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To: robert b furman who wrote (1508)10/23/2002 2:22:42 PM
From: Sector Investor
   of 7022
Wednesday, October 23, 2002 Posted: 11:15 AM EDT (1515 GMT)

WASHINGTON (AP) -- With strokes of his pen Wednesday, President Bush signed into law a bill giving him the tools he wants to wage an expensive, no-end-in-sight global fight against terror and possibly Saddam Hussein.

"Our nation faces grave new dangers, and our nation must fully support the men and women of our military who confront these dangers on our behalf," Bush said before signing legislation providing a hefty increase in defense spending and financing for military construction projects in 2003.

"The bill says America is determined and resolute to not only defend our freedom but to defend freedom around the world, that we're determined and resolute to answer the call to history and that we will defeat terror," Bush told a Rose Garden audience of mostly uniformed military personnel, along with a handful of lawmakers.

The spending measures were the first of their kind to become law -- three weeks after the start of the 2003 budget year.

Lawmakers who were deadlocked over spending decisions and anxious about midterm elections left Capitol Hill last week to campaign. They plan to finish the other 11 required spending bills in a lame-duck session after the November 5 voting.

The $355.4 billion defense bill, approved with overwhelming support to provide most of what Bush requested, increases spending by more than $34 billion over the previous fiscal year. Bush sought $367 billion, but ran into bipartisan resistance to his proposal for a $10 billion fund he could tap without congressional input for combating terrorists overseas.

"It's the largest increase in defense spending since President Reagan was the president," Bush said Tuesday as he stumped for candidates in Bangor, Maine.

"Any time the United States of America sends our youngsters into harm's way they deserve the best pay, the best training and the best possible equipment. ... It doesn't matter how long it takes to defend freedom, we'll do it. ... We have a duty to future generations of Americans to make this land secure."

With a day of work in Washington sandwiched between campaign swings and other travel, Bush was urging the Senate later Wednesday to follow the House's lead and approve legislation to bypass a Supreme Court decision that struck down a ban of computer simulations of child pornography. Bush was hosting a private forum on the sexual solicitation and exploitation of children over the Internet, followed by the public address.

The events are a follow-up to the October 2 White House Conference on Missing, Exploited and Runaway Children. Bush focused most of his attention and remarks at the time on kidnapped children but noted that during a single year one in five children between the ages of 10 and 17 are sexually propositioned online.

On Wednesday, he was also encouraging parents to teach their children about online safety.

"The threats to our children are found not just on our streets, but they're found in the technology which we use in our homes," Bush told the conference. "With expanding use of the Internet and the heightened activity of predators searching for underage victims, more children are being lured into harmful and even tragic situations."

In April, the Supreme Court struck down as unconstitutional and too broad part of a 1996 law intended primarily to stop pornography produced through computer wizardry that was not available when the court placed child pornography outside First Amendment protection in 1982.

Free-speech advocates and pornographers challenged the ban on material that appears to be a child in a sexually explicit situation or that is advertised to convey the impression that someone under age 18 is involved.

The bill Bush was promoting would prohibit the production, distribution and possession of any visual depiction, real or electronic, of prepubescent children engaged in sexually explicit conduct.

With the military moving toward a war footing with Iraq, the defense measure increases spending in almost every area, from weapons procurement to payroll. It includes a 4.1 percent pay raise for military personnel and almost all the $7.4 billion Bush requested to keep developing a national missile defense system.

The defense bill also provides:

•$3.3 billion for 15 C-17 transport aircraft

•$2.3 billion for two Aegis destroyers

•$3.2 billion for 46 Navy F/A-18 E/F fighters

•$3.5 billion to continue developing the Joint Strike Fighter

•$249 million is allotted for Navy Tomahawk cruise missiles, a prime weapon in the Persian Gulf War.

Nonmilitary federal programs are operating on last year's budgets, under a fourth temporary funding bill that is good through November 22.

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To: Sector Investor who wrote (1509)10/23/2002 2:39:23 PM
From: robert b furman
   of 7022
Somewhere iN 355.3 Billion lies opportunity for our little screamer.<VBG.


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To: robert b furman who wrote (1510)10/23/2002 3:10:34 PM
From: Sector Investor
   of 7022
Yes indeed Bob,

Here is the post House-Senate conference version from earlier this month. This is what the President signed today. Go in about 160 pages to see the detail items. Lots of KVH programs are in there, plus many others they might have bids for gyros in on.

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To: david james who started this subject10/29/2002 7:53:34 AM
From: Roy F
   of 7022
KVH Industries Sweeps NMEA Satellite Product Awards for Fifth Consecutive Year

Tuesday October 29, 7:31 am ET

TracVision 4 and Tracphone 252 Named "Best Satellite Products" by Dealers and Marine Professionals at 2002 NMEA Conference

MIDDLETOWN, R.I., Oct. 29 /PRNewswire-FirstCall/ -- For the fifth year in a row, KVH Industries, Inc., (Nasdaq: KVHI - News) has won the "best product" awards from the National Marine Electronics Association (NMEA) in the satellite television and satellite telephone categories. The KVH TracVision® 4 was voted Best Satellite Television System for the third year, while the KVH Tracphone® 252 was named Best Satellite Communications Product for the first time as it replaced KVH's four-time winner Tracphone 25.

"We are extremely proud that marine dealers nationwide chose to honor KVH's satellite communications systems as the 'Best Products' of 2002," said Ian Palmer, vice president of satellite sales, who accepted the awards at the NMEA annual convention ceremony held October 26 in Ft. Myers, Florida. "These awards reaffirm the confidence and preference of KVH products among marine professionals and consumers nationwide. TracVision 4 and Tracphone 252 are part of KVH's comprehensive suite of satellite communication products and services. We are the only company to offer dealers and consumers a one-stop shopping experience and outstanding service and support through our portfolio of marine satellite TV, satellite communications, and high-speed Internet products, as well as the necessary satellite services."

The NMEA Product Awards are presented annually to recognize excellence in design, performance and reliability in marine electronics products. The winners are selected by a vote of the members of the NMEA. Founded in 1957, the NMEA is an internationally recognized trade association of manufacturers, distributors, dealers, sales representatives and other professionals in the marine electronics field. Among its achievements, the NMEA has led the way in establishing technical standards for data exchange in marine electronics, with the widely accepted NMEA 0183 data protocol.

TracVision 4, a fully self-contained 18-inch antenna system, uses KVH's integrated Digital Video Broadcast (DVB) technology to provide automatic satellite acquisition as well as receive Internet downloads at speeds reaching 400 Kbps. Widely recognized as offering the best satellite tracking performance in its class, TracVision 4 has been selected as a standard option by leading boat builders, such as Sea Ray and Silverton. With TracVision 4, mariners can access 300 channels of direct broadcast satellite television as far as 100 miles off the North American or European coasts. TracVision 4 is also fully compatible with the high-powered DirecPC® Internet service and TracNet(TM) 2.0 Mobile High-speed Internet System, each available exclusively from KVH Industries.

Tracphone 252, a completely self-contained system, provides secure voice, fax, and data services to boats as small as 35 feet (10 m) via the Inmarsat mini-M service. Capable of simultaneously supporting multiple phones through a PABX system, as well as a fax machine and computer, Tracphone 252 brings a complete communications center to sea. The Tracphone 252's fully stabilized antenna design ensures mariners can keep in touch regardless of the sea conditions. Near-global coverage is provided through the low-cost Inmarsat mini-M service, the world's most widely used satellite communications service, which is available through KVH's Inmarsat Airtime Program.

An established, widespread network of dealers supports the KVH marine communications and navigation product lines. KVH has made supporting its dealers a high priority, and is continually striving for new ways to enhance company-dealer communications, collaborate in marketing efforts, extend training and provide rapid, high-quality customer service.

Complete information regarding KVH's TracVision and Tracphone systems can be found on the company's web site, In addition, several high- resolution, press-ready images are available to download from the News section of the KVH web site.

KVH Industries, Inc., designs and manufactures products that enable mobile communication, navigation, and precision pointing 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 Tinley Park, Illinois, and a European sales, marketing, and support office in Hoersholm, Denmark.

