What changed in this filing

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Item 1A. Risk Factors

2023-03-16 compared with 2022-03-11 · 110 added, 190 removed, 239 unchanged (56% of the section changed)

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Risks related to our financial performance

We have a history of losses, and regaining profitability may take longer than we anticipate or may not be achievable.

We recorded substantial losses from continuing operations in each of the last three fiscal years (notwithstanding the income we recognized in 2021 from the forgiveness of the PPP Loan).

We may continue to incur losses as we increase satellite capacity to handle our growing subscriber base, as we continue to shift our business from a model based primarily on product sales to a model based primarily on recurring revenue, as we confront the impact of the COVID-19 pandemic, especially regarding the global chip shortage and supply chain constraints, on our business and as we continue to invest in research and development to improve our existing products and develop new products.

In order to regain profitability, we must grow our airtime subscriber base (including recruiting or replacing customers of our legacy network that have yet to subscribe to our HTS service), reduce our costs, and continue to introduce new and improved products in order to maintain and improve our competitive position and generate revenue.

We have a history of losses, and achieving sustained profitability may take longer than we anticipate or may not be achievable.

We recorded substantial losses from continuing operations in each of the last three fiscal years (notwithstanding the income we recognized in 2022 from the sale of the inertial navigation business and in 2021 from the forgiveness of the PPP Loan).

Although our continuing operations were profitable in the fourth quarter of 2022, we may incur losses in the future as we increase satellite capacity to handle our growing subscriber base, as we confront supply chain constraints and as we continue to invest in research and development to improve our existing products and develop new products.

In order to achieve sustained profitability, we must grow our airtime subscriber base, reduce our bandwidth costs, and continue to introduce new and improved products in order to maintain and improve our competitive position and generate revenue.

Our inability to accomplish any of these goals could have a material adverse effect on our revenues, profitability and cash flow, and we cannot assure you when, or whether, we will regain profitability.

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Our results of operations in any quarter can fluctuate for many reasons, including changes in demand for our products and services;

the timing and size of individual orders from military customers, which may be delayed or canceled for various reasons;

delays in order fulfillment, including as a result of shortages of components and raw materials;

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expenses incurred in pursuing acquisitions and investments;

expenses incurred in expanding, maintaining, or improving our mini-VSAT Broadband network;

expenses incurred in expanding, maintaining, or improving our global HTS network;

market and competitive pricing pressures;

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seasonality of pleasure boat and recreational vehicle usage;

and the impact of the COVID-19 pandemic and resulting supply chain disruptions.

and the impact of supply chain disruptions.

A large portion of our expenses, including expenses for network infrastructure, facilities, equipment, and personnel, are relatively fixed.

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Even after recording this impairment, our consolidated balance sheet at December 31, 2022 includes $5.7 million of goodwill and other intangible assets, of which $1.2 million relates to KVH Media Group.

Our annual impairment analysis in the fourth quarter of 2021 did not identify any further impairments.

However, there can be no assurance that our remaining goodwill and other intangible assets will not be further impaired, especially if the global COVID-19 pandemic continues to impact the markets in which our Media Group operates.

Our annual impairment analysis as of October 1, 2022 did not identify any further impairments.

However, there can be no assurance that our remaining goodwill and other intangible assets will not be further impaired.

Risks related to our operations

Our future performance will depend in part on the success of our management transition.

On March 7, 2022, we announced that our President and Chief Executive Officer, Martin Kits van Heyningen, was retiring from his executive and Board roles after more than 40 years of service.

Bruun, our Chief Operating Officer, has been appointed as our interim President and Chief Executive Officer.

The Board of Directors engaged an executive search firm to identify a new Chief Executive Officer.

Kits van Heyningen will no longer participate in the day-to-day management of our business, we will not have the full benefit of his long experience, expertise and familiarity with our customers and suppliers and the industries in which we participate.

If we are not successful in implementing our management transition, it could be viewed negatively by our customers, employees or investors and have an adverse impact on our business.

Further, these changes will increase our dependency on other members of our executive management team who remain with us.

Our future success will depend in part on the services of our executive officers.

The Company's future success depends to a significant degree on the skills and efforts of our executive officers.

Our executive officers are at-will employees, competition is intense for executive management, and they could terminate their employment with us at any time.

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If we fail to retain and attract the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales.

We recently announced a change in our strategic priorities, whereby we plan to focus on our core businesses, implement greater discipline in our new product initiatives and reduce costs.

We may not achieve the anticipated benefits and cost savings from this restructuring.

As part of this change, we announced a reduction in force of approximately 10% to realign our workforce to match our strategic priorities.

The workforce reduction will result in the reallocation and combination of certain roles and responsibilities across the organization.

Moreover, the reduction in force may yield unintended consequences and costs, such as attrition beyond the intended reduction in force, the distraction of employees and reduced employee morale, and could adversely affect our reputation as an employer.

We expect to incur severance and other expenses in connection with the reduction in force, which will reduce our earnings at least in the near term.

In March 2022, we announced a change in our strategic priorities, whereby we planned to focus on our core businesses, implement greater discipline in our new product initiatives and reduce costs.

As part of this change, we completed a reduction in force of approximately 10% to realign our workforce to match our strategic priorities.

The workforce reduction required the reallocation and combination of certain roles and responsibilities across the organization.

In 2022 we incurred severance and other expenses in connection with the reduction in force, which will reduce our earnings at least in the near term.

The current job market for our personnel is very competitive, resulting in increased compensation, and we face challenges in seeking to retain our continuing personnel and attract new personnel to fulfill our unmet needs.

