KVH Industries(KVHI) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KVH Industries reported a Q1 2019 net loss of $6.2 million, with total assets increasing to $197.5 million, primarily due to ASC 842 adoption Consolidated Balance Sheets Total assets increased to $197.5 million from $187.7 million, driven by a $9.4 million right-of-use asset from ASC 842 adoption Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $197,509 | $187,652 | | Cash and cash equivalents | $14,259 | $18,050 | | Inventories | $26,062 | $22,942 | | Right of use asset operating lease | $9,411 | $— | | Total Liabilities | $101,911 | $88,137 | | Total current liabilities | $65,357 | $56,010 | | Long-term debt, excluding current portion | $18,749 | $19,437 | | Total Stockholders' Equity | $95,598 | $99,515 | Consolidated Statements of Operations KVH reported a Q1 2019 net loss of $6.2 million, up from $3.9 million in Q1 2018, with flat net sales but increased total costs Q1 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Sales | $39,972 | $40,101 | | - Product Sales | $12,874 | $13,992 | | - Service Sales | $27,098 | $26,109 | | Loss from Operations | $(5,829) | $(3,180) | | Net Loss | $(6,179) | $(3,893) | | Net Loss per Share (Basic & Diluted) | $(0.36) | $(0.23) | Consolidated Statements of Comprehensive Loss Total comprehensive loss for Q1 2019 was $5.1 million, including a $6.2 million net loss, partially offset by foreign currency translation adjustments Comprehensive Loss Breakdown (in thousands) | Component | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Loss | $(6,179) | $(3,893) | | Other Comprehensive Income, net of tax | $1,088 | $2,467 | | Total Comprehensive Loss | $(5,091) | $(1,426) | Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $99.5 million to $95.6 million in Q1 2019, primarily due to the net loss, partially offset by other comprehensive income - The primary drivers for the change in stockholders' equity during Q1 2019 were the net loss of $(6,179) thousand and other comprehensive income of $1,088 thousand[19] Consolidated Statements of Cash Flows Net cash used in operating activities was $1.1 million in Q1 2019, with cash and cash equivalents decreasing by $3.8 million to $14.3 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,074) | $(1,197) | | Net cash (used in) provided by investing activities | $(3,052) | $1,798 | | Net cash provided by financing activities | $131 | $1,524 | | Net (decrease) increase in cash | $(3,791) | $3,172 | | Cash and cash equivalents at end of period | $14,259 | $37,768 | Notes to Consolidated Financial Statements The notes detail business segments, accounting policies including ASC 842 adoption, debt, and revenue recognition for mobile connectivity and inertial navigation - The company operates in two reporting segments: mobile connectivity and inertial navigation[26] - A significant accounting policy change was the adoption of ASC 842, Leases, effective January 1, 2019, which resulted in the recognition of right-of-use assets and lease liabilities for operating leases on the balance sheet[33][104] - The company's AgilePlans subscription model provides hardware, installation, and services for a monthly fee, with KVH retaining hardware ownership recorded as a revenue-generating asset[25] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q1 2019 flat net sales of $40.0 million, a widened net loss of $6.2 million due to higher service costs, and $14.3 million in cash Q1 2019 vs Q1 2018 Performance Summary (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Sales | $39,972 | $40,101 | | Costs of Sales | $24,550 | $22,739 | | Loss from Operations | $(5,829) | $(3,180) | | Net Loss | $(6,179) | $(3,893) | - The increase in net loss was primarily driven by a $2.9 million (21%) increase in costs of service sales, related to mini-VSAT airtime costs, HTS network capacity, and AgilePlans depreciation[130] - Service sales grew to 68% of consolidated net sales in Q1 2019, up from 65% in Q1 2018, reflecting a shift in business mix[113] Results of Operations Q1 2019 net sales were flat at $39.97 million, with product sales down 8% and service sales up 4%, while costs of service sales increased 21% Sales Breakdown (in millions) | Sales Type | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Product Sales | $12.9 | $14.0 | -8% | | Service Sales | $27.1 | $26.1 | +4% | - Costs of service sales increased by $2.9 million (21%), primarily due to a $2.7 million increase in mini-VSAT airtime costs, including HTS network capacity and AgilePlans depreciation[130] - Research and development expense remained flat at $3.9 million for both quarters[132] Segment Discussion Mobile Connectivity sales slightly decreased, swinging to a $1.0 million operating loss, while Inertial Navigation sales and operating income modestly increased Segment Performance (in thousands) | Segment | Net Sales Q1 2019 | Net Sales Q1 2018 | Operating (Loss) Income Q1 2019 | Operating Income Q1 2018 | | :--- | :--- | :--- | :--- | :--- | | Mobile Connectivity | $32,510 | $32,749 | $(1,039) | $1,072 | | Inertial Navigation | $7,462 | $7,352 | $443 | $334 | - Mobile connectivity product sales decreased by $0.8 million, partly due to the impact of the AgilePlans subscription service where hardware is not sold upfront[141] - Mini-VSAT service sales increased by $1.8 million, driven by a 14% increase in subscribers, partially offset by a $1.2 million decrease in content and training service sales[142] Liquidity and Capital Resources KVH held $14.3 million in cash, used $1.1 million in operations, and had $21.9 million outstanding on its term loan as of March 31, 2019 - The company held $14.3 million in cash, cash equivalents, and marketable securities as of March 31, 2019[154] - Net cash used in operations was $1.1 million for Q1 2019, compared to $1.2 million in Q1 2018[155] - As of March 31, 2019, the company had $21.9 million outstanding on its 2018 Term Loan and $5.0 million outstanding on its 2018 Revolver[64][159] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls were effective as of March 31, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (March 31, 2019)[171] - There were no material changes to the company's internal control over financial reporting during the first quarter of 2019[172] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not party to any legal proceedings expected to materially harm its business, financial condition, or results of operations - KVH is not currently a party to any legal proceeding that management believes is likely to have a material adverse effect on the company[176] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No common stock was repurchased in Q1 2019, with 341,000 shares remaining available under the authorized stock buyback program - The company did not repurchase any of its common stock during the three months ended March 31, 2019[178] - As of March 31, 2019, 341,000 shares remain available for repurchase under the company's authorized stock buyback program, which has no expiration date[177] ITEM 6. EXHIBITS This section lists filed exhibits, including CEO and CFO certifications and financial data formatted in XBRL - Exhibits filed include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as XBRL data files[181]