What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-11 · 160 added, 232 removed, 105 unchanged (79% of the section changed)

4 unchanged sentences

Risk Factors” and elsewhere in this annual report.

We design, develop, manufacture and market mobile connectivity products and services for the marine and land mobile markets, and inertial navigation products for the defense and commercial markets.

Our reporting segments are as follows:

• the mobile connectivity segment and

• the inertial navigation segment

Through these segments, we manufacture and sell our solutions in a number of major geographic areas, including internationally.

We generate a majority of our revenues from various international locations, primarily consisting of Singapore, Canada, Europe, countries in Africa, other Asia/Pacific countries, the Middle East, and India.

Management Transition and Restructuring

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.

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

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

We expect to incur one-time and ongoing costs associated with the management transition, including the cost of the executive search firm, professional fees, salary continuation for Mr.

Kits van Heyningen of up to approximately $0.5 million for advisory services and a one-time separation payment to Mr.

Kits van Heyningen of $0.2 million (inclusive of amounts he may have otherwise earned under our 2021 executive bonus plan), as well as expenses associated with continued vesting of his equity awards.

In March 2022, we also restructured our operations to reduce costs and better reflect a more focused strategy.

reduced our workforce by approximately 10% and expect to reduce expenses from these actions.

There will be one-time costs to be incurred in the first quarter of fiscal year 2022, with the benefit to earnings expected to begin in the second quarter of fiscal year 2022.

Mobile Connectivity Segment

Our mobile connectivity segment offers satellite communications products and services.

Our mobile connectivity products enable customers to receive voice and Internet services and live digital television via satellite services in marine vessels, recreational vehicles, buses and automobiles.

We sell our mobile connectivity products through an extensive international network of dealers and distributors.

We also sell and lease products to service providers and directly to end users.

Our mobile connectivity service sales include sales of satellite voice and Internet airtime services, engineering services provided under development contracts, sales from product repairs, and extended warranty sales.

This segment's sales also include the distribution of entertainment, including news, sports, music, and movies, to commercial and leisure customers in the maritime, hotel, and retail markets through KVH Media Group.

We typically recognize revenue from media content sales ratably over the period of the service contract.

We provide, for monthly fixed fees and usage-based fees, satellite connectivity services for broadband Internet, data and VoIP service to our mini-VSAT Broadband customers.

We also earn monthly usage fees for third-party satellite connectivity for voice, data and Internet services to our Inmarsat and Iridium customers who choose to activate their subscriptions with us.

Within the mobile connectivity segment, our marine leisure business is highly seasonal, and seasonality can also impact our commercial marine business.

We design, develop, manufacture and market mobile connectivity products and services for the marine and land mobile markets.

We manufacture and sell our solutions in a number of major geographic areas, including internationally.

We generate a majority of our revenues from various international locations, primarily consisting of Singapore, Canada, European Union countries and other European countries, countries in Africa, Asia/Pacific and the Middle East, and India.

We offer satellite communications products and services.

Our satellite-only and hybrid products enable marine customers to receive data, Voice over Internet Protocol (VoIP), and value-added services via satellite, cellular, and shore-based Wi-Fi networks onboard commercial, leisure, and military/government vessels.

In addition, the Company’s in-motion television terminals permit customers to receive live digital television via regional satellite services in marine vessels, recreational vehicles, buses and automobiles.

We sell our products through an extensive international network of dealers and distributors.

We also sell and lease products to service providers and end users.

Our service sales primarily represent revenue earned from satellite Internet airtime services.

We provide, for monthly fixed fees and per-usage fees, satellite connectivity encompassing broadband Internet, data and VoIP services, to our TracNet H-series and TracPhone V-series customers via our global HTS network.

Revenue from our cellular airtime service has increasingly supplemented, and we expect will continue to supplement, our satellite-only airtime revenue following the mid-2022 launch of the KVH ONE hybrid network and TracNet H-series terminals.

This product and service combination integrates global satellite service with KVH-provided cellular service in more than 150 countries, along with shore-based Wi-Fi access.

These sales also include the distribution of entertainment, including news, sports, music, and movies, to commercial customers in the maritime, hotel, and retail markets through KVH Media Group, along with supplemental value-added services.

In addition, we earn monthly usage fees for third-party satellite connectivity for VoIP, data and Internet services to our Inmarsat and Iridium customers who choose to activate their subscriptions with us.

Service sales also include sales from product repairs and extended warranty sales.

Our marine leisure business is highly seasonal, and seasonality can also impact our commercial marine business.

Historically, we have generated the majority of our marine leisure product revenues during the first and second quarters of each year, and these revenues typically decline in the third and fourth quarters of each year, compared to the first two quarters.

Temporary suspensions of our airtime services typically increase in the third and fourth quarters of each year as boats are placed out of service during the winter months.

Impairment Charge – KVH Media Group

The COVID-19 pandemic impacted various aspects of our operations in 2020, and we monitored the impact of this global crisis carefully.

We particularly monitored the operations of KVH Media Group, which depends heavily on travel and travel-related industries.

The revenues and cash flows of KVH Media Group were significantly impacted by the global reduction in travel commencing with the start of the pandemic, as the global travel and related industries dropped to historically depressed levels.

In response to the impact of the pandemic, particularly with respect to our KVH Media Group business, during our 2020 annual budgeting and long-term planning process, we conducted detailed discussions with many of our largest customers in the KVH Media Group to validate our assumptions, which indicated further expected delays in recovery, and certain areas of the KVH Media Group business that might not recover completely or at all.

Accordingly, we updated our long-term revenue and cash flow forecast to reflect these most recent observations.

Based on our other long-lived asset impairment analysis and annual goodwill impairment test, 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.

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

Please see Note 1(k) to our accompanying audited consolidated financial statements for additional information.

Inertial Navigation Segment

Our inertial navigation segment offers precision fiber optic gyro (FOG)-based systems that enable platform and optical stabilization, navigation, pointing, and guidance.

Our inertial navigation products also include tactical navigation systems that provide uninterrupted access to navigation and pointing information in a variety of military vehicles, including tactical trucks and light armored vehicles.

