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To: Sector Investor who wrote (1143)4/29/2002 8:32:00 AM
From: Sector Investor
   of 6936
 
Now we'd like to take our Questions and Answers. Operator, please open the call

15:31 Q&A

Steve Kreuger, Forsythe Investments

Q. Could you give us an idea on the DSP-5000 FOG, what the 2-3-4 largest application opportunities are and give us some sense of how big those annual revenue opportunities might be?
A. Well, the biggest opportunities are right now for the areas of munitions guidance systems. These are, for example, a tail kit that gets attached to a bomb. These are the type of weapons that were used in Afghanistan and have recently been depleted from our inventory, and there is a big scramble now to try and build up the inventories again. And also to make, uh, there have been statements made that we would like all of our bombs to be smart bombs. So that is an enormous opportunity that represents, you know, for the guidance package, hundreds of millions of dollars in annual revenues today, so it is a very, very large market. So the opportunity for a company like us is to be a supplier to the companies that are making the guidance package, or companies that are making the tail kits rather, and to participate in that product by building the gyros.
Q. What would you expect the ASP to your customers to be on that?
A. Well, it would depend obviously on the final configuration, but right now the DSP, in quantity sells for roughly $3,000, so it is a fairly expensive, sophisticated sensor.
Q. Are you saying that your product sells for $3,000 or the versions on the market that you are competing with sell for $3,000?
A. Ours does.
Q. In your press release you said that yours is maybe half the cost of existing?
A. Right. So for a comparable performance single axis sensor is roughly double that price.
Q. Today? That your competitors are selling for?
A. Right. Yes.
Q. OK. And are you talking about - so I guess one might try to extrapolate how many smart bombs might get used and multiply it by $3,000. That is sort of roughly the market opportunity for you there?
A. Right. Well you have to multiply by 3 because there are 3 gyros in every smart bomb.
Q. I see. OK. And what other opportunities do you see? How about commercial opportunities?
A Well, we have some other commercial opportunities for the sensors for things like camera stabilization, and we're working on a project with Sportvision similar to something we've done with them before, and we will integrate the DSP into a new sports product for broadcast television, and of course we are using it in all our land vehicle navigation systems as well, so we will be converting our own products to use the DSP technology also, so the TacNav family of products will switch to the new DSP technology.
Q. OK. That's not an incremental revenue stream in that case though. How about, does this play into the Current Sensor product?
A. Yes. The same technology is used for current sensing as well. In other words, the DSP is signal processing technology that works with the existing optical circuits, and
whether the optical circuit is a current sensor or a gyro, and we in fact have delivered Current Sensors with the DSP technology.
Q. Do we think that that represents the long awaited breakthrough that will bring that product to market? What is your outlook on Current Sensor?
A. Well, I think that the Current Sensor continues to be a very interesting application of our standard technology. The pace continues to disappoint us in terms of how quickly the market is developing for that. And that may be a post-Enron issue where the power industry is not moving as quickly as people thought they were going to. From our perspective, the product is developed, and we are continuing to refine our signal processing technology as part of the DSP, and those benefits get applied to the Current Sensor as well as our gyros, just because it is the same technology. That's really the nice thing about this application, as it really is, from a signal processing point of view, the same circuit.
Q. So, at this point, is it fair to say that you are no longer the cause of delay on Current Sensor. Your customer is delaying bringing the Current Sensor to market then?
A. Yes. As far as we are concerned, as of today, we've done everything we need to do to demonstrate feasibility, and it is really just a question of the business decision now, for how and when it gets rolled out. We can participate in that, but we can't make that decision.
Q. Shifting gears a little bit, do you have any sense on what kind of selling price you expect the low profile antenna to come out at?
A. We haven't established a retail price point yet. We've been talking with retailers about where it needs to be, to be attractive. And they would like to see it with their margins built in, obviously, and it's fitting right in line with where we expected. We are currently selling products that are in the $1,500 to $3,000 range at retail, and it will be in that range somewhere.
Q. OK. And what else would the purchaser of a mini-van - in order to take advantage of your technology, first the purchaser of a vehicle has to buy a vehicle that has the back seat video option on it?
A. Right. Well last year about a million units were sold into that market, so there is already, you know, that was a year ago, there are already a million screens installed in vehicles, and this year the number is much higher. So you are starting to have an installed base that already has the TV screens. So, initially, the obvious target market is to sell to people who have a TV and would like something to watch on that TV. So that's where we are going to start. So there wouldn't be any additional purchase required for those customers. Now if a customer wants to retrofit it, and he didn't have a screen, obviously he'd have to buy one of these flat panel screens, and those can be had now for a couple hundred bucks, maybe $500 installed.
Q. For people with the back seat video already, what do they have to buy in order to allow them to receive satellite television signal. They have to buy your antenna. I mean, do they have to buy a converter box or anything like that?
A. We will provide the entire system, so they have to do nothing but have it installed.
Q. They would have to bring it to an installer, and have the installer, sort of turnkey, install the antenna, and whatever electronic cabling and conversion equipment are necessary?
A. Right. Yes. It will be a turnkey package.
Q. And you are thinking that the cost of that whole retail package will be in the $1,500 - $3,000 range?
A. Yes.
Q. And subsequently, what kind of monthly subscription package are you thinking about offering to those people? Will you be involved in selling that as well, and what kind of costs would that add?
A. Yes, that's something that we will be announcing in partnership with the satellite TV service providers, so I can't comment on that yet.
Q. But it would be like people who have a fixed antenna in their homes. There would be a monthly subscription?
A. Correct. And as you know, the way it is organized today is that if you added a receiver, say a second receiver it currently costs about $5/month to add an additional receiver, for example, if you already are a subscriber.

