Technology Stocks : KVH Industries, Inc.
KVHI 12.50-0.8%5:20 PM EDTNews

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To: Roy F who wrote (219)8/17/1998 12:47:00 AM
From: Roadkill  Read Replies (1) of 7012
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?

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