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and ensure that our procedures and internal controls are revised and updated to remain appropriate for our realigned workforce and the size and scale of our business operations.

Restructuring activities could disrupt our business and affect our results of operations.

We recently announced a restructuring to re-align our workforce to match strategic and financial objectives and optimize resources for long-term growth, including a reduction in force.

We also implemented a management transition, and our new management may take similar steps in the future to generate operating synergies, to achieve our target operating model and financial objectives, or to reflect more closely changes in the strategic direction of our business.

We may also choose to make strategic divestitures.

Any of these changes could be disruptive to our business, including our research and development and product launch efforts, and could result in significant expense, including losses on any divestiture, accounting charges for inventory and technology-related write-offs and workforce reduction costs, and significant transaction costs, including for potential transactions that do not proceed.

Substantial expense or charges resulting from restructuring activities or divestitures could adversely affect our results of operations and use of cash in the periods in which we take these actions.

Any divestiture could also result in the retention of liabilities and expenses that are not assumed by the acquirer or the loss of operating income from the divested operations, either of which could negatively impact profitability after any divestiture.

We must generate a certain level of sales of the TracPhone V-HTS series products and our mini-VSAT Broadband service in order to maintain or improve our service gross margins.

As a result of our mini-VSAT Broadband network infrastructure, our cost of service sales includes certain costs that generally do not vary directly in proportion with the volume of service sales, and we have limited ability to reduce these fixed costs in the short term.

These costs have increased significantly each year as we have further expanded our network to accommodate additional subscriber demand and/or coverage areas, and we expect that this trend will continue in 2022 and beyond, particularly as we expand our HTS network.

If sales of our TracPhone V-HTS series products and the mini-VSAT Broadband service, including through our AgilePlans subscription model, do not generate the level of revenue that we expect or if those revenues decline, our service gross margins may decline.

The failure to improve our mini-VSAT Broadband service gross margins and unit or subscriber sales would have a material adverse effect on our overall profitability.

We must generate a certain level of sales of the TracNet H-series and TracPhone V-HTS series products in order to maintain or improve our service gross margins.

As a result of our global HTS network infrastructure, our cost of sales for services includes certain costs that generally do not vary directly in proportion with the volume of service sales, and we have limited ability to reduce these fixed costs in the short term.

Although we have realized savings from the shutdown of our legacy Arclight network, the cost of our HTS network has increased significantly each year as we have further expanded our network to accommodate additional subscriber demand and/or coverage areas, as well as customers who migrated from our legacy network.

We expect that this trend will continue in 2023.

If sales of our TracNet H-series and TracPhone V-HTS series products, including through our AgilePlans subscription model,

do not generate the level of revenue that we expect or if those revenues decline, our service gross margins may decline.

The failure to improve our global HTS service gross margins and unit or subscriber sales would have a material adverse effect on our overall profitability.

Our ability to compete in the maritime airtime services market will be impaired if we are unable to provide sufficient service capacity to meet customer demand.

We currently offer our mini-VSAT Broadband service in the Americas, Europe, the Middle East, Africa, Asia-Pacific, Indian, and Australian and New Zealand waters.

We currently offer our global HTS VSAT service in the Americas, Europe, the Middle East, Africa, Asia-Pacific, Indian, and Australian and New Zealand waters.

We may need to expand capacity in existing coverage areas to support our subscriber base.

If we are unable to reach economical agreements with third-party satellite providers to support our mini-VSAT Broadband service and its technology or if transponder capacity is unavailable to meet growing demand in a given region, our ability to provide airtime services will be at risk and could reduce the attractiveness of our products and services.

If we are unable to reach economical agreements with third-party satellite providers to support our global HTS service and its technology or if transponder capacity is unavailable to meet growing demand in a given region, our ability to provide airtime services will be at risk and could reduce the attractiveness of our products and services.

Our results of operations are adversely affected by unseasonably cold weather, prolonged winter conditions, disasters or similar events.

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Specifically, we may encounter a decrease in new airtime activations as well as an increase in the number of cancellations or temporary suspensions of our airtime service.

We have single dedicated manufacturing facilities for each of our mobile connectivity and inertial navigation product categories, and any significant disruption to a facility will impair our ability to deliver our products.

We currently manufacture all of our mobile connectivity products at our manufacturing facility in Middletown, Rhode Island, and all of our inertial navigation products at our facility in Tinley Park, Illinois.

Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of either production facility.

For example, our production facilities use some specialized equipment that may take time to replace if they are damaged or become unusable for any reason.

We have a single dedicated manufacturing facility for all of our product categories, and any significant disruption to this facility will impair our ability to deliver our products.

We currently manufacture all of our products at our manufacturing facility in Middletown, Rhode Island.

Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of our production facility.

For example, our production facility uses some specialized equipment that may take time to replace if it is damaged or becomes unusable for any reason.

In that event, shipments would be delayed, which could result in customer or dealer dissatisfaction, loss of sales and damage to our reputation.

Finally, we have only a limited capability to increase our manufacturing capacity in the short term.

If short-term demand for our products exceeds our manufacturing capacity, our inability to fulfill orders in a timely manner could also lead to customer or dealer dissatisfaction, loss of sales and damage to our reputation.

Acquisitions and strategic relationships may disrupt our operations or adversely affect our results.

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and losses arising from impairment charges associated with goodwill or intangible assets.

Risks related to our dependence on technology and third parties

Risks related to our dependence on third parties and third party technology

Our mobile satellite products currently depend on satellite services, gateway teleports and terrestrial networks provided by third parties, and a disruption in those services could adversely affect sales.