25:30 Richard Cabot: - Amertech Financial

Q. I have two questions. My first question is on the Smart Bombs and fiber optic gyros. Are you an approved supplier of these to any of the current suppliers of smart bombs?
A. No. No, this is a brand new product in a brand new application.
Q. How long will it take for approval with some of these companies?
A. Normally it can take quite a while, but right now there is quite an urgent situation, so it might happen faster. So the current demand is unable to be met by the approved supplier that is available now. So, there are opportunities now that are somewhat unique. In the defense procurement cycle, you get these periods where, if there is an urgent demand, there is a motivation to bring second sources up to speed. So that is something we are hoping to take advantage of, and we have contracts in place to develop a product, so that we can do exactly that.
Q. And I assume there would be like a testing period before you get into any actual manufacturing contracts?
A. Absolutely. Obviously these things are being dropped out of airplanes, and you would like to know that they are going to land where they are supposed to. It's a very precise guidance package and it will be thoroughly tested before it is released for production.
Q. So this would be more for next year's earnings projections and revenues rather than for 2002?
A. I think it is a question of how quickly things can ramp, and you know, the demand is immediate. so, if we were an approved supplier today, we could deliver tomorrow.

Q. OK. My second question is your planned distribution channels for the Low-profile antenna and for the fiber optic modulator. I assume you are going to start testing these products with the potential customers. Could you just elaborate a little bit on who might be potential customers and what type of distribution channels you would be looking for these two products?
A. Right. Let me start with the modulator. The modulator is a very unique product and there are very few customers for that type of technology. Obviously it's very different from a retail type product. So there are only about 35 customers in the world that buy this type of product, so it is a very focused, targeted selling effort, both to people who use them, the Telecom companies, as well as the people who make products like transceivers that use a combination of a laser and a modulator to drive electronics. So those are the companies that we will be targeting, and that might include selling to companies that already make modulators, who, on the one hand could be seen as competitors, but also are companies that are building these completed transceivers. So that is a very focused sales effort that starts with delivering samples for testing, and it is fairly straightforward.