KVH Industries Contact:
Chris Watson, Communications Coordinator

Investor Relations Contact:
Phil Davidson or Jolinda Taylor
FD Morgen-Walke

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To: Roy F who wrote (1512)10/29/2002 8:36:10 AM
From: Sector Investor
   of 7022
I added a couple of posts about this over on Yahoo! Nice!

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To: Sector Investor who wrote (1513)10/29/2002 10:58:52 AM
From: Sector Investor
   of 7022
I found this article about Ground Prophet that mentions KVH TACNAV. Ground Prophet is another program that Congress accelerated in the FY2003 Defense budget, increasing the requested funding by 75%.

There is a lot of good information here, and we can see that this program is a large effort that goes on for years - you might say it is "blocked out". <g>

Army leaders are rolling out their newest signals-intelligence system, called Prophet, which disrupts enemy command and control, detects and classifies moving targets, and offers situational awareness on the battlefield, Army officials say. Prophet detects, demodulates, determines lines of bearing, and exploits enemy signals of interest.

Prophet Block 1, from Titan Systems Corp. in San Diego, is the first new signals-intelligence system in nearly 20 years, says Col.

Full Text WASHINGTON -- U.S. Army leaders are rolling out their newest signals-intelligence system, called Prophet, which disrupts enemy command and control, detects and classifies moving targets, and offers situational awareness on the battlefield, Army officials say. Prophet detects, demodulates, determines lines of bearing, and exploits enemy signals of interest.

Prophet Block 1, from Titan Systems Corp. in San Diego, is the first new signals-intelligence system in nearly 20 years, says Col. Kevin Peterson, Army Training and Doctrine Command (TRADOC) system manager for the Prophet at Fort Huachuca, Ariz. It is for echelons of division and below.

Prophet already is part of U.S. operations in Afghanistan, said Lt. Gen. Robert Noonan Jr., Deputy Chief of Staff, G-2, during the Prophet rollout last month in Washington, which coincided with the Army's 227th anniversary. Army leaders would not elaborate on Prophet' role in Afghanistan for security reasons.

Prophet, a project of the Program Executive Office for Intelligence, Electronic Warfare and Sensors (IEWS) at Fort Monmouth, N.J., intercepts and locates radio signals while operating on the move; it measures seismic and acoustic changes in the infrared energy, electro-optic, and magnetic fields.

Prophet Block I has an AN/PRD-13(V)2 signal intercept system mounted on a High Mobility Multipurpose Wheeled Vehicle or HMMWV, yet is not a significant target on the battlefield because it has no unique signature, Army officials say; anti-jam capability will be part of the next Block, Peterson says.

Prophet information will flow into the joint net over division communications using a digital link, as well as near continuous voice communications with the maneuver brigade's operations and intelligence elements. Prophet replaces the TRAILBLAZER, TEAMMATE, TRAFFICJAM, and MANPACK legacy systems, Army officials say.

Titan engineers reduced the number of moving parts and improved ease of maintenance, says It. Col William Stevenson, product manager for Prophet at IEWS at Fort Monmouth. Inside the Prophet vehicle the operator uses a Toughbook 28 from Panasonic Personal Computer Co. of Secaucus, N.J., to monitor the incoming intelligence.

Prophet electronics is about 30 to 40 percent commercial-off-the-shelf, or COTS, with most of that lying in the computer hardware, says Ronald Gorda, president of Titan Systems Corp.'s Information Product Group. The simple Prophet design and Windows-based software eases personnel training, Stevenson says.

Titan was to deliver the first six Block 1 systems in June; overall, Army officials say they will field 83 Prophet Block I systems by the end of 2004.

Prophet's receiver/processor -- the core electronics of Block I -- has three receivers, one direction finder and two monitors, which can operate in search (channel scan) and monitor (fix-tuned) modes. In addition, the DF receiver provides general search (band sweep), DF operations and panning operations (manually tuning a signal).

The system demodulates and collects AM, FM, continuous wave, and single sideband radio signals in the HF, VHF, and UHF spectra.

The Prophet intercept receiver can also be configured to operate as a 32-pound manpack system for airborne or air assault operations, Army officials say. An onboard Precision Lightweight Global Positioning System Receiver and KVH Tactical Navigation system interfaces with Prophet to provide accurate worldwide self-positioning locational data to within 10 meters and a north-sensing device to indicate vehicle heading. Manpack Prophet is self-sustaining for 72 hours.

The AN! VRC-92A Single Channel Ground and Airborne Radio System (SINC-GARS) provides Prophet with secure voice communications, Army officials say. Future versions will integrate the Joint Tactical Radio System, Peterson says.

Prophet Block II/III will expand the frequency range and signal types to low-probability-of-intercept and modern signals, as well as include an integrated electronic attack capability. It also will include system netting, signal remoting and beyond-line-of-sight communications.

Prophet Block IV will add mobile-attended platform-based sensors along with unattended ground sensors (UGS) deployed as a distributed and networked multiple-sensor array. Prophet Block V is the last block and will integrate micro-sensors and robotic platforms.

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To: Sector Investor who wrote (1514)10/29/2002 11:38:52 AM
From: Sector Investor
   of 7022
Here is another version. It looks like a rework of the previous article, and doesn't mention KVH, but it DOES give some roll out dates for the various Blocks. This program will go on for years, providing nice sales for KVH TACNAV for a long time.

October 2002

©SIGNAL Magazine 2002

Signal Intelligence System Uncovers Enemy Sites

Prophet finds what's present, supports future tactics.

By Maryann Lawlor

The U.S. Army has a new tool in its arsenal that allows mobile troops to gather intelligence about the location and activities of adversaries by pinpointing the source of signal transmissions and intercepting communications. The system will replace legacy electronic warfare systems that were developed more than 30 years ago, and it has already been deployed in Afghanistan in support of operation Enduring Freedom.

Part of the military's intelligence gathering mission is to collect information about enemy intentions and to determine the locations of specific targets. One way to obtain this insight is by finding the electronic signature of their communications. Signals intelligence (SIGINT) contributes to situational awareness by adding detail to the profile of the battlespace. Once the source of the signal is determined, military commanders can map the area's landscape and may, if they choose, employ electronic warfare or other tactics to interrupt communications.

The Prophet system, created and produced by Titan Systems Corporation, San Diego, provides this capability not only from a fixed command post but also on the move. Mounted on a high mobility multipurpose wheeled vehicle (HMMWV), the system allows troops in the field to intercept radio frequency signals, perform signal direction finding and develop actionable intelligence from the voice and communications data. Adversaries are not aware that they are being monitored. The Army's Program Executive Office Intelligence, Electronic Warfare and Sensors manages the project.

An onboard precision lightweight global positioning system receiver and tactical navigation system interfaces with Prophet to provide accurate worldwide self-positioning location data to within 10 meters, and a north sensing device indicates the heading of the vehicle, which supports on-the-move operations.

A manportable unit that can be removed from the HMMWV allows soldiers to continue gathering SIGINT even when away from the vehicle. The manpack system also can support forced-entry airborne or air assault operations.

The system's primary mission is to provide continuous force protection to the maneuver brigade. It will be the echelons-division-and-below tactical commander's sole organic SIGINT, electronic warfare, measurement and signature intelligence, and ground surveillance capability.

In concert with the division tactical unmanned aerial vehicle (TUAV) SIGINT payload, a capability that is currently under development, a division commander will have a comprehensive, near-real-time picture of the enemy's electronic emitters and the ability to detect, identify, locate and track selected emitters.

Engineering, manufacturing and development models of Prophet-equipped vehicles were part of the military's initial entry units in Afghanistan in November 2001. Lt. Col. William W. Stevenson, USA, product manager, Prophet, Fort Monmouth, New Jersey, explains that an Army unit, which cannot be identified for security reasons, was using the system in an exercise before operation Enduring Freedom began. Prophet had already successfully completed the test and evaluation stage, so the unit was granted permission to take two systems on its deployment to the Afghan theater of operations.

"The system provides exactly what we have been touting," Col. Stevenson says. "It offers force protection notification to that unit. It tells the troops where enemy emitters are located and, as a result, the commander can use that information in advance of moving to an area and determine what the unit is going to do in the area. It directly influences the commanders' plans."

Prophet has supported multiple operations in Afghanistan, the colonel states, and its reliability has prompted other units to request the system. In fact, plans are currently in the works to determine how the Army National Guard can obtain the equipment for use in Bosnia.

