KVH INDUSTRIES INC \DE\ Q4 FY2024 earnings call

• Transitioned from focusing solely on VSAT services to offering multi-orbit multichannel solutions including LEO (Starlink), high-speed cellular solution, and COMBOX Edge.
• Shipped over 1,000 Starlink units and ~200 VSAT terminals in Q4, marking fourth consecutive quarterly record for terminal shipments.
• CommBox Edge demand strong with Q4 activations doubling Q3; preparing to roll out new capabilities including security features.
• Launched TrackNet Coastal cellular Wi-Fi system offering high-speed data and global coverage via Fusion eSIM technology.
• Added OneWeb to satellite communications portfolio with Seaspan equipping its fleet with OneWeb service.
• Implemented cost reduction initiatives, reducing recurring OpEx by almost 10% for the full year 2024.

Total revenue for the fourth quarter was $26.9 million, a ~4.5% decrease from Q4 2023. Airtime gross margin was 28.2% (down from prior quarter's 36.5%); excluding depreciation, airtime gross margin was 41.4% vs 48.6% prior quarter. Product gross profit in Q4 was positive $0.3 million vs negative $0.6 million excluding non-recurring charges in Q4 2023. Subscribing vessels at end of Q4 were just below 7,100, ~4% up from prior quarter. Starlink is the fastest-growing product line with over 2,300 active maritime Starlink terminals at end of 2024, and ~1,000 Starlink terminals in the field awaiting activation. CommBox Edge Q4 activations were double Q3 activations.

• 2025 revenue guidance: $115 million to $125 million.
• 2025 adjusted EBITDA guidance: $9 million to $15 million.
• Aiming for free cash flow positive in 2025.

Q: You mentioned having a thousand new Starlink units this quarter. Wondering if that's expectation going forward on quarterly basis and about activations?

A: Shipped 1,000 terminals; had 2,300 active Starlink terminals at end of quarter, shipped 1,000, and ~1,000 awaiting activation. Activated just under 700 Starlink Maritime Terminals this quarter.

Q: What leads companies to delay activation of Starlink terminals?

A: Factors include commercial, leisure, boat builders; OEMs buying terminals and installing on boats not yet taken over by owners, having units on shelf due to equipment cost compared to VSAT.

Q: Is Starlink customer set mainly existing customers transitioning or new customers with no prior VSAT?

A: Both new and existing customers; new customers may not have had VSAT before, could've had lower bit rate communication systems.

Q: Thoughts on emerging constellations like Kuiper and Chinese constellations?

A: Anticipate market response, but Kuiper's commercial service not until 2026 or early 2027, so still early, keeping eye on industry.

Q: How much of a challenge is OneWeb terminal pricing relative to SpaceX for customers?

A: Bit of both; OneWeb terminals more expensive than Starlink but users want network diversity, with users using Starlink, OneWeb, and VSAT; diversity of networks is important.

Q: Lessons learned with CommBox and its applicability in new markets?

A: Feature set stands out and is being expanded, including security features; CommBox applicable in land markets, though still premature but getting good traction there.

Q: Are you able to cut costs along with rate of VSAT terminal loss to not overly impact margins? Rate of VSAT loss?

A: Churn has evened out and decelerated to a degree; still shipping ~200 VSATs quarterly, mostly in hybrid configuration; using agile units refurbished, so CapEx for VSAT service decreasing; CapEx related to Agile program was a quarter of Q2 in Q4, with base run rate CapEx being small, mainly for new ERP system.