KVH Industries(US:KVHI)2021-07-30 17:58PART I. FINANCIAL INFORMATION This section presents the company's unaudited interim financial statements and management's discussion and analysis of financial condition and results of operations Interim Financial Statements This section presents the unaudited consolidated financial statements for KVH Industries, Inc. as of June 30, 2021, and for the three and six-month periods then ended It includes the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation and significant accounting policies Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, at a specific point in time Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,223 | $12,578 | | Total current assets | $94,939 | $101,060 | | Total assets | $176,552 | $183,591 | | Liabilities & Equity | | | | Total current liabilities | $42,701 | $40,788 | | Total liabilities | $49,676 | $51,707 | | Total stockholders' equity | $126,876 | $131,884 | | Total liabilities and stockholders' equity | $176,552 | $183,591 | Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific periods Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $43,363 | $36,926 | $85,655 | $73,494 | | Loss from operations | $(5,802) | $(3,436) | $(9,409) | $(11,084) | | Net loss | $(5,673) | $(3,552) | $(9,701) | $(9,766) | | Net loss per common share (Basic and diluted) | $(0.31) | $(0.20) | $(0.54) | $(0.56) | Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,815 | $(2,886) | | Net cash (used in) provided by investing activities | $(10,457) | $326 | | Net cash provided by financing activities | $2,311 | $6,432 | | Net (decrease) increase in cash and cash equivalents | $(3,355) | $3,078 | | Cash and cash equivalents at end of period | $9,223 | $21,443 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements - The company operates through two reporting segments: the mobile connectivity segment and the inertial navigation segment2530 - In May 2020, the company received a $6.9 million loan under the Paycheck Protection Program (PPP) The company plans to apply for forgiveness in August 20216668 Net Sales by Segment (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Mobile connectivity | $33,755 | $29,186 | $64,262 | $58,082 | | Inertial navigation | $9,608 | $7,740 | $21,393 | $15,412 | | Consolidated net sales | $43,363 | $36,926 | $85,655 | $73,494 | Operating Income (Loss) by Segment (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Mobile connectivity | $580 | $584 | $183 | $(1,715) | | Inertial navigation | $645 | $154 | $2,735 | $(667) | | Unallocated, net | $(7,027) | $(4,174) | $(12,327) | $(8,702) | | Loss from operations | $(5,802) | $(3,436) | $(9,409) | $(11,084) | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the three and six months ended June 30, 2021 Net sales increased year-over-year for both periods, driven by growth in both the mobile connectivity and inertial navigation segments However, the company continued to report a net loss, partly due to increased operating expenses, including a significant rise in general and administrative costs related to a stockholder's nomination of a competing director slate The impact of the COVID-19 pandemic, particularly on the KVH Media Group, and the company's liquidity position, supported by a PPP loan, are also detailed Results of Operations This section analyzes the company's net sales, costs, and expenses, highlighting key changes between periods Comparison of Three Months Ended June 30, 2021 and 2020 | Metric | Q2 2021 | Q2 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $17.3M (Product), $26.1M (Service) | $13.9M (Product), $23.0M (Service) | +$3.3M, +$3.1M | +24%, +14% | | Costs of Sales | $28.0M | $23.9M | +$4.1M | +17% | | R&D Expense | $4.5M | $3.9M | +$0.6M | +17% | | G&A Expense | $8.7M | $5.8M | +$2.9M | +51% | - The $2.9 million (51%) increase in General and Administrative expense in Q2 2021 was primarily due to a $2.6 million increase in professional fees arising from a stockholder's nomination of a competing slate of directors149 Comparison of Six Months Ended June 30, 2021 and 2020 | Metric | H1 2021 | H1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $35.7M (Product), $50.0M (Service) | $27.0M (Product), $46.5M (Service) | +$8.7M, +$3.5M | +32%, +8% | | Costs of Sales | $54.7M | $48.8M | +$5.9M | +12% | | G&A Expense | $15.8M | $12.2M | +$3.7M | +30% | Segment Discussion This section provides a detailed analysis of the financial performance for each of the company's operating segments - Mobile Connectivity (Q2 2021 vs Q2 2020): Net sales increased 16% to $33.8 million, driven by a 20% rise in product sales (TracVision) and