Prophet equipment is about one-third both the weight and the size of legacy systems and offers other distinct benefits. In addition to the on-the-move operation capability, it features digital triangulation to determine the origin of the signal. Legacy systems obtain bearing data that must then be plotted on a map using a grease pencil. And while it can take up to four hours to set up the antenna mast for older systems, the Prophet's 20-foot mast can be erected in two minutes. Finally, because it uses the HMMWV's batteries rather than a separate generator as a power source, thermal and acoustics signatures are reduced.

The Prophet's equipment package includes the single channel ground and airborne radio system (SINCGARS), which provides secure voice communications. Using two receiver-transmitters and two radio amplifiers, Prophet operators can communicate over two networks simultaneously.

HMMWVs equipped with the Prophet system can carry four people as well as enough mission-essential equipment, personal gear and fuel to complete a 72-hour mission.

The technology is being developed using a spiral approach. Prophet Block I contains the electronic support component, which is the receiver/processor. This core system detects and demodulates intercepted enemy signals of interest and determines their lines-of-bearing data. It comprises three receivers: one designated as the direction-finding receiver and two as monitor receivers.

Prophet operates in the high frequency, very high frequency and ultrahigh frequency spectrums. Types of searches include channel scan, fix-tuned, band sweep and manually tuned. Amplitude modulation, frequency modulation, single side-band and continuous wave signals can be demodulated and collected. It covers 10 times the radio frequencies of older electronic warfare systems.

Among the legacy systems Prophet will replace are Trailblazer, Teammate, Trafficjam and the lightweight man-transportable radio direction finding system.

Although the Prophet system is designed primarily to locate signal origination points, Col. Stevenson relates that information collection is equally important. "We are now operating in direct support of a brigade commander. The information is provided to the commander as soon as it is actionable information. This is a polar shift in the way operations are conducted and in the way the information is shared," he states.

Prophet allows data to be collected and sent back to safe areas where linguists can work on it while the commander plans what to do about the transmitter in the area of operations. "This is a shift in operations because it brings the intelligence, surveillance and reconnaissance information warfare aspect to the immediate forefront of the commander," the colonel says. Because this information can be combined with intelligence gathered by other means, capabilities dynamically increase, he adds.

Col. Kevin Peterson, USA, training and doctrine system manager, Prophet, Fort Huachuca, Arizona, points out that the system informs commanders of what is in front of and around them. It gives the commander the option to either destroy or not destroy an enemy communications post or to maneuver out of contact.

The Training and Doctrine Command's (TRADOC's) role has been critical to the development of Prophet, Col. Peterson explains. By working with users, TRADOC identified requirements for the system. It also has determined how doctrine must change as a result of the new capability. As the new system is introduced, TRADOC will conduct training and will adjust current courses to reflect the changes the capability brings to operations.

"We are working hand-in-hand with Objective Force personnel to roll this into Objective Force initiative plans because the equipment in 2008 will have Prophet embedded in it, and those forces will need to be very familiar with it," Col. Peterson explains.

Originally, Prophet's Block II and Block III rollouts involved two distinct sets of improvements to the initial equipment. However, the Army has since combined the two, now calling the upgrades Block II/III, and companies are competing for the project. The improvements at this phase are scheduled to include an electronic warfare jamming capability and to increase the types of signals Block I equipment detects to include low-probability-of-intercept, modern and frequency-hopping signals.

Current plans call for the Block II/III contract to be awarded in December 2002, with operational test and evaluation of the system scheduled for summer 2004. During the first quarter of fiscal year 2005, a production decision will be made, and the upgrades should be made in late 2005 and 2006, Col. Stevenson says.

Ronald Gorda, senior vice president, Titan Systems Corporation, explains that Titan already has been working on the next generation of equipment. The open architecture design of the system will facilitate the incorporation of future improvements and allow for maximum reuse of the equipment when upgrades are developed, Gorda says.

Currently, 37 vehicles are in full production, and Titan is scheduled to deliver a total of 83 Prophet-equipped HMMWVs to the Army by 2004. The fielding plan calls for each division to get six models. Each armored cavalry regiment is scheduled to receive four systems, while Stryker brigades will each receive three and separate infantry brigades will each receive two. Five Prophet systems will be delivered to TRADOC to meet institutional training requirements.

Improvements to the system will continue in the Block IV and Block V stages. Scheduled upgrades in the Block IV would add a measurement and signature intelligence (MASINT) capability to the Prophet system on a separate vehicle. The MASINT component may feature mobile, unattended platform-based sensors and unattended ground sensors that would be deployed as a distributed and networked sensor array. In addition, when combined with the upgraded Block II/III electronic support platform, the warfighter will have a multispectral sensor system capability. SIGINT and MASINT capabilities may be fused in future combat vehicles. Col. Peterson explains that Block IV capabilities are set to coincide with the Objective Force in 2008.

Col. Peterson predicts that Block V enhancements will be online around 2015 and will incorporate microsensors and robotic platforms. As envisioned, electronic warfare, SIGINT, MASINT and direction finding capabilities would allow commanders to tailor the collection of information to changing mission requirements.

While improved ground-based SIGINT capabilities are being introduced in the field, the Army also is in the process of developing similar intelligence gathering capabilities from the air. The division TUAV signals intelligence program (DTSP) currently is in the component advanced development stage with three companies proposing designs.

The DTSP will allow commanders to electronically map radio frequency emitters on the battlefield and conduct electronic attacks against targeted emitters. It is envisioned to feature two components. The SIGINT and electronic warfare payloads would be installed on the TUAV, while the workstation software would control the mission payload remotely and display and analyze the data.

According to Col. Stevenson, the technologies will be demonstrated at Fort Huachuca during the middle of 2003, and a contract will be awarded in fiscal year 2004 or fiscal year 2005.

To ensure that these SIGINT capabilities can be used in joint and coalition environments, the Army has been working with intelligence agencies, the special operations community and all the services as well as other nations. The equipment is interoperable with other systems to ensure that the data that is collected can be shared, Col. Stevenson says.

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To: Sector Investor who wrote (1515)10/29/2002 1:18:36 PM
From: Sector Investor
   of 7022
KVH Q3 CC Transcript part 1:

KVH Industries

Q3 2002 Earnings Conference Call, 10/17/2002

Pat Spratt, CFO

Good morning and thank you for joining us. I’m Pat Spratt, CFO for KVH Industries, and with us today is Martin Kits van Heyningen, our President and CEO. This call will address the 3rd quarter 2002 earnings release which we issued early this morning.

Standard risks and uncertainties and forward-looking statements disclaimer.

[Martin:] Thanks, Pat

We have a lot to talk about today, including some recent products and contract announcements. We begin with a recap of our quarterly and YTD operations and our key business areas, and then Pat will elaborate on the financial results of the quarter, and after that, of course we will take your questions.

All right, let’s get started.

Q3 was a breakthrough quarter, in what we believe is a breakthrough year for KVH. We entered 2002 with the goals of returning to profitability in the second half, doubling our defense revenues for the year, and achieving annual growth of 30%-40%, and we’ve made excellent progress on all three. Thanks to the successful execution of our long-term plan, we returned to profitability with earnings of one cent per share, up from a 14-cent loss in the same quarter last year. Overall, revenues for the 3rd quarter were $12.4 million, and was up 57% from the same period last year, and that’s a record for 3rd quarter sales. Revenues for the first 9 months of the year were $34.7 million and that’s up 45% over last year. In fact we’ve already surpassed our total revenues for all of 2001 by $2 million.

These quarterly gains were driven by the continued strength of our satellite communications business, as well as several new contracts for military navigation systems. During the 3rd quarter, operating expenses also decreased by $600,000, versus the 2nd quarter of this year. So looking ahead, we are well positioned for continued profitability and solid revenue growth in Q4.

I’d now like to go through each of our business segments, beginning with our Satellite Communications area and our Mobile Broadband group. Sales of our satellite communications products were $6.3 million for the quarter, and that’s a 55% increase from the same quarter a year ago. The continued resurgence in the North American market drove our sales up 78% over the prior year, expanding our market share, and more than offsetting a small decline in our European market sales. In our last conference call I mentioned that we had signed OEM agreements with three major RV and Coach manufacturers. I’m pleased to report that we have signed three more during the 3rd quarter. We’ve already announced our new contract with Marathon Coach, but we’ve also signed up Bluebird and Monaco as major customers.

