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KVH Industries Reports First Quarter 2018 ResultsMIDDLETOWN, R.I., May 04, 2018 (GLOBE NEWSWIRE) -- KVH Industries, Inc., (Nasdaq:KVHI) reported financial results for the quarter ended March 31, 2018 today. The company will hold a conference call to discuss these results at 10:30 a.m. ET today, which can be accessed at investors.kvh.com. Following the call, a replay of the webcast will be available through the company’s website. First Quarter 2018 Highlights
Commenting on the quarter, Martin Kits van Heyningen, KVH’s chief executive officer, said “2017 was an investment year for KVH as we set in motion a number of strategic initiatives that we believed had the potential to increase our long-term growth across all of our markets. Our first quarter results illustrate that these investments are enabling us to make the transformation to growth in 2018. The AgilePlans Connectivity as a Service Program that we launched a year ago helped drive record quarterly mini-VSAT Broadband product shipments, and this positive momentum has carried into our second quarter. Our airtime revenue grew again in the first quarter as the AgilePlans program, together with our new global HTS network, helped to increase our subscriber base by more than 6%. In our inertial navigation segment, our FOG business continued to grow significantly, with a better than 25% year-over-year increase in the first quarter. At the same time, our development of a photonic chip-based FOG remains on track, and we expect to have a working prototype available for testing by key driverless vehicle developers by the end of this year.” The company operates in two segments, mobile connectivity and inertial navigation. Net sales for the mobile connectivity segment decreased $1.5 million, or 4%, as compared to the first quarter of 2017 due to lower mini-VSAT Broadband product sales as a result of the implementation of the new ASC 606 revenue recognition standard as well as the impact of the AgilePlans subscription service. Partially offsetting this decrease was an increase in our mini-VSAT Broadband airtime revenue. Net sales for our inertial navigation segment increased $1.4 million, or 24%, compared to the first quarter of 2017, due to an increase in FOG sales and contracted engineering services. Financial Highlights (in millions, except per share data)
For more information regarding our non-GAAP financial measures, see the tables at the end of this release. First Quarter Financial Summary Revenue was $40.1 million for the first quarter of 2018, a decrease of less than 1% compared to $40.2 million in the first quarter of 2017. First quarter product revenues of $14.0 million were 6% lower than the prior year quarter due to a $1.9 million decrease in mobile connectivity product sales, which was partially offset by a $1.1 million increase in inertial navigation product sales. Mobile connectivity product sales decreased primarily due to a $1.6 million decrease in marine product sales and a $0.3 million decrease in land product sales. The decrease in marine product sales was due to the impact of the AgilePlans subscription service and the adoption of ASC 606, the latter of which reduced mini-VSAT Broadband product sales by $0.4 million. Inertial navigation product sales increased primarily due to an increase in FOG product sales. Service revenues for the first quarter of 2018 were $26.1 million, an increase of 3% compared to the first quarter of 2017, due to a $0.4 million increase in mobile connectivity service sales and a $0.4 million increase in inertial navigation service sales. Airtime service revenues, which include mini-VSAT Broadband airtime revenues, increased by 4% in the first quarter of 2018 compared to the first quarter of 2017 primarily due to a 6% increase in subscribers. Content and training revenues, which include our entertainment, eLearning, and safety content, decreased by less than 1% in the first quarter of 2018 compared to the first quarter of 2017. Our engineering service revenues increased by 27% as a result of an engineering and services development contract from a major U.S. defense contractor that began in the first quarter and is expected to continue through the second quarter of 2018. Our operating expenses decreased $0.4 million year-over-year to $20.5 million compared to $20.9 million in the first quarter of 2017. The key drivers were a decrease in professional and consulting fees of $0.6 million, a $0.2 million decrease in unfunded engineering expenses, and a $0.1 million decrease in bad debt expense. This was partially offset by a $0.5 million increase in warranty expense. Second Quarter 2018 and Full Year 2018 Outlook Our guidance for the second quarter and full year of 2018 is below. This guidance reflects the new revenue recognition standard, ASC 606, which all U.S. public companies were required to adopt on January 1, 2018. It should be noted that this guidance does not include any revenue from the international pipeline of large inertial navigation orders that we have been anticipating.
