KVH Cites Sluggish Economy for Lackluster Terminal Sales

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PARIS — Maritime satellite equipment and services provider KVH on Oct. 30 said it is selling fewer mini-VSAT shipboard terminals than it had forecast due to the still-recovering economies in the United States and Europe but that its low-end terminals appear to be gaining market share.

The company said its new TracPhone V11, its dual-mode high-end product offering, is also selling at rates equal to or better than forecast, and that customer per-month usage is greater than for the other products.

“In the third quarter, monthly airtime revenues [from V11 subscribers] reached the level where they now cover the monthly cost of the three global C-band transponders we lease to provide the global service,” KVH Chief Executive Martin Kits van Heyningen said during an Oct. 30 conference call with investors.

The V11 has been on the market for about a year.

Middletown, R.I.-based KVH said that while V11 sales accounted for only 12 percent of total TracPhone unit sales in the three months ending Sept. 30, the product accounted for 25 percent of the company’s TracPhone hardware revenue during the period.

During the quarter, the TracPhone V3 accounted for 48 percent of terminal sales, while the mid-range V7 was 40 percent. 

KVH Chief Financial Officer Peter Rendall said average monthly revenue from customers for all KVH maritime products held steady during the three-month period, at between $600 and $700 per month for customers paying on a per-megabyte basis and $1,900 per month for customers on fixed-rate plans.

KVH had told investors to expect total mini-VSAT satellite terminal sales to climb from about 250 per quarter in 2012 to 300 per quarter this year. Kits van Heyningen said that for the three months ending Sept. 30, the figure was closer to 250.

Kits van Heyningen said the sluggish European and U.S. economies are slowing the sales momentum, but that KVH sees none of its competitors doing any better.

London-based mobile satellite services provider Inmarsat is KVH’s most-obvious competitor. Inmarsat’s traditional lower-speed L-band satellite services business is being complemented, starting in 2014-2015, by the company’s higher-speed Ka-band Global Xpress satellite fleet.

Kits van Heyningen said that in the current depressed market, especially for leisure craft, neither Global Xpress nor KVH’s V11 products are likely to take off. 

But he said KVH’s V3 should be able to take market share from Inmarsat’s Fleet Broadband products, which have an installed base of around 40,000 ships worldwide, given the V3’s lower per-megabyte costs and much higher throughput. “The 40,000 Fleet Broadband customers out there should be V3 customers,” he said.

In addition to adding a global C-band layer over its existing Ku-band coverage — the C-band transponders were leased from Intelsat of Luxembourg and Washington — KVH in the coming months will be leveraging its purchase of Highland Media Ltd. of Britain to drive terminal sales.

The $24 million, all-cash purchase of Highland was done to provide KVH with access to programming rights for video that will now be incorporated into KVH’s services package. The initial benefit to KVH may be to retain existing customers with the new programming, but Kits van Heyningen said the company is optimistic that “some of this content will be compelling enough that customers will buy mini-VSAT just to get it.”

KVH and its Highland division will be introducing the video services on a trial basis late this year, with full commercial introduction starting early in 2014, Kits van Heyningen said.

KVH said it expects its total revenue in 2013 to be about $163 million including the Highland contribution, which would be a 19 percent increase over 2012, before the Highland purchase.

 

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