The TV antenna is a completely different problem. There the issue is trying to get into a mass market. Obviously we are in some pretty good niche markets like the RV and Marine, that give us credibility, and we have distribution there and some brand recognition that we are trying to extend into an after market retail environment, at least initially. These are the high-end audio places that install equipment for cars, and where you would go to have a nice stereo or CD player or speakers installed, or TV screens installed. So, the After Market is where we will start because that is a market we can penetrate very quickly. At the same time, in parallel with that we will try to sell to the tier one suppliers, to the OEMs and eventually to the OEMs directly. We see that as a three step process, where you start After Market, then go to tier one suppliers, and that also includes optional equipment that can be installed by the dealership, and then eventually to the OEMs directly.

Q. OK. Sort of like a series of layers that you will be trying to attack, and not necessarily going directly to a major auto manufacturer, and doing like an exclusive deal with them?

A. That's correct. We see this product as having a broad appeal, and we would like to start selling it immediately, and the automotive sales cycles are very long. So we can be doing that in parallel. And carmakers also like to see demand from consumers, and that can be demonstrated by after market sales, so we will get some pull from our customers, hopefully.

30:30
Q. For instance, companies like Harmon, which does a significant amount of business with the auto area in terms of stereo equipment? Would that be a type of potential customer?
A. It could be. There is an opportunity possibly for private labeling the product to a major brand that already has video equipment sales into that market, but initially our strategy is to roll it out under the TracVision brand, and to penetrate the market as quickly as we can, in the After market.
Q. OK. Thank you very much

Chin Yu - Foreign tech technical research

Q. One question is you mentioned you have OEM agreement to put your antenna on the RVs. Is that the Ultra-low profile antenna, or just the regular ones.
A. Just the regular ones. Just one of our standard products.
Q. OK. Two small questions. Why increase on expense side. What's your rate for your debt? You have a high cash balance. Why pay interest?
A. [Dick] The only interest we are paying right now is on a mortgage note. We entered into that a couple of years ago, it's $7% fixed rate, and that's the only debt we have today.
Q. So going forward we should think that $22K per quarter, that's about I mean $25K per quarter of interest expense?
A. Well I think when you look at Interest Expense, you are looking at a net number that's net of Interest income. On a quarterly basis we normally would pay out about $34,000.
Q. Yes, that's why I wondered. Last quarter you had $65,000 on the positive side of interest income.
A. Well one of the reasons for that is that we were investing our money. We have a sweep on our accounts and that is all swept into overnight, and, given our bylaws, we are only allowed to invest in government securities. So, as you know, the rates on that paper have gone down dramatically. If we see 1.8% today, we are really pleased with it. In overnights, the rates are very, very low, so there has been a big decrease in interest income this quarter to last.
Q. OK. The other question is you have a good improvement in Gross Margin, and also you are guiding the Gross Margin will grow steadily over the year. Can you give us some number by the 4th quarter, I mean by the end of this year what would GM look like?
A. As I said in the call, we are projecting GMs roughly comparable to Q1, and that improvement is made up of two factors. The improvement in our product direct costs, or material costs are going down with our volumes, and we are negotiating more aggressive deals with our suppliers. At the same time I talked about methods improvements. We are doing a lot more with a lot less. We have had some real changes on our production lines, and because we are pumping out more volume, our fixed costs/unit in our overhead pool is going down. So it is really a combination of those two factors.
Q. So by the end of the year, the GM still around 44 or 45%?
A. That's our current projection.

35:00 Pierre Maccagno - Needham& Co.

