What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-05 · 123 added, 71 removed, 119 unchanged (62% of the section changed)

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In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology.

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the section entitled “Risk Factors” in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2022.

These and many other factors could affect our future financial and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf.

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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 generate a majority of our revenues from various international locations, primarily consisting of Singapore, Canada, countries in South America, 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.

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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.

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-HTS 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.

The May 2023 introduction of the KVH ONE OpenNet Program expanded access to KVH's global HTS network and airtime services to non-KVH terminals for the first time.

Our service 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 cybersecurity, email, and crew internet 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.

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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.

Disposition of Business

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 as a discontinued operation under ASC 205-20.

We recorded a gain on the sale of approximately $0.6 million, which is recorded in other income, net in the accompanying consolidated statements of operations.

Management Transition and Restructuring

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Kits van Heyningen, as well as professional and advisory fees.

As of March 31, 2023 all payments related to the additional fees had been completed.

As of June 30, 2023, all payments related to the additional fees had been completed.

In March 2022, we also restructured our operations to reduce costs and better 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 $1.7 million of severance payments, other employee benefits, and legal and advisory fees were incurred for the three months ended March 31, 2022.

For the three months ended March 31, 2023, we did not incur any additional expenses associated with this restructuring.

Approximately $2.2 million of severance payments, other employee benefits, and legal and advisory fees were incurred for the six months ended March 31, 2022.

For the six months ended June 30, 2023, we did not incur any additional expenses associated with this restructuring.

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

Please see Note 5 to our consolidated interim 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.

All costs associated with the severance payments, other employee benefits, and legal and advisory fees were incurred in the 2022.

All costs associated with the severance payments, other employee benefits, and legal and advisory fees were incurred in 2022.

Executive Employment Agreements

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Kuebel, Felise Feingold and Robert Balog as the conditions of their agreements were satisfied on December 31, 2022.

As of March 31, 2023, we have accrued approximately $0.2 million for the retention bonus payable to Brent Bruun.

As of June 30, 2023, we have accrued approximately $0.2 million for the retention bonus payable to Brent Bruun.

In addition to the amendment to Mr.

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

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

Bruun a restricted stock award and a non-statutory stock option, which together had an aggregate grant date fair value of

approximately $100,000.

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

During the three months ended March 31, 2023, we continued to experience delays in the availability and delivery of certain raw material components, which has impacted our manufacturing as well as resulted in shipping delays in getting products out to our customers.

During the six months ended June 30, 2023, we continued to experience delays in the availability and delivery of certain raw material components.

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

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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.

International revenues represented 64% and 61% of our consolidated net sales for the three months ended March 31, 2023 and 2022, respectively.

Sales to Singapore customers represented 18% and 16% of our consolidated net sales for the three months ended March 31, 2023 and 2022, respectively.

No other individual foreign country represented 10% or more of our consolidated net sales for the three months ended March 31, 2023 and 2022.

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

International revenues represented 66% and 61% of our consolidated net sales for the three months ended June 30, 2023 and 2022, respectively, and 66% and 61% of our consolidated net sales for the six months ended June 30, 2023 and 2022 and 2022, respectively.

Sales to Singapore customers represented 19% and 16% of our consolidated net sales for the three months ended June 30, 2023 and 2022, respectively.

No other individual foreign country represented 10% or more of our consolidated net sales for the three months ended June 30, 2023 and 2022.

Sales to Singapore customers represented 18% and 16% of our consolidated net sales for the six months ended June 30, 2023 and 2022, respectively.

No other individual foreign country represented 10% or more of our consolidated net sales for the six months ended June 30, 2023 and 2022.

Critical Accounting Estimates

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As described in our annual report on Form 10-K for the year ended December 31, 2022, our accounting policies for goodwill, intangible assets, and other long-lived assets are the estimates most critical to an understanding and evaluation of our consolidated financial statements.

We have reviewed our accounting policies and critical accounting estimates and determined that these remain our most critical accounting policies and estimates for the three months ended March 31, 2023.

We have reviewed our accounting policies and critical accounting estimates and determined that these remain our most critical accounting policies and estimates for the six months ended June 30, 2023.

