[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2025 [ITEM 1. INTERIM FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20INTERIM%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of KVH Industries, Inc. and its subsidiaries for the quarter ended March 31, 2025, compared to prior periods, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business operations, and financial changes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202025%20(unaudited)%20and%20December%2031%2C%202024) This section presents the unaudited consolidated balance sheets of KVH Industries, Inc. as of March 31, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---| | Total assets | $151,434 | $155,081 | $(3,647) | (2.3)% | | Total liabilities | $13,623 | $16,456 | $(2,833) | (17.2)% | | Total stockholders' equity | $137,811 | $138,625 | $(814) | (0.6)% | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20three%20months%20ended%20March%2031%2C%202025%20and%202024%20(unaudited)) This section details the unaudited consolidated statements of operations for the three months ended March 31, 2025 and 2024, highlighting net sales, costs, and net loss Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Net sales | $25,414 | $29,267 | $(3,853) | (13.2)% | | Total costs and expenses | $27,657 | $33,065 | $(5,408) | (16.4)% | | Loss from operations | $(2,243) | $(3,798) | $1,555 | 40.9% | | Net loss | $(1,710) | $(3,163) | $1,453 | 45.9% | | Net loss per common share - Basic | $(0.09) | $(0.16) | $0.07 | 43.8% | | Net loss per common share - Diluted | $(0.09) | $(0.16) | $0.07 | 43.8% | [Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss%20for%20the%20three%20months%20ended%20March%2031%2C%202025%20and%202024%20(unaudited)) This section presents the unaudited consolidated statements of comprehensive loss for the three months ended March 31, 2025 and 2024, including net loss and other comprehensive income components Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Net loss | $(1,710) | $(3,163) | $1,453 | 45.9% | | Foreign currency translation adjustment | $722 | $229 | $493 | 215.3% | | Total comprehensive loss | $(988) | $(2,934) | $1,946 | 66.3% | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20three%20months%20ended%20March%2031%2C%202025%20and%202024%20(unaudited)) This section outlines the changes in stockholders' equity for the three months ended March 31, 2025 and 2024, reflecting net loss, comprehensive income, and stock-based compensation Changes in Stockholders' Equity (in thousands) | Metric | Balance at Dec 31, 2024 | Net Loss | Other Comprehensive Income | Stock-based Compensation | Acquisition of Treasury Stock | Balance at Mar 31, 2025 | |:---|:---|:---|:---|:---|:---|:---|\n| Total Stockholders' Equity | $138,625 | $(1,710) | $722 | $337 | $(163) | $137,811 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20three%20months%20ended%20March%2031%2C%202025%20and%202024%20(unaudited)) This section provides the unaudited consolidated statements of cash flows for the three months ended March 31, 2025 and 2024, detailing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | |:---|:---|:---|:---|\n| Net cash used in operating activities | $(1,277) | $(792) | $(485) | | Net cash (used in) provided by investing activities | $(557) | $871 | $(1,428) | | Net cash (used in) provided by financing activities | $(162) | $96 | $(258) | | Net (decrease) increase in cash and cash equivalents | $(1,972) | $147 | $(2,119) | | Cash and cash equivalents at end of period | $48,600 | $11,441 | $37,159 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies, business operations, and specific financial components [(1) Description of Business](index=8&type=section&id=(1)%20Description%20of%20Business) KVH Industries designs, develops, manufactures, and markets mobile connectivity services and products for marine and land markets, primarily generating revenue from satellite Internet airtime services, including its KVH ONE hybrid network and reseller agreements for Starlink and OneWeb, and is undergoing a staged wind-down of its product manufacturing operations by the end of 2025 to focus on integrated communications solutions - KVH's core business involves mobile connectivity services and products for marine and land markets, with primary revenue from satellite Internet airtime services[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company has expanded its service offerings to include the KVH ONE® hybrid network, Starlink, and OneWeb services, and offers 'AgilePlans' as a connectivity-as-a-service model[27](index=27&type=chunk)[28](index=28&type=chunk) - A staged wind-down of product manufacturing operations at its Middletown, RI facility is expected to cease substantially by the end of **2025**, shifting focus to integrated communications solutions[33](index=33&type=chunk)[34](index=34&type=chunk) [(2) Summary of Significant Accounting Policies](index=9&type=section&id=(2)%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the accounting principles used in preparing the interim financial statements, emphasizing the basis of presentation, the necessity of management estimates and assumptions, and the policies for classifying assets held for sale and foreign currency translation - Interim financial statements are prepared in accordance with GAAP and include management's estimates and assumptions affecting various financial statement items[35](index=35&type=chunk)[37](index=37&type=chunk) - Assets are classified as held for sale when specific criteria are met, measured at the lower of carrying amount or fair value less costs to sell, and are not depreciated[39](index=39&type=chunk) - Foreign currency translation policies vary based on the functional currency of foreign subsidiaries, impacting where gains and losses are recognized (income statement or OCI)[40](index=40&type=chunk)[41](index=41&type=chunk) [(3) Recently Issued Accounting Standards and Accounting Standards Not yet Adopted](index=10&type=section&id=(3)%20Recently%20Issued%20Accounting%20Standards%20and%20Accounting%20Standards%20Not%20yet%20Adopted) The Company reviewed recently issued accounting standards, specifically ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation Disclosures), and expects no material impact on its financial statements from their adoption, with ASU 2024-03 only resulting in disclosure changes - ASU No. 