Technology StocksKVH Industries, Inc.

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To: Roy F who wrote (523)8/6/2000 10:47:41 PM
From: Sector Investor
   of 7012
As promised on the Yahoo! thread, here is my second "crystal
ball" attempt for KVHI.

In the Q2 CC, in the Q&A section, the KVH CEO and CFO made
several interesting statements. Here are some excerpts:

they said

"we have good backlog now for military, and we are seeing
improvement in the FOG, and we are very confident that the
growth in the satellite business is going to continue so we
are looking for a strong second half of the year."


"our internal plan is to be profitable in the second half
of the year"

Regarding FOG

"when we get enough volume to get sales up to $6 million
(per year) we will see very healthy margins coming out of
the FOG area".

"I think that by next year we will see [the FOG] group be
profitable and have good margins"

so, we see that they expect that FOG will have at least $6
million in sales next year.

They had these comments regarding profitability going
forward into 2001:

"if you just project the trends forward, you will see
that there is good evidence that that's going to happen".

The key things here are that in all the recordings in the
audio archives, management has demonstrated good confidence
about the future, even though they have not provided any
"hard" guidance. They indicated in several places that the
trends are in place, and that even though communications is
growing 70% a year, they expect FOG sales to "catch up" in a
few years, so they are expecting even stronger growth there.

OK. Let's try projecting those trends as the CEO suggested.
Here is my second "crystal ball" attempt for peering into
the future with KVHI.

First, a refresher. Here is my first "crystal ball" attempt:

Message 13477893

In looking at Q2, I had the communications growth set too
high, at 25% qtr-qtr, so my top line estimate came in too
high. I have now reduced this to 17% qtr-qtr. However
military any FOG sales were actually a bit higher than I
forecast, and GMs came in at 36% instead of 35%, so my Gross
Profit number was almost exactly on target.

Also my R&D was a bit high, but my S&M was too low, but my
"other income" line was also too low. These differences
basically offset each other, so the crystal ball basically
"worked" - at least for one quarter.

This time I want to try to extend the calculations through
2001 (6 quarters) to demonstrate these trends in action.
Everyone knows of course that the numbers get softer and
softer as we project further out. Never-the-less IF THESE
TRENDS HOLD, we should begin to see MAJOR changes in KVHI
profitability starting in Q3.


1) I raise GMs gradually until 42% is reached by Q2
2001, then I hold them there.

2) I grow communications revenue 17% qtr-qtr, military
revenue by 18% qtr-qtr through Q2 2001, then reduce
to 10% qtr-qtr growth. I hold FOG growth to a flat
20% qtr-qtr, which is probably very conservative.

3) I raised the S&M to the Q2 level, then grow it at 3%
qtr-qtr, in line (I hope) with management comments
in Q1.

4) Looking back at other quarters, the Q4 "other
income" looks like an anomaly, so I project the Q2
number forward.

5) Power sensor sales are NOT figured into the
projections, as I have nothing to base them on.

6) I have no idea what taxes will look like going
forward, so I stop with the before tax number.
Anyone else who cares to do so can estimate the rest
of the earnings down to get estimated EPS numbers.

These projections predict that they will come close to full
year profitability in 2000, and have SIGNIFICANT earnings in
2001, wiping out all 11 quarters of losses from 1997 on in
just 5 or 6 future quarters. Because I have tried to stay
conservative, and we know the power sensor market could be
huge, but is not factored into FOG growth, they may well
reach full year profitability this year and do even better
than I have projected in 2001.

Comments are appreciated, as always. Be sure to keep your
salt shaker handy too.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2000 2000 2000 2000 2001 2001 2001 2001
(000) omitted est est est est est est
Net Sales 5.70 7.95 9.35 10.99 12.93 15.21 17.50 20.16
Communications 4.20 4.70 5.50 6.43 7.53 8.81 10.30 12.06
Navigation 1.60 2.50 2.95 3.48 4.11 4.85 5.33 5.86
Sensors 0.75 0.90 1.08 1.30 1.56 1.87 2.24
Cost of Sales 3.82 5.05 5.80 6.60 7.63 8.82 10.15 11.69
Gross Profit 1.88 2.90 3.55 4.40 5.30 6.39 7.35 8.47
Gross Margin 33% 36% 38% 40% 41% 42% 42% 42%
R&D exp 1.07 1.02 1.03 1.01 0.99 0.97 0.95 0.93
S&M exp 1.42 1.62 1.67 1.72 1.77 1.83 1.88 1.94
Admin exp 0.53 0.56 0.57 0.57 0.58 0.58 0.58 0.58
Inc/(Loss) (1.14) (0.30) 0.28 1.10 1.96 3.02 3.94 5.02
from ops
Other Income (0.21) 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Income/(Loss) (1.35) (0.29) 0.29 1.11 1.98 3.03 3.95 5.03
before taxes

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To: Sector Investor who wrote (524)8/6/2000 11:08:26 PM
From: Bridge Player
   of 7012
R&D expense as a % of sales (1.07/5.70 last quarter) seems quite high and such a rate probably would not be sustained as sales grow. But any high-tech growth company has to continue pouring money into R&D and IMO the raw $ spent will probably increase most quarters.


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To: Bridge Player who wrote (525)8/6/2000 11:16:56 PM
From: Sector Investor
   of 7012
BP, they said that they are being aggressive in getting more customer funding of R&D going forward, so these numbers could drop more than I have shown, even though, as you say their actual R&D should remain high to be successful in the markets they are in.

