SI
SI
discoversearch

Technology Stocks : KVH Industries, Inc. -- Ignore unavailable to you. Want to Upgrade?


To: Sector Investor who wrote (1336)7/23/2002 10:23:25 AM
From: Sector Investor  Read Replies (1) | Respond to of 6936
 
Part 2:

Q&A

Pierre Maccagno, Needham & Co.

Q. Good morning. What is your depreciation for the quarter?
A. A little better than $400,000. That includes depreciation and amortization of our intangibles.

Q. OK. I notice here that the cash is down $2.5 million, down to $6.5 million.
A. Right.

Q. Do you envision that you might have to raise some capital in the near term, or what is your vision here?
A. No. When we look at even our worst-case cash flow, we are cash flow positive at the operating line, so that we will be seeing cash provided by operations for the next two quarters. Now that's going to be offset by some Capital expenditures, so, when we net the Capital expenditures out of that positive result, by year-end we will be down by approximately one half million dollars. Obviously that's a range and this is an estimate, but we feel pretty comfortable with that number, and, contingent upon any other kind of acquisition or expansion, that we don't see happening right now, I think we have plenty of cash.

Q. So your total cash flow for the quarter was positive?
A. No. Operating cash flow was negative.

Q. OK.
A. But that is going to turn around in the third quarter, and continue in the 4th quarter as well.

Q. So that's what you expect for cash flow for the next two quarters
A. Positive cash flow from operations, that's the line just before Capex, so from an operating point of view we will be cash positive this quarter, and next quarter as well.

Q. OK.
A. And we expect that to continue going forward.

Q. On a total cash basis, when do you expect it to be positive?
A. It could be as early as the 4th quarter.

Q. Fourth quarter? OK. In terms of the breakdown of revenues, you give the Defense revenue - normally the way I put it here in my model is TacNav revenues. Do you have the total for that?
A. Defense, excluding engineering was about 21% of total revenue.

Q. So, what would be the number for TacNav then?
A. That class of sales is referred to as TacNav, is that entire family of products that we sell to the military? It was roughly $2.6 million.

Q. The way you have it here is, TacNav includes Defense, true?
A. That's correct. Yeah, that category we refer to as Defense, so, when you heard me speak on the call and referred to Defense, that's what I'm really talking about. The TacNav products make up our suite of Defense products.

Q. And that came out to $2.6 million?
A. Yes. Rounded it's about $2.7, Martin is changing us a little bit.

Q. $2.7 million? OK. And the fiber, which includes uh, TacNav correct? Would be how much?
A. No. The fiber does not include TacNav. The Fiber Optic sales were approximately $900,000 last quarter.

Q. OK. In the past, the way that we would report these fiber revenues, they would include those shipments of TacNav products that would include, uh, the fiber products.
A. If I can clarify that, Pierre, what you are saying is correct, and what Martin is saying is correct as well. What we do is we isolate the optical circuit that becomes a part of a Tactical system, what we refer to as TacNav FOG, and THAT sale is included as a Fiber Optic sale, but the remainder of the system, which is probably 80% of the total sales value, is recorded as a Defense sale. For purposes of this discussion, I think we should keep it at a little bit higher level. The Fiber Optic gyro sales were approximately $900,000, and the military TacNav sales were approximately $2.7 million. And the majority of the balance was the satellite communications sales for the quarter.

Q.OK. What is your total backlog for the quarter?
A. Total backlog is about $7.4 million, and that is at the end of the quarter.
Q. OK. And do you have a breakdown for that? I mean, how much is military or defense?
A. I'll just give you some rough percentages, about 2/3 is Military, maybe 20% fiber optic OEM kinds of orders, and the remainder are these large OEM manufacturers that Martin referred to in his script, like

Q. For the satellite?
A. Fleetwoods … Yes. Normally the satellite communication products are shipped from inventory, so we don't build a backlog in those products. Those orders are delivered as they are received.

Q. OK. And how much in revenues are you expecting from the service?
A. We don't have a good handle on that yet, Pierre, because this is a brand new business for us, so we don't have any historical data. We are starting to get activations, uh, June was really the first month we recorded any revenue from it, and we are doing our first billing cycle. I would like to point out that this was one of the many things that we did in the second quarter, that we accomplished, you know a complete billing system, an online database for customer subscriptions - customers can now check their bills online and pay via credit card online. So we have a very nice system in place. We did that in Q2, and we incurred some expense to get that started, but we expect our service revenue business to be profitable, starting in Q3. So we should see a very rapid return on that investment, and we don't anticipate incurring any additional startup expenses in Q3 So that's behind us now.