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, **2024**, and is not expected to have a material impact[42](index=42&type=chunk) - ASU No. 2024-03 (Expense Disaggregation Disclosures) is effective for annual periods beginning after December 15, **2026**, and will result in disclosure changes only[43](index=43&type=chunk) [(4) Marketable Securities](index=10&type=section&id=(4)%20Marketable%20Securities) The Company liquidated its marketable securities in Q4 2024, transferring the balance to an interest-bearing account, and held no marketable securities as of March 31, 2025, resulting in no interest income from marketable securities for the current quarter - The balance of marketable securities was liquidated in the fourth quarter of **2024** and transferred to an interest-bearing account[45](index=45&type=chunk) - No marketable securities were held as of March 31, **2025**, or December 31, **2024**[46](index=46&type=chunk) - Interest income from marketable securities was **$0** for the three months ended March 31, **2025**, compared to **$720 thousand** for the same period in **2024**[45](index=45&type=chunk) [(5) Stockholder's Equity](index=11&type=section&id=(5)%20Stockholder's%20Equity) This note details stock-based compensation expenses, activity related to stock options and restricted stock awards, and the Employee Stock Purchase Plan (ESPP), along with the components of Accumulated Other Comprehensive Loss (AOCL) Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---|:---|:---|\n| Cost of service sales | $7 | $7 | | Cost of product sales | $5 | $9 | | Research and development | $(49) | $89 | | Sales, marketing and support | $77 | $71 | | General and administrative | $297 | $346 | | **Total** | **$337** | **$522** | - Unrecognized compensation expense as of March 31, **2025**, was **$2.005 million** for stock options (over **3.20 years**) and **$1.227 million** for restricted stock awards (over **1.83 years**)[47](index=47&type=chunk) - Accumulated Other Comprehensive Loss improved from **$(4.032) million** at December 31, **2024**, to **$(3.310) million** at March 31, **2025**, primarily due to a **$722 thousand** foreign currency translation adjustment[54](index=54&type=chunk) [(6) Net Loss per Common Share](index=12&type=section&id=(6)%20Net%20Loss%20per%20Common%20Share) This note explains the calculation of basic and diluted net loss per common share, noting that potential dilutive securities were excluded from the diluted EPS calculation for both periods due to the net loss, as their inclusion would have been anti-dilutive - Basic and diluted net loss per common share was **$(0.09)** for the three months ended March 31, **2025**, an improvement from **$(0.16)** in the prior year[13](index=13&type=chunk) - **1,141 thousand** (**2025**) and **1,584 thousand** (**2024**) outstanding stock options and non-vested restricted shares were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive due to the net loss[55](index=55&type=chunk) [(7) Inventories](index=13&type=section&id=(7)%20Inventories) Inventories are valued at the lower of cost or net realizable value using the first-in first-out method, and the total inventory balance decreased slightly from December 31, 2024, to March 31, 2025, with reductions across raw materials, work in process, and finished goods Inventory Components (in thousands) | Component | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Raw materials | $14,954 | $15,379 | $(425) | (2.8)% | | Work in process | $2,066 | $2,469 | $(403) | (16.3)% | | Finished goods | $4,962 | $5,105 | $(143) | (2.8)% | | **Total Inventories** | **$21,982** | **$22,953** | **$(971)** | **(4.2)%** | [(8) Prepaid Expenses and Other Current Assets](index=13&type=section&id=(8)%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets increased slightly, primarily due to a significant rise in 'other prepaid expenses,' partially offset by a decrease in prepaid Starlink pooled data as the Company began drawing from its bulk data distribution agreement Prepaid Expenses and Other Current Assets (in thousands) | Component | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Prepaid Starlink pooled data | $11,897 | $14,137 | $(2,240) | (15.8)% | | Other prepaid expenses and other current assets | $4,493 | $1,879 | $2,614 | 139.1% | | **Total** | **$16,390** | **$16,016** | **$374** | **2.3%** | - KVH expanded its relationship with Starlink in Q2 **2024** through a bulk data distribution agreement, prepaying for Global Priority data at favorable rates, and began drawing from this pooled data in Q3 **2024**[58](index=58&type=chunk) [(9) Property and Equipment](index=14&type=section&id=(9)%20Property%20and%20Equipment) Net property and equipment decreased, primarily due to accumulated depreciation, while the Company continued plans to sell two properties in Middletown, Rhode Island, with one sale agreement signed in March 2025 Property and Equipment, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Gross property and equipment | $77,710 | $78,329 | $(619) | (0.8)% | | Less accumulated depreciation | $(52,892) | $(51,315) | $(1,577) | (3.1)% | | **Property and equipment, net** | **$24,818** | **$27,014** | **$(2,196)** | **(8.1)%** | - Depreciation expense was **$2.784 million** for Q1 **2025**, down from **$3.147 million** for Q1 **2024**[59](index=59&type=chunk) - The Company plans to sell 75 Enterprise Center and 50 Enterprise Center in Middletown, Rhode Island; an agreement to sell 50 Enterprise Center for **$5.3 million** was entered into in March **2025**[61](index=61&type=chunk)[62](index=62&type=chunk) [(10) Product Warranty](index=15&type=section&id=(10)%20Product%20Warranty) The Company's product warranty liability increased slightly for the three months ended March 31, 2025, reflecting new charges to expense partially offset by costs incurred for repairs Product Warranty Activity (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---|:---|:---|\n| Beginning balance | $607 | $828 | | Charges to expense | $232 | $264 | | Costs incurred | $(132) | $(366) | | **Ending balance** | **$707** | **$726** | - Accrued product warranty costs increased by **$100 thousand** (**16.5%**) from **$607 thousand** at December 31, **2024**, to **$707 thousand** at March 31, **2025**[10](index=10&type=chunk)[64](index=64&type=chunk) [(11) Legal Matters](index=15&type=section&id=(11)%20Legal%20Matters) The Company is involved in routine inquiries, legal proceedings, and claims in the ordinary course of business but does not anticipate any of these matters will materially harm its business, results of operations, financial condition, or cash flows - The Company is not a party to any lawsuit or proceeding that is likely to materially harm its business, results of operations, financial condition, or cash flows[66](index=66&type=chunk) [(12) Fair Value Measurements](index=15&type=section&id=(12)%20Fair%20Value%20Measurements) This note clarifies that no financial assets or liabilities were measured at fair value using the ASC 820 hierarchy as of March 31, 2025, or December 31, 2024, as the carrying amounts of most financial instruments approximate fair value due to their short-term nature, and no impairment of non-financial assets was noted - No financial assets or liabilities were measured at fair value based on the ASC 820 fair value hierarchy as of March 31, **2025**, or December 31, **2024**[68](index=68&type=chunk) - The carrying amounts of certain financial instruments (cash, receivables, payables, accrued expenses, lease liabilities) approximate fair value due to their short-term, highly liquid nature or quoted rates[69](index=69&type=chunk) - No impairment of non-financial assets was noted during the three months ended March 31, **2025**, or **2024**[71](index=71&type=chunk) [(13) Intangible Assets](index=16&type=section&id=(13)%20Intangible%20Assets) The net carrying amount of intangible assets decreased due to amortization, with the remaining assets primarily consisting of distribution rights and subscriber relationships, which are amortized over finite lives Acquired Intangible Assets (in thousands) | Asset Type | Gross Carrying Amount (Mar 31, 2025) | Accumulated Amortization (Mar 31, 2025) | Net Carrying Value (Mar 31, 2025) | |:---|:---|:---|:---|\n| Subscriber relationships | $60 | $18 | $42 | | Distribution