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We do not own the satellites that provide two-way satellite communications or the terrestrial networks that interconnect our facilities with the satellite teleports that communicate with the satellites.

We currently offer satellite television products compatible with the DIRECTV and DISH Network services in the United States, the Bell TV service in Canada, the Sky Mexico service in Mexico, the Sky UK service in the United Kingdom, Canal+ service in France and Movistar service in Spain and various other regional satellite TV services in other parts of the world.

Intelsat and Sky Perfect-JSAT currently provide the satellite capacity to support the mini-VSAT Broadband service and our TracPhone and V-HTS series products.

In addition, we have agreements with various teleports and Internet service providers around the globe to support the mini-VSAT Broadband service.

The terrestrial fiber links that we use to connect with the Internet and to move our voice and data services between our facilities and the various satellite earth stations that support our services are provided to us through numerous service providers, some of which have contractual relationships with our satellite service providers and not directly with us.

We rely on Inmarsat for satellite communications services for our FleetBroadband and FleetOne compatible TracPhone products.

We currently offer satellite television products compatible with the DIRECTV and DISH Network services in the United States, the Bell TV service in Canada, the Sky Mexico service in Mexico, the Sky UK service in the United Kingdom, Canal+ service in France and Movistar service in Spain, and other regional satellite TV services in other parts of the world.

Intelsat and Sky Perfect-JSAT currently provide the satellite capacity to support our global high-throughput satellite (HTS) broadband service and our TracNet H-series and TracPhone V-HTS series products.

Vodafone provides the 5G/LTE services used by our TracNet H-series terminals to provide cellular service in 150+ countries.

We rely on Inmarsat for satellite communications services for our FleetBroadband-compatible and FleetOne-compatible TracPhone products.

We also have an arrangement with Iridium for additional satellite communications services that we make available to our customers as a backup option to provide communications redundancy with our primary service offerings.

In addition, we have agreements with various teleports and Internet service providers around the globe to support our global HTS broadband service.

The terrestrial fiber links that we use to connect with the Internet and to move our VoIP and data services between our facilities and the various satellite earth stations that support our services are provided to us through numerous service providers, some of which have contractual relationships with our satellite service providers and not directly with us.

We exercise little or no control over these third-party providers of satellite, teleport, and terrestrial network services, which increases our vulnerability to problems with the services they provide.

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Our media and entertainment business relies on licensing arrangements with content providers, and the loss of, or changes in, those arrangements could adversely affect our business.

We distribute premium news, sports, movies, and music content for commercial and leisure customers in the maritime, hotel, and retail markets.

We distribute premium news, sports, and movies to commercial customers in the maritime and hotel markets.

We license this content from third parties on a non-exclusive basis without long-term license agreements.

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Although we take certain protective measures and endeavor to modify them as we believe circumstances warrant, invasive technologies and techniques continue to evolve rapidly, and increasingly sophisticated hacking organizations are targeting business systems.

As a result, the computer systems, software and networks that we use are vulnerable to disruption, shutdown, unauthorized access, misuse, erasure, alteration, employee error, phishing, computer viruses, ransomware or other malicious code, and other events that could have a security impact.

The protective measures on which we rely may be inadequate to prevent or detect cybersecurity breaches or determine the extent of any breach, and there can be no assurance that undetected breaches have not already occurred.

If any of these events were to occur, they could disrupt our operations, distract our management, cause us to lose existing customers and fail to attract new customers, as well as subject us to regulatory actions, litigation, fines, damage to our reputation or competitive position, or orders or decrees requiring us to modify our business practices, any of which could have a material adverse effect on our financial position, results of operations or cash flows.

The protective measures on which we rely may be inadequate to prevent or detect all material cybersecurity breaches or determine the extent of any material breach, and there can be no assurance that material undetected breaches have not already occurred.

If any material cybersecurity event were to occur, it could disrupt our operations, distract our management, cause us to lose existing customers and fail to attract new customers, as well as subject us to regulatory actions, litigation, fines, damage to our reputation or competitive position, or orders or decrees requiring us to modify our business practices, any of which could have a material adverse effect on our financial position, results of operations or cash flows.

Risks related to economic conditions and trade relations

Our revenues, results of operations and financial condition have been, and are expected to be, adversely impacted by economic turmoil, political events, macroeconomic conditions, credit tightening and associated declines in consumer and enterprise spending, and by the continuation of the COVID-19 pandemic, including related supply chain issues.

Economic conditions in the various geographic markets we serve have experienced significant turmoil over the last several years, including downturns related to the COVID-19 pandemic, slow economic activity, tight credit markets, inflation and deflation concerns, low consumer confidence, limited capital spending, adverse business conditions, war and refugee crises in the Middle East and Europe, terrorist attacks, the departure of the United Kingdom from the European Union, changes in government priorities, trade wars, a government shutdown, gridlock from a divided Congress, and liquidity concerns.

Our revenues, results of operations and financial condition may be adversely impacted by economic turmoil, political instability, declines in consumer and enterprise spending, and a resurgence of the COVID-19 pandemic.

Economic and political conditions in the geographic markets we serve have experienced significant turmoil over the last several years, including a potential global recession, downturns related to the COVID-19 pandemic, slow economic activity, tight credit markets, inflation and deflation concerns, low consumer confidence, limited capital spending, adverse business conditions, war and refugee crises in the Middle East and Europe, terrorist attacks, the departure of the United Kingdom from the European Union, changes in government priorities, trade wars, restrictions on commercial fishing, a government shutdown, gridlock from a divided Congress, and liquidity concerns.