Our inertial navigation products are sold directly to U.S.

and foreign governments and government contractors, as well as through an international network of authorized independent sales representatives.

In addition, our inertial navigation products are used in numerous commercial products, such as navigation and positioning systems for various applications including autonomous platforms, precision mapping, dynamic surveying, train location control and track geometry measurement systems, industrial robotics and optical stabilization.

Our inertial navigation service sales include engineering services provided under development contracts, product repairs and extended warranty sales.

Dispositions;

Termination of Credit Facility

On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for gross proceeds of $55.0 million, less specified deductions and a holdback of $1.0 million and subject to a working capital adjustment.

The finalized working capital adjustment, which resulted in a $0.1 million payment to EMCORE, was recorded in the fourth quarter of 2022.

The holdback was released to us on August 17, 2022.

On August 9, 2022, we also entered into a Transition Services Agreement with EMCORE, pursuant to which we agreed to provide certain transition services to support the continued operation of the inertial navigation business for a specified period of time following the sale.

We do not have any continuing involvement in these operations other than short-term transition services, which are being recorded as an offset to general and administrative expenses in continuing operations.

We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20.

On August 9, 2022, we also terminated our senior secured credit facility agreement (the 2018 Credit Agreement) and the related security and pledge agreements with Bank of America, N.A., as Administrative Agent.

At the time of termination, no borrowings were outstanding under the 2018 Credit Agreement.

With the termination of this agreement, all associated liens were released.

On April 29, 2022, KVH Media Group Limited, our wholly owned subsidiary, sold its subsidiary KVH Media Group Entertainment Limited for net cash proceeds of approximately $2.4 million.

This transaction did not meet the criteria for reporting as discontinued operations under ASC 205-20.

We recorded a gain on the sale of approximately $0.7 million, which is recorded in other income, net in the accompanying consolidated statements of operations.

See Note 9 to our accompanying audited consolidated financial statements for the reduction of goodwill and intangibles associated with the KVH Media Group reporting unit as it relates to the sale of this subsidiary.

Management Transition and Restructuring

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 and assuming a consulting position with us.

Bruun, our then Chief Operating Officer, was appointed as our interim President and Chief Executive Officer.

Subsequently, on June 15, 2022, he was appointed as our President and Chief Executive Officer and as a Class II member of the Board of Directors.

We have incurred approximately $0.7 million of costs associated with the management transition through December 31, 2022, including a separation payment, consulting fees and health insurance coverage for Mr.

Kits van Heyningen, as well as professional and advisory fees, and expect to continue to incur ongoing compensation expenses until March 2023.

Approximately $0.1 million is accrued as of December 31, 2022.

In March 2022, we also restructured our operations to reduce costs and pursue a more focused strategy.

We reduced our workforce by approximately 10% and began incurring reduced expenses from these actions beginning in the second quarter of 2022.

Approximately $2.2 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022.

We also modified impacted employee's stock option and restricted stock awards.

Please see Note 7 to our accompanying audited consolidated financial statements for further discussion.

During the third quarter of 2022, we restructured our foreign operations by closing our India and Cyprus offices and our Denmark warehouse to reduce costs.

Approximately $0.4 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022.

Executive Employment Agreements

In May 2022, we entered into executive employment agreements with each of Brent C.

Bruun, Roger A.

Kuebel, Felise Feingold and Robert Balog in order to retain their services and provide them with certain benefits in the event that we terminated the executive’s employment without cause (as defined in the agreement) or the executive terminated his or her employment for good reason (as defined in the agreement), including following a change of control.

The terms of the agreements are substantially identical except as to title, salary, target bonus and reporting responsibilities.

The agreements provide that, if the executive continued to serve as an employee through December 31, 2022 (the “Retention Date”), we would pay the executive a retention bonus equal to 75% of the executive’s base salary at the agreement date, and we would accelerate the vesting of the executive’s equity awards that would otherwise have vested in the twelve months after the Retention Date.

Bruun, Roger A.

Kuebel, Felise Feingold and Robert Balog continued to serve as an employee as of December 31, 2022.

Please see Note 7 to our accompanying audited consolidated financial statements for further discussion regarding the equity compensation modifications.

On October 11, 2022, we entered into an amendment to the employment agreement with Mr.

Bruun that, among other things, increased his annual base salary to $448,360 per year, retroactive to July 1, 2022, increased his target annual incentive compensation for the second half of 2022 to 80% of his base salary (without changing his target annual incentive compensation for the first half of 2022), extended his Retention Date from December 31, 2022 to December 31, 2023, which effectively extended the period during which Mr.

Bruun must remain employed by us in order to earn his retention bonus, and modified the amount of the retention bonus from 75% of his base salary in effect on May 2, 2022 to 75% of the highest base salary in effect for Mr.

Bruun on or before the date he becomes entitled to receive the retention bonus or the “Partial Retention Bonus” (as defined in the employment agreement).

The amendment did not modify the terms of the employment agreement relating to acceleration of vesting of certain equity awards if Mr.

Bruun remains employed by us through December 31, 2022.

As of December 31, 2022, we accrued approximately $0.9 million for the executive employment agreements.

In addition to the amendment to Mr.

Bruun’s employment agreement, the Compensation Committee also granted Mr.

Bruun a restricted stock award and non-statutory stock options, which together had an aggregate grant date fair value of approximately $100,000.

The restricted stock award and the non-statutory stock options have terms that are materially consistent with the previously disclosed terms of similar grants to our executive officers.

During the year ended December 31, 2022, we continued to experience delays in the availability and delivery of certain raw material components, which has impacted our manufacturing and resulted in shipping delays in getting products out to our customers.

We also experienced increased raw material costs, which we expect to continue into 2023.

We are continuing to monitor global developments and are prepared to implement any actions that we determine to be necessary to sustain our business.

PPP Loan Forgiveness

In September 2021, the U.S.

Small Business Administration approved our application for the forgiveness of the $6.9 million loan (the PPP Loan) we received in May 2020 pursuant to the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (as modified by the Paycheck Protection Flexibility Act of 2020, the CARES Act).

Small Business Administration approved our application for the forgiveness of the $6.9 million loan (the PPP Loan), including related interest, that we received in May 2020 pursuant to the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (as modified by the Paycheck Protection Flexibility Act of 2020, the CARES Act).