rights | $1,250 | $559 | $691 | | Intellectual property | $2,284 | $2,284 | $— | | **Total** | **$3,594** | **$2,861** | **$733** | - Net carrying amount of intangible assets decreased by **$95 thousand** (**11.5%**) from **$828 thousand** at December 31, **2024**, to **$733 thousand** at March 31, **2025**[10](index=10&type=chunk)[73](index=73&type=chunk) - Amortization expense was **$104 thousand** for Q1 **2025**, and the total weighted average remaining useful life of definite-lived intangible assets was **1.8 years**[76](index=76&type=chunk)[77](index=77&type=chunk) [(14) Revenue from Contracts with Customers](index=17&type=section&id=(14)%20Revenue%20from%20Contracts%20with%20Customers) Net sales decreased for the three months ended March 31, 2025, with service sales continuing to be the predominant revenue source, and international sales, particularly to Singapore, representing a significant portion of consolidated net sales Net Sales from Contracts with Customers (in thousands) | Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Service - over time | $21,642 | $25,038 | $(3,396) | (13.6)% | | Product - point in time | $3,772 | $4,229 | $(457) | (10.8)% | | **Total net sales** | **$25,414** | **$29,267** | **$(3,853)** | **(13.2)%** | - Service sales accounted for approximately **85.2%** of consolidated net sales in Q1 **2025** (**85.6%** in Q1 **2024**)[81](index=81&type=chunk) - International revenues represented **80%** of consolidated net sales in Q1 **2025** (**72%** in Q1 **2024**), with Singapore customers accounting for **23%** (**22%** in Q1 **2024**)[83](index=83&type=chunk) [(15) Income Taxes](index=18&type=section&id=(15)%20Income%20Taxes) The Company's effective tax rate for the three months ended March 31, 2025, was negative, primarily due to a valuation allowance on U.S. deferred tax assets and the composition of income from foreign jurisdictions taxed at lower rates, while the reserve for uncertain tax positions remained stable - The effective tax rate was **(1.5)%** for Q1 **2025**, compared to **(2.5)%** for Q1 **2024**[87](index=87&type=chunk) - The effective tax rate differed from the statutory rate primarily due to a valuation allowance on U.S. deferred tax assets and income composition from foreign jurisdictions taxed at lower rates[88](index=88&type=chunk) - Reserves for uncertain tax positions were **$745 thousand** at March 31, **2025**, with a reasonably possible decrease of **$15 thousand** in the next twelve months[89](index=89&type=chunk) [(16) Leases](index=19&type=section&id=(16)%20Leases) This note details the Company's operating leases as a lessee for facilities and equipment, and its sales-type and operating leases as a lessor for VSAT systems, outlining lease expenses, liabilities, and future cash flows - Lease expense as a lessee was **$271 thousand** for Q1 **2025**, down from **$353 thousand** for Q1 **2024**[91](index=91&type=chunk) Lessee Operating Lease Liabilities (in thousands) as of March 31, 2025 | Period | Minimum Lease Payments | |:---|:---|\n| Remainder of 2025 | $460 | | 2026 | $292 | | 2027 | $204 | | 2028 and thereafter | $154 | | **Total minimum lease payments** | **$1,110** | | Less amount representing interest | $(78) | | **Present value of net minimum operating lease payments** | **$1,032** | - Interest income from sales-type leases as a lessor was **$102 thousand** for Q1 **2025**, down from **$129 thousand** for Q1 **2024**[94](index=94&type=chunk) [(17) Restructuring](index=20&type=section&id=(17)%20Restructuring) The Company initiated a staged wind-down of its manufacturing activities in February 2024, driven by reduced demand and competition, aiming to cease substantially all manufacturing by the end of 2025 and focus on integrated communications solutions, which involved a headcount reduction of approximately 75 employees and incurred $3.9 million in severance charges in 2024 - The Board of Directors voted on February 9, **2024**, to implement a staged wind-down of manufacturing activities at its Middletown, Rhode Island facility[99](index=99&type=chunk) - The wind-down was driven by reduced demand for hardware products and intensifying competition, with the goal to cease substantially all manufacturing by the end of **2025**[99](index=99&type=chunk)[100](index=100&type=chunk) - Approximately **75 employees** (**20%** of the total workforce) were reduced, incurring aggregate severance charges of **$3.9 million** in **2024**[101](index=101&type=chunk) [(18) Segment Information](index=21&type=section&id=(18)%20Segment%20Information) KVH Industries manages its operations as a single operating segment, with the CEO serving as the Chief Operating Decision Maker (CODM) who reviews consolidated net income (loss) to assess performance and allocate resources, and the majority of the Company's long-lived assets are located outside the United States, with a significant portion in Singapore - The Company manages its operations as a single operating segment, with the CEO as the Chief Operating Decision Maker (CODM)[102](index=102&type=chunk) Geographic Location of Long-Lived Assets (in thousands) as of March 31, 2025 | Location | Amount | |:---|:---|\n| Inside United States | $4,719 | | Outside United States | $21,229 | | *Of which, Singapore* | *$7,128* | | **Total** | **$25,948** | [(19) Share Buyback Program](index=23&type=section&id=(19)%20Share%20Buyback%20Program) The Board of Directors authorized a share repurchase program of up to $10 million on December 9, 2024, allowing for repurchases through various means, and during the three months ended March 31, 2025, the Company repurchased 30,818 shares for approximately $163 thousand - The Board of Directors authorized a share repurchase program for up to **$10 million** on December 9, **2024**[106](index=106&type=chunk) - During the three months ended March 31, **2025**, the Company repurchased **30,818 shares** of common stock at a cost of approximately **$163 thousand**[108](index=108&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=23&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management's discussion and analysis provides an overview of KVH Industries' business, recent strategic initiatives including the manufacturing wind-down and expansion into LEO services, and a detailed review of financial performance for the three months ended March 31, 2025, compared to the prior year, highlighting changes in sales, costs, operating expenses, and liquidity [Introduction](index=23&type=section&id=Introduction) This introduction highlights the forward-looking nature of the report and advises reading it in conjunction with the consolidated interim financial statements and annual report - The report contains forward-looking statements regarding future financial results, operating results, business strategies, and product development, which are subject to risks and uncertainties[109](index=109&type=chunk) - The discussion and analysis should be read in conjunction with the consolidated interim financial statements and the annual report on Form 10-K[109](index=109&type=chunk) [Overview](index=23&type=section&id=Overview) This overview describes KVH's core business in mobile connectivity solutions, its strategic shift to integrated communications, and the ongoing manufacturing wind-down and property sales - KVH is a leading global