Q. How are you doing on the engineering program for lowering the costs for the Low- profile antenna?
A. That's going very well. One of the challenges that you and I have spoken about in the past, is not merely to make the thing small, but to get into the retail prices that we discussed earlier and we have been successful in that. The projected parts cost is right in line with our original objectives, so we are in very good shape as far as that goes.
Q OK. And you expect to roll that out by the end of the year?
A. Right. We expect to be in production by the end of the year and we'll be introducing it, at some venue to be determined towards the end of the summer, so it will be a probably summer launch, fall rollout and delivery. Obviously we will be at CES in January, which is a big consumer show.
36:40
Q What growth are you expecting for the year in your communications group at this point?
A. Well it's been surprisingly strong, and I think one of the reasons that we are seeing such strong growth, is that we've had very good performance by our distributors in the land mobile area, companies like Stag Parkway, Camping World, our biggest customers are doing extremely well. The RV market itself has recovered. In other words, sales of RVs are up, so that is helping us. And also I think that, we've introduced this TracNet product, which is a high-speed Internet option for the standard antennas. I think that's really helped us in terms of both our competitive position against our competition, where they don't have this feature. We can offer customers, if they buy our TV product, they can either add immediately, or at some time in the future, high-speed Internet. And that's been a powerful sales tool for our prospective customers, for our sales force with our customers, so that they can use that to sell our existing product. And I think that's really shown up, not only as sales of TracNet itself, but also as increased sales of our TracVision products. So, the overall revenue growth, we've talked about in the 30-40% range, a big chunk of that is coming from the growth in the communications area.
Q. OK. Within Navigation, do you have a breakdown, TacNav, Engineering research and Marine OEMs?
A. Right. We break down our revenues a couple different ways. I'll let Dick answer the question in terms of the detail, you know we had $2.2 million in defense shipments, which is what we normally call our TacNav products, and the communications were $5.9 million, FOG $500K, and the balance was Marine and other navigation products.
A. [Dick] Pierre, the military component is generally 70%+ of that category, so that's the driver on that line, in the Navigation category.
Q. How are the TacNav products that were previously pushed out? How are they selling this quarter? Were they supposed to be selling this quarter, or were they supposed to be pushed out for a couple of quarters? 39:30
A. As we mentioned, we have a shippable backlog in Q2 of just under $3 million, and those are firm orders. The orders that we were talking about would be on top of that, and whether those are shipped in Q2 or Q3, depends on when we get them.
Q. OK. And finally within Fiber, how are those fiber $3.9 million orders, which were for TacNav products. How are those selling this quarter?
A. The TacNav FOG is selling well, and that's part of the military line. We did, as Dick mentioned in his part of the call, have some putout on a couple of specific orders for the FOG group, and that issue has since been resolved, and they are producing now, so I think we should see a recovery in the FOG revenues in the current quarter.
Q. OK Good. Thank you very much.

40:50 James Shay - Private investor

Q. Martin, you mentioned in one of the releases that this new DSP-5000 is in the Defense related application, representing an annual 2.7 Billion market - is this just for gyro or is this for all of the components that go into the system?
A. Just for gyro.
Q. And, since the existing gyros that are out there, have moving parts, do they have a finite life as opposed to yours, which will have no moving parts? FOGs have longer life?
A. Yes. Depending on the application they are either mechanical, like turret stabilization gyros are almost 100% mechanical, and they typically have a life that is measured in hours, like 400 hours, 800 hours, that type of thing.
Q. One other thing. You mentioned that your gyro is an Open loop system, and the others are Closed loop. Are there distinct advantages of one over the other? Can you please explain that in layman's terms?
A. Well, you are getting into a pretty high level of detail, but let me give it to you as clearly as I can. The primary difference, from a customer point of view, in the past was the Closed Loop gyros were much more expensive but they were more accurate. The Open Loop gyros tended to have less noise, but were not quite as accurate. With the new DSP technology, we have the performance of a Closed Loop gyro in terms of accuracy, but the low noise of an Open Loop gyro, and the low price of an Open Loop gyro.
Q. One last question Martin. I had to step away for a few minutes, but pertaining to that old order of that European Utility for the grid system? Can you bring us up on the status of that?
A. Yes, we've covered that already Jim. No big developments there. We've completed the DSP version of our optical Current Sensor, so we are essentially complete with our development now, and really business decisions need to be made as to what they would like to do.

