|As promised on the Yahoo! thread, here is my second "crystal |
ball" attempt for KVHI.
In the Q2 CC, in the Q&A section, the KVH CEO and CFO made
several interesting statements. Here are some excerpts:
"we have good backlog now for military, and we are seeing
improvement in the FOG, and we are very confident that the
growth in the satellite business is going to continue so we
are looking for a strong second half of the year."
"our internal plan is to be profitable in the second half
of the year"
"when we get enough volume to get sales up to $6 million
(per year) we will see very healthy margins coming out of
the FOG area".
"I think that by next year we will see [the FOG] group be
profitable and have good margins"
so, we see that they expect that FOG will have at least $6
million in sales next year.
They had these comments regarding profitability going
forward into 2001:
"if you just project the trends forward, you will see
that there is good evidence that that's going to happen".
The key things here are that in all the recordings in the
audio archives, management has demonstrated good confidence
about the future, even though they have not provided any
"hard" guidance. They indicated in several places that the
trends are in place, and that even though communications is
growing 70% a year, they expect FOG sales to "catch up" in a
few years, so they are expecting even stronger growth there.
OK. Let's try projecting those trends as the CEO suggested.
Here is my second "crystal ball" attempt for peering into
the future with KVHI.
First, a refresher. Here is my first "crystal ball" attempt:
In looking at Q2, I had the communications growth set too
high, at 25% qtr-qtr, so my top line estimate came in too
high. I have now reduced this to 17% qtr-qtr. However
military any FOG sales were actually a bit higher than I
forecast, and GMs came in at 36% instead of 35%, so my Gross
Profit number was almost exactly on target.
Also my R&D was a bit high, but my S&M was too low, but my
"other income" line was also too low. These differences
basically offset each other, so the crystal ball basically
"worked" - at least for one quarter.
This time I want to try to extend the calculations through
2001 (6 quarters) to demonstrate these trends in action.
Everyone knows of course that the numbers get softer and
softer as we project further out. Never-the-less IF THESE
TRENDS HOLD, we should begin to see MAJOR changes in KVHI
profitability starting in Q3.
1) I raise GMs gradually until 42% is reached by Q2
2001, then I hold them there.
2) I grow communications revenue 17% qtr-qtr, military
revenue by 18% qtr-qtr through Q2 2001, then reduce
to 10% qtr-qtr growth. I hold FOG growth to a flat
20% qtr-qtr, which is probably very conservative.
3) I raised the S&M to the Q2 level, then grow it at 3%
qtr-qtr, in line (I hope) with management comments
4) Looking back at other quarters, the Q4 "other
income" looks like an anomaly, so I project the Q2
5) Power sensor sales are NOT figured into the
projections, as I have nothing to base them on.
6) I have no idea what taxes will look like going
forward, so I stop with the before tax number.
Anyone else who cares to do so can estimate the rest
of the earnings down to get estimated EPS numbers.
These projections predict that they will come close to full
year profitability in 2000, and have SIGNIFICANT earnings in
2001, wiping out all 11 quarters of losses from 1997 on in
just 5 or 6 future quarters. Because I have tried to stay
conservative, and we know the power sensor market could be
huge, but is not factored into FOG growth, they may well
reach full year profitability this year and do even better
than I have projected in 2001.
Comments are appreciated, as always. Be sure to keep your
salt shaker handy too.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2000 2000 2000 2000 2001 2001 2001 2001
(000) omitted est est est est est est
Net Sales 5.70 7.95 9.35 10.99 12.93 15.21 17.50 20.16
Communications 4.20 4.70 5.50 6.43 7.53 8.81 10.30 12.06
Navigation 1.60 2.50 2.95 3.48 4.11 4.85 5.33 5.86
Sensors 0.75 0.90 1.08 1.30 1.56 1.87 2.24
Cost of Sales 3.82 5.05 5.80 6.60 7.63 8.82 10.15 11.69
Gross Profit 1.88 2.90 3.55 4.40 5.30 6.39 7.35 8.47
Gross Margin 33% 36% 38% 40% 41% 42% 42% 42%
R&D exp 1.07 1.02 1.03 1.01 0.99 0.97 0.95 0.93
S&M exp 1.42 1.62 1.67 1.72 1.77 1.83 1.88 1.94
Admin exp 0.53 0.56 0.57 0.57 0.58 0.58 0.58 0.58
Inc/(Loss) (1.14) (0.30) 0.28 1.10 1.96 3.02 3.94 5.02
Other Income (0.21) 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Income/(Loss) (1.35) (0.29) 0.29 1.11 1.98 3.03 3.95 5.03