As a result, we recognized $7.0 million of other income during the three months ended September 30, 2021.

Summary of Net Sales

The following table provides, for the periods indicated, our sales by segment for our continuing operations:

Year Ended December 31,

(in thousands)

Mobile connectivity $ 133,911 $ 119,453

Inertial navigation 37,856 39,280

Net sales $ 171,767 $ 158,733

Product sales within the mobile connectivity segment accounted for 17% and 18% of our consolidated net sales for 2021 and 2020, respectively.

Sales of mini-VSAT Broadband airtime service accounted for 54% and 51% of our consolidated net sales for 2021 and 2020, respectively.

Within our inertial navigation segment, net sales of FOG-based guidance and navigation systems accounted for 16% of our consolidated net sales for both 2021 and 2020.

No other single product class accounted for 10% or more of consolidated net sales.

No individual customer accounted for 10% or more of our consolidated net sales for 2021 or 2020.

International Sales

We operate in a number of major geographic areas across the globe.

We generate our international net sales, based upon customer location, primarily from customers located in Singapore, Canada, Europe, countries in Africa, other Asia/Pacific countries, the Middle East, and India.

Our international net sales totaled 60% and 64% of our consolidated net sales for 2021 and 2020, respectively.

We generate our international net sales, based upon customer location, primarily from customers located in Singapore, Canada, European Union countries and other European countries, as well as countries in Africa, Asia/Pacific and the Middle East, and India.

Revenues are based upon customer location and internationally represented 62% and 58% of our consolidated net sales for 2022 and 2021, respectively.

Sales to Singapore customers represented 16% of our consolidated net sales for 2022.

No other individual foreign country represented 10% or more of our consolidated net sales for 2022.

No individual foreign country represented 10% or more of our consolidated net sales for 2020.

Sales to Singapore customers represented 13% of our consolidated net sales for 2021.

No other individual foreign country represented 10% or more of our consolidated net sales for 2021.

See Note 12 to our accompanying audited consolidated financial statements for more information on our segments.

Customer-Funded Research and Development

In addition to our internally funded research and development efforts, we also conduct research and development activities that are funded by our customers.

These activities relate primarily to engineering studies, surveys, prototype development, program management, and standard product customization.

In accordance with accounting principles generally accepted in the United States of America, we account for customer-funded research as service revenue, and we account for the associated research and development costs as costs of service and product sales.

As a result, customer-funded research and development are not included in the research and development expense that we present in our statement of operations.

The following table presents our total annual research and development effort, representing the sum of research costs of service and product sales and the operating expense of research and development as described in our statement of operations.

Our management believes this information is useful because it provides a better understanding of our total expenditures on research and development activities.

Year Ended December 31,

(in thousands)

Research and development expense presented in the statement of operations $ 17,766 $ 15,799

Costs of customer-funded research and development included in costs of service sales 803 2,935

Total consolidated statements of operations expenditures on research and development activities $ 18,569 $ 18,734

Results of Operations

The following table provides, for the periods indicated, certain financial data expressed as a percentage of net sales:

The following table provides, for the periods indicated, certain financial data relating to our continuing operations expressed as a percentage of net sales:

Year Ended December 31,

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General and administrative 17.8 21.5

Goodwill impairment charge — 5.5

Intangible asset impairment charge — 1.1

Total costs and expenses 104.1 114.7

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Other income, net 0.6 5.3

Loss before income taxes (benefit) expense (5.8) (13.8)

Income tax (benefit) expense (0.1) 0.1

Net loss (5.7) % (13.9) %

Loss from continuing operations before income taxes (benefit) expense (2.4) (8.7)

Income tax expense (benefit) from continuing operations 0.4 (0.1)

Net loss from continuing operations (2.8) % (8.6) %

Years ended December 31, 2022 and 2021

As discussed further under the heading "Segment Discussion" below, product sales increased $2.3 million, or 3%, to $66.9 million in 2021 from $64.6 million in 2020, due to an increase in mobile connectivity product sales of $2.1 million and an increase in inertial navigation product sales of $0.1 million.

Service sales for 2021 increased $10.8 million, or 11%, to $104.9 million from $94.1 million in 2020 primarily due to an increase in mobile connectivity service sales of $12.3 million, partially offset by a decrease in inertial navigation service sales of $1.5 million.

Our net sales for 2022 and 2021 were as follows:

Year Ended December 31, 2022 vs.

2022 2021 $ %

(in thousands)

Product sales $ 26,970 $ 30,012 $ (3,042) (10) %

Service sales 111,908 103,899 8,009 8 %

Net sales 138,878 133,911 4,967 4 %

Net sales increased by $5.0 million, or 4%, in 2022 as compared to 2021.

Product sales decreased by $3.0 million, or 10%, to $27.0 million in 2022 from $30.0 million in 2021.

The decrease in product sales was primarily the result of a $3.1 million decrease in VSAT product sales.

The decrease in VSAT product sales was primarily due to a decrease in unit sales volume.

Service sales increased by $8.0 million, or 8%, to $111.9 million in 2022 from $103.9 million in 2021.

The increase was primarily due to a $10.4 million increase in VSAT service sales, partially offset by a decrease in our content services sales of $2.6 million, primarily driven by the sale of KVH Media Group Entertainment Limited in April 2022.

The shutdown of our legacy Arclight network on December 31, 2021 impacted sales of VSAT products in 2021 and VSAT services in 2022.

During 2021, VSAT product sales benefited from the demand for units needed to migrate to our HTS network before the shutdown of our legacy network.

During 2022, VSAT service sales have been impacted by the loss of revenue from customers who did not migrate on or before December 31, 2021.

As of December 31, 2021, the monthly recurring revenue associated with those customers was approximately $0.3 million.

A number of these customers have since returned, and when combined with new customers, VSAT service revenue in 2022 was up 11% from 2021.

Costs of Sales

Costs of sales consists of costs of product sales and costs of service sales.

Costs of sales increased in 2021 to $112.0 million from $101.1 million in 2020.