ASC 606 requires that certain revenues that had been recognized in prior periods be reversed as of January 1, 2018 and be recognized over time as performance obligations are met, and, likewise, that certain currently generated revenues that would have been recognized under previous accounting guidance instead be deferred and recognized over time as performance obligations are met. We expect the net impact of this change in accounting guidance, which is reflected in the above tables, will be as follows:
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Please review the corresponding press releases for more details regarding these developments. Conference Call Details KVH Industries will host a conference call today at 10:30 a.m. ET through the company’s website. The conference call can be accessed at investors.kvh.com and listeners are welcome to submit questions pertaining to the earnings release and conference call to [email protected]. The audio archive will be available on the company website within three hours of the completion of the call. Non-GAAP Financial Measures This release provides non-GAAP financial information, including constant-currency revenue, non-GAAP net loss, non-GAAP diluted EPS, and non-GAAP adjusted EBITDA, as a supplement to our condensed consolidated financial statements, which are prepared in accordance with generally accepted accounting principles (“GAAP”). Management uses these non-GAAP financial measures internally in analyzing financial results to assess operational performance. Constant-currency revenue is calculated on the basis of local currency results, using foreign currency exchange rates applicable to the earlier comparative period, and management believes that presenting information on a constant-currency basis helps management and investors to isolate the impact of changes in those rates from other factors. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. The non-GAAP financial measures used in this press release adjust for specified items that can be highly variable or difficult to predict. Management generally uses these non-GAAP financial measures to facilitate financial and operational decision-making, including evaluation of our historical operating results, comparison to competitors’ operating results, and determination of management incentive compensation. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting our business. Some limitations of non-GAAP net income (loss), non-GAAP diluted EPS, and non-GAAP adjusted EBITDA, include the following:
These non-GAAP financial measures now exclude the effect of foreign exchange transaction losses, which represents a change from calculations presented in prior earnings releases. We decided to exclude foreign exchange transaction losses because we do not believe such gains or losses are indicative of operating performance. Other companies, including companies in KVH’s industry, may calculate these non-GAAP financial measures differently or not at all, which will reduce their usefulness as a comparative measure. Future Non-GAAP Adjustments Future GAAP diluted EPS may be affected by changes in ongoing assumptions and judgments, and may also be affected by non-recurring, unusual or unanticipated charges, expenses or gains, which are excluded in the calculation of our non-GAAP diluted EPS guidance as described in this press release. Because non-GAAP financial measures exclude the effect of items that will increase or decrease our reported results of operations, management strongly encourages investors to review our consolidated financial statements and publicly filed reports in their entirety. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables accompanying this release. About KVH Industries, Inc. KVH Industries, Inc. (Nasdaq:KVHI), is a global leader in mobile connectivity and inertial navigation systems, innovating to enable a mobile world. The market leader in maritime VSAT, KVH designs, manufactures, and provides connectivity and content services globally. KVH is also a premier manufacturer of high-performance sensors and integrated inertial systems for defense and commercial applications. Founded in 1982, the company is based in Middletown, RI, with research, development, and manufacturing operations in Middletown, RI, and Tinley Park, IL, and more than a dozen offices around the globe. This press release contains forward-looking statements that involve risks and uncertainties. For example, forward-looking statements include statements regarding our financial goals for future periods, the success of our new initiatives, our investment plan, our development goals, our anticipated revenue and earnings, the anticipated impact of ASC 606, and the impact of our future initiatives on revenue, competitive positioning, profitability, and product orders. Actual results could differ materially from the forward-looking statements made in this press release. Factors that might cause these differences include, but are not limited to: the uncertain duration of the adverse impact on our overall revenues of our new AgilePlans, under which we recognize no revenue for product sales, either at the time of shipment or over the contract term; increased costs arising from the new HTS network; the impact of recent changes in revenue recognition and lease accounting standards; including potential changes in the interpretation of those standards; the uncertain impact of tax reform and federal budget deficits; unanticipated obstacles in our photonic chip and other product development efforts; delays in the receipt of anticipated orders for our products and services, including significant orders for TACNAV products, or the potential failure of such orders to occur at all; continued adverse impacts of currency fluctuations, particularly the British Pound; risks associated with the impact of Brexit on sales and operations in the U.K. and Europe and on the overall global economy; our ability to successfully implement our new initiatives without unanticipated additional expenses; potential reduced sales to companies in or dependent upon the turbulent oil and gas industry; continued substantial fluctuations in military sales, including to foreign customers; the unpredictability of defense budget priorities as well as the order timing, purchasing schedules, and priorities for defense products, including possible order cancellations; the uncertain impact of potential budget cuts by government customers; the impact of extended economic weakness on the sale and use of marine vessels and recreational vehicles; the potential inability to increase or maintain our market share in the market for airtime services; the need to increase sales of the TracPhone V-IP and HTS series products and related services to maintain and improve airtime gross margins; the need for, or delays in, qualification of products to customer or regulatory standards; potential declines or changes in customer demand, due to economic, weather-related, seasonal, and other factors, particularly with respect to the TracPhone V-IP and HTS series, including with respect to new pricing models; increased price and service competition in the mobile connectivity market; potential increased expenses associated with investments in new technology; exposure for potential intellectual property infringement; potential additional litigation expenses; fluctuations in interest rates; potential changes in tax and accounting requirements or assessments, including management’s assessment of the probability and effect of future events; stock price volatility; and export restrictions, delays in procuring export licenses, and other international risks. These and other factors are discussed in more detail in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2018. Copies are available through our Investor Relations department and website, http://investors.kvh.com. We do not assume any obligation to update our forward-looking statements to reflect new information and developments. KVH Industries, Inc. has used, registered, or applied to register its trademarks in the USA and other countries around the world, including but not limited to the following marks: KVH, TracVision, TracPhone, CommBox, TACNAV, IP-MobileCast, Videotel, mini-VSAT Broadband, NEWSlink, KVH OneCare, and AgilePlans by KVH. Other trademarks are the property of their respective companies.
(a) We changed our definition of non-GAAP net loss and non-GAAP net loss per common share to exclude the impacts of realized and unrealized foreign exchange transaction gains and losses since such gains and losses are not indicative of operating performance in any particular period. If we had presented non-GAAP net loss and non-GAAP net loss per common share consistent with our prior practice, the non-GAAP net loss and non-GAAP net loss per common share would have been $0.2 million and $0.01 per share, respectively, greater than the amounts reported in the table for the three months ended March 31, 2018 and $0.1 million and $0.01 per share, respectively, greater than the amounts reported in the table for the three months ended March 31, 2017. (b) Represents a change in the valuation allowance on United States net operating losses, a state research and development tax credit, uncertain tax position adjustments, and penalties.
(a) We changed our definition of non-GAAP adjusted EBITDA to exclude the impacts of realized and unrealized foreign exchange transaction gains and losses since such gains and losses are not indicative of operating performance in any particular period. If we had presented non-GAAP adjusted EBITDA consistent with our prior practice, non-GAAP adjusted EBITDA would have been $0.3 million and $0.1 million lower than the amounts presented in the table for the three months ended March 31, 2018 and 2017, respectively.
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