What changed in this filing

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Item 1. Business

2021-03-03 compared with 2020-02-28 · 124 added, 56 removed, 329 unchanged (35% of the section changed)

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The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

We are a leading manufacturer of solutions that provide global high-speed Internet, television, and voice services via satellite to mobile users at sea and on land.

We are a leading provider of innovative, technology-driven connectivity and navigation solutions to maritime, marine, defense and other commercial customers globally.

Through our mobile connectivity business, we provide global high-speed Internet, television, and voice services via satellite to mobile users at sea and on land.

We are also a leading provider of commercially licensed entertainment, including news, sports, music, and movies, to commercial and leisure customers in the maritime, hotel, and retail markets.

We are also a premier manufacturer of high-performance navigational sensors and integrated inertial systems for defense and commercial inertial navigation applications.

Our inertial navigation business provides high-performance navigational sensors and integrated inertial systems for defense and commercial inertial navigation applications.

Our reporting segments are as follows:

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During the second quarter of 2019, we sold Videotel, which provided eLearning computer-based training, to an affiliate of Oakley Capital.

We determined that the sale met the requirements for reporting as discontinued operations in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 205-20.

We determined that the sale met the requirements for reporting as discontinued operations in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 205-20 Presentation of Financial Statements — Discontinued Operations (ASC 205-20).

Accordingly, we have classified the results of the Videotel business as discontinued operations in our financial statements.

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Our Business Segments

Primary Products

2019 Net Sales (1)

Mobile connectivity

Satellite television and internet solutions and media and content delivery solutions

Segment Primary Products Major Brands 2020 Net Sales (1)

Mobile connectivity Satellite television and internet solutions and media and content delivery solutions TracVision®

Mini-VSAT Broadband SM

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AgilePlans TM

Inertial navigation

Digital compass and fiber optic gyro-based navigation and guidance systems

Inertial navigation Digital compass and fiber optic gyro-based navigation and guidance systems TACNAV®

Total $ 158,733

(1) Amounts in thousands

Mobile Connectivity Segment

The mobile connectivity segment primarily manufactures and distributes a comprehensive family of mobile satellite antenna products and services that provide access to the Internet and voice services while on the move.

Product sales within the mobile connectivity segment accounted for 20% of our consolidated net sales for both 2019 and 2018 .

Through our mobile connectivity segment, we provide integrated, end-to-end hardware, software and services that support our customers’ need for access to Internet, voice and entertainment services.

On the hardware side of this business, we primarily manufacture and distribute a comprehensive family of mobile satellite antenna products and services that provide access to the Internet and voice services while on the move.

Product sales within the mobile connectivity segment accounted for 18% and 20% of our consolidated net sales for 2020 and 2019, respectively.

Sales of mini-VSAT Broadband airtime service accounted for 51% and 48% of our consolidated net sales for 2020 and 2019, respectively.

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Because we manufacture the onboard hardware, we can integrate the full rack of discrete below decks equipment typically used on traditional VSAT systems into a single, streamlined unit that is significantly easier to deploy than competing VSAT solutions.

Our mini-VSAT Broadband network utilizes advanced next-generation high-throughput satellites (HTS) capabilities offered by Intelsat Epic satellite services and SKY Perfect JSAT, as well as ArcLight spread spectrum modem technology developed by ViaSat.

Our mini-VSAT Broadband network utilizes advanced next-generation high-throughput satellites (HTS) capabilities offered by Intelsat and SKY Perfect JSAT, as well as ArcLight spread spectrum modem technology developed by ViaSat.

Our approach allowed us to develop and bring to market our TracPhone V series of terminals.

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The TracPhone FB250, FB500, and FleetOne antennas use the Inmarsat FleetBroadband service to offer voice and Internet service.

The TracPhone FB250, FB500 and FleetOne products are manufactured by Thrane & Thrane A/S of Denmark (acquired by Cobham) and distributed on an OEM basis by us in North America under our TracPhone brand and distributed in other markets on a non-exclusive basis.

