KVH Industries(KVHI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents KVH Industries, Inc.'s unaudited consolidated interim financial statements and detailed notes for the periods ended June 30, 2025 and 2024 ITEM 1. INTERIM FINANCIAL STATEMENTS This section provides KVH Industries, Inc.'s unaudited consolidated interim financial statements and related notes for the specified periods Consolidated Balance Sheets This section presents the company's consolidated financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change (2025 vs 2024) | | :-------------------------------- | :------------ | :---------------- | :-------------------- | | Cash and cash equivalents | $55,931 | $50,572 | +$5,359 | | Accounts receivable, net | $25,350 | $21,624 | +$3,726 | | Inventories | $20,258 | $22,953 | -$2,695 | | Total current assets | $122,999 | $122,575 | +$424 | | Total assets | $152,041 | $155,081 | -$3,040 | | Total current liabilities | $13,092 | $15,872 | -$2,780 | | Total liabilities | $13,657 | $16,456 | -$2,799 | | Total stockholders' equity | $138,384 | $138,625 | -$241 | Consolidated Statements of Operations This section details the company's financial performance, including net sales, operating loss, and net income (loss) for the interim periods Consolidated Statements of Operations Highlights (in thousands, except EPS) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $26,623 | $28,673 | $52,037 | $57,940 | | Loss from operations | $(370) | $(2,889) | $(2,613) | $(6,687) | | Net income (loss) | $930 | $(2,376) | $(780) | $(5,539) | | Basic EPS | $0.05 | $(0.12) | $(0.04) | $(0.29) | | Diluted EPS | $0.05 | $(0.12) | $(0.04) | $(0.29) | Consolidated Statements of Comprehensive Income (Loss) This section presents the company's comprehensive income (loss), including net income (loss) and other comprehensive income items Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $930 | $(2,376) | $(780) | $(5,539) | | Foreign currency translation adjustment | $278 | $(35) | $1,000 | $194 | | Total comprehensive income (loss) | $1,208 | $(2,411) | $220 | $(5,345) | Consolidated Statements of Stockholders' Equity This section outlines changes in the company's stockholders' equity, reflecting net income, stock-based compensation, and other adjustments - Total stockholders' equity decreased slightly from $138,625 thousand at December 31, 2024, to $138,384 thousand at June 30, 2025, primarily due to a net loss of $780 thousand and treasury stock acquisitions of $1,256 thousand, partially offset by other comprehensive income of $1,000 thousand and stock-based compensation of $771 thousand[18] Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities for the interim periods Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $3,819 | $(15,457) | | Net cash provided by investing activities | $2,611 | $14,448 | | Net cash (used in) provided by financing activities | $(1,228) | $96 | | Net increase (decrease) in cash and cash equivalents | $5,359 | $(937) | | Cash and cash equivalents at end of period | $55,931 | $10,357 | Notes to Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, business operations, and financial performance disclosures (1) Description of Business This note describes KVH Industries, Inc.'s core business, service offerings, and strategic shift in manufacturing operations - KVH Industries, Inc. develops, markets, and supports mobile connectivity and managed services and products for marine and land markets[23] - Service sales primarily derive from satellite Internet airtime services via KVH's global HTS network, supplemented by cellular airtime through the KVH ONE® hybrid network and third-party LEO services (Starlink, OneWeb)[24][25] - The company announced a staged wind-down of product manufacturing operations at its Middletown, Rhode Island location, expected to cease substantially all manufacturing by the end of 2026, extending from the end of 2025 due to prioritizing LEO product orders and AgilePlan terminal refurbishments[29] (2) Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the interim financial statements - The interim financial statements are unaudited and include normal recurring adjustments, prepared in accordance with GAAP[31] - Management's estimates and assumptions impact revenue recognition, valuation of accounts receivable, inventory, long-lived assets, accrued expenses, stock-based compensation, warranty obligations, and tax reserves[32] - Foreign currency exchange gains and losses for subsidiaries using USD as functional currency are recognized in 'other expense, net'; for subsidiaries using local currencies, gains and losses from