What changed in this filing

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Item 1A. Risk Factors

2023-11-09 compared with 2023-08-09 · 36 added, 37 removed, 281 unchanged (21% of the section changed)

7 unchanged sentences

Although our continuing operations were profitable in the fourth quarter of 2022 and second quarter of 2023, we may incur losses in the future as we face increasing competition, as we increase satellite capacity to handle our growing subscriber base, as we confront supply chain constraints and as we continue to invest in research and development to improve our existing products and develop new products.

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

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

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

21 unchanged sentences

Any failure to achieve anticipated net sales could therefore significantly harm our operating results.

Additional impairments to goodwill could result in significant charges against earnings.

As a result of our acquisitions, we have recorded, and may continue to record, a significant amount of goodwill.

Under current accounting guidelines, we must assess, at least annually and potentially more frequently, whether the value of goodwill has been impaired.

In 2020, our annual impairment test resulted in an impairment charge of $10.5 million in our KVH Media reporting unit.

Even after recording this impairment, our consolidated balance sheet at June 30, 2023 includes $5.4 million of goodwill, of which $0.9 million relates to KVH Media Group.

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

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

Risks related to our operations

5 unchanged sentences

If we cannot effectively manage changes in our business and continue to attract and retain skilled personnel, our business may suffer.

If we cannot adjust expenses in response to changes in our operations, our results of operations may be harmed.

To manage changes in our business effectively, we must, among other things, match our manufacturing facilities and capacity to demand for our products and services;

secure appropriate satellite capacity to match demand for airtime services;

effectively manage our inventory and working capital;

ensure robust cybersecurity protection of Company and customer data and systems;

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

We are highly dependent on qualified personnel at all levels, including our senior management team and other key technical, operational, managerial and sales and marketing personnel, each of whom would be difficult to replace.

5 unchanged sentences

We may also need to pay higher compensation than we expect, which would make it more difficult to achieve our goal of sustained profitability.

If we cannot adjust expenses in response to changes in our operations, our results of operations may be harmed.

To manage changes in our business effectively, we must, among other things, match our manufacturing facilities and capacity to demand for our products and services;

secure appropriate satellite capacity to match demand for airtime services;

effectively manage our inventory and working capital;

ensure robust cybersecurity protection of Company and customers data and systems;

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

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

Future cost-containment activities could disrupt our business and affect our results of operations.

In response to increasing competitive pressure, we may take additional measures intended to increase profitability and align our business more closely with our current strategic and financial objectives, including engagement with new suppliers, modifications to our manufacturing arrangements and other cost-reduction efforts.

We may also choose to dispose of assets or make strategic divestitures, such as the sale of our inertial navigation business in August 2022.

These efforts may not succeed in improving profitability.

Any of these changes could be disruptive to our business, including our research and development and product launch efforts, and could result in significant expense, including losses on any asset disposition or divestiture, accounting charges for any inventory or technology-related write-offs or any workforce reduction costs.

We could incur significant transaction costs, including for potential transactions that do not proceed.

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

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

We must generate a certain level of service sales in order to maintain or improve our service gross margins.

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

The cost of our HTS network has increased significantly each year as we have expanded our network to accommodate additional subscriber demand and/or coverage areas.

We expect that this trend will continue in 2023.

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

We expect that this trend will continue through the end of 2023.

If service sales, including through our AgilePlans subscription model, do not generate the level of revenue that we expect or if those revenues decline, our service gross margins may decline.

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

6 unchanged sentences

Historically, we have generated the majority of our leisure marine 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 winter months.

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

Our leisure marine business is also significantly affected by the weather.

Unseasonably cool weather, prolonged winter conditions, hurricanes, unusual amounts of rain, and natural and other disasters may decrease

boating, which could reduce our revenues.

Unseasonably cool weather, prolonged winter conditions, hurricanes, unusual amounts of rain, and natural and other disasters may decrease boating, which could reduce our revenues.

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

34 unchanged sentences

Service disruption or outages, regardless of whether they are caused by our service, the equipment or services of our third-party service providers, or our customers’ or their equipment and systems, may result in loss of market acceptance of our service, and any necessary repairs or other remedial actions may cause us to incur significant costs and expenses.