The TracPhone FB250, FB500 and FleetOne products are manufactured by Cobham and distributed on an OEM basis by us in North America under our TracPhone brand and distributed in other markets on a non-exclusive basis.

Unlike mini-VSAT Broadband, where we control and sell the airtime, we purchase Inmarsat and Iridium airtime directly from these companies and resell it to our customers.

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In October 2019, we launched the TracVision UHD7, a high-performance 60 cm (24 inch) marine satellite TV antenna designed to provide boat owners, charter yacht guests, and commercial vessel crews with access to ultra high-definition (UHD) and 4K programming from DIRECTV as well as regular HD programming from other leading satellite TV providers.

In August 2020, we launched the TracVision TV10, a 1 meter ultrahigh efficiency marine satellite TV antenna designed to provide the biggest coverage footprint in our TracVision series and to provide boat owners, charter yacht guests, and commercial vessel crews with access to live news, local channels, and TV and movie programming from leading satellite TV providers worldwide.

We design, manufacture, and sell a range of TracVision satellite TV antenna systems for use on a broad array of vehicles, including recreational vehicles (RV), buses, conversion vans, and automobiles.

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In addition, we offer multiple usage plans that are either billed monthly based on the data consumed without any application or protocol blocking or based on a monthly minimum data quota with the option to add more data for an incremental charge.

In April 2017, we launched a new mini-VSAT Broadband service offering, AgilePlans.

AgilePlans is our all-inclusive connectivity-as-a-service, or CaaS, usage-based pricing model for commercial maritime customers of our mini-VSAT broadband service.

Under this CaaS model, we charge subscribers a monthly fee in exchange for which we provide satellite communication hardware, shipping and installation, maintenance and support, airtime and voice services, a service management portal and certain basic content services with no minimum commitment.

AgilePlans, one of our mini-VSAT Broadband services for commercial maritime customers, offers an all-inclusive Connectivity as a Service, or CaaS, usage-based pricing model.

Under this all-in-one CaaS model, we charge subscribers a single monthly fee in exchange for which we provide satellite communication hardware, shipping and installation, maintenance and support, airtime and voice services, a service management portal and certain basic content services with no minimum commitment and no long-term contracts required.

We offer AgilePlan customers a variety of airtime data plans with varying data allotments and fixed data usage levels with our exclusive dual-channel configuration with hybrid airtime plans delivering both a high-speed channel and an unlimited use data channel.

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We expect that, as customers subscribe to our AgilePlans service, our revenues from product sales will continue to decline, and our provision of this equipment to subscribers will continue to increase our capital expenditures, which over time will continue to increase our costs of service sales as we depreciate these assets.

In June 2019, we launched KVH Watch, the maritime industry’s only all-inclusive, no-commitment, Internet of Things (IoT) Connectivity as a Service program utilizing global VSAT communications.

KVH Watch TM is designed as the connectivity solution for remote equipment monitoring and intervention by maritime equipment manufacturers and IoT application providers.

In June 2019, we launched KVH Watch®, our all-inclusive, no-commitment, Internet of Things (IoT) Connectivity as a Service program for the maritime industry utilizing global mini-VSAT communications.

Through our KVH Watch service, we provide a connectivity solution for remote equipment monitoring and intervention by maritime equipment manufacturers and IoT application providers.

With remote monitoring, manufacturers can more easily act in real time, reducing expensive service calls and improving equipment performance for the maritime operation.

In October 2017, we launched our next-generation, advanced maritime broadband network with Intelsat.

The HTS high-speed network complements our first-generation mini-VSAT Broadband network with three to six times the data speeds available to maritime customers.

Our advanced maritime broadband network incorporates Intelsat Epic satellite services and the IntelsatOne Flex platform, a global managed service designed to optimize bandwidth allocations and provide flexible coverage where it is needed.

Our mini-VSAT Broadband network also benefits from Asian satellite capacity provided by SKY Perfect JSAT.

Overall, our mini-VSAT Broadband HTS network currently uses a combination of 156 Ku-band transponders (five of which we directly contract for) on 17 satellites to provide Ku-band coverage throughout the northern and southern hemispheres.

Three of the 17 satellites are considered high-throughput satellites that provide coverage via overlapping high-powered spot beams.

Eighty-eight of the 156 Ku-band transponders are served by the high-throughput satellites.

During the first quarter of 2018, we entered into a five-year capital lease for three satellite hubs for the HTS network.

It is our long-term plan to continue to maintain and enhance our mini-VSAT Broadband network.

Our legacy mini-VSAT Broadband network currently uses a combination of 20 Ku-band transponders on 15 satellites to provide Ku-band coverage throughout the northern hemisphere and around the continents in the southern hemisphere.

Of the 20 Ku-band transponders, we directly contract with seven of them as of January 1, 2021.

The remaining Ku-band transponders are contracted by ViaSat.

Under the terms of our revenue-sharing arrangement with ViaSat, we may earn revenue from maritime, land-based and aeronautical use of the network.

In November 2018, we renewed our contract with ViaSat until the end of 2021.

The new contract includes an obligation to make certain minimum quarterly payments to ViaSat that decline over the contract period.

After this contract period, the agreement terminates.

As part of the agreement, starting January 1, 2019, we reduced the number of Ku-band transponders for which we directly contract for from fourteen to eight.

In 2020, we reduced the number of Ku-band transponders from eight to seven, and we removed the C-band coverage from the legacy mini-VSAT Broadband network.

The bandwidth speeds offered by the Ku-band satellites also permit faster data rates than those supported by Inmarsat’s L-band satellites.

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The TracPhone V11-HTS and V7-HTS can support two or more simultaneous calls while the TracPhone V3-HTS can support one call at a time.

Our legacy mini-VSAT Broadband network currently uses a combination of 23 Ku-band transponders on 19 satellites to provide Ku-band coverage throughout the northern hemisphere, around the continents in the southern hemisphere, and C-band coverage world-wide.

Of the 23 Ku-band transponders, we directly contract for eight as of January 1, 2020, and we directly contract for three global C-band transponders.

The remaining Ku-band transponders are contracted by ViaSat.

Under the terms of our revenue-sharing arrangement with ViaSat, expansions of our ViaSat network position us to earn revenue not only from the maritime and land-based use of the mini-VSAT Broadband service but also from aeronautical platforms that roam throughout our network.

In November 2018, we renewed our contract with ViaSat until the end of 2021.

The new contract includes an obligation to make certain minimum quarterly payments to ViaSat that decline over the contract period.

After this contract period, a one-year notice is required to terminate the agreement.

As part of the agreement, starting January 1, 2019, we reduced the number of Ku-band transponders which we directly contract for from fourteen to eight.

In October 2017, we launched our next-generation, advanced maritime broadband network with Intelsat.

The HTS high-speed network complements our first-generation mini-VSAT Broadband network with three to six times the data speeds available to maritime customers.

At the core of its capabilities, our advanced maritime broadband network incorporates Intelsat Epic satellite services and the award-winning IntelsatOne Flex platform, a global managed service designed to optimize bandwidth allocations and provide flexible coverage where it is needed.

Our mini-VSAT Broadband network also benefits from increased Asian satellite capacity provided by SKY Perfect JSAT.

Overall, our mini-VSAT Broadband HTS network currently uses a combination of 88 Ku-band transponders (five of which we directly contract for) on 14 satellites to provide Ku-band coverage throughout the northern and southern hemispheres.

Two of the 14 satellites are considered high-throughput satellites that provide coverage via overlapping high-powered spot beams.

Sixty-one of the 88 Ku-band transponders are served by the high-throughput satellites.

During the first quarter of 2018, we entered into a five-year capital lease for three satellite hubs for the HTS network.

It is our long-term plan to continue to maintain and enhance our mini-VSAT Broadband network.

In addition, we offer professional services for our VSAT products that include network design, installation of onboard TracPhone terminals and custom configuration of the CommBox based on customer requirements.

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The sale was completed immediately upon execution of definitive agreements.

In December 2019, we finalized the working capital adjustment, which reduced the proceeds from the sale of Videotel to $88.4 million.

Please see Notes 1 and 18 of our accompanying financial statements for further information.

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Customers that subscribe to one of our entertainment packages generally receive a variety of movie and television content that is cached locally onboard.

We transmit local "news from home" and international news segments in a variety of languages on a monthly basis, a library of movies plus daily sports, news clips and special programming such as the highlights of sporting events.

We transmit local "news from home" and international news segments in a variety of languages on a daily, weekly or monthly basis, a library of movies plus daily sports, news clips and special programming such as the highlights of sporting events.

The COVID-19 pandemic has impacted various aspects of our operations, particularly the KVH Media Group, which depends heavily on travel and travel-related industries.

The revenues and cash flows of our KVH Media Group business have been significantly impacted due to the global reduction in travel since the start of the pandemic.

In the fourth quarter of 2020, there were increases in the number of reported COVID-19 cases, and substantial shutdowns were reinstated in the United States, UK and Europe, which caused continued disruptions to our KVH Media Group business as the global travel and travel-related industries remained at historically depressed levels.

In the fourth quarter of 2020, we concluded that certain areas of the KVH Media business may not recover completely or at all.

As a result of these changes in the KVH Media business, we recognized an intangible asset impairment charge of $1.8 million and a goodwill impairment charge of $8.7 million for the year ended December 31, 2020 related to KVH Media Group.

Please see Note 1(k) for additional information.

Inertial Navigation Segment

We offer a portfolio of digital compass and fiber optic gyro (FOG)-based systems that address the rigorous requirements of military and commercial customers.

We offer a portfolio of innovative digital compass and fiber optic gyro (FOG)-based systems that address the rigorous requirements for precision, performance and stability of military and commercial customers.

Our systems provide reliable, easy-to-use and continuously available navigation and pointing data.

Our guidance and stabilization products include our FOG-based inertial measurement units (IMUs) for precision guidance, FOGs for tactical navigation as well as pointing and stabilization systems, and digital compasses that provide accurate heading information for demanding applications.

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for 16% and 17% of our consolidated net sales for 2019 and 2018 , respectively.

Sales of tactical guidance and navigation systems within the inertial navigation segment accounted for 3% of our consolidated net sales for both 2019 and 2018 .

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for 16% of our consolidated net sales for both 2020 and 2019.

Sales of tactical guidance and navigation systems within the inertial navigation segment accounted for 7% and 3% of our consolidated net sales for 2020 and 2019, respectively.

Guidance and Stabilization

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and manned and unmanned platform stabilization and navigation systems.

In June 2020, we introduced the P-1775 IMU featuring our new PIC Inside photonic integrated chip (PIC) technology.

Our PIC Inside technology features an integrated planar optical chip that replaces individual fiber optic components to simplify production while maintaining or improving accuracy and performance.

The PIC Inside product is designed to deliver 20 times higher accuracy than less expensive MEMS inertial measurement units, uses modular designs for ease of integration, and can be reliably manufactured at higher volumes than our traditional IMU products.

Tactical Navigation

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Generally, due to the rapid delivery of our commercial products, our backlog for those products is not significant.

As of December 31, 2019 , we had over 100 TracPhone HTS units in backlog to be shipped through 2020.

Our backlog for all products and services was $20.4 million and $19.5 million on December 31, 2020 and 2019, respectively.

As of December 31, 2020, $19.8 million of our backlog was scheduled for fulfillment in 2021 and $0.6 million was scheduled for fulfillment in 2022 through 2024.

The increase in backlog of $5.0 million from December 31, 2018 to December 31, 2019 was primarily the result of a $3.8 million increase in FOG product orders and a $3.5 million increase in TACNAV product orders, which were partially offset by a $1.6 million decrease in mobile connectivity product orders and a $0.9 million decrease in contracted engineering services.

The increase in backlog of $0.9 million from December 31, 2019 to December 31, 2020 was primarily the result of a $4.5 million increase in TACNAV product orders and $0.3 million in contracted engineering services, partially offset by a $3.2 million decrease in FOG product orders and a $0.5 million decrease in mobile connectivity product orders.

Backlog consists of orders evidenced by written agreements and specified delivery dates for customers who are acceptable credit risks.

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Intellectual Property

Our ability to compete effectively depends to a significant extent on our ability to protect our proprietary information.

We rely primarily on patent, copyright and trade secret laws, confidentiality procedures, and licensing arrangements to protect our intellectual property rights.

We own 28 U.S.

and foreign patents and have 32 additional patent applications that are currently pending.

We also register our trademarks in the United States and other key markets where we do business.

Our patents will expire at various dates between July 2020 and September 2036.

We currently hold a collection of intellectual property rights relating to various aspects of our inertial navigation and mobile connectivity hardware products, software and services.

We believe that our ability to compete effectively depends to a significant extent on our ability to protect these intellectual property rights and our proprietary information.

We rely primarily on patent, copyright and trade secret laws, trademarks, service marks, trade dress, confidentiality procedures, and licensing arrangements to protect our intellectual property rights in the U.S.

and other countries where we determine that such protection is beneficial.

When appropriate, we seek to file patent applications to protect innovations arising from our research, development and design activities, and we are currently pursuing 37 U.S.

and foreign patent applications.

Over time, we have accumulated a portfolio of 30 U.S.

and foreign issued patents, including utility patents, design patents and others.

We also register our trademarks in the United States and other key international markets where we do business.

Our patents will expire at various dates between August 2021 and March 2038.

We enter into confidentiality agreements with our consultants, key employees, and sales representatives and maintain controls over access to and distribution of our technology, software, and other proprietary information.

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Research and Development

Focused investments in research and development are critical to our future growth and competitive position in the marketplace.

Our research and development efforts are directly related to timely development of new and enhanced products and services that are central to our core business strategy.

Focused, efficient investments in research and development are critical to our future growth and competitive position in the marketplace.

Our research and development efforts are directly related to timely development of new and enhanced products and services that are central to our core business strategy and our ability to drive profitable, sustainable growth.

The industries in which we compete are subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product and service introductions and enhancements.

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• In October 2019, we released the TracVision UHD7 for Ultra High-definition 4K TV entertainment at sea.

We continued to develop our Photonics Integrated Chip, a key component in a low-cost FOG for the self-driving automobile market.

• In June 2020, we introduced the P-1775 inertial measurement unit (IMU) featuring our new PIC Inside photonic integrated chip (PIC) technology.

• In August 2020, we launched the TracVision TV10, a 1 meter ultra high-efficiency marine satellite TV antenna designed to provide the biggest coverage footprint in our TracVision series.

Our research and development activities consist of projects funded by us and projects funded partly by customers.

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Defense and OEM research often results in new product offerings.

We strive to be the first company to bring a new product to market, and we use our own funds to accelerate new product development efforts.

We strive to be the first company to bring a new product to market in order to maintain our market leadership position, and we use our own funds when necessary to accelerate new product development efforts.

Government Regulation

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These laws and regulations, as well as the interpretation and application of these laws and regulations, are subject to change and any such change may affect our ability to offer and sell existing and planned satellite communications products and services.

On December 31, 2019 , we employed 604 total employees, including 581 full-time employees.

We employ part-time employees as well as temporary or contract personnel, when necessary, to provide short-term and/or specialized support for production and other functional projects.

We believe our future success will depend upon the continued service of our key technical and senior management personnel and upon our continued ability to attract and retain highly qualified technical and managerial personnel.

None of our employees is represented by a labor union.

We have never experienced a work stoppage and consider our relationship with our employees to be good.

KVH Team Demographics

KVH team members are essential to the success of KVH.

We had 639 team members as of December 31, 2020, full-time employees, part-time employees, and long-term contractors.

These figures do not include short-term or temporary contractors, which in the aggregate do not comprise a material portion of our workforce.

KVH Team Member Headcount

Full-time employees 592

Part-time employees 37

Long-term contractors 10

Our team members are directly responsible for the creation, development, manufacture, marketing, sale, repair and support of our products and services.

Because we sell and support our products globally, we have a globally diverse workforce to manufacture products in the U.S.

and support our customers in the U.S.

and internationally:

KVH Team Member Headcount

South Africa 1

United Arab Emirates 1

United Kingdom 100

United States 416

Approximately 237 team members, or 37%, are directly involved in supporting our technology in positions such as engineers, technicians, or software developers.

Employee Engagement

We believe we have strong relationships with our workforce.

In 2020, our global turnover rate was 9.9%, including voluntary and involuntary separations.

Among our 72 key executive leaders and most critical individual technology contributors, our turnover rate was 1.4% in 2020.

The average length of employee service is 9 years.

The continuity of our employee base is important to the success of our business, as our employees have deep knowledge of our products and are critical to the services that we provide to our customers.

KVH surveys team member engagement annually.

The annual survey standardizes how KVH measures engagement across our organization and affords us an opportunity to address areas for improvement.

By listening to employees, we gain a better understanding of what our employees need in order to succeed, enabling us to develop programs that create a stronger and more committed workforce.

Inclusion and Diversity

KVH actively cultivates the diverse talents of our team and strives to recruit and maintain a diverse and inclusive workforce everywhere we operate, which we believe enables better business decisions, enhanced product development, and superior customer service.

Our diversity and inclusion principles are also reflected in our employee training, in particular with respect to our policies against harassment in the workplace.

Competitive Pay and Benefits

KVH’s compensation programs are designed to align the compensation of our employees with KVH’s performance and provide incentives to attract, retain and motivate employees to achieve superior results.

The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.

Specifically:

• We provide employee wages that we believe are competitive and consistent with employee positions, skill levels, experience, knowledge, and geographic location.

• We review compensation and benefits surveys to obtain relevant industry data in order to benchmark our practices against those of industry peers.

• We seek to align the interests of our executives with those of our shareholders by paying a significant portion of our executives’ total compensation in the form of equity awards, which increase in value as the price of our common stock increases.

• Annual salary increases and incentive compensation include adjustments based on merit, which is communicated to employees through our annual review process and upon internal transfers and/or promotions.

• All employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage, subject to applicable regulations.

Health and Safety

We are committed to protecting the health and safety of our employees and others who enter any of our facilities, wherever located.

In 2020 KVH’s OSHA total recordable incident rate was 0.47 which is favorable compared to the 2019 OSHA national average of 3.0.

In 2020, we introduced a range of new safety protocols in our facilities in an effort to protect our employees and support appropriate health and safety protocols in response to COVID-19 and the global pandemic, including:

• Adding work from home flexibility.

• Offering voluntary on-site COVID-19 testing.

• Improving cleaning protocols across all locations.

• Providing regular communications regarding the impact of the COVID-19 pandemic, including updates regarding health and safety protocols and procedures.

• Implementing temperature screening for all visitors.

• Establishing new physical distancing procedures for on-site employees.

• Issuing personal protective equipment and cleaning supplies to on-site employees.

• Modifying workspaces with plexiglass dividers and touchless faucets.

• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure.

We are committed to continued improvements to our safety, health, and wellness programs to meet our employees’ needs, which we believe is critical to attract and retain talent.

We believe that creating a safe and supportive workplace is vital to our success.

KVH Team Member Recruitment

We work diligently to attract the best available talent from a diverse range of sources to meet the current and future demands of our business.

We have established relationships with major universities, professional associations, and industry groups to proactively attract talent.

In 2020, we hired 12 professional level team members.

Working Capital and Seasonality

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business