Readers should refer to our annual report on Form 10-K for the year ended December 31, 2022 under “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Estimates” for descriptions of these policies and estimates, as well as the notes to the consolidated interim financial statements included elsewhere within this report.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Product 15.9 % 19.2 % 15.3 % 19.5 %

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Total costs and expenses 99.1 103.0 100.3 107.8

Loss from operations (1.6) (12.7)

Income (loss) from operations 0.9 (3.0) (0.3) (7.8)

Interest income 2.6 0.6 2.5 0.6

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Income tax expense from continuing operations 0.1 0.7 0.1 0.8

Net loss from continuing operations (0.1) % (12.8) %

Three months ended March 31, 2023 and 2022

Our net sales for the three months ended March 31, 2023 and 2022 were as follows:

For the three months ended March 31, 2023 vs.

Net income (loss) from continuing operations 2.7 % (0.5) % 1.4 % (6.5) %

Three months ended June 30, 2023 and 2022

Our net sales for the three months ended June 30, 2023 and 2022 were as follows:

For the three months ended June 30, 2023 vs.

2023 2022 $ %

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Net sales $ 34,171 $ 34,553 $ (382) (1) %

Net sales increased by $0.5 million, or 2%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Product sales decreased by $1.6 million, or 25%, to $4.9 million for the three months ended March 31, 2023 from $6.6 million for the three months ended March 31, 2022.

The decrease in product sales was primarily due to a $1.5 million decrease in VSAT Broadband product sales.

The decrease in VSAT product sales was primarily due to a decrease in unit sales volume, particularly with 37cm units in our global leisure segment.

Alternative solutions offered by recent LEO entrants have heightened competition in this segment of the market.

Service sales increased by $2.2 million, or 8%, to $28.7 million for the three months ended March 31, 2023 from $26.6 million for the three months ended March 31, 2022.

The increase was primarily due to a $3.0 million increase in our VSAT

airtime sales, partially offset by a $0.8 million decrease in our content service sales, primarily driven by the sale of a subsidiary in April 2022.

Net sales decreased by $0.4 million, or 1%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Product sales decreased by $1.2 million, or 18%, to $5.4 million for the three months ended June 30, 2023 from $6.6 million for the three months ended June 30, 2022.

The decrease in product sales was primarily due to a $1.8 million decrease in TracVision product sales, partially offset by a $0.3 million increase in Starlink product sales and a $0.2 million increase in VSAT Broadband product sales.

The decline in TracVision product sales is primarily due to increasing competition from low-cost, low-earth orbit, or LEO, and cellular streaming solutions.

Service sales increased by $0.8 million, or 3%, to $28.7 million for the three months ended June 30, 2023 from $27.9 million for the three months ended June 30, 2022.

The increase was primarily due to a $1.1 million increase in our VSAT airtime sales, partially offset by a $0.2 million decrease in our content service sales.

Costs of Sales

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

Costs of sales increased by $1.0 million, or 5%, in the three months ended March 31, 2023 to $21.3 million from $20.3 million in the three months ended March 31, 2022.

The increase in costs of sales was driven by a $1.2 million increase in costs of service sales, partially offset by a $0.2 million decrease in costs of product sales.

As a percentage of net sales, costs of sales were 63% and 61% for the three months ended March 31, 2023 and 2022, respectively.

Costs of sales increased by $1.8 million, or 9%, in the three months ended June 30, 2023 to $22.2 million from $20.4 million in the three months ended June 30, 2022.

The increase in costs of sales was driven by a $1.4 million increase in costs of product sales and a $0.3 million increase in costs of service sales.

As a percentage of net sales, costs of sales were 65% and 59% for the three months ended June 30, 2023 and 2022, respectively.

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

For the three months ended March 31, 2023, costs of product sales decreased by $0.2 million, or 3%, to $5.2 million from $5.4 million in the three months ended March 31, 2022, primarily due to a $0.3 million decrease in our marine cost of product sales.

As a percentage of product sales, costs of product sales were 106% and 83% for the three months ended March 31, 2023 and 2022, respectively.

Cost of product sales increased as a percentage of product sales primarily due to two factors;

the first being a write-down of inventory by $0.6 million and the second being purchase price variance of $0.3 million.