All three of these OEM customers selected our TracVision antennas as standard or optional equipment for their vehicles. This represents the potential sale of several thousand additional units during the next 12 months. KVH’s TracVision is now offered as standard or optional equipment by 8 of the top 10 RV manufacturers. Now winning 6 OEM contracts in the last two quarters is a clear indication that our products continue to gain market share, but perhaps more importantly, it’s an indication that satellite television has crossed the threshold from being a nice to have gadget, to becoming a must have product for mobile consumers.

In addition to our OEM sales, our strong aftermarket campaign continued to expand. Aftermarket sales of TracVision antennas through the first 9 months of the year were more than double those of the same period last year, illustrating our ongoing success in addressing the existing RV customer base. We expect that strong sales in both the OEM and after market channels will continue in both the 4th quarter and into 2003.

We are also now seeing the initial benefits of our airtime services program, as we completed the first full quarter of airtime sales. This program was launched with the addition of minimal internal resources, thanks to extensive usage of web based billing and tracking systems. While it’s still early in the airtime services program, and revenues to date are very small, we’re building a solid base of customers that represent an ongoing, service driven revenue stream. I’m confident that airtime subscriptions will become an increasingly valuable component of our sat-com revenues.

In the North American Marine market 3rd quarter sales saw a 48% increase over last year, despite the continuing uncertainty in the Marine industry caused by the stock market decline. The Marine market is more susceptible to changes in overall consumer wealth, since boats are a luxury item that is often funded by capital gains from other investments, but we were able to grow despite the declining sales of new boats, through the addition of several new Inmarsat products, as well as our TracNet mobile Internet system. These new products are selling to the aftermarket in increasing numbers, making up for lower sales to new boats.

Since new products are driving our growth in a flat Marine market, we’re going to continue to introduce new ones at a fairly aggressive pace. In fact, we’ll be introducing an updated mobile broadband system at the Ft. Lauderdale International Boat show in two weeks. This new version, called TracNet 2.0, offers greater geographic range, faster upload and download speeds, and significantly lower airtime rates than our first generation product. TracNet 2.0 should help maintain the momentum we’ve created with the successful launch of the system earlier this year.

Our primary R&D efforts remain focused on our low profile satellite TV antenna system for the automotive market. We continue to make good progress on this breakthrough technology, and we expect to be able to announce a product introduction in the coming months.

Moving on to the Defense area, entering 2002, we set a goal to double our military revenues, and I’m very happy to say that we are still on track to do so. Third quarter military revenues were $4.3 million, up 81% from the same quarter last year. YTD our Defense related sales totaled $9.8 million, an increase of 118% over the first nine months of 2001.

Recently there has been lots of public speculation about the vulnerability of the GPS based navigation system. It’s even been reported that Iraq has been testing GPS jammers. And one of the key benefits of KVH’s TACNAV technology is that it includes both Inertial and magnetic field sensors and cannot be jammed. Our TACNAV navigation systems are currently in use in combat in Afghanistan and elsewhere in the Middle East. And our systems continue to prove themselves in the field, though the growing recognition by the military that uninterrupted precision navigation is critical to successful military operations.

The most compelling example of this is our recently announced contract to provide TACNAV for all US. Military Special Forces vehicles. We began planning for this contract shortly after September 11th last year, and built the initial inventory of systems, so that we would be prepared to ship them immediately if required. In the intervening months, the U.S. Special Operations command decided that the benefits offered by TACNAV should be made available to the entire Special Forces fleet. As a result, the scope of the contract expanded, and now has a potential value in excess of $10 million over the life of the program. We shipped the first few hundred systems at the end of the 3rd quarter, within 24 hours of receiving the order. We’re very proud that KVH equipment will be aiding our elite Special Forces. They’ve been on the front line in the war against terrorism, and they would be the first to be called upon for any conflicts in the Middle East.

Now the uneven nature of military procurement cycles will always result in some difficulty in projecting revenue patterns on a quarterly basis, but the overall trend of increasing Defense sales is clear. We continue to pursue a number of opportunities for TACNAV sales, both domestically and internationally. In addition to Special Forces, we also received a significant follow-on order for the TACNAV FOG system, used in the GroundProphet vehicle, which is used to pinpoint the source of enemy radio or cell phone transmissions. These orders should be shipped in the 4th quarter, which is why I am confident that we will double our Defense related revenues for the year, as we had anticipated.

Our Fiber Optics business also continued to grow, with quarterly revenues of $1.2 million, a 60% increase from the 3rd quarter of 2001. We are pleased with the results thus far, but continue our efforts to establish our fiber optic products as a more significant source of revenue. To date, military applications remain the number one market for our Fiber Optic Gyros. Our FOGs are the heart of our TACNAV FOG system and our TACNAV II navigation systems, and our recently patented Digital Gyro technology also continues to draw interest for use in a wider array of applications, such as the Inertial Measurement Unit for precision guided munitions that we are developing in cooperation with L-3 Communications.

In late July, we announced that an agreement was in place for KVH to partner with the ABB group to develop a new, high voltage optical Current Sensor, using the same digital DSP gyro technology. Working together with ABB, we’re making good progress towards bringing the Current Sensor to market. We’re very confident that ABB’s position as one of the leaders in the International Power industry will enable us to successfully address this exciting new market.

Now as you may recall from our last conference call, in response to the continuing collapse of the optical telecom market, we began to reduce the R&D funding directed toward our ActiveFiber technology during the 2nd quarter. And this process continued throughout the 3rd quarter, through the lack of a near term or even medium term opportunity to generate revenues from a 40GIG optical modulator. Instead, we are placing a greater emphasis on near term applications for our in-fiber technology, such as in our military gyros, Current Sensors, and potentially in Phased-Array antennas. This will allow us to benefit from our research, as well as increase the opportunities to drive revenues from the ActiveFiber in the near term. At the same time, we will continue to refine this technology to prepare for the eventual re-emergence of a viable optical telecommunications market, even though this may not be for a year or more.

So, looking ahead, KVH is in an extremely strong position as we enter the 4th quarter. The successful execution of our strategic plan generated record revenues over the first 9 months of the year, and returned us to profitability as planned, and despite the overall decline in the economy. Thanks to our strong Defense backlog, new OEM customers for the RV markets, and the addition of new products and services, I expect that we will remain profitable in the 4th quarter, and meet our goals for both quarterly and yearly revenue growth.

I’d now like to turn the call over to Pat, who will provide a more detailed financial picture. Pat.

[13:00] Pat Spratt, CFO

Thank you Martin. During the 3rd quarter we experienced significant growth in each of our key markets. The improvements in the operating model resulted in positive cash flow and a stronger balance sheet. While there is still work to be done, we believe that KVH has turned the corner. It has the structure in place to sustain the momentum we have been building over the past several quarters. I’d now like to review the numbers.

First, 3rd quarter sales increased 57% to $12.4 million. This has been a record number for the 3rd quarter, which traditionally has been a low point in the annual revenue cycle. Thanks to this revenue growth and continuing improvements in our business model, the result was a net profit of $150,000, or one cent per share.

Third quarter satellite communication sales grew to $6.3 million, a 55% increase. YTD satellite communication shipments rose to $20.1 million, a 45% increase.

Third quarter Defense revenues grew to $4.3 million, an 81% increase, while YTD Defense shipments were $9.8 million, a 118% increase. The award of the long anticipated Special Forces contract was an important contributor to our 3rd quarter results. Defense backlog rose to roughly $6.3 million at the end of the 3rd quarter, approximately 2/3 of which is scheduled to ship in the 4th quarter. We are very pleased with the strength of this business area. It helps to establish a very solid foundation for growth and profit improvement. However, the uneven nature of the military procurement process also makes it more difficult to project future revenue patterns.

Fiber Optic sales increased to $1.2 million, up 60% for the 3rd quarter. On a YTD basis, we are now on a par with last year.

During the 3rd quarter, legacy products, which include OEM sensors and Marine navigation sales, declined approximately 17%. Quarterly revenue for this product family was just under $600,000. YTD revenues are $2.2 million, but this reflects a 25% decline from the same period last year.