43:45 Chin Yu - Foreign Tech Research

Q. I just checked. Last year your military sales were like $5.5 million. You are guiding like to double this number this year, which means $11 million this year?
A. That's correct.
Q. And for the current quarter is $2.2 million?
A. That's correct.

44:15 Richard Cabot. - Amertech Financial group

Q. You mentioned that you expect to become a standard component of some of the RVs out there. Is there a particular pricing segment of RVs that you would be targeting, the high-end RV's rather than the low end?
A. Right. Initially a class A RV is what we sell to normally. Within that group, the Diesel RVs are the higher end of that group. That's where we will be standard equipment first. And, as I've already mentioned, we are already optional equipment on some other vehicles, that go all the way down to the gasoline powered range, which are very low end vehicles. And what we're seeing is that the technology, and this is pretty typical, you can think about the automotive market, a nice new feature started out in a high-end car, like electric windows, and then eventually, you can't buy a car without it. So, we are really seeing the same thing. We started out very top tier and we are dropping down and down and down every year.
Q. On these Diesel class RVs. Do you have any idea how many are manufactured annually?
A Don't quote me on this, but my recollection is somewhere around 40,000 produced on an annual basis.
Q. OK. So it's a fairly significant market, just in itself.
A. Yes.

End of Q&A. Thanks for listening, and we will be available if you have any follow up.

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To: Sector Investor who wrote (1144)4/29/2002 9:32:44 AM
From: Sector Investor
   of 6936
 
This morning, Mahler one posted this on the MRVC thread.

Message 17394607

I gave a short reply and said I would reply further here,

Message 17396963

but since I just posted the full CC transcript, I think it says everything that needs to be said. What more could I add?

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To: Sector Investor who wrote (1144)4/29/2002 10:13:43 AM
From: Roy F
   of 6936
 
Sector,

Many thanks for your efforts on the transcript... I have a copy in my reading area.

Regards,

Roy

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To: Roy F who wrote (1146)4/29/2002 10:18:41 AM
From: Sector Investor
   of 6936
 
<<I have a copy in my reading area.>>

The throne? <ggggg>

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To: Sector Investor who wrote (1144)5/2/2002 12:08:03 PM
From: David Semoreson
   of 6936
 
great notes .... thanks so much.

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To: David Semoreson who wrote (1148)5/10/2002 8:10:34 AM
From: Sector Investor
   of 6936
 
KVH Industries' TracNet Hits the Road with High-speed Internet Access

ir.kvh.com

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To: david james who started this subject5/14/2002 8:24:40 AM
From: Roy F
   of 6936
 
U.S. Military Selects KVH Fiber Optic Gyros for Stinger and ITAS Training Simulators

KVH E-Core(R) FOGs Now Providing Real-time Image Synchronization for Three Leading U.S. Weapons Training Simulators

MIDDLETOWN, R.I., May 14 /PRNewswire-FirstCall/ -- KVH Industries (Nasdaq: KVHI - News) announced today that its fiber optic gyros (FOGs) have been selected by the U.S. military to provide motion tracking, visual stabilization, and image synchronization for the Stinger and Improved Target Acquisition System (ITAS) training simulators. KVH gyros will be used to upgrade existing Stinger shoulder- and tripod-mounted simulators while the tripod- or vehicle-mounted ITAS simulator is an entirely new system. These orders mark the most recent selection of KVH gyros for defense-related, virtual reality simulators. KVH currently supplies FOGs for use in the Javelin Basic Skills Trainer, an order that was originally announced in November 2000.

"The use of virtual reality-based simulators offers an invaluable yet cost-effective training tool for the men and women in our armed forces," remarked Jay Napoli, KVH's director of FOG/OEM sales. "These latest orders illustrate the recognition that KVH gyros, with their precise and instant measurement of platform motion, are the ideal solution for visual synchronization. By measuring even the slightest movement and relaying this data to the simulator's computer, KVH FOGs allow the simulator's virtual image to correspond exactly to a solider's motion. As a result, soldiers can interact with a realistic battle scenario and gain expertise in the use of the missile systems without incurring the costs of live firing actual missiles."