The increase in costs of sales was driven by a $5.6 million increase in costs of service sales and a $5.2 million increase in costs of product sales.

As a percentage of net sales, costs of sales was 65% and 64% for 2021 and 2020, respectively.

Costs of sales decreased by $1.8 million, or 2%, in 2022 to $86.3 million from $88.1 million in 2021.

The decrease in costs of sales was driven by a $3.0 million decrease in costs of service sales, which was partially offset by a $1.2 million increase in costs of product sales.

As a percentage of net sales, costs of sales were 62% and 66% for 2022 and 2021, respectively.

Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products.

For 2021, costs of product sales increased by $5.2 million, or 13%, to $46.8 million from $41.6 million in 2020.

For 2022, costs of product sales increased by $1.2 million, or 5%, to $25.2 million from $24.0 million in 2021, primarily due to a $1.6 million increase in our marine cost of product sales and a $0.4 million decrease in our land costs of product sales.

As a percentage of product sales, costs of product sales were 93% and 80% for 2022 and 2021, respectively.

Mobile connectivity costs of product sales increased by $2.4 million, or 11%, due to a $2.3 million increase in our marine mobile connectivity cost of product sales and a $0.2 million increase in our land mobile connectivity costs of product sales.

Mobile connectivity costs of product sales as a percentage of mobile connectivity product sales were 80% and 77% for 2021 and 2020, respectively.

Inertial navigation costs of product sales increased by $2.8 million, or 14%, primarily due to a $1.9 million increase in FOG and OEM costs of product sales and a $1.6 million increase in expensed material and other manufacturing period costs, offset slightly by a $0.7 million decrease in our TACNAV costs of product sales.

Inertial navigation costs of product sales as a percentage of inertial navigation product sales was 62% and 55% for 2021 and 2020, respectively, which increased primarily due to product mix with a decrease in high margin TACNAV product sales.

Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our mini-VSAT Broadband network infrastructure, direct network service labor, Inmarsat service costs, product installation costs, engineering and related direct costs associated with customer-funded research and development, media materials and distribution costs, and service repair materials.

For 2021, costs of service sales increased by $5.6 million, or 9%, to $65.2 million from $59.5 million in 2020.

The increase was primarily driven byproduct mix within our marine costs of product sales, as well as increased component costs and manufacturing inefficiencies due to supply chain shortages, as well as increased general inflation.

Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our global HTS network infrastructure, direct network service labor, Inmarsat service costs, product installation costs, engineering and related direct costs associated with customer-funded research and development, media materials and distribution costs, and service repair materials.

For 2022, costs of service sales decreased by $3.0 million, or 5%, to $61.1 million from $64.1 million in 2021.

Costs of service sales decreased primarily due to a $1.5 million decrease in VSAT airtime costs of service sales.

This decrease was primarily driven by the shutdown of our legacy Arclight network, partially offset by an increase in costs associated with our HTS network due to increased capacity required for additional customers.

In addition, there was a $1.4 million decrease in content and training cost of service sales, primarily driven by the sale of a subsidiary in April 2022.

As a percentage of service sales, costs of service sales were 55% and 62% for 2022 and 2021, respectively.

Mobile connectivity costs of service sales increased by $7.8 million, or 14%, primarily due to a $8.0 million increase in mini-VSAT airtime costs of service sales.

Mobile connectivity costs of service sales as a percentage of mobile connectivity service sales were 62% for both 2021 and 2020.

Inertial navigation costs of service sales decreased by $2.1 million, or 67%, primarily due to a decrease in contract engineering services sales.

Inertial navigation costs of service sales as a percentage of inertial navigation service sales was 103% and 124% for 2021 and 2020, respectively.

The decrease in costs of inertial navigation service sales was primarily due to a decrease in costs relating to an engineering and services development contract from a major U.S.

defense contractor.

Operating Expenses

Research and development expense consists of direct labor, materials, external consultants, and related overhead costs that support our internally funded product development and product sustaining engineering activities.

Research and development expense for 2021 increased by $2.0 million, or 12%, to $17.8 million from $15.8 million in 2020.

The primary reason for the increase in research and development expense was a $2.1 million decrease in funded engineering expenses (and a corresponding reallocation of the expense of the underlying engineering work from costs of service sales (where funded engineering expenses are reflected) to research and development expense (where unfunded engineering expenses are reflected)) and a $0.2 million increase in consulting fees.

As a percentage of net sales, research and development expense was 10% in both 2021 and 2020.

We expect that in 2022 our research and development expense will decrease year-over-year due to the restructuring announced in March 2022 as we scale back our long-term research initiatives and focus on development initiatives related to our core products.

Research and development expense for 2022 decreased by $0.7 million, or 6%, to $10.4 million from $11.1 million in 2021.

The primary reason for the decrease in research and development expense was a $0.4 million decrease in salaries and associated compensation due to the March restructuring and a $0.4 million decrease in professional fees.

As a percentage of net sales, research and development expense was 8% for each of 2022 and 2021.

Sales, marketing, and support expense consists primarily of salaries and related expenses for sales and marketing personnel, commissions for both in-house and third-party representatives, costs related to the co-development of certain content, other sales and marketing support costs such as advertising, literature and promotional materials, product service personnel and support costs, warranty-related costs and bad debt expense.

Sales, marketing and support expense also includes the operating expenses of our sales office subsidiaries in Denmark, Singapore, Brazil, and Japan.

Sales, marketing, and support expense increased by $1.4 million, or 5%, to $31.2 million in 2021 from $29.8 million in 2020.

The increase in sales, marketing and support expense resulted primarily from a $1.6 million increase in salaries and associated compensation, a $0.3 million increase in external commission expenses, a $0.2 million increase in bad debt expenses and a $0.2 million increase in professional fees, partially offset by a $0.8 million decrease in warranty expenses and a $0.2 million decrease in travel expenses.

Sales, marketing, and support expense decreased by $2.3 million, or 9%, to $23.2 million in 2022 from $25.6 million in 2021.

The decrease in sales, marketing and support expense resulted primarily from a $1.5 million decrease in salaries and associated compensation due to the March restructuring, a $0.5 million decrease in marketing expenses, a $0.3 million decrease in bad debt expenses, a $0.3 million decrease in external commissions expense and a $0.2 million decrease in professional fees, partially offset by a $0.6 million increase in warranty expenses and a $0.3 million increase in travel expenses.