translation are credited/charged to accumulated other comprehensive loss[35][36] (3) Recently Issued Accounting Standards and Accounting Standards Not yet Adopted This note discusses recently issued and not-yet-adopted accounting standards and their expected impact on financial statements - ASU No. 2023-09 (Income Taxes) effective for annual periods after December 15, 2024, requires enhanced tax rate reconciliation and income taxes paid disclosures, not expected to materially impact financial statements[37] - ASU No. 2024-03 (Expense Disaggregation) effective for annual periods after December 15, 2026, requires further disaggregated income statement expense information, resulting only in disclosure changes[38] (4) Marketable Securities This note details the company's marketable securities holdings and related interest income, noting their liquidation in Q4 2024 - The company liquidated all marketable securities in Q4 2024, transferring funds to an interest-bearing account; no marketable securities were held as of June 30, 2025, or December 31, 2024[40][41] Interest Income from Marketable Securities (in thousands) | Period | 2025 | 2024 | | :------------------------------- | :--- | :--- | | Three Months Ended June 30, | $0 | $706 | | Six Months Ended June 30, | $0 | $1,426 | (5) Stockholder's Equity This note provides details on stock-based compensation expense, unrecognized compensation, and accumulated other comprehensive loss Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of service sales | $6 | $7 | $13 | $14 | | Cost of product sales | $5 | $5 | $10 | $14 | | Research and development | $41 | $174 | $(8) | $263 | | Sales, marketing and support | $77 | $74 | $154 | $145 | | General and administrative | $305 | $462 | $602 | $808 | | Total | $434 | $722 | $771 | $1,244 | - As of June 30, 2025, unrecognized compensation expense for stock options was $1,808 thousand (weighted-average period of 3.12 years) and for restricted stock awards was $935 thousand (weighted-average period of 2.06 years)[42] - Accumulated Other Comprehensive Loss (AOCL) improved, showing a net other comprehensive income of $278 thousand for the three months ended June 30, 2025, and $1,000 thousand for the six months ended June 30, 2025, primarily due to foreign currency translation adjustments[51] (6) Net Income (Loss) per Common Share This note presents the calculation of basic and diluted net income (loss) per common share for the interim periods Weighted Average Common Shares Outstanding (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 19,401 | 19,381 | 19,446 | 19,333 | | Dilutive common shares | 40 | — | — | — | | Diluted | 19,441 | 19,381 | 19,446 | 19,333 | - For periods with net losses (six months ended June 30, 2025 and both periods in 2024), outstanding stock options and non-vested restricted shares were excluded from diluted EPS calculations as their inclusion would be anti-dilutive[52] (7) Inventories This note details the components of the company's inventory, including raw materials, work in process, and finished goods Inventory Components (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Raw materials | $13,651 | $15,379 | | Work in process | $2,176 | $2,469 | | Finished goods | $4,431 | $5,105 | | Total | $20,258 | $22,953 | (8) Prepaid Expenses and Other Current Assets This note outlines the company's prepaid expenses and other current assets, including prepaid Starlink pooled data Prepaid Expenses and Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Prepaid Starlink pooled data | $8,331 | $14,137 | | Other prepaid expenses and other current assets | $5,296 | $1,879 | | Total | $13,627 | $16,016 | - In Q2 2024, KVH prepaid for a large block of Starlink Global Priority data at favorable rates, enhancing flexibility for custom airtime plans[55] (9) Property and Equipment This note details the company's property and equipment, net of depreciation, and significant asset sales Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Total gross property and equipment | $73,164 | $78,329 | | Less accumulated depreciation | $(49,093) | $(51,315) | | Property and equipment, net | $24,071 | $27,014 | - Depreciation expense for the six months ended June 30, 2025, was $5,284 thousand, down from $6,784 thousand in the prior year[56] - The company sold 50 Enterprise Center in June 2025 for $5.3 million, recognizing a $1.3 million gain; 75 Enterprise Center was classified as held for sale in Q3 2024, with an impairment charge of $1.1 million recorded in 2024[58][59] (10) Product Warranty This note provides information on the company's product warranty accruals and related