These factors vary in intensity by region.

Further, in response to the COVID-19 pandemic, governments have implemented, revised, withdrawn, reinstituted and expanded extensive safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures.

Other organizations and individuals continue to take additional steps to avoid or reduce infection, including limiting travel and implementing work-at-home policies.

These measures have significantly disrupted normal business operations both in and outside of affected areas, and complying with them has increased our costs.

Travel restrictions and safety precautions have also limited our ability to service and install our equipment.

Although we are unable to predict the ongoing impact of the pandemic, our mobile communications business in particular largely depends on travel.

The operations of our KVH Media Group were particularly impacted due in part to the global reduction in travel resulting from the pandemic.

We anticipate that, until the pandemic is contained, governmental, individual, business and other organizational measures to limit the spread of the virus will continue to adversely affect our revenues, results of operations and financial condition, perhaps materially.

An outbreak of infection in any of our facilities could severely disrupt our operations.

We continue to monitor government recommendations and have made modifications to our operations because of the pandemic.

Our customers’ businesses could be further disrupted, and our revenues could continue to be adversely affected.

Additionally, global economic disruptions like the COVID-19 pandemic have negatively impacted, and could continue to negatively impact, our supply chain and continue to cause delays in the delivery of raw materials, components and other supplies that we need to conduct our operations and generate revenue.

The extent to which the pandemic will continue to impact our business will depend on many factors beyond our control, including the speed of contagion, the appearance of new variants, the development and implementation of effective preventative measures and vaccines, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

There can be no assurances that government programs to maintain or improve economic conditions, including stimulus and other aid programs intended to combat the impact of the pandemic, will be effective.

As a result of these and other factors, customers and government entities could continue to slow or suspend spending on our products and services.

We may also incur increased credit losses and need to further increase our allowance for doubtful accounts, which would have a negative impact on our earnings and financial condition.

We cannot predict the timing, duration, or ultimate impact of the turmoil in our markets.

We expect our business to continue to be adversely impacted by this turmoil, particularly in relation to the COVID-19 pandemic, to varying degrees and for varying amounts of time, in all our geographic markets.

We cannot predict the timing, duration, or ultimate impact of turmoil on our markets or our suppliers.

We expect our business would be adversely impacted by any significant turmoil, particularly a resurgence of the COVID-19 pandemic, to varying degrees and for varying amounts of time, in all our geographic markets.

Changes in U.S.

trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us.

The change in U.S.

presidential administrations may alter the U.S.’s approach to international trade, which may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

may continue to alter its approach to international trade, which may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

has imposed tariffs on certain foreign goods and may increase tariffs or impose new ones, and certain foreign governments have retaliated and may continue to do so.

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Changes in U.S.

trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions the U.S.

government or foreign governments will or will not take with respect to tariffs or other international trade agreements and policies.

trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions governments will or will not take with respect to tariffs or other international trade agreements and policies.

Current trade negotiations may fail, which may exacerbate these risks.

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For example, during 2022, the U.S.

dollar strengthened

slightly against certain foreign currencies, which adversely affected revenues reported in U.S.

dollar strengthened against certain foreign currencies, which adversely affected revenues reported in U.S.

dollars and decreased the reported value of our assets in foreign countries.

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Moreover, certain of our products and services are sold internationally in U.S.

dollar strengthens, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales.

dollar continues to strengthen, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales.

In addition, most of our financial obligations must be satisfied in U.S.

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We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can cost-effectively mitigate this exposure.

Risks related to government sales

Our financial performance is impacted by U.S.

government contracts, which are subject to uncertain levels of funding and termination

We are unable to predict the impact on our business of Congressional gridlock, tax reform and government policies, including new expenditures to address the COVID-19 pandemic, which have increased already significant budget deficits and may lead to an overall reduction in federal spending on programs important to our business.

A reduction in sales to the U.S.

government or its contractors, whether due to lack of funding, for convenience or otherwise, or the occurrence of delays, could negatively impact our results of operations and financial condition.

The purchasing and delivery schedules and priorities of the U.S.

military, government contractors and foreign governments are often unpredictable and subject to uncertain levels of funding and termination.

We have historically sold a substantial portion of our TACNAV and FOG products and services to the U.S.

government and its contractors as well as foreign military and government customers, either directly or as a subcontractor to other contractors.

These customers often use a competitive bidding process and have unique purchasing and delivery requirements, which often makes the timing of sales to these customers unpredictable.

Factors that affect their purchasing and delivery decisions include increasing budgetary pressures, which may reduce or delay funding for military programs;

changes in modernization plans for military equipment;

changes in tactical navigation requirements;

global conflicts impacting troop deployment, including troop withdrawals;

priorities for current battlefield operations;

new military and operational doctrines that affect military equipment needs;

sales cycles that are long and difficult to predict;

shifting response time and/or delays in the approval process associated with the export licenses we must obtain prior to the international shipment of certain of our military products;

delays in military procurement schedules;

and delays in the testing and acceptance of our products, including delays resulting from changes in customer specifications.

In addition, U.S.

government contracts generally permit the government to terminate the contract without prior notice, at the government's convenience or for default based on performance.

Government customers can also decline to exercise previously disclosed contract options.

A termination arising out of our default could expose us to liability and adversely affect our ability to obtain future contracts and orders.

Furthermore, on contracts for which we are a subcontractor and not the prime contractor, the U.S.

government could terminate the prime contract for convenience or otherwise, irrespective of our performance as a subcontractor.

