KVH Reels in Higher Profits Despite Hardware Sales Decline

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KOUROU, French Guiana — Maritime satellite hardware and services provider KVH Industries on May 3 reported higher revenue and profit in its overall maritime business, with a sharp increase in airtime revenue offsetting a decline in hardware sales.

The Middletown, R.I.-based company said the hardware decline is due in part to cold weather in the United States and Europe, and to the economic woes in southern Europe.

In a conference call with investors, KVH Chief Executive Martin Kits van Heyningen said the company will be introducing new services later this year including a multicast offer to ships with KVH subscriptions.

The multicast will increase transmission efficiency by sending digital maps, television shows and popular films in a single file to multiple ships at a time. KVH currently sends its data in a unicast fashion, meaning a dedicated transmission to a single ship.

Shifting to a multicast format, similar to what is used by terrestrial satellite television broadcasters, will all but eliminate the cost of the actual transmission of large digital files to large numbers of vessels, Kits van Heyningen said.

KVH leases C- and Ku-band capacity from satellite fleet operators and provides transmissions to its own TracPhone series of VSAT, or very small aperture terminal, shipboard units. 

The company’s mini-VSAT product has been growing quickly and KVH is positioning itself to challenge London-based Inmarsat, the world’s largest mobile satellite services provider, as Inmarsat moves to higher-speed Ka-band transmissions in the next two years with a new fleet of satellites.

But KVH also sells Inmarsat-compatible hardware and L-band airtime to its customers, many of which have both Inmarsat and KVH terminals on their vessels.

KVH reported that its sales of Inmarsat-related equipment dropped 32 percent during the three months ending March 31, but that KVH revenue from Inmarsat-sourced airtime was up 11 percent.

Kits van Heyningen said the sales boost for Inmarsat airtime was due to Inmarsat’s recent series of price increases. Kits van Heyningen said it was “ironic” that KVH is, in this limited sense, profiting from the same Inmarsat price increases that have driven customers to KVH’s products and services.

KVH has said many Inmarsat customers are forced to accept Inmarsat price hikes but that over time the increases will work to the advantage of Inmarsat competitors like KVH.

Inmarsat maintains that its new pricing policy results in savings, per megabyte, for most customers, and increases monthly payments only for those customers who were using the service as an emergency for when their VSAT systems did not function.

KVH has recently completed a software upgrade for its network using variable coding, spreading and modulation technology provided by ViaSat Inc. of Carlsbad, Calif. 

KVH said total revenue for the three months ending March 31 was $39.9 million, up 49 percent from the same period a year ago. Mobile broadband revenue, including KVH’s satellite television delivery to ships, totaled $22.9 million, up 10 percent over a year ago.

Revenue from the mini-VSAT business was up 16 percent as growth in revenue from use of the service more than compensated for the drop in hardware sales.

KVH Chief Financial Officer Peter Rendall said the gross profit margin in the mini-VSAT broadband airtime business was 32 percent for the first three months of 2013 compared with 28 percent a year ago.

The company said average monthly subscriber revenue was $600 to $700 for those on the per-megabyte service, and $1,900 to $2,000 for the fixed-price service. Rendall said the company is sticking with earlier forecasts of a 13 percent growth in revenue in 2013 compared with 2012.