provider of innovative and technology-driven connectivity solutions, primarily for maritime commercial, leisure, and military/government customers[110](index=110&type=chunk) - The Company generates a substantial majority of revenues from satellite Internet airtime services, including its KVH ONE hybrid network and reseller services for Starlink and OneWeb[111](index=111&type=chunk)[112](index=112&type=chunk) - A staged wind-down of product manufacturing operations was announced in February **2024**, driven by reduced demand and competition, with a focus on integrated communications solutions and an expected cessation of manufacturing by the end of **2025**[115](index=115&type=chunk) - The restructuring included a headcount reduction of approximately **75 employees** and incurred **$3.9 million** in severance charges during **2024**[116](index=116&type=chunk) - The Company is actively selling properties in Middletown, Rhode Island, including 75 Enterprise Center and 50 Enterprise Center, with agreements in place for both[118](index=118&type=chunk)[120](index=120&type=chunk) [Critical Accounting Estimates](index=25&type=section&id=Critical%20Accounting%20Estimates) This section identifies critical accounting estimates, particularly for intangible and other long-lived assets, due to their inherent estimation uncertainty and potential financial impact - The Company identifies accounting estimates for intangible assets and other long-lived assets as critical due to significant estimation uncertainty and their potential impact on financial results[123](index=123&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance for the three months ended March 31, 2025, detailing changes in net sales, costs of sales, and operating expenses Financial Data as a Percentage of Net Sales | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---|:---|:---|\n| Net sales | 100.0% | 100.0% | | Costs of service sales | 56.0% | 48.0% | | Costs of product sales | 14.7% | 18.1% | | Research and development | 4.7% | 10.4% | | Sales, marketing and support | 19.5% | 18.4% | | General and administrative | 13.9% | 18.1% | | Total costs and expenses | 108.8% | 113.0% | | Loss from operations | (8.8)% | (13.0)% | | Net loss | (6.7)% | (10.9)% | [Net Sales](index=27&type=section&id=Net%20Sales) Net sales declined by 13% year-over-year, primarily due to a decrease in airtime service sales, particularly from a U.S. Coast Guard contract downgrade and reduced VSAT-only subscribers, alongside a decrease in TracVision and accessory product sales, partially offset by growth in LEO and Starlink product sales Net Sales Performance (in thousands) | Category | Q1 2025 | Q1 2024 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Service | $21,642 | $25,038 | $(3,396) | (14)% | | Product | $3,772 | $4,229 | $(457) | (11)% | | **Total Net Sales** | **$25,414** | **$29,267** | **$(3,853)** | **(13)%** | - Service sales decreased primarily due to a **$3.5 million** decrease in airtime service sales, including a **$2.5 million** impact from a U.S. Coast Guard contract downgrade and a decline in VSAT-only subscribers[127](index=127&type=chunk) - Product sales decreased mainly due to a **$0.5 million** decrease in TracVision sales and a **$0.2 million** decrease in accessory and land mobile connectivity product sales, partially offset by increases in Starlink and CommBox Edge product sales[128](index=128&type=chunk) [Costs of Sales](index=27&type=section&id=Costs%20of%20Sales) Total costs of sales decreased by 7% year-over-year, primarily driven by a significant reduction in product sales costs due to lower manufacturing and unabsorbed expenses, despite a slight increase in service sales costs - Total costs of sales decreased by **$1.4 million** (**7%**) to **$18.0 million** in Q1 **2025** from **$19.4 million** in Q1 **2024**[129](index=129&type=chunk) - Costs of service sales increased by **$0.2 million** (**1%**) to **$14.2 million**, primarily due to a **$0.2 million** increase in content services cost, leading to an increase from **56%** to **66%** as a percentage of service sales[130](index=130&type=chunk) - Costs of product sales decreased by **$1.6 million** (**30%**) to **$3.7 million**, mainly due to a **$1.2 million** decrease in manufacturing and unabsorbed expenses, improving from **126%** to **99%** as a percentage of product sales[131](index=131&type=chunk) [Operating Expenses](index=28&type=section&id=Operating%20Expenses) Operating expenses significantly decreased across all categories for Q1 2025 compared to Q1 2024, primarily driven by reductions in salaries, benefits, and taxes following the workforce reduction, as well as lower depreciation expense - Research and development expense decreased by **$1.9 million** (**61%**) to **$1.2 million**, primarily due to a **$1.7 million** decrease in salaries, benefits, and taxes following workforce reduction[132](index=132&type=chunk) - Sales, marketing, and support expense decreased by **$0.4 million** (**8%**) to **$5.0 million**, mainly due to a **$0.4 million** decrease in salaries, benefits, and taxes[133](index=133&type=chunk) - General and administrative expense decreased by **$1.8 million** (**33%**) to **$3.5 million**, driven by a **$1.6 million** decrease in salaries, benefits, and taxes and a **$0.3 million** decrease in depreciation expense[134](index=134&type=chunk) [Interest and Other Expense, Net](index=28&type=section&id=Interest%20and%20Other%20Expense%2C%20Net) Interest income decreased due to the liquidation of marketable securities, while other expense, net, significantly improved, primarily driven by a reduction in loss on disposal of fixed assets - Interest income decreased by **$0.3 million** to **$0.6 million** in Q1 **2025**, with **$0.5 million** from cash/cash equivalents and **$0.1 million** from lease receivables[135](index=135&type=chunk) - Other expense, net, decreased by **$0.2 million** to less than **$0.1 million** in Q1 **2025**, driven by a **$0.2 million** decrease in the loss on disposal of fixed assets[135](index=135&type=chunk) [Income Tax Expense](index=28&type=section&id=Income%20Tax%20Expense) Income tax expense remained low for Q1 2025, primarily related to state taxes and foreign jurisdictions, consistent with the prior year - Income tax expense for Q1 **2025** was less than **$0.1 million**, related to state taxes and taxes on income earned in foreign jurisdictions[136](index=136&type=chunk) - Income tax expense for Q1 **2024** was **$0.1 million**, related to taxes on income earned in foreign jurisdictions[136](index=136&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the Company's financial liquidity and capital resources, analyzing cash and working capital positions and cash flow changes from operating, investing, and financing activities - Cash and cash equivalents were **$48.6 million** as of March 31, **2025**, with **$3.5 million** held by foreign subsidiaries[138](index=138&type=chunk) - Working capital was **$108.5 million** as of March 31, **2025**[138](index=138&type=chunk) - Net cash used in operating activities increased by **$0.5 million** to **$(1.3) million** in Q1 **2025**, primarily due to increased cash outflows related to accounts payable and accounts receivable[140](index=140&type=chunk) - Net cash used in investing activities was **$(0.6) million** in Q1 **2025**, a **$1.4 