[15:10] Now to the cost side of our results. We made excellent progress in our product cost initiatives.

Third quarter Gross Profit dollars doubled Y-Y to $5.6 million. As a percentage of net sales, Gross Margin increased to 45%, up 10 points from last year’s 35%. Our YTD Gross Profit was 44% of sales, up from 37% in 2001. The quarterly and YTD Gross Profit improvements resulted from increased efficiencies in our manufacturing operations, and a beneficial shift in our product mix toward higher margin military systems. To date in 2002, our manufacturing team has reduced direct unit costs for communications products by more than 5%, and manufacturing overhead costs have been reduced in absolute terms, while revenue has grown 45%.

We are also working hard to tighten up operating expenses. While overall operating expenses for the quarter were up 21% Y-Y to $5.4 million, this reflects a 13 point reduction as a percentage of sales, to 43%. We’ve managed to reduce operating expenses by $600,000 when compared to the second quarter of this year.

Third quarter R&D expense increased to $2.2 million, a 30% increase over last year. However, on a sequential basis, R&D expenses actually declined 8%, or $200,000. This was due in part to a higher level of customer-funded research, but it also reflects a refocus. As Martin noted during his comments, we are scaling back on the total investment in PhotonicFiber research.

From the start of the PhotonicFiber project, a significant amount of the research was conducted by external consulting resources, providing us with an immediate reservoir of experience, as well as the flexibility to adjust our level of investment. We are now capitalizing on this flexible model to help manage the level of R&D going forward. We anticipate that R&D spending will, on a sequential basis, be somewhat lower in the 4th quarter.

Third quarter Sales and Marketing expense increased to $2.3 million, a 15% increase from last year. We were able to grow revenues in the quarter at a rate 3 times that of the growth rate of S&M expenses. On a sequential basis S&M actually declined 17%, a good portion of this due to a lower level of commissions associated with the mix of sales.

Third quarter G&A expense increased to $850,000, a 20% Y-Y increase, while YTD spending came in at $2.4 million, which also reflects a 20% increase. Much of the increase in G&A is related to additions to the management staff, and for professional service expense associated with the launch of new products and services.

Consistent with accounting standards, we did not recognize any income tax expense for the 3rd quarter, because we were able to use the tax effects of previous losses.

As I mentioned at the start, our Balance Sheet profile also improved. The Cash balance as of September 30th was $7.6 million. This reflects a $1 million increase over the balance at the end of June.

In addition to the improvement in earnings, another key factor that contributed was Inventory, at $4.3 million, was $800,000 lower than it was as of June 2002. This level of inventory is only slightly higher than the average inventory for all of 2001, but it is supporting much higher revenues. As a result, Inventory turns are now up to 5.8 times.

Offsetting these somewhat was the $900,000 increase in Accounts Receivable, to $8.6 million. Days Sales Outstanding, or DSO increased to 62 days from 55 days at the end of June. This increase is primarily the result of the unusual skew of revenue that we experienced late in the quarter. Because of the large TACNAV order for the U.S. Army shipped late in September, well over 50% of 3rd quarter shipments occurred in that month. We expect that DSO will return to a lower level during the 4th quarter.

Cash flow from operations was positive, $1.3 million for the 3rd quarter. Capital Expenditures were approximately $400,000. Net cash flow for the quarter was $1 million. We anticipate that cash flow from operations in the 4th quarter will be approximately neutral. When adjusted for expected Capital Expenditures and other non operating items, The year ending cash balance will likely reflect a modest decline from the September level.

Based upon our current operating forecast, our cash balances and bank line of credit are sufficient to fully fund planned operating and Capital requirements going forward. We continue to confident that we will be able to sustain strong year over year growth. Full year growth for 2002 is on track to exceed 40%.

Thanks to the ongoing improvements in our business operating model and asset utilization, and with established and strong sales momentum, we expect to sustain very solid revenue growth and improved profitability in the 4th quarter. KVH is in a solid position financially, operationally and competitively in each of our key markets. We intend to build on this success as we move forward.

Now we’d like to take your questions. I’d like to ask that each person restrict their initial questions to a few. If any individuals have additional questions, they are welcome to get back into the queue for a second turn. This will help insure that everyone has a chance to participate.

Operator, please open the call.

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To: Sector Investor who wrote (1516)10/29/2002 1:19:08 PM
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KVH Q3 CC Transcript part 2:


[21:09] Jim McIlree from C.E, Unterberg, Towbin

Q. Thank you. Pat, you were saying that you are comfortable with 40% revenue growth for the year, I think you said greater than 40%, but, if we just use the 40% number, it would imply a Q4 revenue of about $11 million, which would seem, given your commentary, is somewhat low. Is it low, or, when you say exceed 40% you mean you will really beat 40% revenue growth?
A. Jim, the 40% - exceed 40% was probably a little on the conservative side. We are expecting at this point with the visibility that we have, that the revenue growth that we should experience in the 4th quarter should be approximately 50%.

Q. For the quarter or for the year?
A. For the quarter.
Q. Right. OK thanks very much.

[22:21] Greg Weaver, Kern Capital.

Q. Hi. Nice quarter. Just some questions on the Op-Ex side of things. In light of the revenue ramp, do you foresee your spending levels on R&D and SG&A to remain flat in absolute dollars?
A. If your question is more for the very near term, the answer is we expect operating expenses to stay roughly comparable with the levels they were at in the 3rd quarter. We expect to see a sequential reduction in R&D as alluded to by Martin as a result of scaling back on some of the Photonics efforts, but we also expect to see a sequential increase in SG&A expenses, and that’s driven as much by, the 4th quarter is typically a busy quarter for us, there’s lots of shows going on, and we’re positioning ourselves nationally for the close of the year and also for the start of a good year next year.

And also we will see higher commissions in the 4th quarter as a result of the mix of sales that we’ve got, so as of right now, for the very near term we expect to see operating expenses remain roughly comparable with the 3rd quarter, and then during the course of 2003, our objective is to show some improvement on a percentage of revenue basis across the board in operating expenses.

Q. OK. And on the Gross Margin side of things, what’s the outlook there?
A. Well again, for the very near term, I would say that the outlook for Gross Margin is to expect a fairly comparable number in the 4th quarter with what we experienced in the 3rd quarter. The mix of business is actually going to be quite comparable, and that’s the reason for that. Again, over the course of 2003, our objectives right now are to show some improvement in Gross Margins during the course of the year, driven primarily by just continuing to work product costs, our manufacturing efficiencies and just continuing to work the fixed cost structure.

Q. Do you have an overall business model in terms of where you see yourself a couple of years out?
A. Well, certainly we have the beginnings of one. We are just in the very early stages of putting together our business plan for 2003. It’s probably going to take us another month and a half or so to complete that, but, I think that if you look on a year over year basis right now … [Martin: the Business Model? You know percentages?]

Q. Yeah right, right. You know your goal for Gross margin, your goal for Operating Margin?
A. Right, and that’s what I’m saying. We’re in the process of putting together the plan for next year. Our expectations are, and I’m not in a position to talk in hard numbers, about 2003, but certainly in terms of improvements, we expect to show improvements in operating margins long term, and that’s going to driven essentially across the board with improvements in Gross margin and improvements in Operating expenses.
Q. Right, Thank you

[25:40] Richard Cabot, Amertech Financial Group

Q. First of all congratulations on turning profitable, and I think we all look forward to continued success in this area.
A. Thank you.

Q. My first question would be now we can probably talk about the ABB deal a bit more. First is this an exclusive deal with ABB? Would they be the only ones that you would be selling Current Sensors to?
A. Initially that’s true, and I think that as we go forward, you know the plan is to work with them to integrate it into some new products and into some installations, and it’s really a new technology, so they are going to be pioneering it for us.

Q. OK. And can you elaborate a little bit on what the price per unit would be for this Current Sensor to KVH?
A. Well, we haven’t established the price yet, but we expect that since the technology is almost identical to the parts that are in a Fiber Optic Gyro, we expect that our portion of it would be similar, and our FOGs sell for prices between $1,500 and $3,000 per axis. And in a Current Sensor you have 3 phases, so it’s typically what we call a 3-axis product. They call it a three phase product.
Q. Right.
A. So it would be 3 per.

