Technology StocksKVH Industries, Inc.

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To: Roy F who wrote (393)4/20/2000 6:49:00 PM
From: Sector Investor
   of 7024
I have now listened to the CC. I had to wait until I got home from work.

Here are my Q1 2000 CC notes. Items in quotes refer to actual words used in the CC or annual report. While I was hoping for stronger military sales in Q1 (and a smaller loss), what I heard in the CC was VERY positive. I think we are starting a series of strong quarters with increasing revenue, return to profitability later this year, and escalating profits next year.

I was also impressed by their prototype system tested in the Argiculture market - add who knows how many tractors to the potential mobile market. I had not considered those!

Everyone is encouraged to listen to the CC themselves, do their own DD and contribute to these threads. You can E-mail your questions to and they will answer.


They stated that their Long Term Business model is "far stronger than at any time in the company's history".

That is quite an impressive statement. Stop for a moment and think about that, and keep it in mind as you read the rest of my CC notes. Couple this with some market items like low price, low float and continuing accumulation, and I think people can see the value here long term.


These grew 71% Q1-Q1 and an astounding 44% quarter to quarter. In Q1, due to declining military sales, this area was over 3/4s of the revenue. This area has grown 70% or more in each of the last three years, with now 13 consecutive quarters with dramatic year over year growth, and they see the trend continuing going forward.


Tracvision remains the "first choice of customers". New systems are being developed, including a new offering in Europe in Q2.


The backlog growth was very encouraging. This from the company's 1999 Annual report:

"The Company's backlog at December 31 was $0.7 million in 1999 and $3.0 Million in 1998. The Company expects to ship all it's backlog at December 31, 1999, during 2000. The Company's total backlog at December 31, 1999 included $0.1 million in military navigation system orders, $0.5 million in mobile satellite communication and $0.1 million in FOG product orders. "

Compare that to the $4.3 million backlog at the end of Q1, which the company indicated was split "almost equally", or about $1.45 million each across it's three lines. In addition they said TWICE, that additional military orders are IMMINENT.


The company indicated a rebound in military and FOG sales in Q2, which they expect will be continuing all year. They anticipate military revenue for 2000 will end up SIGNIFICANTLY ahead of 1999, where they had navigation revenues (from the Q4 statement) of $11.4 million.

They indicate a return to profitability in the second half, and there is an excellent chance that they will have full year profitability.

Looking ahead to 2001, they said they expect a strong year, with profitability to continue and increase "substantially". They also stated that in 2001 Communication revenues ALONE should be sufficient to sustain profitability, changing the status of the lumpy military sales from a make-or-break quarterly situation to one of "incremental profitability".


While GMs declined from 37% to 33% in Q1, due to having to absorb fixed costs while not operating at or near capacity for FOG and military products. When not affected by this in the future, they indicated that their "comfort level" for GMs would be 42%-45%.


They indicated that they are pushing for more customer funded R&D, and they anticipate that R&D expenses will decline, both in real numbers and as a percentage of sales.

They anticipate S&M to continue to rise in real terms, but drop as a percentage of revenue going forward.

Administrative expenses should remain flatish and will decline as a percentage of sales going forward.


They refused to comment other than to say that DATRON has responded by pulling some products off the market, which was "public knowledge".


They said they have products covering all segments of this market. With over one half million vehicles in this target market (with only 7,000 delivered at about $10K each), prospects for "DRAMATIC GROWTH in this sector are high". They are very confident in this area.


They are making progress here. While there is no long term contract in place yet, they delivered PART OF an "initial" order in Q1, and RECEIVED A NEW ORDER YESTERDAY for additional sensors and product customization. They are optimistic that the worldwide market for these sensors "could be extremely large". Responding to a question, they added that they intend to work with a major player, and they have some in mind, where they will be an OEM supplier.

They said their product was a new technology substantially replacing an older one. Their product is "smaller, safer (no electrical connections), faster (respond even to lightning strikes), lighter, cheaper and digital", with the digital capability allowing it to be integrated into computer controlled substations.

Even so, they said the power industry is conservative and moves slowly, but that they can work with it. They indicated that they anticipate that there will be competitors, but that KVH anticipates that it will be first to market with the product, and that they have some proprietary technology with multiple patents in several areas, including the fiber itself. They also indicated the market is "well defined" at close to $500 million per year.


Working in cooperation with a major agricultural equipment manufacturer, KVH "just delivered" a system that was an "integrated" flat panel display (no Lap Top or TV needed) with both TV and data displayed, while moving, from a vehicle with a single antenna. This system provides real time access to agricultural data, local weather, radar, commodities pricing, and entertainment, directly via satellite.

While this was just a prototype pilot (tested during the last weeks of Q1, with "excellent results"), and not their "key target" market, they think the market here is "surprisingly large". Two data providers, DBC and AdCav(sp?) have over 200,000 subscribers paying $100 per month for data feeds via satellite.