activity for the interim periods Product Warranty Activity (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :----------------------------- | :----------------------------- | | Beginning balance | $607 | $828 | | Charges to expense | $517 | $465 | | Costs incurred | $(296) | $(657) | | Ending balance | $828 | $636 | - Accrued product warranty costs increased to $828 thousand as of June 30, 2025, from $607 thousand at December 31, 2024[60] (11) Legal Matters This note confirms the company is not party to any material lawsuits or proceedings that could significantly harm its financial position - The Company is not a party to any lawsuit or proceeding that, in management's opinion, is likely to materially harm its business, results of operations, financial condition, or cash flows[62] (12) Fair Value Measurements This note discusses the fair value of financial assets and liabilities, noting that carrying amounts approximate fair value - No financial assets or liabilities were measured at fair value based on the ASC 820 hierarchy as of June 30, 2025, or December 31, 2024[64] - The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and operating/financing lease liabilities approximate fair value due to their short-term or market-rate nature[65] (13) Intangible Assets This note details the company's intangible assets, including subscriber relationships and distribution rights, and related amortization Intangible Assets, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Subscriber relationships | $44 | $38 | | Distribution rights | $592 | $790 | | Intellectual property | $0 | $0 | | Total Net Carrying Value | $636 | $828 | - Amortization expense for intangible assets was $210 thousand for the six months ended June 30, 2025, categorized as general and administrative expense[71] - The total weighted average remaining useful life of definite-lived intangible assets was 1.5 years as of June 30, 2025[72] (14) Revenue from Contracts with Customers This note disaggregates net sales by revenue type and geographic region, highlighting service and product sales trends Net Sales from Contracts with Customers (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service - over time | $23,049 | $24,674 | $44,691 | $49,712 | | Product - point in time | $3,574 | $3,999 | $7,346 | $8,228 | | Total net sales | $26,623 | $28,673 | $52,037 | $57,940 | - Service sales (primarily airtime) accounted for 79% of consolidated net sales for both the three and six months ended June 30, 2025 and 2024[77] - International revenues represented 78% and 79% of consolidated net sales for the three and six months ended June 30, 2025, respectively, with Singapore customers accounting for 21-22% of consolidated net sales[79] (15) Income Taxes This note provides information on effective tax rates, deferred tax assets, and reserves for uncertain tax positions Effective Tax Rates | Period | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Three Months Ended | 10.1% | 0.1% | | Six Months Ended | (20.0)% | (1.4)% | - The effective tax rates differed from the statutory rate primarily due to a valuation allowance reserve on U.S. deferred tax assets, discrete tax adjustments, and income composition from foreign jurisdictions taxed at lower rates[84] - Reserves for uncertain tax positions were $767 thousand as of June 30, 2025, with a possible decrease of $16 thousand in the next twelve months due to statute of limitations lapses and settlements[85][86] (16) Leases This note details operating lease liabilities maturities and interest income from sales-type leases for VSAT systems Operating Lease Liabilities Maturities (in thousands) as of June 30, 2025 | Year | Amortization Expense | | :-------------------- | :------------------- | | Remainder of 2025 | $468 | | 2026 | $406 | | 2027 | $251 | | 2028 and thereafter | $164 | | Total minimum lease payments | $1,289 | | Present value of net minimum operating lease payments | $1,213 | | Weighted-average remaining lease term | 2.16 years | | Weighted-average discount rate | 5.50% | - The company has sales-type leases for TracPhone and TracNet VSAT systems, recognizing product revenue upon delivery and interest income over the lease term; interest income from sales-type leases was $203 thousand for the six months ended June 30, 2025[89][92] (17) Restructuring This note describes the company's manufacturing wind-down and workforce reduction, including associated severance charges - KVH initiated a staged wind-down of its manufacturing activities in Middletown, Rhode Island, in February 2024, driven by reduced demand and intensifying competition for hardware products; the