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To: Roy F who wrote (213)7/27/1998 4:59:00 PM
From: Roadkill
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Thanks for the update, Roy. I look forward to reading your synopsis and getting your opinions regarding the conference call.

It looks like Ms. Andrews wasn't sure what to make of my screen name. Perhaps she thought it referred to KVH's stock price over the last six months. :o)

RK

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To: Roy F who wrote (213)7/28/1998 12:38:00 AM
From: Roadkill
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Roy, rather than be lazy and just ask for your analysis, I thought I'd give some of my own. Alice Andrews said $1.3 MM of 2Q 97 communications revenue was due to AMSC, leaving $.8 MM for direct sales. Last Q's communications revenue -- $2.2 MM -- was all direct, representing a 175% gain in direct communications sales.

Before I get too excited, I should note that (I imagine) many of these direct sales would have been OEM sales, but that option wasn't available. Still, this represents nice demand, and shows KVH's ability to sell directly to the customer -- which presumably gives the company fatter gross margins -- and demonstrates KVH's strong sales channels.

As the press release states, navigation revenue was up 19% from 2Q 97, a healthy gain.

At this point, I don't really care about EPS. I'm concerned about revenue. If this growth is sustainable, and if the military is serious about FOG technology, we'll end up just fine.

I'll be interested to hear what, if anything, the CC said about recurring air-time revenue for TracPhone. As I recall, in last year's 2d or 3d Q CC (I used to listen to them all, but lately have been too busy), management said that we should start seeing air-usage revenues in 2Q 98. KVH receives a cut of the usage revenues for the phones it sells. Talk about fat margins! Yahoo!

Sorry. Got a little carried away there. I think I'm going schizo. I saw my CHKPF and TDFX blow away earnings, only to see the stock prices fall through the floor. Makes you want to skip all the time analyzing stocks and just buy some overpriced KO, DELL or MSFT.

OK, I'm done whining. Let me know about the CC, including management's tone. Thanks, Roy.

RK

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To: Roadkill who wrote (215)7/30/1998 12:18:00 AM
From: Daniel Johnson
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I didn't hear anything in the conference call about TracPhone air-time revenues. Otherwise the conference call was upbeat. KVH is upbeat about useful integration of FOG technology into navigation products. This will very much widen the range of uses for KVH products. Two applications mentioned were tracking and control of trains, and precision guidance of farm machinery. In the case of trains, occasional interruption of GPS signals by bridges and tunnels is a concern that is easily fixed with the addition of a FOG sensor.

With the hope that the FOG-enhanced TacNav product will sell well, I recently bought some KVHI.

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To: Roadkill who wrote (215)7/30/1998 12:25:00 AM
From: robert b furman
   of 6936
 
Hey roadkill you are picking up a following.Not too many get alice to indirectly post to you.I think this little tech stock is fixin to do it their way.The very stable high margin good for sales kind of hard work hustle.Ithink they are a steal!
I'm glad I've got me a bunch!

Bob

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To: Daniel Johnson who wrote (216)8/2/1998 1:44:00 AM
From: Roadkill
   of 6936
 
Glad to hear that the CC was upbeat. I'm still kicking myself for missing it. Gotta find a way not to work all the time.

Anyway, I've been running a few numbers based on the 2Q report, and find this stock underpriced, even considering the issues we're currently facing regarding overhead, margins, etc. The revenue in 2Q '98 was $6.5 MM, giving us a run rate of about $26 MM. I know that this business is a somewhat seasonal, but work with me for a moment. Assuming 7.1 MM shares outstanding, at $3 a share, that's a PSR of about .82 -- and that's without any OEM revenues. If year-to-year revenue growth is even in the neighborhood of 20%, that deserves a PSR of 2 or even 3, just to put us on par with other tech companies with that sort of growth. As you know, the Street will assign an even higher PSR if it thinks the revenue growth is sustainable. A PSR of 2 (based on the 2Q '98 run rate) would give us a stock price in the $7-$7.50 range. A PSR of 3 puts us at about $11.

I'm using PSR, of course, because EPS is difficult here. In the first place, we're losing money over the last few quarters due to the FOG acquisition. Also, it's hard to tell where margins will end up once the overhead is trimmed and the margins in the FOG unit get straightened out. When we do start posting positive EPS numbers again, I suspect that the market will re-notice this stock.

