Summary
- AgilePlans have been cash flow positive since Q4 2019 and now represents 16% of total revenue for FH 2020, up from 10% for FY 2019.
- Fortress balance sheet has 26% of market cap in cash with no debt other than PPP loan.
- Corporate governance concerns eased following the addition of an activist investor to the board.
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Executive Summary
KVH Industries (KVHI) is a multi-segment business that created an entirely new concept in the Maritime Communications industry and is finally about to see the expensive fruits of their labor, giving it a potential 50+% upside over the next few years. I believe over the next 3-5 years KVH will begin to generate accelerating EBITDA margins through their industry-leading Connectivity-as-a-Service model AgilePlans.
Over the past 10 years, KVH has had an impaired opinion by investors due to several factors that I believe are all, but almost fixed. From the outside, their operating results show years of declining revenue & margins since 2015, but this was largely due to the capitalization of the AgilePlan model. On top of this has been KVHs complete lack of corporate governance allowing management to run the company almost exclusively for the founders. Finally, due to their somewhat unique position in their industry, there is a lack of public competitors left that have been bought out.
Inertial Navigation
The guidance stabilization segment produces gyro sensors called fiber optic gyros and IMU's that enable precise guidance and stabilization for a broad range of military and commercial applications. These applications range from remote weapon stations, weapon guidance systems, and unmanned autonomous vehicles. Revenues for this segment are generally quite lumpy due to unpredictable governmental contracts for a specified number of sensors that can range from less than $1 million to over $20 million and can last several years. Guidance stabilization products have had a relatively stable demand of approximately ~$20 million or more for the past 5 years.