These factors periodically cause substantial fluctuations in sales of our TACNAV and FOG products and services.

Fluctuating commercial sales of our inertial navigation products are also making it harder to predict our future revenues.

For example, TACNAV product sales decreased $2.9 million, or 27%, from 2020 to 2021, while sales of our FOG products increased $3.0 million, or 12%, from 2020 and 2021.

Investors should not expect that any periodically high rates of growth will be repeated in future quarters;

given the substantial fluctuations in quarterly sales, we could similarly experience substantial reductions in revenue from time to time.

Sales of our FOG systems and TACNAV products generally consist of a few large orders, and the delay or cancellation of a single order will substantially reduce our net sales.

Only a few customers account for a substantial portion of our inertial navigation revenues, and the loss of any of these customers could substantially reduce our net sales.

We derive a significant portion of our inertial navigation revenues from a small number of customers, many of whom are contractors for the U.S.

KVH products sold to these customers are purchased through orders that can generally range in size from several hundred thousand dollars to several million dollars.

For example, we received an order for $7.9 million of FOG products in August 2021, an order for $10.0 million of TACNAV products in July 2020, an order for $4.0 million of FOG products in October 2019 and an order for $6.7 million of TACNAV products and services in September 2019.

Orders of this size are often unpredictable and difficult to replicate.

As a result, the delay or cancellation of a single order could materially reduce our net sales and results of operations.

We routinely experience repeated and unanticipated delays in defense orders, which make our revenues and operating results less predictable.

Because our inertial navigation products typically have relatively higher product gross margins than our mobile connectivity products, the loss of an order for inertial navigation products could have a disproportionately adverse effect on our results of operations.

Risks related to the sale of our inertial navigation business

We face potential liabilities and disruptions arising from the sale of our inertial navigation business.

On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation.

The sale of the inertial navigation business required us to separate and allocate specific assets to the business, including some shared assets.

We could face disputes with EMCORE regarding whether or not certain assets were included in the sale.

Moreover, we agreed, for a period of time after the sale, to continue to perform certain services that we historically performed for the inertial navigation business, and we also undertook other customary obligations associated with a disposition of a business by means of asset sale.

We incurred significant legal, accounting and financial advisory fees negotiating and consummating the sale of the inertial navigation business, and we may incur additional fees to resolve any dispute that may arise over the terms of the transaction or the parties’ compliance with their obligations under the transaction agreements.

Although EMCORE agreed to assume most liabilities associated with the inertial navigation business, it did not assume all such liabilities, which could lead to a dispute.

Any such disputes could divert the attention of our management or otherwise have a material adverse effect on our business, financial condition and results of operations.

The sale of the inertial navigation business has had the effect of reducing our operating and profit margins, and we are solely reliant on our mobile connectivity business.

As a result of the sale of the inertial navigation business, we no longer generate revenues associated with that business.

Accordingly, the costs we incur to operate our continuing business, including the significant overhead costs associated with being a public company, are spread over a smaller revenue base, which magnifies the impact of those costs on our operating and profit margins.

In order to improve those margins, we will have to increase our revenue or reduce our costs.

While the disposition of the inertial navigation business should simplify our financial reporting, we do not expect that any cost savings would be substantial.

The sale of our inertial navigation business may make it more difficult to attract and retain employees.

As a result of the sale of our inertial navigation business, our base of continuing employees will be smaller.

We will have fewer personnel to perform certain functions provided by departed employees, which will magnify the impact of any additional departures of continuing personnel.

Our smaller size may also make it more difficult to attract and retain new personnel.

Our efforts to attract and retain employees may not be successful, which could have a material adverse effect on our ability to operate our business and achieve our business goals.

Our board of directors has not decided how to use the proceeds from the sale of our inertial navigation business, and stockholders may disagree with the board’s decisions.

Our board will have broad discretion regarding the use of the remaining net proceeds, which may include, without limitation, general corporate purposes, stock repurchases, cash dividends, capital expenditures, working capital, and strategic acquisition opportunities that may arise.

In most cases, our board of directors will be able to deploy the net proceeds without obtaining stockholder approval and, as a result, may use the net proceeds in ways with which our stockholders may disagree.

Divergent stockholder expectations for our remaining business, including expectations regarding the use of proceeds, profitability and cash flow, may lead to significant fluctuations in our stock price.

Risks related to our industry

Competition may limit our ability to sell our mobile connectivity products and services and inertial navigation products.

The mobile connectivity and inertial navigation markets are very competitive, and we expect this competition to intensify.

We may not be able to compete successfully against current and future competitors, which could impair our ability to sell our products and services.

For example, improvements in the performance of lower-cost gyros by competitors, as well as various industry certification requirements, could jeopardize sales of our FOGs and FOG-based systems.

As our market share in the mobile satellite communication market has grown, competition has intensified significantly, most notably from companies that seek to compete primarily on price.

Competition may limit our ability to sell our products and services.

The mobile connectivity market is very competitive, and we expect this competition to intensify.

We may not be able to compete successfully against current and future competitors, which would impair our ability to sell our products and services.

Competition has intensified significantly in recent years, both from companies that seek to compete primarily on price as well as new, emerging non-geostationary satellite orbit (NGSO) services, such as Starlink, OneWeb, Kuiper, Telesat, and others.

These companies may continue to implement price reductions and discounts for both products and services, which have required us to reduce our prices or offer discounts in order to maintain or increase our market share.

Some of our VSAT competitors have also leveraged partnerships amongst themselves in order to capture larger combined market share.

Some of our VSAT competitors have already leveraged partnerships amongst themselves in order to capture larger combined market share.