wind-down is now expected to cease substantially all manufacturing by the end of 2026, extended from 2025[94][95] - The restructuring included a headcount reduction of approximately 75 employees (20% of the workforce) in 2024, incurring aggregate severance charges of approximately $3.9 million ($3.6 million cash, $0.3 million non-cash)[96] (18) Segment Information This note clarifies that the company operates as a single segment and provides key consolidated sales and cost data - The Company manages its operations as a single operating segment, with the CEO acting as the Chief Operating Decision Maker (CODM) who reviews consolidated financial information[97][98] Key Segment Sales and Costs (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Sales | $26,623 | $28,673 | $52,037 | $57,940 | | Cost of service sales | $14,210 | $15,469 | $28,445 | $29,513 | | Cost of product sales | $3,277 | $4,299 | $7,017 | $9,607 | | Research and development | $916 | $2,326 | $2,103 | $5,364 | | Sales, marketing and support | $5,010 | $5,334 | $9,970 | $10,718 | | General and administrative | $3,580 | $4,134 | $7,115 | $9,425 | | Net income (loss) | $930 | $(2,376) | $(780) | $(5,539) | (19) Share Buyback Program This note details the Board-authorized share repurchase program and the shares bought back during the interim periods - The Board of Directors authorized a share repurchase program on December 9, 2024, allowing the company to purchase up to $10 million of common stock[101] - During the three months ended June 30, 2025, the company repurchased 211 thousand shares for approximately $1.1 million; for the six months ended June 30, 2025, 242 thousand shares were repurchased for approximately $1.3 million[103] (20) Subsequent Events This note discloses significant events occurring after the reporting period, including tax law changes and new lease agreements - On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, making permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation and domestic research cost expensing; the company is assessing its impact[104] - On July 23, 2025, the company entered a new lease agreement for 32,000 sq ft of office and warehouse space in Bristol, RI, planning to migrate operations by spring 2026, with initial annual lease expense of approximately $0.6 million[105] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses KVH Industries, Inc.'s financial condition and results of operations, covering sales, costs, and liquidity for interim periods Introduction This introduction highlights forward-looking statements and the inherent risks and uncertainties in the company's financial outlook - The discussion includes forward-looking statements regarding future financial results, business strategies, and competitive positions, subject to risks and uncertainties outlined in the 'Risk Factors' section[106] Overview This overview describes KVH's connectivity solutions, strategic transition to multi-channel services, and key operational initiatives - KVH is a global provider of connectivity solutions for maritime commercial, leisure, and military/government customers, generating most revenue from satellite Internet airtime services[107][108] - The company is transitioning from traditional Ku-band VSAT to a multi-channel, integrated communications solution model, including LEO services (Starlink, OneWeb) and cellular, driven by increased competition and reduced demand for hardware[108][110][111] - Strategic actions include a staged wind-down of manufacturing by end of 2026, a 20% workforce reduction (75 employees) in 2024, a $17.0 million prepayment for Starlink data, and the sale of 50 Enterprise Center for a $1.3 million gain[111][112][113][116] Critical Accounting Estimates This section identifies critical accounting estimates, particularly for intangible and long-lived assets, due to their significant uncertainty - The company identifies accounting estimates for intangible assets and other long-lived assets as critical, involving significant uncertainty and potential impact on financial results[118] Results of Operations This section analyzes the company's financial performance, including net sales, costs, and operating expenses for the interim periods Net Sales and Profitability as % of Net Sales | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Costs of service sales | 53.4% | 53.9% | 54.7% | 50.9% | | Costs of product sales | 12.3% | 15.0% | 13.5% | 16.6% | | Research and development | 3.4% | 8.1% | 4.0% | 9.3% | | Sales, marketing and support | 18.8% | 18.6% | 19.2% | 18.5% | | General and administrative | 13.4% | 14.4% | 13.7% | 