KVH Industries, Inc. Price & Performance (KVHI)

Thank you for joining us today The KVH Industries fourth quarter results, which are included in the earnings release we published earlier this morning, Joining me on the call is the company's Chief Executive Officer, Brent Bruin. Before I get into the numbers, a few standard statements. Firstly, if you would like a copy of the earnings release or if you would like listen to a recording of today's call, both will be available on our website And if you are listening via the web, please feel free to submit questions to irkvh.com. Further, this conference call will contain certain forward looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss adjusted EBITDA which is a non GAAP financial measure. You will find the definition of this measure in our press release [indiscernible] as well as a reconciliation to comparable GAAP numbers. Encourage you to review the cautionary statements made in our SEC filings. Specifically those under the heading Risk Factors in 2024 Form 10 ks which we plan to file later today.

The company's other SEC filings are available directly from our Investor Information section of our website. Now to walk you through the highlights of our fourth quarter, I'll turn the call over to Brent.

Thank you, Anthony, and good morning, everyone. Before discussing our high level results, I want to address the overall shift in our business. During 2024, we continued our transition from focusing solely on VSAT services to offering multi orbit multichannel solutions. What does this mean?

In addition to VSAT services, we now offer LEO solutions. The most significant of which is Starlink. We have also expanded our portfolio to include a high speed cellular solution Additionally, we added a cutting edge appliance the COMBOX Edge, to deliver advanced and easy to use onboard remote bandwidth management for multiple wide and local area networks. Over the course of 2024, we integrated each of these elements into our go to market strategy which is steadily building positive momentum. In the fourth quarter, we shipped more than 1,000 StarLink units and roughly 200 VSAT terminals, Our fourth consecutive quarterly record for terminal shipments. With more than 2,300 active maritime Starling terminals at the end of twenty twenty four, StarLink is our fastest growing product line in our history. And currently, there are roughly 1,000 Starling terminals in in the field that are awaiting activation. Our customers find our custom Starlink data 20 fourseven technical and airtime support compelling differentiators Additionally, our KVH Manager platform offers a robust and secure set of tools to track and control onboard data usage. These factors are driving our unit growth both leisure and commercial markets. We recently completed the installation and activation of Starlink terminals across the entire Verum fleet.

The addition of Starlink to their existing KVH VSAT service illustrates a strong demand for hybrid connectivity. In fact, roughly 50% of our Starlink terminals have been activated in tandem with a new or existing VSAT terminal. Our ComBox Edge communication gateway introduced early in 2024 is the heart of our integrated connectivity approach. Demand for COMBOX Edge remains strong. Q4 activations were double the number of activations in Q3.

We are now preparing to roll out a range of new COMBOX Edge capabilities. Including a suite of security features, that deliver integrated cybersecurity and risk mitigation tools. In December, we launched our new [indiscernible] With cellular and WiFi system, excuse me. Which offers data speeds as fast as 300 megabits per second and data costs as low as $1 per gigabyte. TrackNet Ecoastal uses our unique Fusion eSIM technology to create a high performance marine grade cellular solution offering connectivity in 135 countries. The Fusion eSIM enables us to add and provision multiple cellular service [indiscernible] over the air and then switch intelligently among them based on geographic location, or other parameters. As a result, we can deliver a maintenance free and seamless global service that makes Pacnip Coastal an attractive enhancement for Visa and LEO services as well as a standalone communication system.

I'm off service portfolio. C SPAN a leading owner and operator of container ships, recently signed an agreement with us to equip its fleet with the OneWeb service.

They will be among the first commercial fleets to install OneWeb and use it in an expanded hybrid configuration alongside KVH VSAT and Starlink services. These strategic initiatives are beginning to take hold. And will position us well in 2025. Total revenue for the fourth quarter was 26 roughly a 4.5% decrease from fourth quarter of twenty twenty three.

For a more relevant comparison, is our third quarter revenue of $29,000,000 Excluding The U. S. Postcard revenue reduction, revenue was effectively flat sequentially.

Non U. S. Coast Guard geo airtime revenue in the fourth quarter contracted by around $1,000,000 which was offset by increased STARLINK revenues in the same period. Going forward, we anticipate Starlink as well as other new revenue sources to outpace the decrease in GEO airtime revenue. Additionally, we anticipated a contraction in revenue in 2024. And worked diligently to implement cost reduction initiatives As a result, we brought recurring OpEx down by almost 10% for the full year. So to wrap things up, mobile connectivity remains a market [indiscernible] As the GEO marketplace continues to adjust to the new disruption caused by legal services such as Starlink and OneWeb. While our results reflect the impact of the dynamic nature of the GEO market decisive steps we have taken to embrace StarLink while adding supplemental offerings such as OneWeb, COMBOX Edge and a global five gs cellular services service are creating a foundation for future growth. We have made the hard decisions necessary to reconfigure our business operations streamline costs and focus on our core strengths. We are in a stronger position now than a year ago, and I believe we are on a path towards renewed growth and profitability.

I will now turn the call back to Anthony to discuss the numbers. As a reminder, I would like to note that similar to our call for Q3, I will not restate dates that is in the earnings release or clearly described in our 10 ks. I'll focus my comments on information that Eva elaborates on or clarifies published data.

With respect to our fourth quarter financial results, AirTime gross margin which is not reported in our earnings release, was 28.2% which is down compared to the prior quarter gross margin of 36.5% KVH. Excluding depreciation, our Airtime gross margin for the fourth quarter was 41.4% compared to 48.6% in the prior quarter. This drop can be mostly attributed to the nature of our broadly fixed cost VSAT services, as we continue to see churn from our geo based VSAT network. Including the U. S. Coast Guard. However, our LEO margins remained strong. Our geo bandwidth commitment will reduce by $5,000,000 in 2025 and then a further $5,000,000 in 20 Total subscribing vessels at the end of Q4 were just below 7,100 is approximately 4% up from the prior quarter. Reported Q4 product gross profit was positive $300,000 as compared to a negative $600,000 excluding non recurring charges in Q4 of last year. The Q4 operating expenses of $9,300,000 were $1,000,000 or 10% down compared to the prior quarter. And $1,600,000 or 15% down from the fourth quarter of twenty twenty three on a like for like basis excluding non recurring charges. Our adjusted EBITDA for the quarter was $500,000 and our earnings release has the usual reconciliation of that.

Capital expenditures for the quarter was $800,000 and so adjusted EBITDA less CapEx, which we believe is a good proxy for free cash flow generated from our ongoing business, was negative $300,000 This compares to an adjusted EBITDA less CapEx of $1,400,000 positive in the third quarter. With adjusted EBITDA of $2,900,000 less capital expenditures of $1,500,000 So for the full year, adjusted EBITDA was $8,100,000 and CapEx was $7,400,000 So adjusted EBITDA less CapEx was $700,000 Our ending cash balance of $50,600,000 was up approximately $800,000 from the beginning of quarter. And finally, our earnings release provides our guidance for 2025, which is revenue of $115,000,000 to $125,000,000 and adjusted EBITDA of $9 This concludes our prepared remarks and I will now turn the call over to the operator to open the line for the Q and A portion of this morning's call. Operator?

Thank you. And we have a question from Caleb Henry with Quilty Hey, guys. A couple of questions. Mostly related to LEO services. You mentioned having a thousand new adds from Starlink this quarter. I'm wondering if that's sort of your expectation going forward on a quarterly basis or if you have any expectation KVH roughly how many Starlink ads you'll anticipate seeing? Okay. Let's be clear. We shipped 1,000 terminals Anthony can see what the actual activations where we had 2,300 active throwing terminals at the end of the quarter and we shipped 1,000 And And we also discussed a number of 1,000, there's about 1,000 There's approximately 1,000 Starling terminals in the field awaiting activation. Not all those were actually shipped in the fourth quarter, some of them were shipped in the third quarter. And ironically some are shipped in the second quarter. So we're staying on top of what's in the field. Awaiting activation. A key thing here is any terminal we ship it's locked to our service. So we know it can't be used without our permission on another service. But as far as activations for the quarter, we activated just under 700 Starlink Maritime Terminals.

Okay. Thanks for the clarification. And what is it that leads [indiscernible] delay their activation Well, there's a couple KVH things at play here, right? You have commercial leisure and boat builders. So OEMs will buy a Starlink terminal and install it on a boat, which had yet hasn't been taken over by the owner. They may have them on the shelf, What we're finding is because of the cost of the equipment, in comparison to what VSAT used to cost, people are willing to whether it's a dealer, distributor, boat builder, are willing to take units to have on hand [indiscernible] One Starling terminal from our cost, our sell price comparison to a VSAT about an eight:one ratio. Okay.

And then another question just about the customer set that's procuring Starling fishes. Is this mainly like existing customers that you see transitioning to Starlink or is it more so new customers that never had VSAT before any satellite connectivity that are coming on board? Well, as far as we're as far as our activations, they're both new and existing customers. As far as the new ones, they may not have had VSAT, they could have had fleet broadband or other lower bit rate type of communication systems. And they're just taking advantage of the cost structure surrounding the Starlink terminals and airtime. Okay. And then my last question is just around some emerging constellations. I think Kuiper may have some of their first satellites up later this year and seeing some headlines around Chinese constellations that are also starting to launch. Wondering if you have seen any kind of market response to those things or anticipate that during the year?

I anticipate a market response. I think it's still too early. Kuiper is testing, but by the time they have a commercial service, it can be well into 2026 or early twenty twenty seven. So it's just still A bit. A bit out until they're actually up and going. But we're keeping a close eye on it. And we talk to everyone in the industry. Okay. Got it. Thank you.

Thank you. And our next question coming from the line of Chris Quilty with Quilty Space. Your line is now open.

Thanks guys.

Congrats on getting that OneWeb service launched. Just a general question. How much of a challenge is the terminal pricing relative to SpaceX for customers or are the customers choosing OneWeb for for reasons other than cost? I think it's a bit of both. I just talked about the cost of VSAT terminals, Chris. So So although OneWeb is more, terminals are more expensive. Than a Starling terminal the half duplex is roughly 2x the price But we see users and we talked about C SPAN that want diversity in network. Right? We have hybrid users using both our VSAT and our STARLINK, but like in regard to C SPAN, they're using StarLink OneWeb as well as VSAT and we anticipate You're going to have a requirement to have diversity of networks and it could very well be a Leo Leo dilution As far as standalone OneWeb Services, they do offer CAR and other compelling features. That may make it more attractive for the end user. But as far as the cost, as I said, for the half duplex, it's about 2x that of of the high performance flat panel StarLink So it's not a huge difference as like the eight:one ratio I talked about VSAT.

Few minutes ago.

Right.

Switching gears, it sounds like you're getting good traction with the ComBox. Any lessons learned there? And what seems to be an increasingly competitive marketplace of let's call them cum box equivalents. Do you still feel like the feature set that you guys are offering stands out? We think the feature set stands out and as I discussed, the feature sets is being expanded in particular for intrusion protection and cybersecurity. So we feel that adding those elements will make it even more attractive and it's more than competitive to anything else on the market. Understand. And does COMBOX have applicability in any of the I guess, new markets where you've started to see some interest. You've mentioned land and some things in South America that were off nominal from your traditional business. Yes. The short answer is yes.

Absolutely. We didn't really talk about our land initiative on this call because it's still a bit premature, but we're getting some good traction in land as well.

And ComBox is being sold in tandem with some of the land opportunities that we're pursuing.

Great.

And I guess final question. As you look at the VSAT terminals coming off the network, are you able to cut costs along with the rate of terminal loss so that your margins overly impacted on a go forward basis. And I guess more generally, have you seen the rate of VSAT loss stay the same, accelerate, decelerate? It's actually it's evened out. So it's almost has decelerated to a degree, but we're seeing a pretty consistent churn number And also an important metric is we shipped 200 VSATs this quarter as we did approximately the quarter before that. So there's still demand and primarily most of those VSATs are being sold if in a hybrid configuration And another nice element about the VSAT for shipping for the most part, they're agile units that we've gotten back. And refurbished. So we don't have significant amount of CapEx to go along with those terminals that we're shipping. So as we go forward, we're carefully managing the VSAT network. It's and we're concentrating every day. It is a shrinking piece of our business, but as Anthony alluded to, we're trying to match revenue with expense. We have our commitments being decreased. As far as the GEO bandwidth we're taking good advantage of our installed base of VSAT terminals We have special pricing for hybrid configuration to keep terminals active.

As well as taking advantage of our pool of agile units that we've had over the years So as we go forward, the amount of CapEx that we'll be incurring in particular for the VSAT service is going to be decreasing.

Think Anthony asked something you want to add.

Well, just to give a data point on that, just to evidence that in the fourth quarter, our CapEx which was related to our Agile program, was a quarter of what it was in the second quarter. So we've reduced it significantly just in six months KVH we expect that trend to continue.

And Anthony, what is I mean, if you put aside our Agile plan, what is the base run rate CapEx [indiscernible] Yes. It's a couple of million dollars, right? It's a small number this year. We're implementing a new ERP system. So we have about $1,000,000 to this ERP system. But other than that, you're talking hundreds of thousands of dollars. There's nothing significant.

Yes, absolutely. I mean, it's 70%, 80% of our CapEx is our job. Historically moving forward. So So we don't expect much CapEx as again outside the new ER pieces to 25. Absolutely.

That's what we're striving for, yes.

Great. Thank you.

And there are no further questions at this time. Thank you all for your participation and you may now disconnect.

Thank you. [indiscernible]