KVH Industries Investor Presentation. Mobile Broadband Guidance & Stabilization

Transcription

1 KVH Industries Investor Presentation Mobile Broadband Guidance & Stabilization

2 Forward-looking Statements This presentation contains forward-looking statements that involve risks and uncertainties. For example, forward-looking statements include statements regarding our financial goals for future periods, our anticipated revenue sales pipeline, backlog, competitive positioning, profitability, and product orders. The actual results we achieve could differ materially from the statements made in this presentation. Factors that might cause these differences include, but are not limited to: the need to increase sales of the TracPhone V-IP series products and related services to improve airtime gross margins; the need for, or delays in, qualification of products to customer or regulatory standards; unanticipated declines or changes in customer demand, due to competitive, economic, seasonal, and other factors, including new pricing models, particularly with respect to the TracPhone V-IP series products; continued substantial fluctuations in military and dual-use product sales, including to foreign customers; the unpredictability of defense budget priorities as well as the order timing, purchasing schedules, and priorities for our defense products, including possible order cancellations; the uncertain impact of potential budget cuts by government customers; continued adverse impacts of currency fluctuations; the impact of extended economic weakness on the sale and use of motor vehicles and marine vessels; recent increases in airtime termination rates and lower unit sales in our mobile business; increased price and service competition in the mobile communications market; potential reduced sales to companies in or dependent upon the oil industry as a result of declining oil prices; exposure for potential intellectual property infringement; potential 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 risk factors are discussed in more detail in our most recent annual and/or quarterly report filed with the SEC. We assume no obligation to update our forward-looking statements to reflect new information or developments.

3 KVH Industries Overview Innovative technology company Focused on mobile products and services Mobile broadband satellite services Global high-speed Internet, television, and phone Guidance & stabilization systems Fiber optic gyros (FOGs) and advanced, integrated navigation systems Successfully transitioned company to recurring revenue model >60% of revenue now comes from services Airtime, content, elearning, and media for maritime industry

4 Guidance & Stabilization Leading manufacturer of inertial navigation systems Based on our fiber optic gyro technology Exciting emerging applications for FOG-based inertial systems Self-driving cars Robotics Drones Robust demand for TACNAV military vehicle navigation systems Strongest pipeline ever Multi-year programs Renewed focus on defense spending around the world

5 Mobile Broadband Manufacturer ~200,000 mobile satellite TV systems ~6,000 maritime VSAT systems Network Operator Only seamless global C/Ku-band VSAT service Service Provider Broadband Internet services Content Delivery Global IP-MobileCast Premium Content 10,000 vessels subscribe to news and entertainment 12,000 vessels rely upon elearning and maritime training

6 Large Market for Maritime Broadband Marine broadband revenue expected to grow to $2.3B in five years 250,000 + vessels 72,000 to upgrade to VSAT in next five years 1.4 million seafarers Low penetration rate Beginning of major upgrade cycle Inland Waterways 12% Yachts 18% Shipping 33% Government 8% Passenger 5% Oil & Gas 14% Commercial Fishing 10% Source: Sources: Cisco COMSYS Virtual Maritime Network VSAT Index Report, 4 th Edition and NSR Maritime SATCOM Markets, 4 th Edition (2016)

7 Market Drivers: The Value of Communications Operational Efficiency Optimize performance Reduce fuel consumption & emissions Crew Welfare Connectivity improves morale Enhance recruiting & retention Regulatory Mandates Digital charts (ECDIS) Position reports (eco-zones) Training & labor regulations Cost Savings Remote repair & diagnostics Reduce insurance costs Reduce port charges

8 Maritime Industry s Challenges Despite being largest transportation mode 90% of world s goods are transported by sea Lags behind alternative transport industries in terms of IT Remote locations, no cellular or terrestrial options, no onboard IT personnel Requires affordable global broadband connectivity and content

9 Overcoming Challenges with End-to-End Solution

10 Global Connectivity

11 KVH s Global Broadband Network 26 transponders on 19 satellites Covering entire maritime market

12 Enterprise-grade Connectivity ~640 TB of data and 25 million voice minutes annually Fleet monitoring application for IT managers

13 Network Capacity Expansion Leveraging new commercial satellites No major CAPEX required New HTS satellites coming online Intelsat Epic: 60 Gbps/satellite ViaSat 2: 280 Gbps OneWeb: 720 Low Earth Orbit (LEO) satellites Requires tracking antennas even on land 6 Tbps total capacity

14 Onboard Hardware

15 Integrated Onboard Hardware and Software Building the hardware ensures everything works together Smaller, simpler, and more reliable Over-the-air software update capability Stabilized tracking antennas for any size vessel Common belowdecks unit Modem Voice over IP (VoIP) phone lines Ethernet switch, Wi-Fi 500 GB content server

16 Content Delivery

17 Bandwidth Usage Continues to Accelerate Global mobile data traffic will increase nearly tenfold by % of mobile cellular data traffic on land is now video Maritime satellite service providers can t support streaming The challenge: how to deliver this content via the satellite service without degrading the operations network Source: Cisco Virtual Network Index

18 Global Content Delivery Solution IP-MobileCast Uses multicast technology to broadcast large files to all vessels at once Delivering 500 GB of content per month to each vessel Separate data stream Uses only idle network bandwidth (background multicast) Does not use customer s data plan or affect onboard speeds at all

19 Content

20 Providing Entertainment and Operations Content to the Maritime Market KVH Media Group Commercially licensed entertainment content Partnering with industry leaders to provide critical operations content

21 News from Home via Video and Print 100+ newspapers in 20+ languages Created daily by KVH editorial staff 8,000 ships and 400 cruise ships 12 TV channels of local news daily From top seafaring countries

22 International News in English and Premium News Channels News Sources Channels 1 Euronews 2 Russia Today 3 Al Jazeera 4 One America 5 BBC 6 CNN

23 New Release Movies and TV Shows Major Hollywood and international studios Licensed for commercial use Content cached locally with unlimited onboard viewing for one year

24 Popular Sports Entertainment Daily sports news and highlights Featured events Pacquiao/Mayweather highlights

25 Delivering Content for Maritime Operations Pushing large data files to entire fleets Most ships rely on manually updated data Navigation, port, weather, and safety information Time-consuming and error-prone process Large files delivered physically via DVD to vessel Working with industry leaders Jeppesen and Transas for electronic charts and navigation AWT for global forecasts and high-resolution weather data Videotel for elearning

26 Maritime elearning Leading provider of maritime training, remote elearning, and reporting solutions Onboard 12,000 + vessels today More than 950 training titles >250,000 crew members registered More than 100 million training hours to date Subscription-based business model Onboard training is mandatory elearning is only viable option Large, widely dispersed population of seafarers working in extremely isolated conditions Delivering training videos and software updates via IP-MobileCast

27 Mobile Broadband Strategy Built global broadband network Became leading maritime VSAT connectivity provider * Launched global IP-MobileCast content delivery system Acquired content companies for maritime entertainment and elearning content Launched mini-vsat Broadband 2.0 High-speed connectivity, open rate plans based on data consumption Moving into IoT and Analytics Move big data from ship to shore for prognostics Leveraging new HTS satellites *Unit Sales Market Share: COMSYS Maritime VSAT Report and NSR Maritime SATCOM Markets (2016)

28 Operational & Financial Overview

29 Growing Subscription Revenue Base 41% 41% Total Total Product Product Revenue Revenue 57% 57% Subscription-based based Revenue Service Service Revenue Q % Other Service Revenue

30 Overall Revenue Split (Q TTM) 78% Mobile Broadband 22% Guidance & 21% Stabilization Guidance & Stabilization

31 Solid Mobile Broadband Growth 1.4% YOY airtime revenue growth Airtime revenues larger than VSAT hardware revenue $ in Millions Trailing 12 Month Revenue

32 Q Mobile Broadband Revenue 29% Mobile 29% Broadband Mobile Hardware Broadband Hardware 24% 24% Content && Services 47% Mobile 47% Broadband Mobile Airtime Broadband Airtime

33 Q Financial Summary Q Q Revenue $45.8M $44.5M Service Revenue (% of Total Revenue) 59% 65% Gross Profit Margin 46% 44% GAAP Net Income $2.9M ($0.5M) Non-GAAP Net Income $4.3M $1.8M GAAP EPS $0.18 ($0.03) Non-GAAP EPS $0.27 $0.12 Adjusted EBITDA $6.7M $4.2M Cash $53.8M $50.2M Note: Refer to the company s Q earnings press release for complete financial disclosure.

34 Q3 YTD 2016 Financial Summary Q3 YTD 2016 Q3 YTD 2015 Revenue $132.2M $130.6M Service Revenue (% of Total Revenue) 59% 63% Gross Profit Margin 44% 43% GAAP Net Income ($0.7M) ($1.8M) Non-GAAP Net Income $4.9M $4.9M GAAP EPS ($0.05) ($0.12) Non-GAAP EPS $0.31 $0.31 Adjusted EBITDA $11.2M $11.5M Cash $53.8M $50.2M Note: Refer to the company s Q earnings press release for complete financial disclosure.

35 Path for Growth 2016 and Beyond Continuing to win large guidance & stabilization opportunities Emerging market opportunities provide upside potential Maritime IT and operational requirements increasing Bandwidth requirements going up every day New legislated crew welfare requirements New operational regulations for vessels KVH solving important problems in innovative way Growing subscriber base reaching critical mass Training, news, entertainment, and communications Transition to service revenue model increasing predictability and profitability Gross margins improving with high margin value-added services

36 Mobile Broadband Guidance & Stabilization