The Stinger, ITAS, and Javelin simulators are designed to operate in the same way as the actual missile launchers. A digitized battlefield is displayed in the simulator's targeting scope and, as the soldier moves the simulator to track and fire on a potential target, the battlefield image moves correspondingly, offering a realistic battlefield environment. At the same time, the instructor can view and influence the same virtual image on a computer screen to vary the timing and types of targets while monitoring and evaluating a trainee's performance.

"Contrary to what you might see in the movies, the Javelin anti-armor, Stinger ground-to-air, and ITAS anti-tank missile systems are complex weapons that are not simply hoisted to your shoulder, pointed at a target, and fired," Napoli explained. "By carrying out training with these simulators, which look, feel, and act like the real thing, U.S. soldiers can be trained to a very high degree. Virtual reality simulators like these have been shown to significantly increase the percentage of successful hits during live fire exercises."

E-Core FOGs use KVH's proprietary polarization-maintaining optical fiber and fiber components and are highly reliable systems with no moving parts to wear out or require maintenance. FOGs provide extremely precise rotational rate information by measuring the phase difference between two paths of light traveling in opposite directions through an optical fiber. Their precision results in part because of their lack of cross-axis sensitivity to vibration and acceleration. KVH FOGs also have low noise and high bandwidth, essential to motion tracking and image stabilization applications. Currently, KVH Industries' FOGs are fielded in a wide array of defense-related applications ranging from optical, radar, and antenna aiming systems to battlefield tactical navigation systems and turret stabilization.

KVH Industries Inc., designs and manufactures products that enable mobile communication, defense navigation, and direction sensing 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 Illinois, and a European sales, marketing, and support office in Hoersholm, Denmark.


KVH Industries Contact:
Chris Watson, Communications Coordinator
401-847-3327
cwatson@kvh.com

Investor Relations Contact:
Phil Davidson or Jolinda Taylor
Morgen-Walke Associates
617-747-3600

Financial Media Contact:
Ron Heckmann
Morgen-Walke Associates
415-296-7383

SOURCE: KVH Industries

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To: Roy F who wrote (1150)5/14/2002 8:44:47 AM
From: robert b furman
   of 6936
 
Hi Roy,

Good news - but what I really want for Christmas is a Defense contractas a second source for Jdam bombs DSP5000 Fogs.

I don't want to be greedy but lets say 10% of the annual 2.8 billion business = 280 million or a ten fold of sales dollars ata "rich" military margin.

When and IF that announcement occurs say hello to 20's.

Hey everybody has to have a dream.gg

Bob

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To: robert b furman who wrote (1151)5/14/2002 9:16:48 AM
From: Roy F
   of 6936
 
Hi Bob,

Agreed, although the man-held and vehicle mounted side of the equation isn't a bad start. With KVH's track record with the military, your dream may soon come true. gg

(Soon, of course, is a relative term)

Regards,

Roy

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To: Roy F who wrote (1152)5/14/2002 11:10:34 AM
From: robert b furman
   of 6936
 
Hi Roy,

The more they do and their reliability becomes a common denominator - the sooner they will be accepted in other applications.

I remember when I went to their communications assembly line and I asked the production manager how they handled a warranty problem.- the poor guy vapor locked with a hollow look on his face as he said "We've never had that happen.

Ah the joys of ISO 9001.

The Military must be learning this on a daily basis.

The news is good - the progress is steady - the rewards will be exceptional.

All it takes is Patience - see how easy investing is??gg

Good to hear from you and as always thanks for the prompt posting of great news.

Bob

Have you noticed the daily larger blocks of stock beginning to trade i.e. 4000 shares @ 7.51 today @ 9:59

Institutional accumulation I suspect.

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