16.3% | | Loss from operations | (1.3)% | (10.0)% | (5.1)% | (11.6)% | | Net income (loss) | 3.6% | (8.2)% | (1.5)% | (9.6)% | Three months ended June 30, 2025 and 2024 This section provides a detailed comparison of net sales, costs, and operating expenses for the three months ended June 30 Net Sales (in thousands) | Category | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :------- | :------------ | :------------ | :--------- | :--------- | | Service | $23,049 | $24,674 | $(1,625) | (7)% | | Product | $3,574 | $3,999 | $(425) | (11)% | | Total | $26,623 | $28,673 | $(2,050) | (7)% | - Service sales decreased primarily due to a $1.9 million reduction in airtime service sales, including a $2.5 million decrease from the U.S. Coast Guard contract downgrade, partially offset by increased LEO service sales (over 30% of airtime sales in 2025 vs. <10% in 2024)[120] - Costs of sales decreased by $2.3 million (12%) to $17.5 million, driven by a $1.3 million decrease in service costs and a $1.0 million decrease in product costs; product cost of sales as a percentage of product sales improved from 108% to 92%[122][123][124] - Operating expenses significantly decreased: R&D by $1.4 million (61%), Sales, Marketing & Support by $0.3 million (6%), and G&A by $0.6 million (13%), largely due to reduced personnel costs from workforce reductions and lower depreciation[125][126][127] - Other income (expense), net improved by $1.2 million to $0.8 million income, primarily due to a $1.3 million gain on the sale of 50 Enterprise Center[128] Six months ended June 30, 2025 and 2024 This section provides a detailed comparison of net sales, costs, and operating expenses for the six months ended June 30 Net Sales (in thousands) | Category | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :------- | :------------ | :------------ | :--------- | :--------- | | Service | $44,691 | $49,712 | $(5,021) | (10)% | | Product | $7,346 | $8,228 | $(882) | (11)% | | Total | $52,037 | $57,940 | $(5,903) | (10)% | - Service sales decreased by $5.0 million (10%), mainly due to a $5.4 million decrease in airtime service sales, including $4.9 million from the U.S. Coast Guard contract downgrade, partially offset by increased LEO service sales (over 25% of airtime sales in 2025 vs. <10% in 2024)[130] - Costs of sales decreased by $3.7 million (9%) to $35.5 million, with product costs decreasing by $2.6 million (27%) and service costs by $1.1 million (4%); product cost of sales as a percentage of product sales improved from 117% to 96%[132][133][134] - Operating expenses saw significant reductions: R&D by $3.3 million (61%), Sales, Marketing & Support by $0.7 million (7%), and G&A by $2.3 million (25%), primarily due to lower personnel costs from workforce reductions and decreased depreciation[135][136][137] - Other income (expense), net improved by $1.4 million to $0.8 million income, driven by a $1.3 million gain on the sale of 50 Enterprise Center[138] Liquidity and Capital Resources This section assesses the company's cash position, working capital, and cash flow activities from operations, investing, and financing - As of June 30, 2025, KVH had $55.9 million in cash and cash equivalents and $109.9 million in working capital, expecting sufficient funds for short-term and long-term needs for at least twelve months[142][143] Cash Flow Activities (in thousands) for Six Months Ended June 30 | Activity | 2025 | 2024 | Change ($) | | :-------------------------------- | :----- | :----- | :--------- | | Net cash provided by (used in) operating activities | $3,819 | $(15,457) | +$19,276 | | Net cash provided by investing activities | $2,611 | $14,448 | -$11,837 | | Net cash (used in) provided by financing activities | $(1,228) | $96 | -$1,324 | - The $19.3 million improvement in operating cash flow was primarily due to decreased cash outflows from prepaid expenses (including a $17.0 million Starlink data pool purchase in 2024) and inventories, and a reduced net loss[144] - The $11.8 million decrease in investing cash flow was mainly due to a $19.6 million decrease in proceeds from marketable securities sales (liquidation in 2024), partially offset by $4.9 million from the 50 Enterprise Center sale[145] - The $1.3 million increase in cash used in financing activities was primarily due to $1.3 million in treasury stock purchases[146] Other Matters This section discusses other significant financial matters, including the company's share repurchase program - The Board authorized a $10 million share repurchase program on December 9, 2024; as of June 30, 2025, the company repurchased 242,348 shares for approximately $1.3 million[147][149] ITEM 4. CONTROLS AND PROCEDURES This section evaluates the effectiveness of KVH Industries, Inc.'s disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[151] Evaluation of Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting were identified during the second quarter of 2025 - No material changes in internal control over financial reporting were identified during the second quarter of 2025[152] Important Considerations This section notes that control effectiveness is subject to inherent limitations, including cost, human error, and fraud risk - The effectiveness of controls is subject to inherent limitations, including cost, human error, and fraud risk, meaning no system can prevent all errors or fraud[153] PART II. OTHER INFORMATION This section provides additional information, including significant risk factors, equity security sales, and required exhibits ITEM 1A. RISK FACTORS This section outlines significant risks impacting KVH Industries, Inc.'s business, financial condition, and results of operations Risks related to our financial performance This section details risks associated with the company's financial performance, including profitability challenges and market disruptions - The company has a history of losses and faces challenges in achieving sustained profitability due to intense competition, insufficient cost-reduction measures, and inflation[156] - Rapid transition to less expensive LEO services and increased reliance on Wi-Fi/cellular data are disrupting the traditional satellite communications industry, potentially increasing losses if KVH cannot efficiently manage the transition[157] - Quarterly net sales and results of operations are subject to significant fluctuations, and a decline in net sales could harm operating margins due to relatively fixed expenses[158][159] - A material increase in sales of lower-margin third-party airtime services and products could reduce gross margins and profitability, especially if the mix shifts away from higher-margin VSAT services[160] Risks related to our operations This section covers operational risks, including manufacturing transition, talent retention, strategic disruptions, and service margin maintenance - The planned transition to reliance on third-party hardware products by discontinuing manufacturing by the end of 2026 carries significant risks, including loss of competitive differentiation, manufacturing expertise, and potentially lower profit margins on resales[161] - Future success depends on retaining executive officers and key employees, and the recent workforce reductions have increased dependence on continuing personnel, making talent retention and attraction challenging[162][164] - Strategic activities, such as the manufacturing wind-down and asset sales, could disrupt business, incur significant expenses (e.g., $14.8 million in charges related to manufacturing wind-down), and may not improve profitability[165] - The company must generate a certain level of service sales to maintain or improve service gross margins due to fixed network infrastructure costs, and failure to consume prepaid Starlink data could negatively impact margins[166][167] - The leisure marine business is highly seasonal and affected by weather, leading to potential decreases in new airtime activations and increases in service cancellations during winter months[169] Risks related to our dependence on third parties and third-party technology This section addresses risks from reliance on third-party satellite services, cloud data, content licensing, and cybersecurity threats - KVH's mobile satellite communications solutions rely heavily on third-party satellite services (Intelsat, Starlink, OneWeb, Iridium), gateway teleports, and terrestrial networks, over which it has little control; disruptions could harm customer relationships and financial results[180][181][183] - Dependence on cloud-based data services operated by third parties means any failure or downtime could affect a significant percentage of customers and incur substantial costs for data transfer or service interruptions[185] - The media and entertainment business relies on non-exclusive licensing arrangements with content providers, and termination or adverse modification of these agreements could negatively impact revenues and offerings[186] - Cybersecurity breaches could disrupt operations, expose the company to liability, damage its reputation, and require significant costs, despite protective measures[187] Risks related to economic conditions and trade relations This section covers risks from economic turmoil, trade policy