For the three months ended June 30, 2023, costs of product sales increased by $1.4 million, or 28%, to $6.6 million from $5.2 million in the three months ended June 30, 2022, primarily due to a $1.5 million increase in our marine cost of product sales.

As a percentage of product sales, costs of product sales were 122% and 79% for the three months ended June 30, 2023 and 2022, respectively.

Cost of product sales increased as a percentage of product sales primarily due to three factors:

a $0.4 million unfavorable reclassification of first quarter costs from costs of service sales to costs of product sales, a $0.3 million increase in the excess and obsolescence reserve and $0.4 million of higher unit component costs.

Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our VSAT Broadband network infrastructure, direct network service labor, Inmarsat service costs, product installation costs, media materials and distribution costs, and service repair materials.

For the three months ended March 31, 2023, costs of service sales increased by $1.2 million, or 8%, to $16.1 million from $14.9 million for the three months ended March 31, 2022, primarily due to a $1.5 million increase in VSAT airtime costs of service sales.

For the three months ended June 30, 2023, costs of service sales increased by $0.3 million, or 2%, to $15.5 million from $15.2 million for the three months ended June 30, 2022, primarily due to a $0.3 million increase in VSAT airtime costs of service sales.

The increase in airtime cost of sales is primarily related to capacity increases necessary to support growth in our airtime subscriber base.

This was partially offset by a $0.3 million decrease in content services 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 56% for each of the three months ended March 31, 2023 and 2022.

As a percentage of service sales, costs of service sales were 54% for both the three months ended June 30, 2023 and 2022.

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 the three months ended March 31, 2023 decreased by $0.4 million, or 15%, to $2.6 million from $3.0 million for the three months ended March 31, 2022.

The decrease primarily resulted from a $0.3 million decrease in salaries, benefits and taxes, which was driven by costs related to the reduction in our workforce in March 2022.

As a percentage of net sales, research and development expense was 8% and 9% for the three months ended March 31, 2023 and 2022, respectively.

Research and development expense for the three months ended June 30, 2023 decreased by $0.2 million, or 8%, to $2.4 million from $2.6 million for the three months ended June 30, 2022.

The decrease primarily resulted from a $0.2 million decrease in expensed materials.

As a percentage of net sales, research and development expense was 7% and 8% for the three months ended June 30, 2023 and 2022, respectively.

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 for the three months ended March 31, 2023 decreased by $1.3 million, or 18%, to $5.7 million from $7.0 million for the three months ended March 31, 2022.

The decrease primarily resulted from a $1.5 million decrease in salaries, benefits and taxes, which was driven by the reduction in our workforce in March 2022.

As a percentage of net sales, sales, marketing and support expense was 17% and 21% for the three months ended March 31, 2023 and 2022, respectively.

Sales, marketing and support expense for the three months ended June 30, 2023 decreased by $0.5 million, or 9%, to $5.1 million from $5.7 million for the three months ended June 30, 2022.

The decrease primarily resulted from a $0.5 million decrease in bad debt expense and a $0.4 million decrease in salaries, benefits and taxes, partially offset by a $0.3 million increase in facilities expenses.

As a percentage of net sales, sales, marketing and support expense was 15% and 16% for the three months ended June 30, 2023 and 2022, 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 costs.

General and administrative expense for the three months ended March 31, 2023 decreased by $2.4 million, or 34%, to $4.7 million from $7.1 million, for the three months ended March 31, 2022.

The decrease primarily resulted from a $2.0 million decrease in salaries, benefits, and taxes, which was driven by the reduction in our workforce in March 2022, and the incurrence in the three months ended March 31, 2022 of $0.5 million of expenses related to the separation and retirement of Mr.

Kits van Heyningen.

In addition, during the three months ended March 31, 2023 we were reimbursed by EMCORE for $0.5 million of expenses incurred under the Transition Service Agreement relating to the sale of the inertial navigation business in 2022.

Partially offsetting these items was a $0.5 million increase in professional fees primarily related to additional accounting and consulting costs incurred to prepare our annual filings.

As a percentage of net sales, general and administrative expense was 14% and 21% for the three months ended March 31, 2023 and 2022, respectively.