a 14% increase in service sales (mini-VSAT, from a 13% increase in subscribers) Operating income was flat at $0.6 million153154155 - Inertial Navigation (Q2 2021 vs Q2 2020): Net sales grew 24% to $9.6 million, primarily from a 27% increase in product sales (FOG and TACNAV products) Operating income increased significantly by 319% to $0.6 million from $0.2 million153157159 - Mobile Connectivity (H1 2021 vs H1 2020): Net sales increased 11% to $64.3 million The segment reported operating income of $0.2 million compared to an operating loss of $1.7 million in the prior year period173174176 - Inertial Navigation (H1 2021 vs H1 2020): Net sales rose 39% to $21.4 million, driven by a 51% increase in product sales The segment swung to an operating income of $2.7 million from an operating loss of $0.7 million173177179 Liquidity and Capital Resources This section discusses the company's cash position, sources of liquidity, and capital management strategies - As of June 30, 2021, the company had $34.4 million in cash, cash equivalents, and marketable securities186 - Net cash provided by operations was $4.8 million for the first six months of 2021, a significant improvement from the $2.9 million used in operations in the same period of 2020187 - The company received a $6.9 million PPP loan in May 2020 and plans to apply for forgiveness in August 2021190192 - As of June 30, 2021, no amounts were outstanding under the 2018 Revolver, and the full $15.0 million facility was available for borrowing194195 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021 No material changes to internal control over financial reporting were identified during the second quarter of 2021 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021203 - No changes in internal control over financial reporting were identified during the second quarter of 2021 that have materially affected, or are reasonably likely to materially affect, internal controls204 PART II. OTHER INFORMATION This section covers legal proceedings, significant risk factors, and a list of exhibits filed with the report Legal Proceedings The company states that it is not a party to any lawsuit or proceeding that, in management's opinion, is likely to have a material adverse effect on its business, financial condition, or cash flows - In the ordinary course of business, the company is party to various legal proceedings and claims, but none are expected to materially harm the company208 Risk Factors This section details significant risks to the company's business Key risks include a history of financial losses and uncertainty of future profitability, the operational and financial burden of transitioning from a legacy to an HTS satellite network, intense competition in both mobile connectivity and inertial navigation markets, dependence on third-party suppliers and satellite providers, and the potential adverse impact of the COVID-19 pandemic and global economic conditions - Financial Performance: The company has a history of substantial losses and expects to incur further losses due to investments in its HTS network and new product development, such as the photonic chip-based fiber optic gyro211 - Operations: The company is incurring significant additional costs by operating both its new HTS and legacy satellite networks simultaneously It plans to terminate the legacy network by the end of 2021, which may result in the loss of customers who are unable or unwilling to convert217218 - Industry and Competition: The company faces intense competition, notably from companies competing on price The emergence of competing small maritime VSAT antennas could reduce the competitive advantage of its TracPhone V-HTS series247249 - Dependence on Third Parties: The business relies on satellite services, gateway teleports, and terrestrial networks from third parties (e.g., Intelsat, ViaSat), over which it has little control It also depends on sole or limited source suppliers for key components, creating supply chain risk227251 - Economic Conditions: The COVID-19 pandemic has adversely impacted the business, particularly the KVH Media Group which depends on travel Global economic disruptions could continue to negatively affect revenues, operations, and the supply chain234235 - Government Regulation & Sales: A substantial portion of inertial navigation sales are to government customers, which are subject to unpredictable funding and potential termination Exports of certain products are also subject to complex U.S. export regulations like ITAR243265 Exhibits This section lists all supplementary documents and certifications filed as part of the report