Boat sales decline contributes to dip in KVH revenues

MIDDLETOWN, R.I. – Revenues at KVH Industries, Inc., (Nasdaq: KVHI) for the first quarter ended March 31 was $18.3 million, down 21 percent from the same quarter of last year, it reported in a recent statement. Net loss for the period was $2.6 million, compared to $1.6 million during the same period last year.

"We just completed a difficult quarter in an extremely challenging economic environment that put significant pressure on sales of our satellite products into the leisure land and marine markets. However, we believe the first quarter offered evidence that our strategic growth drivers are gaining ground and establishing a foundation for long-term success," explained Martin Kits van Heyningen, KVH's chief executive officer.

"Recurring airtime revenues for satellite communications and broadband Internet increased as we expanded our reach into the commercial maritime market and continued the rollout of our planned global mini-VSAT Broadband network,” said Kits can Heyningen. “We made excellent progress on our aeronautical satellite TV initiative, and demand for our fiber optic gyros (FOGs) grew for both military and commercial applications. Together, these elements of our business plan represent diverse revenue streams that are helping us weather the recession and offset some of the weakness in our leisure markets."

In the first quarter of 2009, mobile communications revenue from products and services was $11.0 million, down 39 percent on a year-over-year basis.

"The deteriorating economic conditions and their impact on first quarter sales of boats, cars and recreational vehicles significantly affected the sales of our mobile satellite television products to the leisure markets,” commented Kits van Heyningen. “The corresponding reduction in TracVision product sales for new leisure vessels and vehicles accounted for the majority of the decline in our quarterly revenues.”

CFO Patrick Spratt said that while the company had anticipated a modest loss during the first quarter, “the pressure on sales to the leisure markets was much more pronounced than expected, resulting in a larger-than-projected revenue shortfall and a significant impact on gross margins driven by the lower volume, selected price discounting, and increases to excess inventory reserves.”

He explained that KVH’s original guidance for the year was contingent on general economic conditions not getting materially worse than at that point in time, but they did get materially worse.

“Consumer demand and new vessel and vehicle production by OEMs were very weak and are expected to remain so,” he said. “We expect sequential increases in sales for our mini-VSAT Broadband offering and for our fiber optic gyroscopes. Given these assumptions, we believe that the second quarter top and bottom line results should show improvement compared to the first quarter but in this environment, any prediction is uncertain. Although we remain very optimistic with respect to our strategic progress, we do not feel it would be prudent to provide additional guidance for the full year until we see clear evidence of economic stabilization."

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