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To: Sector Investor who wrote (526)8/6/2000 11:18:27 PM
From: Bridge Player
   of 7012
Ah, so.


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To: Sector Investor who wrote (524)8/7/2000 8:40:49 AM
From: robert b furman
   of 7012
Hi Sector ,

Nice work on your projections.

It is easy to pick apart estimates.I will offer two thoughts as I thank you for sharing your excellent work.

Unlike last quarter where communication sales were too high,I think future quarters will grow faster(at least in Q 1 01 and on)as Trac Vision catches on in the European markets. This probably doubles the size of the market(perhaps more).

To offer the product in Europe is a larger technological feat, as more Satelite systems are utilized and it is harder to manage switching satellites seamlessly.

Once past startup, the same momentum of growth in Europe should really double the sales rate initially.

I would think that at a certain volume,Selling,General Administrative would stabilize with 20-25% being a max - if they manage expenses.

Just some thoughts that quite frankly allow you to stake your claim: "that your estimates are conservative".

Add to that the current sensor sales, which will be with large utility customers(big purchases over long time frames -I 'm guessing that's how it will work) and the earnings will justify a 2 for 1 split not too far down the road.

Powerful just plain Powerful !!!!!

Thanks again for your excellent work.


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To: robert b furman who wrote (528)8/7/2000 8:58:49 AM
From: Sector Investor
   of 7012
Thanks, Bob

Again, we all know that I can't hope to be accurate that many quarters out, and that unforeseen (and hopefully positive) items will change things. The main purpose of this was to demonstrate the effect of these trends over time.

BTW, Navigation sales were 5.7 million and $5.4 million respectively in Q3 and Q4 1997, and their product line then was not as strong as today, so, WITH THE BACKLOG IN PLACE, I felt comfortable projecting continuous increase in Navigation spending through 2001. The past lumpiness was due in part to the backlog not being there.

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To: Sector Investor who wrote (529)8/7/2000 9:09:48 AM
From: robert b furman
   of 7012
Hi Sector,
Over the years,Military has resulted in so many let downs,that I don't accord it the importance that I should.During my visit to KVHI, they emphasized that military's contribution CAN be substantial.They offered this after I may a derogatory comment about how fickle the granular nature of the bookings are.
You ARE RIGHT TO COUNT IT AS GROWTH, I however am once bit twice shy - To a Fault.


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To: Sector Investor who wrote (524)8/7/2000 3:45:21 PM
From: akmike
   of 7012
Thanks Sector
You have put forth a strong effort and you could well be conservative. Once profitability is attained, it will be interesting to see how the investment community capitalizes this kind of growth. Hint: using your forecast as the expectation for revenues in 2001, we are currently selling at .66 2001 sales. Hmmm...may be some upside. Shhh. I still haven't acquired a full position.

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To: robert b furman who wrote (530)8/12/2000 12:02:30 PM
From: dvdw©
   of 7012
Perhaps a better way of stating the obvious would be;
Over the Clinton Years the military has accounted for many letdowns....

The Brigade deployment trials now underway suggest that by July 01 we may be staring at between 18 and 30 mil in revenue.

FOG also can be used across a wide range of weapons platforms as a stabilizer communication link. Believe there are retrofits of Navy guns underway.

In rapid fire platforms, gun stabilization is critical, perhaps certain families of howitzers might also see FOG being implemented.

I think the Military will begin to be very good to KVHI, and the work Dennis has done a few posts below, while excellent, underweights this component.

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To: Sector Investor who wrote (529)8/15/2000 7:24:45 AM
From: Jim O'Connell
   of 7012
A competitor to check out

C-Com offers high-speed Web access on the fly
'Mobile office' option

Jill Vardy
Financial Post
OTTAWA - Succumb to the lure of the open road and e-mail the relatives and check your stock quotes while you're out there.

C-Com Satellite System Inc. of Ottawa has created a mobile Internet service that gives people high-speed Web access from anywhere their recreational vehicles or yachts can take them.

The service uses a high-speed satellite downlink, a satellite or cellular return link, C-Com software and a satellite tracking antenna. "In effect, your van, truck or boat becomes a mobile office, where you can browse the Internet at high speed, receive and send e-mail, look up stock quotes and receive all other Internet services that you get from your home-based Internet-enabled PC," the company says.

High-speed Web access on the fly isn't cheap -- 60 hours costs about US$100 -- but it's vastly cheaper than the US$8-11 per minute charged for the satellite cellular service that until now has been the only choice for high-speed mobile Internet.

The lower cost makes it affordable for such organizations as a fire department in California, which is Web-enabling its trucks, and a U.S. library that is installing the C-Com service in its bookmobiles. And the M.S. Chi-Cheemaun, a ferry that runs between Tobermory and South Baymouth, Ont., now offers Internet service to passengers using the C-Com system.

"Our strategy is to be the Internet service provider to the mobile market," says Leslie Klein, president of C-Com. The signals are sent and received through a kettle-sized satellite modem, a dome-like antenna that sits on the top of the vehicle. It allows people to surf the Web while their vehicle is zooming down the highway - preferably driven by someone else.

C-Com has no debt and reported a profit in its last quarter. It has been financed privately and through large sales to the Royal Canadian Mounted Police and Ontario Hydro. But the company is expected to launch its IPO today with an offering of 4.2 million shares on the Canadian Venture Exchange priced at $1 each.

C-Com is already getting a profile among the booming RV community. RV sales in the U.S. were well above 300,000 last year, and by 2010, the number of RVs on the road is projected to jump to 10 million.

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