KVH INDUSTRIES INC \DE\ 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the other financial information and consolidated financial statements and related notes appearing elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed under the heading “Item 1A. Risk Factors” and elsewhere in this annual report. Overview 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. 26 Table of Contents 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. 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. Brent C. 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. 27 Table of Contents 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. Brent C. 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. Supply Chain 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), 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. 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, 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. 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. 28 Table of Contents Results of Operations 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, 2022 2021 Sales: Product 19.4 % 22.4 % Service 80.6 77.6 Net sales 100.0 100.0 Costs and expenses: Costs of product sales 18.1 17.9 Costs of service sales 44.0 47.9 Research and development 7.5 8.3 Sales, marketing and support 16.7 19.1 General and administrative 17.8 21.5 Total costs and expenses 104.1 114.7 Loss from operations (4.1) (14.7) Interest income 1.1 0.7 Interest expense — — Other income, net 0.6 5.3 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 Our net sales for 2022 and 2021 were as follows: Change Year Ended December 31, 2022 vs. 2021 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. 29 Table of Contents Costs of Sales Costs of sales consists of costs of product sales and costs of service sales. 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 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. 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. 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 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 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. General and administrative expense consists of costs attributable to management, finance and accounting, information technology, human resources, certain outside professional services, and other administrative and public company costs. 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. 30 Table of Contents 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 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. There was 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 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, 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 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, 2022 2021 (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 The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure at the date of our financial statements. Our significant accounting policies are summarized in Note 1 to our accompanying audited consolidated financial statements. 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 contain the only estimates critical to an understanding and evaluation of our financial results for 2022, as discussed below. 31 Table of Contents Goodwill, Intangible Assets, and other Long-Lived Assets We follow Accounting Standards Codification (ASC) Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment . ASC 350 requires the completion of a goodwill impairment test at least annually based on either an optional qualitative assessment or a quantitative analysis comparing the estimated fair value of a reporting unit to its carrying value as of the test date. Any impairment charges would be based on the quantitative analysis. 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 operating trends identified within the reporting unit. We utilized an income approach to estimate the fair value of the reporting unit. We believe that the assumptions used to estimate the fair value of our KVH Media Group reporting unit were reasonable. We estimated that, as of October 1, 2022, the fair value of KVH Media Group exceeded its carrying value by more than 140%. A negative trend of operating results or material changes to forecasted operating results could result in the requirement for additional interim goodwill impairment tests and the potential of future goodwill impairment charges, which could be material. Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with estimated lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset. During 2022, there were no events or changes in circumstances that indicated any of the carrying amounts of our intangible assets or other long-lived assets may not be recoverable. See Note 9 to our accompanying audited consolidated financial statements for further discussion of goodwill and intangible assets. Liquidity and Capital Resources 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 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 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. 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. 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. 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. 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. Our foreign subsidiaries held no marketable securities as of December 31, 2022. As of December 31, 2022, we had $92.3 million in working capital. 32 Table of Contents Operating Activities 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 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 $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 Paycheck Protection Program Loan In May 2020, we received a $6.9 million loan from the Lender under the PPP, which was established under the CARES Act and is administered by the SBA. The term of the PPP Loan was two years from the funding date, and the interest rate was 1.00%. 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 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. 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. Line of Credit 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 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. From time to time we have entered into multi-year agreements to lease satellite capacity, and we have also purchased numerous satellite hubs to support the added capacity. These transactions can involve millions of dollars. Off-Balance Sheet Arrangements 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 33 Table of Contents 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. Recently Issued Accounting Pronouncements See Note 1 of our accompanying audited consolidated financial statements for a description of recently issued accounting pronouncements including the dates of adoption and effects on our results of operations, financial position and disclosures. ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk Not applicable.