Q. Ok. And in terms of some guidance, can you give us some color for next quarter, I mean, do you see satellite growing? How is the fiber and how is the Defense - you know the different breakdowns of totals. How do you see those developing for next quarter?
A. Well I think we've given the top line guidance that we are comfortable with, which is 30%-40% growth. I think that you can see from the trajectory that we are on that we are heading rapidly towards crossing the line into profitability, and when that happens, whether that is in Q3 or Q4, I think really depends on what's going on in the economy, consumer spending and all that. But, it's very clear that things are developing, really, exactly as we had forecast early in the year. We are really pleased with the progress we are making, and, in terms of overall guidance, you know in this economy, that's about as much guidance as we feel comfortable in giving, in terms of general top line revenue growth. We expect to see a rebound in our Fiber Optic sales, significantly, based on the backlogs, the military sales should continue to grow, and the satellite communications has grown every single quarter for the last five years, so we are expecting continued solid growth in that area.

Q. OK. And finally, your Low profile antenna, when are you expecting that to reach the markets?
A. We don't expect revenue from that product this year, but we do expect to introduce it this year. It's not currently baked into the 30%-40% revenue growth that we are talking about. I think that as we get closer to product launch, we will probably say less about it, just so we can - you know, because it becomes a competitive situation now as opposed to a long range R&D project. We are now in the final stages of engineering development

Q. How are your conversations with auto manufacturers, I mean, how do you expect to introduce this product?
A. Well, our strategy on that is unchanged. We continue to anticipate that the early adopters will be high-end audio, video, after market stores. Simultaneously, we are planning on doing continued demonstrations for the car makers, as well as the tier one suppliers, eventually moving into the mass merchandisers in the after market, so I think that this product will take a fairly well charted course from automotive after market premium product to dealer add-on to eventually an OEM standard product. That's a progression that will take time. In order to bring revenue to KVH as fast as possible we are starting in the after market.

Q. Any comments from the car OEMs? What are they saying about this product?
A. Well, it's early on. It's a product that I think, you know, we've received extremely positive feedback. It's a product that everybody wants, and I think the general consensus is they would really like to see the product, because they find it difficult to believe that this can actually be done. So, I think it's up to us to show them.

Q. OK. And the fiber optic modulator - I guess you're pushing that out further?
A. What we're doing is we don't want to compromise profitability and rush a product to market, for a market that has been slow in developing. The whole 40-gigabit optical networking market has been delayed, and we want to make sure that our pace of development matches the pace of market development. We have so many things on our plate right now, it's really just a question of balancing our resources and reaching profitability at the same time. So, we are continuing to fully staff that project. We're not talking about any reduction in headcount. Everything is proceeding, we're just trying to, perhaps, slow some of the outside funding work that we are doing with universities and things like that, to bring the costs back in line with our planned spending.

Q. Are you still planning to introduce a 10-gigabit product or no?
A. Well the product we are developing is the 40, and that's still what we are working on.

Q. OK. And, OK I think that's about it. Thank you very much.
A. Thank you Pierre.

13:05 Q&A
Richard Cabot, Amertech Capital

Q. Good morning. I have a couple of questions. The first question that I have is could you elaborate and give us a little bit of an update on what's going on with the Current Sensor?
A. We are making very good progress in that area. As I said in previous calls I don't want to talk about it until we have it, because it's taken longer. But I expect that we'll have an announcement in that area very shortly.

Q. OK. The second question I have is on the service business with the Inmarsat satellites. Could you elaborate a little bit of what your financial model is, in terms of what number of subscriptions will bring you to break even, and what kind of margins this business should have for you?
A. Well the way we structured it is, it's designed to be a very, very low overhead operation, so that we expect to be above break-even almost immediately. In other words, what we are doing is that we are buying and reselling as we build subscribers, so in effect, we are not committed to buying either transponder space in the case of the Internet product, and we are not committed to buying millions of minutes in the Inmarsat side, so we are really, basically buying and reselling as we incur the expenses. So, the advantage is that we should really be profitable almost from day one, which is Q3, as we sign up subscribers and sell the service.

Q. OK. So you really don't have a risk in this business, that if you don't reach a certain level you have to make penalty payments or anything like that?
A. That's exactly right. Yes. So the way that all the agreements are structured, we're simply buying and reselling.

Q. OK. And on the announcement with L-3, could you give a little color - I know you don't want to obviously compromise defense secrets, but could you give me some idea, is this going to be on the joint venture with L-3 to bid on contracts? Are you going to be an OEM supplier?
A. Right. Our goal is to become an OEM supplier of the Fiber Optic Gyro, which is the largest value added component in the IMU in the guidance package. There currently isn't a fiber optic gyro product that meets the cost, size, weight, performance objectives on the market, so we are working with L-3 on about a million dollar funded project to develop such a product. And it would be mated with their technology, and they would be selling the final product. So, it's somewhat similar to other arrangements we have with OEMs, where we provide a critical component, but they provide the actual systems sale.

Q. Do they already have contracts with the Defense department in the smart bombs area?
A. You would have to speak with them. I'm not at liberty to say what their particular contract status is. It would be inappropriate for me.

Q. OK. That's really all for me today


Copyright © 1995-2017 Knight Sac Media. All rights reserved.Stock quotes are delayed at least 15 minutes - See Terms of Use.