million** change from **$0.9 million** provided in Q1 **2024**, mainly due to decreased proceeds from marketable securities sales[141](index=141&type=chunk) - Net cash used in financing activities was **$(0.2) million** in Q1 **2025**, a **$0.3 million** change from **$0.1 million** provided in Q1 **2024**, primarily due to increased cash outflows for treasury stock repurchases[142](index=142&type=chunk) [Other Matters](index=29&type=section&id=Other%20Matters) This section discusses other significant financial matters, including the Board's authorization of a share repurchase program and the shares repurchased during the quarter - The Board of Directors authorized a share repurchase program for up to **$10 million** on December 9, **2024**[143](index=143&type=chunk) - During the three months ended March 31, **2025**, the Company repurchased **30,818 shares** of common stock at a cost of **$0.2 million**[145](index=145&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=30&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms that KVH Industries' management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and internal control over financial reporting as of March 31, 2025, concluding they were effective and that no material changes occurred during the quarter - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective as of March 31, **2025**[147](index=147&type=chunk) - No material changes in internal control over financial reporting were identified during the first quarter of **2025**[148](index=148&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including details on equity security sales and a list of filed exhibits [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=31&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the Company's share repurchase program, authorized for up to $10 million, and reports the actual repurchases made during the three months ended March 31, 2025 - The Board of Directors authorized a share repurchase program for up to **$10 million** on December 9, **2024**[151](index=151&type=chunk) Share Repurchase Activity (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | |:---|:---|:---|:---|:---|\n| January 1 - January 31 | — | — | — | $10,000,000 | | February 1 - February 29 | — | — | — | $10,000,000 | | March 1 - March 31 | 30,818 | $5.25 | 30,818 | $9,837,220 | | **Total** | **30,818** | **$5.25** | **30,818** | **—** | [ITEM 6. EXHIBITS](index=32&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and financial information formatted in Inline XBRL - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Specimen common stock certificate, Rule 13a-14(a)/15d-14(a) certifications, Section 1350 certifications, and Inline XBRL financial information[156](index=156&type=chunk) [SIGNATURE](index=33&type=section&id=SIGNATURE) This section contains the required signatures for the filing, certifying the accuracy and completeness of the report

Financial Data and Key Metrics Changes - Revenue for the first quarter declined year over year to $25.4 million, primarily due to lower revenue from VSAT airtime service, including the loss of U.S. Coast Guard revenue [6][12] - Airtime gross margin improved to 31.5% in Q1 from 28.2% in the previous quarter, with adjusted EBITDA for the quarter at $1 million [14][17] - Ending cash balance decreased by approximately $2 million to $48.6 million, driven by movements in working capital [17] Business Line Data and Key Metrics Changes - Subscriber base increased by 5% to over 7,400 subscribing vessels, recovering from the decline experienced in 2023 [8][15] - Quarterly shipments of connectivity terminals exceeded 1,300 units, marking the fifth consecutive record quarter, with significant increases in Starlink terminals [7][10] - Product gross profit was breakeven compared to a positive $300,000 in the prior quarter, with expectations for product margins to remain about breakeven [16] Market Data and Key Metrics Changes - Starlink revenue continued to increase as a percentage of total revenue, with strong demand in both commercial and leisure markets [6][9] - Approximately 30% of Starlink activations in Q1 were hybrid configurations, showcasing the company's ability to deliver multi-orbit managed solutions [9] Company Strategy and Development Direction - The company is transitioning from a GEO-focused business model to a primarily LEO-based mobile connectivity market, with ongoing double-digit annual growth in subscribers [18] - The addition of OneWeb to the product and service portfolio is expected to enhance offerings and market reach [12][13] - The company is closely managing GEO bandwidth commitments, anticipating continued pressure on GEO margins while benefiting from strong LEO margins [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategic initiatives, highlighting record-breaking subscriber growth and increased product shipments [13][14] - The company is monitoring tariffs but does not expect them to have a material impact on costs due to prior component purchases [12][13] - Management acknowledged challenges ahead but remains optimistic about the path forward, particularly with the growth of the LEO business [14] Other Important Information - The company is in the process of selling its headquarters and factory facilities, expecting to close the sale of the headquarters before the end of the quarter [12] - Share buybacks were initiated under a program approved by the Board of Directors, with over 30,000 shares purchased at a cost of approximately $163,000 [12][13] Q&A Session Summary Question: Breakdown of LEO margins - The majority of the margin is derived from actual airtime, with strong underlying LEO bandwidth margins [20][21] Question: Optimization of plans for customers - Current plans are well optimized, but changes in pricing and terminal access charges are anticipated [22][23] Question: Concerns about market saturation - The market is significantly larger than before, and saturation is not expected in the foreseeable future [25][26] Question: Expansion beyond maritime applications - The existing sales team is handling land-based applications, with no immediate hiring plans but efforts to identify new service providers [27][28] Question: Coast Guard contract revenue roll-off - Negative variance from the Coast Guard contract is expected through the third quarter, with a smaller impact in the fourth quarter [30][32] Question: Future buyback efforts - The company is continuing to buy back shares, with expectations for a larger number to be disclosed in the next quarter [33]