There are other problems, of course, For instance, lack of liquidity. Lately, the daily average has been less than $20,000 worth of stock a day. That's assuming that all trades are registered twice (seller --> MM --> buyer) because we're on the NAZ. Until we become a little more liquid, most mutual funds -- even small cap funds -- won't touch this stock.

Finally, I'm not sure that any analysts still formally follow this company. That's a hassle, but not too much of an impediment. Most analysts have a hard time looking past the next six months, and their "analysis" is often not helpful for that reason. As long as the revenue grows and the products remain strong, who cares if some pointy-head with a spreadsheet raises the projected EPS in year 2002 by a nickel? They're all too busy tripping over themselves to recommend YHOO and AMZN, anyway. Whatever.

OK. Venting complete. Hey, what do you folks think about the market? Short-term correction or beginning of bear market recession?

RK

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To: Roadkill who wrote (218)8/2/1998 2:57:00 PM
From: Roy F
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RK and thread:

Here's a synopsis of the CC from my notes. Thanks to Alice Andrews of KVH for the tape... hopefully any misinterpretations, omissions or inaccuracies will be brought to my attention.

Restructuring - with new COO, should reduce expenses up to 20% by the end of 98. Steps include central administration, 15% reduction in workforce, etc.

New products - intensifying high-bandwidth area for land and marine vehicles,and military land navigation where demand is escalating and margins are high. Selling sensors used in these products to OEM for use in navigation, robotics and optical stablization products.

FOG projects in the sensor products group include those designed for automatic vehicle location, precision farming and train control. Working with major railroad to incorporate FOG systems into locomotive tracking systems. Also, working with a tractor manufacturer testing a FOG system for use in location and automatic steering control for farm productivity enhancements.

These opportunities with Fortune 500 companies are now the focus of choice rather than the urban transit opportunities identified by the Andrew Corp. prior to the acquisition of their FOG Group. KVH is confident these opportunities will lead to higher margins and faster revenue growth over the next few years.

Re-iterated the possible 10X increase in TACNAV sales to military and government in the next few years. Currently $11m in purchases.

Coming soon, fiber optic gyro enhanced TACNAV system developed with government funded grants. TFOG Navigator will provide pointing and targeting accuracy that is significantly greater than the basic TACNAV system. Also, solves the problem of TPS jamming, which has been identified by the military as a growing problem and a serious threat to the armed forces.


Travision sales up nearly 5X 2Q97 and 75% over 1Q98. Expanded to Tracvision 45 for Europe.

Other FOG applications include dramatically improving the accuracy of stablized satellite antenna system.FOG combined with tracvision control system in a government funded project for high data rate transmission in a next generation KA band communication system. Pioneering mobile applications for high bandwidth satellite systems for mobile users will stimulate demand for KVH technology.

Tracphone 25 sales up 465% Q/Q... up 21% overall.

Moved FOG unit to new facility. Expands capacity. Important due to desire to incorporate FOGs into many KVH products. Down time was minimal, however, decrease in revenue and increase in costs in Q2 due to move.

Restructuring plan design to accomplish 3 things: Reduce near term losses, restore long term growth and profitability and establish KVH as a world-class competitor in its industry.

Stronger management team. Growth in main focus. Based on analysis of KVH's core strengths vs marketing opportunities, KVH is pursuing a number of product opportunities: Television land mobile applications, tactical navigation enhancements, precision farming and positive train control. Expense control is key to delevoping products to take advantage of the opportunities available, allowing the necessary R&D investment.

CFO - total rev up 12% over 2Q97, up 56% over 1Q98. Navigation rev up 19% over 97, 65% over 1Q. Communications sector - rev up to $2.2m from $2.1m., noteable because 2Q97 included a one time non-recurring OEM sale of $1.3m, while 2Q98 was solely based on direct recurring sales. Fifth consecutive quarterly increase in direct sales of communication products. Communication rev up 42% over 1Q98.

Tracvision sales up 5X yr/yr, 75% over 1Q98.

Mini-M tracphone sales +20% over 1Q98. Began to book multi-unit orders from large shipping fleets.

FOG-based products to ship in 6-9 months. Spending will be reduced in areas that will not place new product development or growth at risk. Heavy armor TRACNAV applications are most important. Company now more strongly than ever positioned to take advantage of the opportunities that lie ahead.