Any failure on the part of third-party service providers to achieve or maintain expected performance levels, stability, and security could harm our relationships with our customers, result in

claims for credits or damages, damage our reputation, significantly reduce customer demand for our solution and seriously harm our financial condition and operating results.

Any failure on the part of third-party service providers to achieve or maintain expected performance levels, stability, and security could harm our relationships with our customers, result in claims for credits or damages, damage our reputation, significantly reduce customer demand for our solution and seriously harm our financial condition and operating results.

If customers become dissatisfied with the pricing, service, availability, programming or other aspects of any of these satellite services, or if any one or more of these services becomes unavailable for any reason, we could suffer a substantial decline in sales of our satellite products or services.

57 unchanged sentences

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

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

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

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

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

Risks related to our industry

4 unchanged sentences

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

We believe increased competition contributed to the decrease in our product sales in the six months ended June 30, 2023, and this trend may continue in future periods.

Current and future competitors have greater financial resources than we do, enabling them to operate at lower margins to gain market share.

We believe increased competition contributed to the decrease in our product sales in the nine months ended September 30, 2023, including unit sales of our VSAT products, and this trend may continue in future periods.

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

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

The Starlink LEO service has adversely impacted our business, particularly within the global leisure segment.

The Starlink LEO service continues to adversely impact our business, particularly within the global leisure segment.

A significant number of leisure customers have adopted Starlink systems for both two-way communications as well as streaming, which has impacted both our VSAT Broadband and TracVision businesses.

Although our leisure business accounts for less than 20% of our total revenue, competition from Starlink is beginning to impact our commercial business.

If we are unable to develop a competitive alternative and this trend continues, it could have a material adverse effect on our revenue, profitability and cash flow.

Although our leisure business accounts for less than 20% of our total revenue, competition from Starlink has begun to adversely impact our commercial business as well, particularly our growth in that segment.

While we have historically grown the total number of our subscribers in sequential quarters, in the third quarter of 2023 the total number of our subscribers declined one percent as a result of the churn in our leisure business and the slower growth in our commercial business.

If this trend continues and we are unable to develop a competitive alternative, it could have a material adverse effect on our revenue, profitability, and cash flow.

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

10 unchanged sentences

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

In the second quarter of 2023, we estimate that raw material costs exceeded our expectations by approximately $0.4 million.

In the third quarter of 2023, we estimate that raw material costs exceeded our expectations by approximately $0.3 million.

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

12 unchanged sentences

For example, in 2019, we recorded a $2.3 million inventory reserve relating to our TracPhone V-IP products as we decided to no longer promote sales of these products but instead to focus our efforts on migrating customers to our HTS network and products.

Market or competitive changes, such as a continuation of the decline in demand for our TracVision products that we experienced in the first six months of 2023, could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors.

Market or competitive changes, such as a continuation of the decline in demand for our TracVision products that we experienced in the first nine months of 2023, could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors.

Risks related to intellectual property and technological innovation

25 unchanged sentences

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

We derived 66%, 62% and 58% of our revenues from continuing operations in the six months ended June 30, 2023 and the years ended December 31, 2022 and 2021, respectively, from sales to these foreign customers.

We derived 67%, 62% and 58% of our revenues from continuing operations in the nine months ended September 30, 2023 and the years ended December 31, 2022 and 2021, respectively, from sales to these foreign customers.

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

41 unchanged sentences

Our stock price has historically been volatile.

During the period from January 1, 2018 to June 30, 2023, the trading price of our common stock ranged from $6.36 to $15.29.

During the period from January 1, 2018 to September 30, 2023, the trading price of our common stock ranged from $5.08 to $15.29.

Many factors may cause our stock price to fluctuate, including variations in quarterly results;

19 unchanged sentences

Section 1350 certification of principal executive officer and principal financial officer X

101 The following financial information from KVH Industries, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL (Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Consolidated Statements of Stockholders' Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited), and (vi) the Notes to Consolidated Interim Financial Statements (unaudited).

101 The following financial information from KVH Industries, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive (Loss) Income (unaudited), (iv) the Consolidated Statements of Stockholders' Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited), and (vi) the Notes to Consolidated Interim Financial Statements (unaudited).

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 9, 2023

November 9, 2023

KVH Industries, Inc.

1 unchanged sentence

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-Q

Item 1A. Risk Factors