uneven military sales cycles; unforeseen changes in competing technologies and products; worldwide economic variances; and poor or delayed research and development results. Additional factors are discussed in the company's 2002 Form 10-K filed with the Securities and Exchange Commission on March 26, 2003. Copies are available through the company's Investor Relations department and web site, www.kvh.com. KVH assumes no obligation to update its forward-looking statements to reflect new information and developments.

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