Q. So that will be an improvement over the current technology for the current sensors that are currently out there?
A. Right. The advantages over the existing technology are that it is much smaller, the existing ones are literally the size of an industrial size refrigerator, and our device is roughly the size of a hockey puck, so it’s a big size advantage, cost advantage, installation cost advantage, and also environmental, the conventional technology is typically an oil filled transformer, and there are a number of advantages in terms of bandwidth, how quickly it responds to a change in current, and accuracy, it’s accurate enough to be used for both protection from lightning strikes or over voltage situations, as well as accurate enough to do metering, so it can perform several functions at once, and of course the device is digital, whereas the existing technology merely outputs electricity at a lower voltage, our device outputs a digital message that tells them the current measured in Amps, and are accurate to a couple hundred parts per million, so it’s a big difference in technology.

And, getting back to your first question in terms of exclusivity, we really see that as an advantage in the short term because it allows us to penetrate a market without expanding our sales force, or trying to understand a market that we really know nothing about, so I think it’s a Win-Win situation for both companies.

Q. When do you expect that you will begin the first shipments of actual revenue product?
A. Well, we have been shipping a modest number of systems already, which are being used in actual customer installations. They’ve already sold some to paying customers, but in terms of significant revenue, I would expect that would be sometime in 2003.

Q. OK. And in terms of what’s the potential with ABB, how many units a year do they currently sell of their existing technology, in terms of what you might ultimately be replacing?
A. I don’t know their exact numbers. I’ve seen market figures for the entire market for Current transformers and that’s in dollars is on the order of $500 million per year today.

Q. OK. And certainly at this point you would be the leader in the new technology, my research, one or two companies out there that are coming out with such a product, because it doesn’t look like there are more than a handful of potential competitors here.
A. That’s right. I think there is one or two players, and I think one or two of those are startups, so I think it’s a good new market for us.

Q. My second question would be, could you elaborate a little bit on the L-3 deal. What products you are currently putting together, I know its Defense so you might not be able to talk too much about it.
A. Yeah, I really can’t talk too much about it beyond what they’ve agreed to say about it, mainly that we are working with them to develop a new, miniaturized 3-axis version of our product, and it’s based on our new DSP based technology, which by the way we just got a patent on, so it’s basically a more accurate, smaller version of the products we are making today, and the main difference is it’s a 3-axis product, so it’s one circuit board and three sensors.

Q. Would this be potentially the type of product that might be used for a second source for the smart bomb program.
A. Yes. That’s exactly what these products are targeted for, no pun intended.

Q. Right. And I know that Boeing has been winning contracts there, but you had mentioned that there might be need for a second source next year.
A. That particular program is a huge program, and they currently do have only a single source, but I have not heard officially that they are looking for a second source.

Q. OK. And my last question for right now would be, in the past we’ve talked about the Force XXI Battle Command Brigade as a potential large contract. Is there any updates on that?
A. No updates. I think there’s more money in the Defense budget. We’ve seen the draft Defense bill, but it hasn’t been signed yet by the President, so I think there’s money in the budget for ’03 for that program, so that continues to be a real program that we are chasing.
Q. OK. Thank you.

[32:36] Pierre Maccagno, Needham & Co.

Q. Nice quarter.
A. Thank you.

Q. Tell me, the TACNAV order for $3.6 million, when do you expect to see sales from that?
A. Well we’ve already shipped some of that in Q3, and we should ship the balance in Q4, probably

Q. OK. And in your Navigation, could you give some color, was it driven by foreign or domestic sales mostly?
A. In the TACNAV area? [Yeah] Yes. I would say this quarter was probably more domestic [OK] than usual. With the U.S. Army Special Forces, and we did have some foreign military in there so, … I don’t have the exact split. [OK] But I think going forward we’re seeing a little bit of a swing towards the domestic military, as you might expect. So, whereas in the past we did a lot of foreign military sales, we’re seeing more of the growth in the near term coming from the U.S. [OK] Which actually is a little bit of a good thing for us because it’s a bit more predictable in terms of the timing to get your arms around.

Q. OK. And the backlog that you have now?
A. For military? [yeah]. I’ll let Pat speak to that one. [Pat:] The backlog for military right now Pierre, is approximately $6.3 million.

Q. OK. So it’s grown from the last quarter, which was $4.3 million?
A. That’s right. You are absolutely right.

Q. And that’s your only backlog, or do you have backlog for other products?
A. There is other backlog. We have some backlog in FOGs. We have a little bit of backlog in satellite communications products, but, as you know generally the satellite communications products are pretty rapid turnaround from the time we receive an order to the time that we ship it.

Q. OK. So your total backlog would be, what?
A. Total backlog right now is a bit in excess of $7 million, approaching $7.5 million.

Q. OK. What about your low-profile antenna? When do you think you are really going to start selling that product?
A. I can’t tell you the exact date, really for two reasons. One, for competitive reasons. This will be a major product announcement for us, so I don’t want to be too specific, for competitive reasons. And the second reason is, the product is still in R&D and isn’t finished yet, and until it’s finished there is always risk in terms of schedule, so we really don’t have a firm ship date established yet. But we are continuing to make good progress. We made a lot of progress during the current quarter, and we remain confident that that’s going to be a major product for us.

Q. OK. And did you continue working on the ultra shallow antenna?
A. Yes. Yes.
Q. OK. And for that you still need to continue doing R&D on your fiber optics, correct, because you …
A. That’s right. Photonics as a very high frequency phase shifter is a very exciting technology, and also the PhotonicFiber as a component. Now as you know, all of our optical gyros use modulators today. It’s part of the product. So, there’s an opportunity to take advantage of the work we’ve done in the PhotonicFiber area to use it as a optical modulator in our gyros, and also as a light source for our gyros, an optical amplifier, so there is a lot of technology that is coming out of that, including there is some improved production techniques that we might be able to use to speed the production, and to reduce the component cost of our optical sensors, so you are absolutely right, there is some key technology in there that we are going to need for other products in the short term.

Q. The fact that you are reducing your R&D for that, I mean, does that have any implication on when that ultra shallow antenna will be developed?
A. Well, I think that yes, of course that reducing the R&D does have some impact on schedules, but, what we’ve done as Pat pointed out, is we’ve reduced primarily the work we’ve been doing outside of KVH with various consultants and Universities and paid Engineers, so we are paying the staff internally, so that we are able to continue to do the things that we want, and primarily we are slowing down the products for the optical telecom market, because we just don’t see any near term profitable revenue opportunities there. So that’s really where the slowdown is coming. In fact we are directing more of our resources towards the products we just talked about.

Q. OK. And, in terms of the satellite, what percent of the revenues there was from Marine?
A. Uh, I don’t have that figure handy. Roughly 60% of the revenues are coming from the satellite area. I don’t have the exact split. [Pat:] The approximate split Pierre, between Marine and land based satellite communications products is roughly 47% Marine, and the difference is land based. That percentage, that’s worldwide. The percentages of Marine are a little bit lower in the U.S. and a little bit higher for the land based, and that’s understandable because we don’t do nearly the kind of land based business in Europe.

Q. So you have kind of this typical result that you’ve had, or has the Marine kind of increased here?
A. [Martin:] That’s kind of typical of where we’ve been. The Marine products are lower in total units but higher dollars, and we have also two way products in the Marine market for satellite phones, the Inmarsat products, and really those aren’t sold in the land market, because it’s not needed, so the off shore satellite and data products are only Marine products. [OK] [Pat} And let me also clarify something or correct something that I said earlier Pierre, I mentioned that our backlog is roughly, in total $7.5 million. I actually understated that. I didn’t add in another item that I overlooked. It’s closer to 8 million, in terms of our total backlog, $6.3 of which is military.

Q. OK. And last quarter was how much?
A. Last quarter? [yeah] Last quarter was in the low 7s, so the backlog has increased on a sequential basis, by close to a million dollars.

Q. OK. And finally you mentioned that you are selling to 8 OEMs for satellite antennas. Could you just remind me what those OEMs are?
A. [Martin:] I don’t have the exact list in front of me. We haven’t announced all of the 8, so, but the big ones are Fleetwood and Monaco, and they are probably tied for the top spot. [OK] I can put that list together for you, if you like.