Interest and Other Income, Net

General and administrative expense for the three months ended June 30, 2023 decreased by $2.8 million, or 40%, to $4.1 million from $6.9 million, for the three months ended June 30, 2022.

The decrease primarily resulted from a $1.1 million decrease in salaries, benefits, and taxes, which was driven by the reduction in our workforce in March 2022, and a $0.6 million decrease in recruiting expenses, which was driven by professional fees incurred during the three months ended June 30, 2022 associated with the search for a new Chief Executive Officer and replacements for two departed members of our board of directors.

In addition, there was a $0.5 million decrease in legal and professional fees, as well as a $0.2 million reimbursement by EMCORE for expenses incurred under the Transition Service Agreement relating to the sale of the inertial navigation business in 2022.

As a percentage of net sales, general and administrative expense was 12% and 20% for the three months ended June 30, 2023 and 2022, respectively.

Interest and Other (Expense) 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 $0.6 million for the three months ended March 31, 2023 to $0.8 million from $0.2 million for the three months ended March 31, 2022.

Interest income increased $0.7 million for the three months ended June 30, 2023 to $0.9 million from $0.2 million for the three months ended June 30, 2022.

Of the current period interest income of $0.9 million, $0.7 million is attributable to interest gained from cash and cash equivalents, while the remaining $0.2 million was due to interest from lease receivables.

Interest expense remained flat period-over-period at less than $0.1 million for both of the three months ended March 31, 2023 and 2022.

Other (expense) income, net decreased to other expense, net of $0.2 million for the three months ended March 31, 2023 from other income, net of $0.1 million for the three months ended March 31, 2022.

Other expense, net of $0.2 million for the three months ended March 31, 2023 primarily relates to foreign exchange losses from our UK operations.

Interest expense remained flat period-over-period at less than $0.1 million for both of the three months ended June 30, 2023 and 2022.

Other (expense) income, net changed to other expense, net of $0.2 million for the three months ended June 30, 2023 from other income, net of $0.9 million for the three months ended June 30, 2022 primarily due to the sale of KVH Media Group Entertainment Limited during the three months ended June 30, 2022 and an increase in foreign exchange losses from our UK operations.

Income Tax Expense

Income tax expense for the three months ended March 31, 2023 was less than $0.1 million and related to taxes on income earned in foreign jurisdictions.

Income tax expense for the three months ended March 31, 2022 was $0.3 million and related to taxes on income earned in foreign jurisdictions.

Income tax expense for the three months ended June 30, 2023 was less than $0.1 million and related to taxes on income earned in foreign jurisdictions.

Income tax expense for the three months ended June 30, 2022 was $0.2 million and related to taxes on income earned in foreign jurisdictions.

Six months ended June 30, 2023 and 2022

Our net sales for the six months ended June 30, 2023 and 2022 were as follows:

For the six months ended June 30, 2023 vs.

2023 2022 $ %

(dollars in thousands)

Product $ 10,374 $ 13,183 $ (2,809) (21) %

Service 57,486 54,521 2,965 5 %

Net sales $ 67,860 $ 67,704 $ 156 — %

Net sales increased by $0.2 million, or less than 1%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Product sales decreased by $2.8 million, or 21%, to $10.4 million for the six months ended June 30, 2023 from $13.2 million for the six months ended June 30, 2022.

The decrease in product sales was primarily due to a $2.0 million decrease in TracVision product sales and a $1.3 million decrease in VSAT Broadband product sales, partially offset by a $0.3 million increase in Starlink product sales.

The decline in product sales was primarily due to a decrease in unit sales volume, particularly in our global leisure segment.

Alternative solutions offered by recent LEO entrants have heightened competition in other segments of the market, but low-cost alternatives to VSAT, which include streaming capabilities, have had a more significant impact on both TracVision and VSAT Broadband product sales in the leisure segment.

Service sales increased by $3.0 million, or 5%, to $57.5 million for the six months ended June 30, 2023 from $54.5 million for the six months ended June 30, 2022.

The increase was primarily due to a $4.1 million increase in our VSAT service sales, partially offset by a $1.0 million decrease in our content services sales, primarily driven by the sale of a subsidiary in April 2022.