changes, and foreign currency fluctuations impacting international sales - Economic turmoil, war, political instability, and declines in consumer/enterprise spending can adversely impact revenues, results of operations, and financial condition, with international sales being particularly vulnerable[188] - Changes in U.S. trade policy, including tariffs, could substantially reduce demand for products/services, increase costs, and negatively impact profitability, especially given that a majority of revenues are from international sales[189] - Fluctuations in foreign currency exchange rates, particularly the U.S. dollar against the pound sterling and euro, can negatively affect reported revenues, asset values, and operating results, and increase costs[190][191] Risks related to intellectual property and technological innovation This section addresses risks concerning R&D success, intellectual property protection, and potential infringement claims - Unsuccessful research and development efforts or failure to innovate and integrate third-party solutions could lead to declining sales and market share in a rapidly changing technological market, especially with decreasing R&D financial resources[192][193] - Inability to protect proprietary technology (patents, copyrights, source code) could allow competitors to use KVH's technology, harming its competitive position and potentially leading to substantial revenue reduction[194] - Claims of intellectual property infringement by others could harm the business and financial condition, given the industry's high number of patents and frequent litigation[195] Risks related to government regulation This section outlines risks from international regulations, export controls, FCC rules, and evolving privacy laws affecting operations - International operations expose KVH to multiple regulatory environments, increasing costs and requiring significant management attention, with 79% of revenues from foreign customers in the six months ended June 30, 2025[196] - Non-compliance with U.S. and international laws (e.g., FCPA, UK Bribery Act, export controls, satellite licensing) could lead to legal penalties, fines, loss of licenses, and restrictions on operations[197] - Subject to FCC rules and regulations, non-compliance could result in enforcement actions, substantial fines, and damage to reputation or ability to offer services[198] - Evolving domestic and international privacy laws (e.g., GDPR) may reduce demand for services, increase costs, and lead to significant remediation expenses or penalties for non-compliance[199][200] Risks related to owning our common stock This section discusses the historical volatility of the company's common stock market price due to various internal and external factors - The market price of KVH's common stock has historically been volatile, with a trading range of $4.17 to $15.29 from January 1, 2020, to June 30, 2025, influenced by various internal and external factors[201] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's share repurchase program, including authorization and shares bought back during interim periods Share Repurchase Program Details This section provides specifics on the Board-authorized share repurchase program and the volume and cost of shares repurchased - The Board authorized a share repurchase program on December 9, 2024, for up to $10 million of common stock, allowing repurchases through various means including open market transactions[202][203] Common Stock Repurchases (Three Months Ended June 30, 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | | :---------------- | :--------------------- | :--------------------------- | :------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1 - April 30 | 112,569 | $5.08 | 112,569 | $9,261,476 | | May 1 - May 31 | 68,338 | $5.17 | 68,338 | $8,905,931 | | June 1 - June 30 | 30,623 | $5.26 | 30,623 | $8,743,975 | | Total | 211,530 | $5.14 | 211,530 | | - For the six months ended June 30, 2025, the company repurchased 242,348 shares of common stock at a cost of approximately $1.3 million[204] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and financial data - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Specimen Common Stock Certificate, Rule 13a-14(a)/15d-14(a) certifications from principal executive and financial officers, Section 1350 certifications, and Inline XBRL financial information[208] SIGNATURE This section contains the signature of the Chief Financial Officer, certifying the filing of the Form 10-Q - The report was signed by Anthony F. Pike, Chief Financial Officer of KVH Industries, Inc., on August 7, 2025[210]