Further, some of the companies that we depend on to supply us with capacity on satellite communications networks may vertically integrate by introducing their own products and services to compete with ours, which might motivate them to stop providing satellite network capacity to us, or to make it available only on less favorable terms.

The Starlink LEO service has had a modest negative impact on our leisure VSAT business as some owners of smaller leisure boats have been able to install and use the lower cost Starlink system intended for recreational vehicles.

This reduction in hardware and service sales could continue if Starlink does not geofence boats from recreational vehicles.

Starlink is also reportedly in the process of adding inter-satellite link capability to its constellation.

This would enable Starlink to serve ships in mid-ocean, where available satellites cannot communicate directly with ground stations.

Our commercial maritime airtime business and average revenue per unit could also be impacted upon completion of this service.

In the marine market for satellite TV equipment, we compete primarily with Intellian, Cobham SATCOM and Raymarine (Intellian-made).

In the marine market for voice, fax, data, and Internet communications equipment, we compete primarily with Intellian and Cobham SATCOM.

In the marine market for high-speed voice, fax, data, and Internet services, we compete primarily with Inmarsat, Marlink and Network Innovations.

We also face competition from providers of low-speed data services, which include Inmarsat, Globalstar LP, and Iridium Satellite LLC.

In the marine market for two-way communications equipment, we compete primarily with Intellian and Cobham SATCOM.

In the marine market for high-speed Internet, voice, fax, and data services, we compete primarily with Inmarsat, Marlink, Speedcast, Viasat, and Network Innovations, along with smaller, single-hub regional services.

Additionally, we are starting to face competition from new NGSO networks such as SpaceX's Starlink and OneWeb.

We also face competition from providers of low-speed data services, which include Inmarsat and Iridium Satellite LLC.

In the market for land mobile satellite TV equipment, we compete primarily with King Controls and Winegard Company.

In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures and NewspaperDirect Inc.

In the inertial navigation markets, we compete primarily with Honeywell International Inc., Northrop Grumman Corporation, Emcore and Safran.

In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures, Baze Technology, and NewspaperDirect, Inc.

Many of our competitors are well-established companies that have substantially greater financial, managerial, technical, marketing, personnel and other resources than we do, which may help them to compete more effectively against us.

The emergence of a competing small maritime VSAT antenna and complementary service or other similar service could reduce the competitive advantage we believe we currently enjoy with our smaller TracPhone V-HTS series antennas and Ku-band mini-VSAT Broadband service, or with our TracPhone V11-HTS antenna and our C/Ku-band mini-VSAT Broadband service.

Our TracPhone V-HTS and V-IP systems offer customers a range of benefits due to their integrated design, hardware costs that are lower than existing maritime Ku-band VSAT systems, and broadband technology.

We currently compete against companies that offer established maritime Ku-band VSAT service using, in some cases, antennas 1-meter in diameter or larger.

While we are unaware of any company offering a 37-cm VSAT solution comparable to our TracPhone V3-HTS or V30, we are encountering regional competition from companies offering 60-cm VSAT systems and services, which are comparable in size to our TracPhone V7-HTS.

The emergence of a competing small maritime VSAT antenna and complementary service or other similar service could reduce the competitive advantage we believe we currently enjoy with our smaller TracNet H series and TracPhone V-HTS series antennas and the Ku-band KVH ONE Hybrid Network, which offers seamless communications and intelligent switching among satellite, cellular, and Wi-Fi services, or with our TracPhone V11-HTS antenna and our C/Ku-band KVH ONE Hybrid Network service.

Our TracNet H-series and TracPhone V-HTS series systems offer customers a range of benefits due to their integrated design, competitively priced hardware, and broadband technology.

We currently compete against companies that offer established maritime Ku-band VSAT service using, in most cases, antennas 1-meter in diameter or larger.

While we are unaware of any company offering a 37 cm VSAT solution comparable to our TracNet H30, TracPhone V3-HTS or V30, we are encountering regional competition from companies offering 60 cm VSAT systems and services, which are comparable in size to our TracNet-H60 and TracPhone V7-HTS.

Likewise, our TracPhone V11-HTS, at 1.1-meters in diameter, is approximately 85% smaller and lighter than competing C-band maritime VSAT systems, which use antennas in excess of 2.4-meters in diameter to provide similar global services.

We are unaware of any competitor currently offering a similar size solution for global C-band coverage, but any introduction of such a product could adversely impact our success.

In addition, other companies could replicate some of the distinguishing features of our TracPhone V-HTS series products, which could potentially reduce the appeal of our solution, increase price competition, and adversely affect sales.

We compete against Inmarsat's Fleet Xpress service, a global Ka-band mobile VSAT service that Inmarsat claims is faster and has a lower price per megabit than existing Ku-band services.

service may continue to adversely impact sales of our mini-VSAT Broadband service and related equipment.

In addition, other companies could replicate some of the distinguishing features of our TracNet H-series products, which could potentially reduce the appeal of our solution, increase price competition, and adversely affect sales.

We compete against Inmarsat's Fleet Xpress service, a global Ka-band mobile

VSAT service that Inmarsat claims is faster and has a lower price per megabit than existing Ku-band services.

This service may continue to adversely impact sales of our KVH One broadband service and related equipment.

Our arrangement to use the IntelsatOne Flex service for our HTS network is not exclusive, and competitors’ use of this service could also adversely impact sales.

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Any failure to maintain and expand our third-party distribution relationships may limit our ability to penetrate markets for mobile connectivity products and services.

We market and sell our mobile connectivity products and services through an international network of independent retailers, chain stores and distributors, as well as to manufacturers of marine vessels, recreational vehicles and buses.

We market and sell our products and services through an international network of independent retailers, chain stores and distributors, as well as to manufacturers of marine vessels, recreational vehicles and buses.

Most of these relationships are non-exclusive, allowing these third parties to market competing products.

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For example, the global chip shortage and supply chain constraints resulting from the COVID-19 pandemic have impacted our ability to deliver products in a timely manner and have increased our cost of sales due to rising prices for materials.

In the fourth quarter of 2021, we estimate that raw material costs exceeded our expectations by approximately $0.4 million, and that orders for approximately $2.0 million could not be filled due to component shortages.

In the fourth quarter of 2022, we estimate that raw material costs exceeded our expectations by approximately $0.8 million, and in the third quarter of 2022 that orders for approximately $2.3 million could not be filled due to component shortages.

We may not be able to pass along any or all of these cost increases to our customers, and customers may not wait for our products to become available.

These disruptions in our supply chain could continue or worsen, which could continue to delay delivery of our products and services and adversely affect our revenue and results of operations in future periods.

These disruptions in our supply chain could continue or worsen, which could delay delivery of our products and services and adversely affect our revenue and results of operations in future periods.

Suppliers might change or discontinue key components, which could require us to modify our product designs.

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This, in turn, could limit our ability to satisfy demand for our products on a timely basis and could result in the cancellation of customer orders.

Further, adverse economic conditions, including conditions caused by the current COVID-19 pandemic, could result in financial difficulties or bankruptcy for any of our suppliers, which could adversely affect our business and results of operations.

Further, adverse economic conditions, including conditions caused by the COVID-19 pandemic, could result in financial difficulties or bankruptcy for any of our suppliers, which could adversely affect our business and results of operations.

We may source more materials and components from international suppliers, which could disrupt our business.

Although we have historically manufactured and sourced raw materials for the majority of our products domestically, in order for us to compete with lower priced competing products while also improving our profitability, in some instances we have found it desirable to source raw materials and manufactured components and assemblies from Europe, Asia, and South and North America.

Although we have historically manufactured and sourced raw materials for the majority of our products domestically, in order for us to compete with lower priced competing products while also improving our profitability, in some instances we have found it desirable to source raw materials and manufactured components and subassemblies from Europe, Asia, and South and North America.

Reliance on foreign manufacturing and/or raw material supply has lengthened our supply chain and increased the risk that a disruption in that supply chain could have a material adverse effect on our operations and financial performance.

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Market or competitive changes could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors.

Risks related to intellectual property

Risks related to intellectual property and technological innovation

We are devoting significant resources to research and development efforts that may be unsuccessful.

If we are unable to improve our existing mobile connectivity and inertial navigation products and services and develop new, innovative products and services, our sales and market share may decline.

The markets for mobile connectivity products and services and inertial navigation products and services are each characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving industry standards.

For example, we now compete with Inmarsat's Fleet Xpress satellite communications products and services.

If we are unable to improve our existing products and services and develop new, innovative products and services, our sales and market share may decline.

The market for mobile connectivity products and services is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving industry standards.

For example, we are starting to face competition from new low earth orbit (LEO) networks such as SpaceX's Starlink and OneWeb.

If we fail to make innovations in our existing products and services and reduce the costs of our products and services in a timely way, our market share may decline.

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If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, distract the attention of management, and there can be no assurance that we would prevail.

Also, we have delivered certain technical data and information to the U.S.

government under procurement contracts, and it may have unlimited rights to use that technical data and information.

There can be no assurance that the U.S.

government will not authorize others to use that data and information to compete with us.

Claims by others that we infringe their intellectual property rights could harm our business and financial condition.

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We cannot be certain that our products do not and will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others.

From time to time we have faced claims by third parties that our products or technology infringe their patents or other intellectual property rights, and we may face similar claims in the future.

For example, we were sued for patent infringement in 2015, and we settled this claim in January 2016 with a payment of cash.

Any claim of infringement could cause us to incur substantial costs defending against or settling the claim, even if the claim is invalid, and could distract the attention of our management.

If any of our products are found to violate third-party proprietary rights, we may be required to pay substantial damages.

In addition, we may be required to re-engineer our products or obtain licenses from third parties to continue to offer our products.

Any efforts to re-engineer our products or obtain licenses on commercially reasonable terms may not be successful, which would prevent us from selling our products, and, in any case, could substantially increase our costs and have a material adverse effect on our business, financial condition and results of operations.

Risks related to indebtedness

Our credit facility contains financial and restrictive covenants that we may not satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness and limit our ability to borrow additional funds.

The credit facility also imposes restrictions that may limit our ability to pursue business opportunities.

Although no amounts were outstanding under the agreements governing our secured credit facility as of December 31, 2021, the agreements subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis.

These include financial covenants pertaining to a maximum consolidated leverage ratio and a minimum trailing four-quarter consolidated adjusted EBITDA of $3.0 million and covenants requiring the mandatory prepayment of amounts outstanding under the revolver under specified circumstances.

The agreements also subject us to various restrictions on our ability to engage in certain activities, such as raising capital or acquiring businesses.

These restrictions may limit or restrict our cash flow and our ability to pursue business opportunities or strategies that we would otherwise consider to be in our best interests.

Risks related to government regulation

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Historically, sales to customers outside the United States have accounted for a significant portion of our net sales.

We derived 60% and 64% of our revenues in 2021 and 2020, respectively, from sales to these foreign customers.