Costs of Sales

Costs of sales increased by $2.7 million, or 7%, in the six months ended June 30, 2023 to $43.5 million from $40.7 million in the six months ended June 30, 2022.

The increase in costs of sales was driven by a $1.5 million increase in costs of service sales and a $1.3 million increase in costs of product sales.

As a percentage of net sales, costs of sales were 64% and 60% for the six months ended June 30, 2023 and 2022, respectively.

For the six months ended June 30, 2023, costs of product sales increased by $1.3 million, or 12%, to $11.9 million from $10.6 million in the six months ended June 30, 2023, primarily due to a $1.2 million increase in our marine cost of product sales.

As a percentage of product sales, costs of product sales were 114% and 81% for the six months ended June 30, 2023 and 2022, respectively.

Cost of product sales increased as a percentage of product sales primarily due to three factors:

a $0.7 million write-down of inventory, a $0.3 million increase in the excess and obsolescence reserve and $0.5 million of higher unit component costs.

For the six months ended June 30, 2023, costs of service sales increased by $1.5 million, or 5%, to $31.6 million from $30.1 million for the six months ended June 30, 2022, primarily due to a $1.8 million increase in VSAT airtime costs of service sales.

The increase in airtime cost of sales is primarily related to capacity increases to support growth in our airtime subscriber base.

This was partially offset by a $0.4 million decrease in content services 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% for both the six months ended June 30, 2023 and 2022.

Operating Expenses

Research and development expense for the six months ended June 30, 2023 decreased by $0.7 million, or 12%, to $5.0 million from $5.6 million for the six months ended June 30, 2022.

The decrease in research and development expense resulted primarily from a $0.4 million decrease in expensed materials and a $0.3 million decrease in salaries, benefits and taxes driven by the previously mentioned reduction in our workforce in March 2022.

As a percentage of net sales, research and development expense was 7% and 8% for the six months ended June 30, 2023 and 2022, respectively.

Sales, marketing and support expense for the six months ended June 30, 2023 decreased by $1.8 million, or 14%, to $10.9 million from $12.6 million for the six months ended June 30, 2022.

The decrease in sales, marketing and support expense resulted primarily from a $1.9 million decrease in salaries, benefits and taxes driven by the previously mentioned reduction in our workforce in March 2022 and a $0.3 million decrease in bad debt expense, partially offset by a $0.5 million increase in facilities expenses.

As a percentage of net sales, sales, marketing and support expense was 16% and 19% for the six months ended June 30, 2023 and 2022, respectively.

General and administrative expense for the six months ended June 30, 2023 decreased by $5.2 million, or 37%, to $8.8 million from $14.0 million for the six months ended June 30, 2022.

The decrease in general and administrative expense resulted primarily from a $3.2 million decrease in salaries, benefits and taxes driven by the previously mentioned reduction in our workforce in March 2022, as well as expenses related to the separation and retirement of Mr.

Kits van Heyningen in March 2022.

In addition, we were also reimbursed by EMCORE for $0.7 million of expenses incurred under the Transition Service Agreement relating to the sale of the inertial navigation business in 2022.

There was also a $0.6 million decrease in recruiting expenses, which was driven by professional fees incurred during the six months ended June 30, 2022 associated with the search for a new Chief Executive Officer and replacements for two departed members of our board of directors.

There was also a $0.3 million decrease in facilities expenses and a $0.3 million decrease in depreciation and amortization.

As a percentage of net sales, general and administrative expense was 13% and 21% for the six months ended June 30, 2023 and 2022, respectively.

Interest and Other (Expense) Income, Net

Interest income increased by $1.3 million to $1.7 million for the six months ended June 30, 2023 from $0.4 million for the six months ended June 30, 2022.

Of the current period interest income of $1.7 million, $1.3 million is attributable to interest gained from cash and cash equivalents, while the remaining $0.4 million was due to interest from lease receivables.

Interest expense remained flat period-over-period at less than $0.1 million for both the six months ended June 30, 2023 and 2022.