Financial Data and Key Metrics Changes - Revenue for the first quarter declined year over year to $25.4 million, primarily due to lower revenue from VSAT airtime service, including the loss of U.S. Coast Guard revenue [6][12] - Airtime gross margin increased to 31.5% from 28.2% in the prior quarter, with adjusted EBITDA for the quarter at $1 million [14][17] - Ending cash balance was $48.6 million, down approximately $2 million from the beginning of the quarter [17] Business Line Data and Key Metrics Changes - Subscriber base increased by 5%, reaching over 7,400 subscribing vessels, recovering from the decline experienced in 2023 [8][15] - Quarterly shipments of connectivity terminals exceeded 1,300 units, marking the fifth consecutive record quarter, with significant increases in Starlink terminals [7][10] - Product gross profit was breakeven compared to a positive $300,000 in the prior quarter, with expectations for product margins to remain about breakeven [16] Market Data and Key Metrics Changes - Starlink revenue continued to increase as a percentage of total revenue, driven by strong demand in commercial and leisure markets [6][8] - The company is seeing significant interest in OneWeb terminals, especially outside the U.S. [11][12] Company Strategy and Development Direction - The company is transitioning from a GEO-focused business model to a primarily LEO-based mobile connectivity market, with ongoing double-digit annual growth in subscribers [18] - The launch of the Commvox Edge Secure Suite aims to enhance cybersecurity for vessel communications [10][11] - The company is managing GEO bandwidth commitments carefully, anticipating continued pressure on GEO margins while focusing on strong LEO margins [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategic initiatives, highlighting record-breaking subscriber growth and increased product shipments [13][14] - The company is optimistic about generating positive cash flow moving forward, despite challenges in the GEO segment [18] Other Important Information - The company expects to close the sale of its headquarters before the end of the quarter and anticipates the factory sale to close in Q3 [12] - Share buybacks were initiated, with over 30,000 shares purchased at a cost of approximately $163,000 [13] Q&A Session Summary Question: LEO margins breakdown - The majority of the margin comes from actual airtime, with strong underlying LEO bandwidth margins [20][21] Question: Optimization of plans for customers - Current plans are well optimized, but changes in pricing and terminal access charges are expected later this year [22][23] Question: Potential saturation in the maritime market - The market is much larger than before, and saturation is not anticipated in the foreseeable future [25][26] Question: Expansion beyond maritime applications - The existing sales team is handling land-based applications, with no new hires but efforts to identify service providers for land opportunities [27][28] Question: Coast Guard contract revenue roll-off - Negative variance from the Coast Guard contract is expected through the third quarter, with minimal revenue in the fourth quarter [29][32] Question: Future buyback efforts - The company is continuing to buy back shares, with larger numbers expected to be disclosed in the next quarter [33]

Revenue Performance - Total revenues decreased by 13% in Q1 2025 to $25.4 million from $29.3 million in Q1 2024, primarily due to the transition to LEO satellite services and the downgrade of the U.S. Coast Guard contract[7] - Airtime revenue decreased by $3.5 million, or 15%, to $20.0 million in Q1 2025 compared to Q1 2024, with the U.S. Coast Guard contract downgrade accounting for a $2.5 million reduction[7] - Service revenues for Q1 2025 were $21.6 million, a decrease of $3.4 million compared to Q1 2024, primarily due to the decline in airtime service sales[9] - Product revenues for Q1 2025 were $3.8 million, a decrease of 11% compared to Q1 2024, with notable declines in TracVision and accessory sales[10] Profitability and Loss - Net loss in Q1 2025 was $1.7 million, or $0.09 per share, an improvement from a net loss of $3.2 million, or $0.16 per share, in Q1 2024[7] - GAAP net loss improved from $(3,163) thousand in Q1 2024 to $(1,710) thousand in Q1 2025, representing a reduction of about 46%[29] - Non-GAAP adjusted EBITDA was $1.0 million in Q1 2025, down from $2.0 million in Q1 2024[7] - Non-GAAP adjusted EBITDA decreased from $1,971 thousand in Q1 2024 to $1,007 thousand in Q1 2025, a decline of approximately 48.9%[29] Operational Metrics - Subscribing vessels increased by 5% sequentially, with service now delivered to over 7,400 active vessels, marking an all-time high[6] - Quarterly connectivity terminal shipments exceeded 1,300 units, representing the fifth consecutive quarter of record terminal shipments[6] Expenses and Cost Management - Operating expenses decreased by $4.0 million to $9.7 million in Q1 2025 compared to $13.7 million in Q1 2024, driven by a reduction in salaries and benefits[11] - Employee termination and other variable costs significantly decreased from $2,177 thousand in Q1 2024 to $3 thousand in Q1 2025, a reduction of approximately 99.9%[29] Balance Sheet and Financial Position - Total assets decreased from $155,081 million in December 2024 to $151,434 million in March 2025, a decline of approximately 2.1%[27] - Total current liabilities decreased from $15,872 million in December 2024 to $13,057 million in March 2025, a reduction of about 17.7%[27] - Stockholders' equity slightly decreased from $138,625 million in December 2024 to $137,811 million in March 2025, a decline of approximately 0.6%[27] - Accounts receivable increased from $21,624 million in December 2024 to $23,197 million in March 2025, an increase of about 7.3%[27] - Inventories decreased from $22,953 million in December 2024 to $21,982 million in March 2025, a decline of approximately 4.2%[27] - Deferred revenue increased from $1,039 million in December 2024 to $1,806 million in March 2025, an increase of approximately 73.6%[27] Financial Performance Indicators - Interest income improved from $(911) thousand in Q1 2024 to $(567) thousand in Q1 2025, indicating a positive change in financial performance[29] - KVH launched its OneWeb service, providing a second LEO option to customers worldwide, alongside increased shipments of the CommBox Edge Communications Gateway[6]

Core Viewpoint - KVH Industries, Inc. has launched the CommBox™ Edge Secure Suite, a cybersecurity service designed to detect, prevent, and report threats to maritime communications and operations, enhancing the security of vessels and fleets [1][2][3]. Product Features - The Secure Suite actively identifies and blocks harmful traffic in real time, reducing risks to vessel communications and network security [1]. - It is compatible with CommBox Edge 6, Edge 2 belowdeck appliances, and the CommBox Edge virtual machine option, making it a versatile upgrade [1]. - The service includes an Intrusion Prevention System (IPS), active quarantine capabilities, and a cloud-based Threat Dashboard for comprehensive cybersecurity [3][4]. Deployment and Integration - CommBox Edge Secure Suite is designed for rapid, easy, and affordable deployment, maximizing IT resources while optimizing communications [2]. - It supports various wide area network (WAN) options, including VSAT, low earth orbit (LEO) services, and 5G cellular, accommodating up to thirty onboard local area networks [4]. Advanced Technology - The Secure Suite utilizes advanced cybersecurity technology from Cisco Talos and Cisco Snort to monitor and respond to cyber threats in real time [7]. - It captures detailed threat logs for analysis and actionable insights, ensuring compliance with industry standards and enhancing network performance [7]. Company Overview - KVH Industries, Inc. is a global leader in maritime and mobile connectivity, providing solutions for commercial maritime, leisure marine, military/government, and land mobile applications [8]. - The company was founded in 1982 and is headquartered in Middletown, RI, with operations worldwide [8].

Core Insights - KVH Industries reported a revenue of $25.4 million for Q1 2025, a decrease of 13% from $29.3 million in Q1 2024, attributed to the transition to LEO satellite services and a downgrade of the U.S. Coast Guard contract [6][7] - The company experienced a net loss of $1.7 million, or $0.09 per share, an improvement from a net loss of $3.2 million, or $0.16 per share, in the same quarter last year [5][7] - The CEO highlighted a 5% sequential increase in subscribing vessels and a growth in gross profit, indicating effective cost management and positive impacts from strategic initiatives [3][4] Financial Performance - Total revenues decreased by 13% year-over-year to $25.4 million, with airtime revenue down 15% to $20.0 million, largely due to the U.S. Coast Guard contract downgrade [6][7][8] - Service revenues were $21.6 million, down $3.4 million from the previous year, primarily due to a $3.5 million decrease in airtime service sales [8] - Product revenues fell to $3.8 million, an 11% decrease compared to Q1 2024, with declines in TracVision and accessory sales, partially offset by increases in Starlink and CommBox Edge product sales [9] Cost Management - Operating expenses decreased by $4.0 million to $9.7 million compared to Q1 2024, driven by a reduction in salaries, benefits, and taxes [10] - Non-GAAP adjusted EBITDA was $1.0 million for Q1 2025, down from $2.0 million in Q1 2024, reflecting the impact of lower revenues [5][7][26] Business Developments - The company reported record connectivity terminal shipments of over 1,300 units for the fifth consecutive quarter, serving more than 7,400 active vessels [4] - KVH launched its OneWeb service, providing an additional LEO option for customers, alongside the integration of Starlink into its offerings [4]

Company Overview - KVH Industries, Inc. is a global leader in maritime and mobile connectivity, operating through the KVH ONE network [3] - The company was founded in 1982 and is headquartered in Middletown, RI, with research, development, and manufacturing operations also in Middletown and over a dozen offices worldwide [3] - KVH provides connectivity solutions for various sectors including commercial maritime, leisure marine, military/government, and land mobile applications, featuring product lines such as TracNet, TracPhone, and TracVision [3] Financial Results Announcement - KVH Industries will announce its financial results for the first quarter ending March 31, 2025, on May 7, 2025 [1] - An investor conference call will be held at 9:00 a.m. ET, hosted by CEO Brent Bruun and CFO Anthony Pike [1] Investor Engagement - A live broadcast of the conference call will be available online at investors.kvh.com, with an audio replay accessible for at least two weeks post-call [2] - Investors can submit questions during or after the call via email to IR@kvh.com [2]

Sales Performance - Global high-throughput satellite (HTS) airtime service sales accounted for 71% of consolidated net sales in 2024, down from 81% in 2023[17] - Product sales represented 15% of consolidated net sales in 2024, an increase from 13% in 2023[17] Business Strategy - The company plans to wind down capital-intensive manufacturing activities by the end of 2025 due to reduced demand and increased competition[21] - The company plans to discontinue most manufacturing activities by the end of 2025, transitioning to third-party hardware for its solutions[59] - Significant inventory is held to support customer demand, with a ramp-up in production to meet anticipated needs before ceasing manufacturing[64] Product Offerings - The KVH ONE OpenNet Program allows vessels with non-KVH VSAT antennas to subscribe to KVH's global HTS network without hardware exchanges[27] - An exclusive multi-year agreement with Kognitive Networks was signed to integrate enterprise-grade network management tools into maritime communication services[28] - The company offers AgilePlans, a Connectivity as a Service (CaaS) model, which includes satellite communication hardware and services for a single monthly fee[24] - KVH Media Group distributes licensed entertainment content, contributing to the company's content service sales[30] - The global HTS network utilizes 182 Ku-band transponders on 31 satellites, with 138 transponders on high-throughput satellites[26] - TracNet H-series terminals offer data speeds of up to 20/3 Mbps for the H90 model, supporting a wide range of vessels from 40 feet to superyachts[38] - TracNet Coastal, introduced in late 2024, provides data speeds up to 300 Mbps and enables automatic switching from satellites to shore-based Wi-Fi[41] - The company began selling Starlink terminals in March 2023 and became an authorized reseller in September 2023, offering a hybrid solution with KVH's services[45] - A distribution agreement with Eutelsat OneWeb was announced in January 2024, aiming to expand multi-orbit hybrid network services with over 630 LEO satellites[46] - The company offers a range of products including TracPhone V30 and TracVision UHD7, catering to both leisure and commercial vessels[40][49] Market Competition - Competition is intensifying, particularly from SpaceX's Starlink and Eutelsat OneWeb, which are entering the high-speed marine market[68] - The company is facing increased competition from providers offering fully managed IT services, which may complicate its competitive position[74] Workforce and Operations - The global turnover rate for the company in 2024 was 37%, primarily driven by a reduction-in-force cost savings initiative[85] - Approximately 40 team members, or 15%, are directly involved in supporting technology in roles such as engineers, technicians, or software developers[84] - The company's total headcount as of December 31, 2024, was 260, including 247 full-time employees[81] - The average length of employee service at the company is 9 years, indicating a stable workforce[86] - The company has established relationships with major universities and professional associations to attract talent, hiring 15 professional level team members in 2024[92] Safety and Compliance - The company's OSHA total recordable incident rate in 2024 was 1.1%, compared to the national average of 2.4%[90] Research and Development - The company is focusing on research and development related to cellular products and emerging non-geostationary satellite orbit (NGSO) products and services[75] - The company anticipates ongoing demand for hybrid connectivity solutions offering GEO, LEO, and 5G/LTE Cellular connectivity in 2025[74] - The company expects to continue offering KVH-manufactured VSAT and satellite TV terminals through 2025 and potentially into 2026[72] Intellectual Property - The patent portfolio includes approximately seven issued patents and one pending application, with expiration dates between May 2031 and May 2037[55]

Financial Data and Key Metrics Changes - Total revenue for Q4 2024 was $26.9 million, a decrease of approximately 4.5% from Q4 2023, but effectively flat sequentially when excluding a $1.7 million revenue reduction from the U.S. Coast Guard [16][17] - Airtime gross margin for Q4 was 28.2%, down from 36.5% in the prior quarter, while excluding depreciation, it was 41.4%, compared to 48.6% in the prior quarter [21] - Adjusted EBITDA for the quarter was $0.5 million, with capital expenditures of $0.8 million, resulting in adjusted EBITDA less CapEx of negative $0.3 million [23][24] - Ending cash balance was $50.6 million, up approximately $0.8 million from the beginning of the quarter [25] Business Line Data and Key Metrics Changes - The company shipped over 1,000 Starlink units and approximately 200 VSAT terminals in Q4, marking the fourth consecutive quarterly record for terminal shipments [8][9] - Active maritime Starlink terminals reached over 2,300 by the end of Q4, with about 1,000 terminals awaiting activation [9][10] - Non-U.S. Coast Guard GEO Airtime revenue contracted by around $1 million, offset by increased Starlink revenues [16] Market Data and Key Metrics Changes - The company is experiencing strong demand for hybrid connectivity, with roughly 50% of Starlink terminals activated alongside new or existing VSAT terminals [11] - The CommBox Edge communication gateway saw Q4 activations double compared to Q3, indicating strong demand [12] Company Strategy and Development Direction - The company is transitioning from a focus solely on VSAT services to offering multi-orbit multichannel solutions, including LEO solutions like Starlink and high-speed cellular solutions [7] - Strategic initiatives such as the addition of OneWeb to the satellite communications service portfolio and partnerships with companies like Seaspan are expected to position the company well for future growth [15] Management's Comments on Operating Environment and Future Outlook - Management anticipates that Starlink and other new revenue sources will outpace the decrease in GEO airtime revenue, indicating a focus on growth despite current revenue contraction [17] - The company has implemented cost reduction initiatives, bringing recurring operating expenses down by almost 10% for the full year [17] - Management believes the company is in a stronger position now than a year ago and is on a path toward renewed growth and profitability [19] Other Important Information - The company is preparing to roll out new CommBox Edge capabilities, including cybersecurity features [13] - The Fusion eSIM technology is enhancing the company's cellular service offerings, allowing for seamless global connectivity [14] Q&A Session Summary Question: Expectations for Starlink terminal activations - The company shipped 1,000 terminals in Q4, with approximately 700 Starlink Maritime Terminals activated during the quarter, and there are about 1,000 terminals awaiting activation [28][29] Question: Reasons for activation delays - Delays in activation can be attributed to OEMs installing terminals on boats not yet taken over by owners, as well as higher inventory levels compared to VSAT [33] Question: Customer base for Starlink dishes - Activations include both new and existing customers, with new customers often transitioning from lower bandwidth systems [35] Question: Market response to emerging satellite constellations - Management anticipates a market response to new constellations but believes it is still early for significant impact [37] Question: Challenges with terminal pricing relative to competitors - While OneWeb terminals are more expensive than Starlink, customers are seeking network diversity, which may justify the cost [41][42] Question: Performance of CommBox in a competitive market - The company believes its feature set stands out, especially with the addition of cybersecurity features [46] Question: Cost management alongside VSAT terminal losses - The churn rate has stabilized, and the company is managing costs effectively, with reduced CapEx related to the Agile program [52][53]

Financial Data and Key Metrics Changes - Total revenue for Q4 2024 was $26.9 million, a decrease of approximately 4.5% from Q4 2023 and effectively flat sequentially when excluding a $1.7 million revenue reduction from the U.S. Coast Guard [16][17] - Airtime gross margin for Q4 was 28.2%, down from 36.5% in the prior quarter, while excluding depreciation, it was 41.4%, compared to 48.6% in the prior quarter [21][22] - Adjusted EBITDA for Q4 was $0.5 million, with capital expenditures of $0.8 million, resulting in adjusted EBITDA less CapEx of negative $0.3 million [23][24] - Ending cash balance was $50.6 million, up approximately $0.8 million from the beginning of the quarter [25] Business Line Data and Key Metrics Changes - The company shipped over 1,000 Starlink units and approximately 200 VSAT terminals in Q4, marking a record for terminal shipments [8][9] - Active maritime Starlink terminals reached over 2,300 by the end of 2024, with around 1,000 terminals awaiting activation [9][10] - Demand for the CommBox Edge communication gateway remains strong, with Q4 activations doubling compared to Q3 [12] Market Data and Key Metrics Changes - Non-U.S. Coast Guard GEO Airtime revenue contracted by around $1 million in Q4, offset by increased Starlink revenues [16] - The total subscribing vessels at the end of Q4 were just below 7,100, representing a 4% increase from the prior quarter [22] Company Strategy and Development Direction - The company is transitioning from a focus solely on VSAT services to offering multi-orbit multichannel solutions, including LEO solutions like Starlink and a high-speed cellular solution [7] - Strategic initiatives include the addition of OneWeb to the satellite communications service portfolio and the launch of the TrackNet Coastal cellular Wi-Fi system [14][15] Management's Comments on Operating Environment and Future Outlook - Management anticipates that Starlink and other new revenue sources will outpace the decrease in GEO airtime revenue [17] - The company has implemented cost reduction initiatives, bringing recurring operating expenses down by almost 10% for the full year [17] - Management believes the company is in a stronger position now than a year ago and is on a path toward renewed growth and profitability [19] Other Important Information - The company is preparing to roll out new capabilities for the CommBox Edge, including cybersecurity features [13] - The company has made hard decisions to reconfigure operations and streamline costs, focusing on core strengths [19] Q&A Session Summary Question: Expectations for Starlink activations - The company shipped 1,000 terminals in Q4, with approximately 700 Starlink Maritime Terminals activated during the quarter [28][29] Question: Reasons for activation delays - Delays can occur due to terminals being installed on boats not yet taken over by owners or held by OEMs [32][33] Question: Customer base for Starlink - Activations include both new and existing customers, with new customers often transitioning from lower bandwidth systems [34][35] Question: Market response to emerging constellations - Anticipated market response to new constellations, but it is still early for significant impact [37] Question: Challenges with terminal pricing relative to competitors - OneWeb terminals are more expensive than Starlink, but customers seek diversity in network options [40][41] Question: CommBox traction and competitive features - The feature set of CommBox is expanding, particularly in cybersecurity, making it competitive in the market [45][46] Question: Cost management with VSAT terminal losses - The churn rate has decelerated, and the company is managing costs effectively alongside terminal losses [49][50]