Q. OK. Well thanks Martin, it’s been great, and we’ll talk soon.
A. OK. Thanks Pierre.

[41:00] Follow up question from Greg Weaver.

Q. Just following up on the satellite side? You mentioned the mix between Marine and land based had been consistent, and that surprises me in light of the ramping you’ve had on the RV side?
A. Right. Well as I mentioned, we’ve introduced a bunch of new products on the Marine side that are only sold in the Marine, so if you look at the satellite television market, the mix would be very different, and it would be skewed more in the way that you would expect. But we do sell the Inmarsat products only in the Marine side and a lot of the Mobile Broadband products are sold more in the Marine than in the land, so I think that might be where the confusion is coming from.

Q. OK. And do you have a sense of the inventory at these RV OEMs of your product?
A. Yes. We have very good visibility into that. We have a very close relationship with our customers, so we’re very much on top of their inventory positions. We know that they are not buying too much. If that’s your question.

Q. Right. And do you have a sense, from the land based satellite business, how that breaks between the OEM and the aftermarket?
A. I don’t have the split. If I were to hazard a guess I would say it is still 60-40 with the after market being larger than the OEM. And the other thing to keep in mind in terms of the split between RV and Marine, is we’ve been in the Marine business longer than we’ve been in the RV business, so it’s actually quite an accomplishment for the RV side to be as big as the Marine is already.

Q. In terms of your incremental growth on the satellite side though going forward, would you think that the majority of that is going to come from the RV guys?
A. I think the growth rate there is clearly faster. But even so, the Marine market grew 48% this year over last year so it’s grown quickly as well.

Q. And lastly on the low profile antenna, you mentioned you didn’t want to be more specific on the release due to competitive reasons? Who else might have a competing product there?
A. Well, number one we don’t really know what our competitors are planning. A lot of our competitors are private companies, so we’re at a bit of a competitive disadvantage in that we disclose quite a bit more than they do. But I don’t have any specific knowledge of their introduction times, or even if they are planning to do a competitive product, but we just don’t want to tip our hand too much.

Q. OK. So you haven’t seen anything out there, but you’re just being cautious.
A. Correct.
Q. Right. Thank you.

[44:26] Follow up question by Jim McIlree

Q. Thank you. After the Special Ops contract is filled and it sounds like it is going to be filled in the December quarter? Did I hear that correctly? [Yes.] Or 2/3 of it will be filled.
A. No I think the initial phase will be filled, not the entire $10 million opportunity.

Q. I see. So do you need then to get funded again to get to that $10 million, or, what’s the process between phase one and however many phases there are?
A. Typically in a military program like this they establish the program, and during that they identify which vehicles, establish the price and how many vehicles they are going to buy, and then as they get funding, you get actual purchase orders or contracts in the military so, this is very standard, just the way it happens in the military. We actually got the order during the government’s fiscal ’02 year, and now we are in fiscal ’03, so they would have additional funds in ’03, and when those get allocated, we would see additional orders. But it is of course dependent on funding.

Q. OK. All right. So I guess what I’m really trying to get at is, do you face the potential in 2003 of this gap in revenues because this or other contracts either don’t have the funding or waiting for the President’s signature or something like that that can cause some temporary declines in Defense revenues?
A. That’s always a risk. One of the disadvantages of military business is that it can be difficult to predict, and it can be somewhat lumpy. But, what we are seeing now is that our overall business is growing. We have a larger number of customers and a larger number of programs, and actually having a program like this established in general reduces your risk, because now you’re into the paperwork process, so it tends to be somewhat more predictable, rather than less predictable. In other words, in the stage we’re at now with the Special Forces.

Q. Right. OK. Great.
A. [Pat] Jim, may I interrupt? I’m glad you’re back on the line because you asked a question earlier, I just want to clarify something about operating expenses, and I gave you an answer going forward in the 4th quarter? I think it was you who asked in any case.
Q. No, but go ahead and correct me anyway.
A. I apologize. Then I forget who did. I had mentioned that we expected operating expenses in the 4th quarter to be roughly comparable with the 3rd quarter, and I meant that on a percentage of revenue basis, so I just wanted to make that clarification.

Q. OK. Yeah. I’m glad you said that because in 2003 I think you said that as a percent of revenues, operating expenses are expected to fall, versus 2002
A. We expect to see a decline in 2003, that’s correct, versus 2002.

Q. As a percent of revenues, but still up in absolute dollars.
A. Yes.

Q. OK. On the top line in 2003, I guess it would be optimistic to think that you could continue this 50%+ revenue growth. What’s more reasonable? Is 20% more reasonable? Is 30% reasonable? Is it more like a single digit reasonable? And I know, you know, ranges are fine if you are unwilling to pinpoint numbers.
A. Right. Well, you’re right. It’s hard at this time to really project ourselves that clearly into 2003, and, as Martin mentioned, the unevenness of the military business is one of the biggest unknowns that we have. I’ll give you a number and then I’ll want to give a little bit of explanation, or I’ll give you a range.

Right now we are looking at a range of 20%-30%, that we see as being very doable, in terms of revenue growth on a year over year basis, 2003 compared to 2002. Now a couple of factors that make 2003 a very tough year on a comparison basis, you know we’ve had a VERY strong ramp up this year on our land based RV business, the OEMs and this was really the first full year we’ve had of that business.

We’ve grown dramatically as everyone knows, and consequently next year is going to be a tougher comparable, because we’ll have that base of business especially as we enter the second half of next year. The other thing is our military business this year is going to wind up being close to 100% year over year, 2002 compared to 2001. You know we’re looking at the military business, as you know a lot of uncertainty at this point, but certainly we’re not going to see growth rates like that. It could be that the absolute revenue could be comparable with this year, as opposed to up in any significant way. So when you put all that together, it certainly says to us that, from a planning perspective we’re thinking in terms more of 20%-30%.

Q. And Pat, I think on the military you said that it’s possible that the military growth rate would be the same but you meant the absolute dollar revenues, right?
A. Yes. I meant the absolute dollars. I did not mean the growth rate. In fact I was trying to be clear that the 100% growth rate we saw THIS year, 2002 compared to 2001, we will certainly not see again next year.

Q. Right, right. I just wanted to make sure on that. OK. Very good. Is it possible that ’03 sees a significant, and by that I mean greater than 5% of total revenues, significant amount of the service based revenues that you are trying to develop, or is it still too early for that?
A. I think it’s, uh, you know the nice thing about the service revenue is that it starts to compound, in other words, the more products you sell, as long as you don’t have any churn – and our expectation is we won’t have any churn because it’s a significant hardware investment. You know, we’ll see those subscribers continue to grow. We haven’t done a forecast for our service revenues, but I think something on the order of 5% might be achievable for service revenues, but we’ll see.

Q. OK. Great. Thank you.

[51:35] Richard Cabot follow-up.

Q. As we all know that follow the company closely, we’ve had to sacrifice, and intelligently so, profits to build the R&D program up to get the new products developed, and you have said that, obviously R&D will start declining, the first sequential decline this quarter, going out to next year, and possibly the year after, would a more reasonable percent of sales for R&D be like 12%, or is that too low?
A. I think that’s certainly within our long term target of where we would like to get to as a reasonable number, and it really depends on the ramp in sales because obviously that’s a percentage, but the R&D expenses in reality are relatively fixed quarter to quarter, so the changes as a percentage of sales are driven more by the growth in revenues than by the increase or decline in the R&D number. But, to answer your question, I think 12% is a reasonable objective.

Q. OK. Thank you.

A. [53:00] [Pat] Well let me if I may interject to follow up on that question about R&D, and we were asked an earlier question about our long term operating model, which as I said we are in the process of putting together, and we are going to refine it as we put together our 2003 plan, but, as martin just said, R&D expenses of roughly 12% is certainly a fair target out in time. SG&A expenses in the mid 20s is certainly a fair target for us, potentially even a little better, and we’re looking at the opportunity, potentially to be able to achieve operating margins that are 10% or better. What we can’t determine, or that we can’t indicate at this time, or can’t say at this time because we are still putting the business model together in the plans for next year, is exactly over what period of time we may be able to achieve those numbers, but certainly that’s the direction we are heading.