Other (expense) income, net changed to other expense, net of $0.5 million for the six months ended June 30, 2023 from other income, net of $1.0 million for the prior period primarily due to the sale of KVH Media Group Entertainment Limited during the six months ended June 30, 2023 and an increase in foreign exchange losses from our UK operations.

Income Tax Expense

Income tax expense for the six months ended June 30, 2023 was $0.1 million and related to taxes on income earned in foreign jurisdictions.

Income tax expense for the six months ended June 30, 2022 was $0.6 million and related to taxes on income earned in foreign jurisdictions.

Discontinued Operations

On August 9, 2022, we sold our inertial navigation business for net proceeds $54.9 million, less specified deductions.

On August 9, 2022, we sold our inertial navigation business for net proceeds of $54.9 million, less specified deductions.

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

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Results for discontinued operations are as follows:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(dollars in thousands)

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On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for net proceeds of $54.9 million, less specified deductions.

As of March 31, 2023, we had $68.7 million in cash, cash equivalents, and marketable securities, of which $2.5 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries.

Our foreign subsidiaries held no marketable securities as of March 31, 2023.

As of March 31, 2023, we had $95.6 million in working capital.

As of June 30, 2023, we had $71.0 million in cash, cash equivalents, and marketable securities, of which $2.6 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries.

Our foreign subsidiaries held no marketable securities as of June 30, 2023.

As of June 30, 2023, we had $99.7 million in working capital.

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.

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In addition, if we raise funds by issuing equity securities, our stockholders may experience dilution.

Net cash used in operations was $6.8 million for the three months ended March 31, 2023 compared to net cash used in operations of $3.5 million for the three months ended March 31, 2022.

The $3.3 million increase in cash used in operations is primarily driven by a net increase in cash outflows of $15.1 million related to accounts payable, an increase of $0.5 million related to non-cash items, and a $0.4 million increase in non-current assets.

Partially offsetting these items was a $5.8 million increase in accrued compensation, product warranty and other expenses, a $4.7 million decrease in net loss, a $1.6 million increase in cash inflows relating to accounts receivable, a $0.4 million decrease in cash outflows related to prepaid expenses and current assets, and a $0.3 million increase in cash inflows related to contract liabilities.

Net cash used in investing activities was $2.7 million for the three months ended March 31, 2023 compared to net cash provided by investing activities of $0.1 million for the three months ended March 31, 2022.

The $2.8 million change in net cash used in investing activities was primarily the result of a $5.1 million increase in net investment in marketable securities, partially offset by a $2.3 million decrease in capital expenditures.

Net cash provided by financing activities was $0.8 million for the three months ended March 31, 2023 compared to net cash provided by financing activities of $0.1 million for the three months ended March 31, 2022.

Net cash used in operations was $3.2 million for both the six months ended June 30, 2023 and 2022.

Between the two periods, there was a $7.0 million increase in net income, a $4.9 million decrease in cash outflows relating to inventories, a $1.2 million decrease in cash outflows related to prepaid expenses and current assets, and a $1.1 million increase in cash inflows relating to accounts receivable.

Offsetting these items were an $8.2 million increase in cash outflows related to accounts payable, a $5.3 million increase in cash outflows relating to accrued compensation, product warranty and other expenses, a $0.5 million increase cash outflows related to non-current assets, and a change of $0.2 million related to non-cash items.

Net cash used in investing activities was $6.0 million for the six months ended June 30, 2023 compared to net cash provided by investing activities of $2.3 million for the six months ended June 30, 2022.

The $8.4 million increase in net cash used in investing activities was primarily the result of a $9.3 million increase in net investment in marketable securities and a decrease of $2.4 million in proceeds from the sale of KVH Media Group Entertainment Limited, partially offset by a $3.3 million decrease in capital expenditures.

Net cash provided by financing activities was $2.1 million for the six months ended June 30, 2023 compared to net cash provided by financing activities of $0.2 million for the six months ended June 30, 2022.

The $1.9 million increase in net cash provided by financing activities is primarily attributable to the $2.0 million increase in cash inflows relating to proceeds from stock options exercised and the employee stock purchase plan, partially offset by a $0.2 million increase in cash outflows related to the repurchase of common stock to satisfy specific tax withholding obligations arising from accelerated vesting of executive stock grants.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis