Hi Bob,
Yes I do think KVH will be worth over $500m. I’m perplexed by the market move to the downside. I think it will be short lived. KVH is still in turn around phase and therefore we need to have some perspective of the fact that the mobile connectivity portion just had its first growth quarter in almost 3 years. MiniVsat is performing as I have modeled. It’s going to start accelerating in dramatic fashion. I think there are several issues that need to be taken into context. If one doesn’t understand the CaaS model, one sees big unit growth and modest sales growth. It can be very confusing, especially when there are also FBB service revenues in there that are going down. Albeit a modest $100k to $200k yoy. The max contribution of other services is $300k to $500k a quarter. LTE-1 will start to flatten this extra service component out, while minivsat sequential growth , ex seasonal affects, actually improves to $1.5m+. On a year over year basis, that’s $6m in Q4 19’ or over 30%. You only need 200 V7-HTS and 300 V3-HTS’ at an ARPU of $1,000, and little to no churn. Churn has been devastating to sales before HTS and it’s important to recognize V7-HTS didn’t eliminate it because of the below $25k category. I was disappointed this time last year when we didn’t see multiple HTS products because I knew this lower end segment would continue to suffer as FX captured more of this segment. I was modeling 30 to 50% growth before V7-HTS was introduced and then I dropped my model to very close to the upper single digits we are seeing today because of the low end gap and no product to fill it. V3-HTS resolves this issue and opens up other opportunities on land, as well.
Mobile land has been virtually untapped and unappreciated by the investment community. The options for mobile news outlets, emergency services, O&G, military & homeland COTM and other off-grid opportunities have been very limited, in terms of CSWaP relative to true two-way broadband. The options are either flat panel that cost almost twice as much and offer slower speeds or 60cm+ units. Neither option is ideal for real time on the move communications and V3-ip wasn’t ideal because speeds were too slow and data rates too high. 60cm is just too big. V3-HTS resolves much of these issues, in terms of size, speed and price. I think the land opportunity is equal in size to maritime at 37cm(250k units) and 4x the size of maritime at 32cm. Throw in a true OTT entertainment solution and suddenly high end RVs add to these numbers. The collection of these untapped opportunities is why I believe we can exceed 1k units a quarter. This land opportunity is not in my existing model.
What has been dispointing is the slow response on the content side. It’s extremely difficult to model because the data provided doesn’t help us to understand how much is training and how much is entertainment. Entertainment continues to be a lost opportunity and a serious drag. They need a hybrid of live news and sports with OTT movies/shows for about half the price they are charging. There is an opportunity at creating a virtuous circle, in which HTS and Content feed each other. As you mention, there was a glimmer of hope on the CC. His comments were kind of strange, however. Wouldn’t an entertainment offer that doesn’t require a server be worthy of a separate public announcement? Maybe it’s forthcoming. Maybe METS? Otherwise, it sounds like a temporary filler, kinda like the CaaS announcement with old hardware was, 6 months before an HTS product was offered with it.
There are way more reasons to be optimistic then alarmed, even with the political and economic risks that are ticking up. Growth may be slower then what many were expecting but they hit my targets on everything but content. MiniVsat is about to see significant double digit and sustained growth. This is the most important thing in the short term. Content will follow with more unit volumes. A 2nd shift at Tinley Park signifies continued growth in FOGs and of course, who know what’s going on with TacNav.
Aw |