As a percentage of net sales, sales, marketing and support expense was 17% and 19% in 2022 and 2021, respectively.

We expect that in 2022 our sales, marketing, and support expense will decrease year-over-year due to the March 2022 restructuring.

General and administrative expense consists of costs attributable to management, finance and accounting, information technology, human resources, certain outside professional services, and other administrative costs.

General and administrative expense for 2021 increased by $4.3 million, or 18%, to $28.8 million from $24.4 million for 2020.

The increase in general and administrative expense resulted primarily from a $3.5 million increase in professional fees, primarily arising from a stockholder’s nomination of a competing slate of directors at our annual meeting of stockholders, and a $1.0 million increase in

salaries and associated compensation.

General and administrative expense for 2022 decreased by $4.1 million, or 14%, to $24.7 million from $28.8 million for 2021.

The decrease in general and administrative expense resulted primarily from a $3.4 million decrease in professional fees, primarily arising from a stockholder’s nomination of a competing slate of directors at our annual meeting of stockholders in 2021 and $0.9 million of contra-expense associated with the Transition Services Agreement with EMCORE as a result of the sale of the inertial navigation business in 2022.

As a percentage of net sales, general and administrative expense was 18% and 22% for 2022 and 2021, respectively.

We expect that in 2022 our general and administrative expense will decrease year-over-year due to the March 2022 restructuring.

Interest and Other Income, Net

Interest income represents interest earned on our cash and cash equivalents, as well as from investments and our sale-type lease receivables.

Interest income decreased by $0.1 million to $0.9 million from $1.0 million for 2020, primarily due to lower interest related to our marketable securities.

Interest expense for 2021 increased to $0.1 million from less than $0.1 million for 2020.

Other income, net for 2021 increased to $7.2 million from other income, net of $0.2 million for 2020 primarily due to the forgiveness of the PPP Loan.

Interest income increased by $0.6 million to $1.5 million from $0.9 million for 2021, primarily due to an increase in our marketable securities.

Interest expense remained flat period-over-period at less than $0.1 million for 2022 and 2021.

Other income, net for 2022 decreased to $0.8 million from other income, net of $7.1 million for 2021 primarily due to the forgiveness of the PPP Loan in 2021.

Income Tax (Benefit) Expense

Income tax expense for 2022 was $0.5 million and related to current U.S.

taxes as a result of net operating use limitations and the release of a portion of the valuation allowance, taxes on income earned in foreign jurisdictions and discrete adjustments.

Income tax benefit for 2021 was $0.1 million and related to losses generated in foreign jurisdictions.

1 unchanged sentence

due to a full valuation allowance on our related deferred tax assets.

Income tax expense for 2020 was $0.2 million due to taxes related to income earned in foreign jurisdictions and no associated tax benefit related to losses incurred in the U.S.

due to a full valuation allowance on our related deferred tax assets.

The effective tax rate for 2021 was 1.1%.

The effective tax rate for 2022 was (16.2)% on continued operations.

The primary driver of the difference between our effective tax rate as compared to the United States federal statutory rate was the change in the valuation reserve against the U.S.

deferred tax assets, research tax credits, state taxes and the non-taxability of the forgiveness of the PPP Loan.

deferred tax assets, international rate differences, research tax credits, state taxes and discrete tax adjustments.

The effective income tax rate of 0.9% for 2021 differs from the U.S.

federal statutory rate due to the impact of recording the valuation reserve against the U.S.

deferred tax assets, which was partially offset by income taxed at lower foreign tax rates.

Segment Discussion - Years ended December 31, 2021 and 2020

Our net sales by segment for 2021 and 2020 were as follows:

For the year ended December 31, 2021 vs.

2021 2020 $ %

(dollars in thousands)

Mobile connectivity sales

Product $ 30,012 $ 27,863 $ 2,149 8 %

Service 103,899 91,590 12,309 13 %

Net sales $ 133,911 $ 119,453 $ 14,458 12 %

Inertial navigation sales

Product $ 36,858 $ 36,756 $ 102 — %

Service 998 2,524 (1,526) (60) %

Net sales $ 37,856 $ 39,280 $ (1,424) (4) %

Operating income (loss) by segment for 2021 and 2020 were as follows:

For the year ended December 31, 2021 vs.

2021 2020 $ %

(dollars in thousands)

Mobile connectivity (1)

$ 2,749 $ (10,071) $ 12,820 127 %

Inertial navigation 1,649 4,799 (3,150) (66) %

$ 4,398 $ (5,272) $ 9,670 183 %

Unallocated (22,344) (17,665) (4,679) (26) %

Loss from operations $ (17,946) $ (22,937) $ 4,991 22 %

(1) Mobile connectivity loss from operations for 2020 includes a $10.5 million goodwill and intangible asset impairment charge.

See Note 1(k) and Note 9 to our accompanying audited consolidated financial statements for more information.

Mobile Connectivity Segment

Net sales in the mobile connectivity segment increased by $14.5 million, or 12%, in 2021 as compared to 2020.

Mobile connectivity product sales increased by $2.1 million, or 8%, to $30.0 million in 2021 from $27.9 million in 2020.

The increase was primarily the result of a $1.1 million increase in TracVision product sales and $0.9 million increase in mini-VSAT product sales.

The increases in TracVision and mini-VSAT product sales was primarily due to an increase in unit sales volume.

Mobile connectivity service sales increased by $12.3 million, or 13%, to $103.9 million in 2021 from $91.6 million in 2020.

The increase was primarily due to a $11.5 million increase in mini-VSAT service sales, driven by a 12% increase in subscribers, primarily as a result of AgilePlans.

In addition, there was an increase of $0.3 million in our content service sales and a $0.3 million increase in service activation sales.

The 12% increase in subscribers is measured as of noon on December 31, prior to the shutdown of the legacy Arclight network.

Consistent with our previously disclosed plans, we shut down our legacy Arclight network at midnight on December 31, 2021.

Virtually all costs associated with that network have ceased, and while we will have additional costs on our HTS network to service the customers who have migrated from the legacy network, we expect to see a margin improvement in our mini-VSAT services.

We are continuing with the migration/transition of legacy network customers who did not migrate by December 31, 2021.

As of December 31, 2021, the monthly recurring revenue associated with those customers was approximately $0.3 million.

During January and February of 2022, we re-signed a total of $0.1 million of recurring monthly revenue from former legacy customers.

We expect to continue re-signing former legacy network customers throughout 2022, particularly in the spring as seasonal leisure customers commission their vessels for the summer.

However, we do not expect that we will succeed in re-signing all of them.

For the full year, we expect airtime revenue growth but at a lower rate than we saw in 2021.

Operating income (loss) for the mobile connectivity segment increased $12.8 million in 2021 to an operating gain of $2.7 million as compared to an operating loss of $10.1 million for 2020.

This increase in operating income was primarily due to the impairment of goodwill and other intangible assets of $10.5 million in 2020 in KVH Media Group (which was not repeated in 2021), combined with an increase in sales less associated costs of $4.3 million.

This was partially offset by an increase in mobile connectivity operating expenses, excluding impairment, of $1.9 million in 2021.

The increase in operating expenses was primarily due to a $1.8 million increase in salaries and associated compensation, primarily due to reinstating salaries and associated compensation that were temporarily reduced in connection with our response to COVID-19.

In addition, there was a $0.8 million increase in research and development expense, which was offset by a $0.8 million decrease in warranty expenses.

Inertial Navigation Segment

Net sales in the inertial navigation segment decreased $1.4 million, or 4%, in 2021 as compared to 2020.

Inertial navigation product sales increased $0.1 million, or less than 1%, to $36.9 million in 2021 from $36.8 million in 2020.

The primary driver of the increase was an increase of $3.0 million, or 12%, of sales of our FOG products, offset by a $2.9 million, or 27%, decrease in TACNAV product sales (for more information, see “Risk Factors — Risks related to government sales — 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.”).

Inertial navigation service sales decreased $1.5 million, or 60%, to $1.0 million in 2021 from $2.5 million in 2020.

The primary reason for the decrease was a $1.7 million, or 82%, decrease in contracted engineering service revenues due to a decrease in services for a project for a major U.S.

defense customer.

Operating income for the inertial navigation segment decreased $3.2 million in 2021 to an operating gain of $1.6 million as compared to an operating gain of $4.8 million for 2020.

This decrease was primarily due to the decrease in sales less associated costs of $2.1 million, a $0.9 million decrease in funded engineering expenses and a $0.3 million increase in external commissions.

This was partially offset by a $0.3 million decrease in salaries and associated compensation.

Certain corporate-level costs have not been allocated because they are not directly attributable to either segment.

These costs primarily consist of broad corporate functions, including executive, legal, finance, information technology, and costs associated with corporate actions.

Unallocated operating loss increased $4.7 million, or 26%, in 2021 compared to 2020.

The increase in unallocated operating loss was primarily the result of a $3.5 million increase in professional fees, primarily arising from a stockholder’s nomination of a competing slate of directors at our annual meeting of stockholders, and a $1.2 million increase in salaries and associated compensation, primarily due to reinstating salaries and associated compensation that were temporarily reduced in connection with our response to COVID-19.

In addition, there was a $0.3 million increase in computer expenses.

federal statutory rate due to the change in the valuation reserve against the U.S.

deferred tax assets, research tax credits, state taxes and the non-taxability of the forgiveness of the PPP Loan.

Discontinued Operations

On August 9, 2022, we sold our inertial navigation business for gross proceeds of $55.0 million, less specified deductions and a holdback of $1.0 million and subject to a working capital adjustment.

The finalized working capital adjustment, which resulted in a $0.1 million payment to EMCORE, was recorded in the fourth quarter of 2022.

The holdback was released to us on August 17, 2022.

We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20.

Accordingly, we have classified the results of the inertial navigation business as discontinued operations for all periods presented.

Please see Notes 1 and 16 to our accompanying audited consolidated financial statements for further information.

Results for discontinued operations are as follows:

Year Ended December 31,

(dollar in thousands)

Sales from discontinued operations $ 16,721 $ 37,856

Gain on sale of discontinued operations before tax expense $ 30,763 $ —

Income from discontinued operations, net of tax $ 28,025 $ 1,783

Critical Accounting Estimates

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Critical accounting estimates are those estimates made that involve a significant level of estimation uncertainty and have had or are reasonably likely to have an impact on our statement of operations.

We believe that our accounting policies for goodwill, intangible assets, and other long-lived assets are the only estimates critical to an understanding and evaluation of our financial results for 2021, as discussed below.

We believe that our accounting policies for goodwill, intangible assets, and other long-lived assets contain the only estimates critical to an understanding and evaluation of our financial results for 2022, as discussed below.

Goodwill, Intangible Assets, and other Long-Lived Assets

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Any impairment charges would be based on the quantitative analysis.

As a result of the 2020 annual impairment test, we recorded goodwill impairment charges of $8.7 million and intangible asset impairment charges of $1.8 million related to its KVH Media Group reporting unit.

Prior to 2020, we had not recorded or incurred goodwill impairment charges.

For the October 1, 2020 test, due to the uncertainty that the global pandemic presented during 2020, we determined that we should perform a quantitative analysis of goodwill impairment.

We performed this full quantitative analysis in the fourth quarter of 2020 in conjunction with our annual budgeting and long-term planning cycle.

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

With the assistance of our valuation specialists, we utilized an income approach and market approach to estimate the fair value of our reporting units, based on assumptions that we believed to be reasonable.

As an additional corroborative test of the reasonableness of those assumptions, we completed a reconciliation of our market capitalization and overall enterprise value to the fair value of all of our reporting units as of October 1, 2020.

We estimated that, as of October 1, 2020, the fair value of our mobile broadband reporting unit exceeded its carrying value by 18%;

however, the carrying value of our KVH Media Group reporting unit exceeded its fair value by $10.2 million, which signified that an impairment had occurred and identified a triggering event to review our other long-lived assets for impairment.

In accordance with ASC 360-10, Property, Plant and Equipment – Impairment or Disposal of Long-Lived Assets (ASC 360), with regard to our long-lived assets, we performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable.

Accordingly, we then performed an analysis to estimate the fair value of the other long-lived assets and recognized impairment charge of $1.8 million against the distribution rights intangible asset, the amount by which the carrying value of the asset group’s other long-lived assets exceeded their estimated fair value, and a reduction in the associated deferred tax liability of $0.3 million.

As a result, we recognized an impairment charge to KVH Media Group’s goodwill in the amount of $8.7 million, the remaining amount by which the carrying value exceeded its fair value.

For the October 1, 2022 test, we performed a qualitative assessment of goodwill impairment (Step 0) and concluded that for our mobile broadband reporting unit, it was more likely than not that, for this reporting unit, the fair value exceeded the carrying value.

For the KVH Media Group reporting unit, we determined that it was necessary to perform the Step 1 quantitative analysis due to the ongoing global pandemic and its impacts.

For the KVH Media Group reporting unit, we determined that it was necessary to perform the Step 1 quantitative analysis due to the operating trends identified within the reporting unit.

We utilized an income approach to estimate the fair value of the reporting unit.

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Our primary liquidity needs have been to fund general business requirements, including working capital requirements and capital expenditures.

In recent years, we have funded our operations primarily from the sale of a business in 2019 as well as bank financings and proceeds received from exercises of stock options and the issuance of stock.

In recent years, we have funded our operations primarily from the sale of two businesses in 2022, the sale of a business in 2019, a PPP loan, cash flows from operations, bank financings and proceeds received from exercises of stock options and the issuance of stock.

In May 2020, we received a $6.9 million loan from Bank of America, N.A.

(the Lender), under the PPP, which was established under the CARES Act.

Pursuant to the terms of the CARES Act, in August 2021, we applied for forgiveness of the full amount of the PPP Loan.

Pursuant to the terms of the CARES Act, in August 2021 we applied for forgiveness of the full amount of the PPP Loan and related interest.

On September 24, 2021, we received notification from the bank that, on September 19, 2021, the U.S.

Small Business Administration (the SBA) had determined that the PPP Loan forgiveness application was approved, and the PPP Loan, including all accrued interest thereon, was paid in full by the SBA.

We believe that our cash and cash equivalents as of December 31, 2021, our estimated cash flows from operations, and borrowings available under our credit agreement will be sufficient to fund our operations and anticipated capital expenditures through at least the next twelve months based on our current operating plans.

However, as the need or opportunity arises, we may seek to raise additional capital through public or private sales of securities or through additional debt financing.

There are no assurances that we will be able to obtain any additional funding or that such funding will be available on terms acceptable to us, or at all.

The forgiveness of the PPP Loan is recognized in other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

The finalized working capital adjustment, which resulted in a $0.1 million payment to EMCORE, was recorded in the fourth quarter of 2022.

The holdback was released to us on August 17, 2022.

Based upon our current working capital position, current operating plans and expected business conditions, we expect to have sufficient funds, through at least twelve months from the date that this report is filed with the SEC, to fund our short-term and long-term working capital requirements, including capital expenditures and contractual obligations.

We believe that our primary long-term capital requirements relate to AgilePlans revenue-generating assets, as well as servicing and repaying our satellite service capacity and equipment lease obligations.

At December 31, 2022, we had outstanding non-cancellable satellite service capacity and other lease obligations with future minimum payments of $48.4 million.

Our ability to make payments on our satellite service capacity and equipment lease obligations, as well as our ability to fund planned capital expenditures, will depend on our ability to generate cash in the future.

Our ability to generate cash in the future will depend upon, among other things, the performance of our operating segments and general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

As of December 31, 2022, we had $76.7 million in cash, cash equivalents, and marketable securities, of which $1.9 million in cash equivalents was held in local currencies by our foreign subsidiaries.

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Operating Activities

Operating activities provided $2.9 million of net cash in 2021 and used $3.1 million of net cash in 2020, an increase in net cash provided by operating activities of $6.0 million.

The $6.0 million increase in net cash provided by operating activities is primarily due to a $12.2 million decrease in net loss, a $4.4 million decrease in cash outflows related to accounts payable and accrued expenses, a $1.2 million decrease in cash outflows related to inventories, a $1.0 million decrease in cash outflows related to other non-current assets and non-current contract assets, a $0.6 million increase in cash inflows relating to accounts receivable, and a $0.5 million decrease in cash outflows relating to prepaid expenses, other current assets, and current contract assets.

Partially offsetting these items were a $14.1 million decrease in non-cash items, which was primarily driven by the 2020 impairment charges to goodwill and intangible assets and the 2021 PPP loan forgiveness.

Operating activities provided $8.9 million of net cash in 2022 and provided $2.9 million of net cash in 2021, an increase in net cash provided by operating activities of $6.0 million.

The $6.0 million increase is primarily due to a $33.9 million increase in net income, an increase in cash inflows of $6.1 million related to accounts payable and accrued expenses, an increase in cash inflows of $1.2 million related to other non-current assets and non-current contract assets, an increase in cash inflows of $1.0 million related to accounts receivable, and a decrease in cash outflows of $0.1 million related to contract liabilities and long-term contract liabilities.

Partially offsetting these items was a $26.5 million change in other non-cash items, driven by the $30.8 million gain on sale of the inertial navigation business, the $7.0 million PPP loan forgiveness in 2021, and the $0.7 million gain on sale of KVH Media Group Entertainment Limited.

In addition, there was an increase in cash outflows of $8.5 million related to inventories and an increase in cash outflows of $1.2 million related to prepaid expenses, other current assets and current contract assets.

Investing Activities

Net cash used in investing activities for 2021 was $6.7 million as compared to net cash used in investing activities of $9.3 million for 2020.

The $2.6 million decrease in net cash used in investing activities was primarily the result of a $7.2 million increase in net cash inflows relating to the purchase and sale of marketable securities.

Partially offsetting these items was a $4.7 million increase in capital expenditures.

Net cash provided by investing activities for 2022 was $0.4 million as compared to net cash used in investing activities of $6.7 million for 2021.

The $7.1 million change in net cash provided by investing activities was primarily the result of a $55.0 million increase in cash inflows from the proceeds of the sale of the inertial navigation business, a $2.4 million increase in cash inflows from the proceeds of the sale of the KVH Media Group Entertainment Limited subsidiary, and a $4.4 million decrease in cash outflows relating to capital expenditures.

Partially offsetting these items was a $54.6 million increase in net cash outflows relating to the purchase and sale of marketable securities.

Financing Activities

Net cash provided by financing activities for 2022 was $0.7 million as compared to net cash provided by financing activities in 2021 of $2.6 million.

The $4.5 million decrease in net cash provided by financing activities is primarily attributable to the $6.9 million decrease in cash inflows from long-term borrowings.

This decrease in cash inflows was partially offset by a $1.7 million increase in cash inflows relating to proceeds from stock options exercises and the employee stock purchase plan, a $0.4 million decrease in cash outflows relating to the repurchase of common stock and a $0.3 million decrease in cash outflows for capital lease payments.

The $1.9 million decrease in net cash provided by financing activities is primarily attributable to the $2.0 million decrease in cash inflows relating to proceeds from stock options exercises and the employee stock purchase plan.

Borrowing Arrangements

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Interest on the loan accrued from the funding date, but was deferred.

In August 2021, we applied for forgiveness of the full amount of the PPP Loan.

In August 2021, we applied for forgiveness of the full amount of the PPP Loan and related interest.

On September 24, 2021, we received notification from the Lender that, on September 19, 2021, the SBA had determined that the PPP Loan forgiveness application was approved, and the PPP Loan, including all accrued interest thereon, was paid in full by the SBA.

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Line of Credit

Effective October 30, 2018, we entered into an amended and restated three-year senior secured credit facility agreement (the 2018 Credit Agreement) with Bank of America, N.A., as Administrative Agent, and the lenders named from time to time as parties thereto (the 2018 Lenders), which included a reducing revolving credit facility (the 2018 Revolver) of up to $20.0 million initially and reducing to $15.0 million on December 31, 2019, to be used for general corporate purposes.

Our obligations under the 2018 Credit Agreement are secured by substantially all of our assets and the pledge of equity interests in certain of our subsidiaries.

As of December 31, 2021, no amounts were outstanding under the 2018 Revolver.

Borrowings under the 2018 Revolver are subject to the satisfaction of various conditions precedent at the time of each borrowing, including the continued accuracy of our representations and warranties and the absence of any default under the 2018 Credit Agreement.

As of December 31, 2021, we were only able to draw on $10.9 million of the $15.0 million facility due to covenant restrictions.

The 2018 Credit Agreement contained two financial covenants, a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the 2018 Credit Agreement.

The Consolidated Leverage Ratio could not exceed 2.50:1.00 through December 31, 2020 and may not exceed 2.00:1.00 after December 31, 2020.

The Consolidated Fixed Charge Coverage Ratio may not be less than 1.25:1.00.

On July 30, 2020, we amended the 2018 Credit Agreement to reflect the incurrence of the PPP loan.

Under the amended facility, the principal and interest on the PPP loan were not included in the maximum Consolidated Leverage Ratio or the minimum Consolidated Fixed Charge Coverage Ratio calculations except as to any portion of the PPP Loan that is not ultimately forgiven.

In September 2021, the PPP Loan was forgiven in full.

On October 29, 2021, we amended the 2018 Credit Agreement to maintain the $15.0 million 2018 Revolver, extend the maturity date of the 2018 Revolver to October 28, 2022, eliminate the Consolidated Fixed Charge Coverage Ratio financial covenant, add a minimum trailing four-quarter Consolidated Adjusted EBITDA financial covenant of $3.0 million, modify the definition of Consolidated Adjusted EBITDA, modify the interest rate margins and certain lender fees, and transition the interest rate provisions based on LIBOR to the Bloomberg Short Term Bank Yield Index.

In addition, Bank of America became the sole lender under the 2018 Credit Agreement.

The 2018 Credit Agreement imposes certain other affirmative and negative covenants, including without limitation covenants with respect to the payment of taxes and other obligations, compliance with laws, performance of material contracts, creation of liens, incurrence of indebtedness, investments, dispositions, fundamental changes, restricted payments, changes in the nature of our business, transactions with affiliates, corporate and accounting changes, and sale and leaseback arrangements.

On August 9, 2022, we terminated the 2018 Credit Agreement and the related security and pledge agreements with Bank of America, N.A., as Administrative Agent.

At the time of termination, no borrowings were outstanding under the 2018 Credit Agreement.

With the termination of this agreement, all associated liens were released.

Other Matters

We intend to continue to invest in the mini-VSAT Broadband network on a global basis.

We intend to continue to invest in our global HTS network on a worldwide basis.

As part of the future potential capacity expansion, we plan to acquire additional satellite capacity from satellite operators, expend funds to seek regulatory approvals and permits, develop product enhancements in anticipation of the expansion, and hire additional personnel.

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These transactions can involve millions of dollars.

On October 4, 2019, our Board of Directors authorized a share repurchase program pursuant to which we were authorized to purchase up to one million shares of our common stock.

The program expired on October 4, 2020.

Under the repurchase program, at management’s discretion, we were authorized to repurchase shares on the open market from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement.

In January 2020, we had repurchased 35,256 shares of common stock in open market transaction at a cost of approximately $0.4 million.

The total amount we repurchased under the October 4, 2019 repurchase program was 150,272 shares of common stock at an approximate cost of $1.7 million.

There were no repurchase programs outstanding during 2021.

Off-Balance Sheet Arrangements

As of December 31, 2021, except for certain satellite service capacity obligations that are not considered operating or financing leases under ASC 842, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of

operations, liquidity, capital expenditures or capital resources.

As of December 31, 2022, except for certain satellite service capacity obligations that are not considered operating or financing leases under ASC 842, we did not have any off-balance sheet arrangements that have or are reasonably likely to have

a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Please see Note 6 to our accompanying audited consolidated financial statements for additional information on our satellite service capacity obligations.

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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 7. Management’s Discussion and Analysis