[54:03] Jim McIlree

Q. Well I think this is going to be my last one. What do you expect on taxes in 2003, still nothing, or is there going to be a nominal tax payment?
A. It really depends in some part, in some measure on the mix of profits between the U.S. and Europe, but, right now I think a fair assumption is that we will not have to pay any taxes in 2003.
Q. OK Thank you.

[54:40] David Loreber with Stanton Capital Management.

Q. Hello Martin, Pat. Actually it’s Peter Dale. Good morning gentlemen. Martin, at the risk of beating this issue to death here with regards to the low profile antenna rollout, would it be fair to say Martin that you will be prepared to have the product available for the important show that is coming in January?
A. Well, I think that this point I don’t want to put any more detail on what I’ve already said, partly it’s because I don’t want to say, and partly it’s because I don’t know. As I’ve said, the product is not finished yet, we don’t have a firm release date, and typically we don’t like to show a product too far in advance of actually shipping the product, so those are all of the things that are going through our mind in terms of when we actually do the announcement. We typically like to have no more than a couple months between showing it and delivering it.
Q. Thank you Martin. [Sorry Peter].

End of Q&A.

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To: Sector Investor who wrote (1517)10/29/2002 10:13:09 PM
From: Sector Investor
   of 7022
Optics, electronics merge to provide a sense of where you are: fiber-optic-based gyroscopes can provide good accuracy at modest cost using century-old principles.
By: Bill Schweber EDN Published 05/29/02


Although the gyro is a mechanical device and thus subject to wear and drift, designers have refined it over the last 60 years so that a gyro-based navigation system can provide extraordinary accuracy and reasonable reliability (Reference 1).

Full Text

MOST ENGINEERS ARE FAMILIAR with the mechanical gyroscope, which you can use either to maintain a fixed heading as a gyrocompass or to provide inertial navigation information when you combine it with accelerometers. Although the gyro is a mechanical device and thus subject to wear and drift, designers have refined it over the last 60 years so that a gyro-based navigation system can provide extraordinary accuracy and reasonable reliability (Reference 1). Further, unlike mostly mechanical gyro systems of the 1940s and 1950s, today's gyro-navigation units use sophisticated real-time algorithms to compensate for known errors and drifts, as well as to implement statistical models of sources of errors.

But you're wrong if you think that the gyroscope function for navigation is now obsolete due to the availability of satellite-based navigation and low-cost GPS chip sets. GPS has several major draw-backs. For example, it doesn't work in tunnels, in underground oil and gas wells, in submersible research vehicles, or outside the low orbit of the GPS satellites. Further, inadvertent interference and deliberate spoofing can corrupt the signal, and the time to deliver an initial valid position readout is approximately a minute.

For these and other reasons, GPS alone is unsuitable for many applications. However, the combination of a gyro and GPS can provide an accurate and reliable relative-motion system that tells you how much you have moved and is useful for remote-operated vehicles, submersibles, and tunnel exploration. This combination is also useful for an absolute-motion navigation-grade system that tells you exactly where you are, such as those that missile and satellite guidance need.

Yet the established mechanical gyro is meeting its match from several sources. One approach uses MEMS (microelectrical-mechanical-system) structures to provide the moving-element functions but on a much smaller mechanical scale and with new techniques to overcome traditional error sources. Long-established gyro experts, such as The Charles Stark Draper Laboratories (, are exploring this approach.

Another successful technique uses laser-sourced beams of light passed around a ring or an optical fiber, with interference patterns indicating any rotation of the gyro platform. These optical gyros are now available from many sources, such as KVH Industries (www., Sperry Marine (www.sperry-marine. com), and Honeywell (

Physicist Francis Harress in 1911 first observed the principle in the optical gyro, and physicist Georges Sagnac in 1913 also observed it. Literature now refers to it as the Sagnac Effect. This effect is an outgrowth of the work of physicist Albert Michelson and chemist Edward Morley, who won the Nobel Prize in 1907. Their 1881 interferometry experiment demonstrated that the Earth does not travel through any ether, and this experiment foreshadowed Albert Einstein's radical assumption on the constancy of the speed of light regardless of any motion of the light source or observer.

In the Sagnac demonstration, a polarized beam of light splits into two beams, and the beams move in opposite directions through a ring path--usually, triangular or square with mirrors at the corners--or an optical fiber. After their counterrotating trips around the ring or fiber, the beams emerge and interfere with each other. If the unit does not rotate, the beams travel the same distance and thus cancel each other out when they emerge. However, if the unit rotates while the beams are passing through, one beam travels a shorter distance, and the other travels a longer distance, due to relativistic effects. The differing travel times produce a shift in the interference pattern, which an optical detector can sense. A complete optical gyro requires other components, as well (Figure 1). You can find more detailed explanations of the Sagnac Effect, actual implementations, and underlying equations in references 2, 3, 4, and 5.


Although the understanding of the Sagnac Effect depends on relativity theory, the actual setup appears fairly straightforward. Don't assume, though, that building a practical optical gyro should also be straightforward. Although demonstrating the principle doesn't require even a laser as a light source, building a reasonably accurate gyro involves understanding and minimizing many of the sources of error and signal contamination, just as with any precision instrumentation. Until the 1980s, when optical gyros found use in commercial aircraft, such as the Boeing 777, they were too imprecise and non-repeatable for basic, moderate-accuracy applications.

In the first optical gyros, RLG (ring-laser-gyro) designs, the light beam travels through an evacuated path acting as a wave-guide; high-reflectance mirrors are precisely mounted at the corners of the RLG square or triangle. The RLG path can be a few meters long; higher precision applications require paths of tens of meters, but these paths are impractical for most uses.


As optical fiber technology improved, IFOGs (interferometric fiber-optic gyros), commonly called FOGs, have become practical alternatives. In this design, the light path is not a hollow-light waveguide but an optical fiber. One advantage of this approach is that it requires no corner mirrors, which mandate precise and rugged mounts. Another advantage is that you can build the light path as a compact, coiled fiber tens of meters long, which holds the potential for greater accuracy and improved low-rate-resolution performance.

The RLG design and, to a greater extent, the FOG design, offers many practical and cost advantages over mechanical gyros. One advantage of these newer designs is that you can strap them down to vehicles because they have no internal gimbals. As with other technological advances, the principle may be relatively simple, but a precise application means identifying and then eliminating or compensating for first- and second-order error sources. For example, a light-source laser must have both short--and long-term stability in its wavelength and its output power. Note that an RLG requires a more powerful light source than does an FOG because, in an RLG, the light source does not move down a thin fiber.

Any temperature change causes changes in an RLG's optical path length and thus the light wave's phase. In one precision implementation of the RLG, the device measures the relatively low rate of the earth's rotation and bores it into a block of glass-ceramic material having a near-zero temperature coefficient of expansion (Reference 6). The light path in the RLG must be a high vacuum, so that air or other molecules don't interfere with the light waves. The beams, which should be independent as they travel past each other, can sometimes lock in and synchronize with each other at low angular rotation rates due to interbeam crosstalk that arises when the corner mirrors are less than perfect and scatter some of the incident light. The designers of the implementation minimized the problem by using multilayer dielectric mirrors with 99.9999% power reflection.

The FOG has subtleties of its own. For example, any strain on the fiber and how it is supported or wound causes phase shifts, signal dispersion, or polarization changes, which translate into errors that can swamp the desired result (Reference 7). FOG manufacturer KVH Industries makes its own fiber with an elliptical cross-section, rather than the standard, widely available communications fiber, because the elliptical shape counteracts some polarization issues. The sensitivity of the FOG depends on both fiber length and diameter: Longer, thinner fiber provides a better rotation rate--but at the cost of other potential trade-offs--than shorter, wider fiber.

Nongimbaled, strap-down FOGs--especially when you combine them with a GPS system and even accelerometers to sense linear-axis motion--offer many potential advantages over gimbaled, mechanical gyros. Processor-based computational algorithms can compensate for many errors and also integrate motion data from other position and motion sources to provide an easy-to-use, calculated, highly accurate output. A compact single-axis FOG, such as the KVH DSP-5000, costs approximately $4000, provides output-scale-factor accuracy of 0.05%, and is usable at angular rates as fast as 500[degrees]/sec or as low as tens of degrees per second (Figure 2).



Thanks to Jay Napoli at KVH Industries for his insight and assistance.

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