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To: Sector Investor who wrote (394)4/20/2000 7:30:00 PM
From: akmike
   of 7024
Good Summary, Sector-This is my first cc with KVHI and I was very impressed with the articulation of the plan and the progress in the execution. I didn't hear anything to subtract from the thesis that we are entering a phase of strong growth and commensurate profitability.
You covered it well, but I would like to re-emphasize that they firmly stated that the communications business alone would sustain profitability company-wide in 2001. (NEXT YEAR)
Military business is beginning to re-ramp and the fiber-optic gyro business is seeing good growth. The electrical current sensor product has some very exciting growth potential.(my seat-of-the-pants target is 100 million annually for KVHI from this alone within 3 years)
In short-What is not to like?

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To: akmike who wrote (395)4/20/2000 7:52:00 PM
From: Sector Investor
   of 7024
<<In short-What is not to like?>>

Besides the low price you mean? <g> Still, that makes for further good accumulating.

I forgot two areas mentioned in the Conference Call.


A question was asked to comment on this. They stated that the economics strongly favor satellites, and that it will be the "preferred technology" for the foreseeable future., where one satellite can cover an entire continent, providing 300 or 500 TV channels, without have to build out a terrestrial infrastructure. They said that terrestrial technology to match that is "virtually impossible". They said that satellite technology is just as viable, and is not subject to loss of coverage when you leave cellular zones. The current constraint is the service, not the hardware. KVH is looking to either provide the service themselves or combine with a service provider. They are not ruling out a Joint Venture with a service provider.


The question was asked if KVH might possibly be a player in the Onstar system with GM. The response was there is a possibility "not in the near term" but in the long term as part of a package that's available from the factory, like in the RV market. First through back seat video and onboard Internet Since Onstar is cellular based, it is not a fit not, but satellites can provide all the content that cellular based system can.

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To: Sector Investor who wrote (396)4/20/2000 8:21:00 PM
From: akmike
   of 7024
It is only you short-term tax-sheltered traders who worry about the current price level. <gg> We long-term investors must be careful to buy stocks which give us some time to accumulate and still realize capital gains. I really like what I see so far. I need to listen to the call again so that I better understand the "2-way high-speed MOBILE internet service" technology delivery. If I heard right there is a spread-sprectrum antenna utilized along with two satellites and a faster spectrum for downloading and a slower one for return. Help me out here oh techno-geek-not only do I need an understanding of the technology, but is it potentially as big as it sounds??

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To: akmike who wrote (397)4/20/2000 8:51:00 PM
From: Sector Investor
   of 7024
Mike, many of those details are in this key patent, the subject of the Datron lawsuit.

Here it is. I slugged through it once, but I will do it again to refresh myself.

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To: Sector Investor who wrote (398)4/20/2000 8:54:00 PM
From: akmike
   of 7024

I now have my weekend assignment.<G>

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To: Sector Investor who wrote (394)4/20/2000 11:37:00 PM
From: Sector Investor
   of 7024
Tractors and combines with TV and Internet access? Why not - they appear to have everything else.

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To: Sector Investor who wrote (400)4/21/2000 12:02:00 AM
From: akmike
   of 7024
And you right there in the midwest where they all are! I heard that there were 200,000 monthly subscribers for the agriculture data reports off the satellite. Maybe so, but I believe that the farmers of the sea (fishermen, for you land lubbers) will be an even bigger market, since they can't go home for the evening news or to watch their Seinfeld re-runs. When we add up all the maritime business potential, it should prove a lucrative niche. (and KVH has already got penetration)

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To: Sector Investor who wrote (400)4/21/2000 8:55:00 AM
From: rascalbythesea
   of 7024
Hi Sector: If you like KVHI you should check into Globalstar GSTRF. At $10 per share market cap is about 1 Billion (that's after a 5 Billion dollar investment).
Service just getting under way. Has the potential of a major MRVC move. LOR major investor, QCOM and many phone cos. are also investors. Institutions bought 8 million shares at 35 just 2 months ago. Soros 10% holder.

Remember, service just getting underway. Gateways are still opening. Should be an interesting ride. Don't buy because I like it but do your exceptional D.D.

Rascal(I can't seem to get my user name changed from Benny on SI)

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To: david james who wrote ()4/21/2000 9:32:00 AM
From: dvdw©
   of 7024
Anyone who bought KVHI looking for earnings this quarter didnt understand the company and it's migration. Now we are poised for a period of accelerating growth, backlog tells that story partially, it's the scaleability of emerging markets that underscores why I am here.

Scale able markets, that is what this is really about. There defense business was not ever scale able, Tracvision is now being offered to consumers, while the actual payoff is a ways off, investors will ride this company through several splits until ultimately the payoff in KVHI becoming a widely recognized name arrives.

All Action happens in the passing of time. Make no mistake we will be whipsawed, disrespected and probably attacked by systematic shorting ( like what is happening at MRVC now) when our price appreciation comes.

KVHI has the stars lined up, defense business coming back to augment earnings while the OEM & Consumer satellite business align themselves for their inevitable push.

New markets galore, all with better than average potential.

Glad to be in, and very pleased with the companies forthright presentation.

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