Q & A:

Blain Carrol, LG Cowan:

Railroad venture - problems keeping raillines open and avoiding congestion. Positive train contol. KVH's system works as well as $60K system from another company. High volume potential in dealing with Fortune 500 companies.

Precision farming - factory automation, efficiency enhancements for large corporate-run farms. Could be a robotic application in the future, currently a cruise-control type steering aid to avoid overlap in applications like spraying fertilizer or insecticide when dealing with field that may be a mile in length.

Q: Aren't GE and Harris developing a competing product? MKVH indicated the mentioned company was a customer rather than a competitor. Would not comment further.

Headcount reductions are complete. Payroll benefit is immediate. CFO indicated savings could be in the 20% range for rest of 98 and could improve beyond that.

Tracvision accounts for 50% of communication revenues, almost all US. Foreign products just now ramping up. Phone revenue is 40$ export.

Q about Intimate Satellites - MKVH talked about open TV, something being developed by Sun and Thompson. Allows internet and digital satellite transmission simultaneously with standard TV dish and stetop box. Allow you to receive broadcast internet as well as applications transmitted via satellite. Applets run on a TV or a computer. This technology will enable a lot the things KVH has been working on..

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To: Roy F who wrote (219)8/3/1998 9:16:00 AM
From: Roy F
   of 6936
 
Correction of information in previous post:

Tracphone 25 sales up 465% Q/Q... up 21% overall.

Should read up 46%. Sorry.

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To: Roy F who wrote (219)8/17/1998 12:47:00 AM
From: Roadkill
   of 6936
 
Roy and Thread:

I read over Roy's CC notes again. In the first place, it was nice to hear that Alice Andrews supplied the CC tape. She has been very helpful the few times I have called. Much more helpful than the IR lady they used to have. The former IR lady once gave me the third degree just because I wanted to listen to the CC -- she wanted everything but my shoe size. Give me a break. Alice is much more helpful.

Anyway, based on Roy's notes, I did some spiffy analysis on a piece of scrap paper regarding 3Q 1998 earnings prospects. But I lost the paper on a plane coming home from Florida. I'll try to recreate the gist here:

1) Assuming (a) $6.4 MM in 3Q revenue (same as 2Q; I know too little about the industry to make a pithy guess about future revenue), (b) 3Q expenses are reduced 20%, and (c) gross margins remain at 37%, then we break even based on operating revenue (versus a $595K loss in 2Q). We might end up making a penny or so a share (not counting tax loss carry-forwards) based on interest income, etc., but that doesn't really count. BTW, it looks like someone at KVH has a future in currency hedging -- they made $107K on foriegn currency gains, and while the dollar was shooting through the roof! Maybe the company should open a hedging department on the side.

2) Assuming the same as above, but pushing gross margins to 40%, we would end up with about $200K in operating revenue in 3Q.

3) All this assumes that R&D remains at 18%. This is pretty darn high, but I don't mind. It shows that the company isn't trying to manufacture earnings today by sacrificing tomorrow's growth.

4) If we get any sort of revenue growth from 2Q to 3Q, things look better. Assume ~10% Q/Q growth, for 3Q revenue of $7 MM (I'm a round-numbers kind of guy). Figuring that the extra revenue will increase manufacturing efficiency somewhat, we'll go with 40% margins, for a gross profit of about $2.8MM. Assuming management can cut 2Q expenses 20% as promised, we end up with operating revenue of about $410K. Not bad.

Any thoughts on this?

RK

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To: Roadkill who wrote (221)8/17/1998 8:17:00 AM
From: Roy F
   of 6936
 
Roadkill:

I agree with your analysis regarding reduced expenses. I think expectations of a bread even quarter are not out of the question.

Consider also that the TRACNAV expectations and most other endeavors are growing at a fairly healthy rate. This should offset anything less than the 20% efficiency gains expected. After all, the 20% may not be achieved overnight.

R and D will remain high, most likely, but the efforts are more focused to areas where demand is perceived to be highest. This all bodes well for KVH, IMO.

Regards,

Roy

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To: david james who wrote ()8/20/1998 12:01:00 PM
From: Roy F
   of 6936
 
Two big blocks.... one 100K @ 2.25, one 148.3K @ 2.125

quote.com

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