We have foreign offices in Denmark, the United Kingdom, Singapore, Japan, Norway, Cyprus and the Philippines, as well as a subsidiary in Brazil that manages local sales.

Nonetheless, substantially all of our personnel and operations for both our mobile connectivity equipment business and our inertial navigation business are located in the United States.

We derived 62%, 58% and 58% of our revenues from continuing operations in the years ended December 31, 2022, 2021, and 2020, respectively, from sales to these foreign customers.

We have foreign offices in Denmark, the United Kingdom, Singapore, Japan, Norway and the Philippines, as well as a subsidiary in Brazil that manages local sales.

Nonetheless, substantially all of our operations and approximately one-half of our personnel are located in the United States.

Our limited international operations may impair our ability to compete successfully in international markets and to meet the service and support needs of our customers in countries where we have little to no infrastructure.

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sanctions or other trade restrictions that preclude or restrict doing business with particular foreign governments, companies or individuals;

technical challenges we may face in adapting our mobile connectivity products to function with different satellite services and technology in use in various regions around the world;

technical challenges we may face in adapting our products to function with different satellite services and technology in use in various regions around the world;

satisfaction of international regulatory requirements and delays and costs associated with procurement of any necessary licenses or permits;

the potential unavailability of content licenses covering international waters and foreign locations;

restrictions on the sale of certain inertial navigation products to foreign military and government customers;

increased costs of providing customer support in multiple languages;

increased costs of managing operations that are international in scope;

increased costs of managing

operations that are international in scope;

potentially adverse tax consequences, including restrictions on the repatriation of earnings;

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Customs and Border Protection, the Bureau of Industry and Security, the Department of Commerce, the Department of State, and the Office of Foreign Assets Control of the Treasury Department, as well as those of other nations in which we do business.

In addition, many of the countries where our customers use our products and services have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of voice over Internet services using such equipment, and, in some cases, the reception of certain video programming services.

In addition, many of the countries where our customers use our products and services have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of VoIP services using such equipment, and, in some cases, the reception of certain video programming services.

These laws and regulations are continually changing, making compliance complex.

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Any violation of these requirements by us or our employees, agents or third-party contractors may subject us to significant criminal and civil liability.

Exports of certain inertial navigation products are subject to the U.S.

Export Administration Regulations and the International Traffic in Arms Regulations and require a license from the U.S.

Department of State prior to shipment.

We must comply with the United States Export Administration Regulations and the International Traffic in Arms Regulations, or ITAR.

Certain of our products have military or strategic applications and are on the munitions list of the ITAR and require an individual validated license in order to be exported to certain jurisdictions.

Any changes in export regulations or reclassifications of our products may further restrict the export of our products, and we may cease to be able to procure export licenses for our products under existing regulations.

The length of time required by the licensing process can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue.

Any restriction on the export of a product line or any amount of our products could cause a significant reduction in net sales.

We are subject to FCC rules and regulations, and any non-compliance could subject us to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services

The satellite communications industry is regulated by the Federal Communications Commission in the United States and, as a result, we are subject to existing and potential FCC regulations relating to privacy, contributions to the Universal Service Fund, or USF, and other requirements.

The satellite communications industry is regulated by the Federal Communications Commission in the United States (FCC) and, as a result, we are subject to existing and potential FCC regulations relating to privacy, contributions to the Universal Service Fund, or USF, and other requirements.

If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, substantial fines, penalties, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.

Any enforcement action by the FCC, which may be a public process, could hurt our reputation in the industry, possibly impair our ability to sell our services to customers and could harm our business and results of operations.

Reform of federal and state USF programs could increase the cost of our service to our customers, diminishing or eliminating our pricing advantage.

The FCC has been considering reform or other modifications to its USF program, which, if implemented, could change the way we calculate our contribution to USF.

In April 2012, the FCC released a proposal to consider reforms to the manner in which companies like us contribute to the federal USF program.

In general, the proposal indicates that the FCC is considering changes to the companies that should contribute, how contributions should be assessed, and methods to improve the administration of the system.

We cannot predict the outcome of this proceeding or its impact on our business.

The changes in the U.S.

administration may renew interest in completing this proceeding.

Should the FCC adopt new contribution mechanisms or otherwise modify contribution obligations that increase our contribution burden, we will either need to raise the amount we currently collect from our customers to cover this obligation or absorb the costs, which would reduce our profit margins.

The attractiveness of our services may also be reduced as compared to the services of our competitors that do not appear to contribute to USF, or do not do so to the same extent that we do.

Privacy concerns and domestic or foreign laws and regulations may reduce demand for our services, increase our costs and harm our business.

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Although we believe our tax estimates are reasonable, the ultimate tax outcome may differ materially from our estimates and may materially affect our income tax benefit or expense, net loss or income, and cash flows in the period in which such determination is made.

As of December 31, 2021, we had gross uncertain tax positions of $1.9 million, consisting of a $1.3 million reduction to deferred tax assets and a $0.6 million liability for uncertain tax positions.

As of December 31, 2022, we had gross uncertain tax positions, inclusive of penalties and interest, of $1.8 million, consisting of a $1.2 million reduction to deferred tax assets and a $0.6 million liability for uncertain tax positions.

Deferred tax assets are recognized for the expected future tax consequences of temporary differences between the carrying amount for financial reporting purposes and the tax bases of assets and liabilities, and for net operating losses and tax credit carry forwards.

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the introduction of new products and services by us or our competitors;

changing needs of military customers;

changes in estimates of our performance or recommendations by securities analysts;

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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 1A. Risk Factors