What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-07 · 88 added, 122 removed, 79 unchanged (73% 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 II of this report.

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 provide global high-speed Internet and Voice over Internet Protocol (VoIP) services via satellite to mobile users at sea and on land.

We are also a leading provider of commercially licensed entertainment, including news, sports, music, and movies, to commercial customers in the maritime market, along with supplemental value-added cybersecurity, email, and crew internet services.

We are also a leading provider of commercially licensed entertainment, including movies, television programming, news, and music, to commercial customers in the maritime market, along with supplemental value-added cybersecurity, email, and crew internet services.

We generate a substantial majority of our revenues from sales of satellite Internet airtime services.

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

In mid-2022, we launched our KVH ONE hybrid network, which integrates global satellite service, including Ku-band VSAT using the Intelsat HTS network along with Starlink, Iridium, and other satellite services, with KVH-provided cellular service in more than 150 countries and shore-based Wi-Fi access.

In mid-2022, we launched our KVH ONE hybrid network, which integrates global satellite service (including Ku-band VSAT using the Intelsat HTS network along with Starlink, OneWeb, Iridium, and other satellite services), KVH-provided cellular service in more than 150 countries, and shore-based Wi-Fi access.

Revenue from our cellular airtime service has supplemented, and we expect will continue to supplement, our satellite-only airtime revenue.

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

In March 2023, we began selling Starlink terminals and in September 2023 became a Starlink authorized hardware and airtime reseller initially offering Mobile Priority data plans for maritime use.

In October 2024, we expanded our portfolio to include Starlink Business Priority data plans, which will primarily be used for stationary commercial use on land.

We expect to earn usage fees from OneWeb service upon the launch of that service, which we currently anticipate will occur in the fourth quarter of 2024.

In addition, we earn monthly usage fees from sales of third-party satellite connectivity for VoIP, data and Internet services to our

Inmarsat, Iridium, and Starlink customers who choose to activate their subscriptions with us.

In March 2023, we began selling Starlink terminals and, in September 2023, we became a Starlink authorized hardware and airtime reseller offering Global Priority data plans for maritime use.

In October 2024, we expanded our portfolio to include Starlink Local Priority data plans, which will primarily be used for stationary and in-motion commercial use on land.

In December 2024, we introduced our TracNet Coastal and TracNet Coastal Pro terminals, expanding our extensive multi-channel portfolio of maritime products and services with a 5G/cellular and Wi-Fi system.

We expect to earn usage fees from our offering of OneWeb service, which we launched in January 2025.

We also generate service revenue from product repairs and extended warranty sales.

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

Historically, our Ku-band VSAT communications service has been the primary driver of growth.

However, these services represent a declining percentage of our revenues in the face of competition from emerging LEO services.

Our service sales also include the distribution of entertainment, including movies, television programming, news and music, to commercial customers in the maritime market through KVH Media Group, along with supplemental value-added services.

Historically, our Ku-band VSAT communications service has been the primary driver of revenue growth.

However, these services represent a declining percentage of our revenues in the face of increased demand for and competition from emerging LEO services.

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

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We concluded that we should discontinue our capital-intensive manufacturing activities and concentrate our efforts on growing sales of our multi-orbit, multi-channel, integrated communications solutions.

We expect that we will continue our product manufacturing activities in order to generate a targeted amount of inventory of maritime satellite connectivity and satellite television terminals to meet anticipated demand and that we will cease substantially all manufacturing activity by the end of 2025.

We expect to continue to facilitate customer transition to

third-party hardware products compatible with our mobile satellite communications services.

We also plan to continue to conduct maintenance, service, warehousing, shipping and receiving activities at the Middletown location.

We expect that we will continue our product manufacturing activities in order to generate a targeted amount of inventory of maritime satellite connectivity and satellite television terminals to meet anticipated demand through 2025 and potentially into 2026 and that we will cease substantially all manufacturing activity by the end of 2025.

We expect to continue to facilitate customer transition to third-party hardware products compatible with our mobile satellite communications services.

We also plan to continue to conduct maintenance, service, warehousing, shipping and receiving activities at the Middletown, Rhode Island location until our anticipated relocation by early next year.

As part of this restructuring, we reduced our headcount by approximately 75 employees, or approximately 20% of our total workforce as of the time we announced the restructuring.

As of June 30, 2024, all employee terminations were completed.

During the nine months ended September 30, 2024, we incurred $2.9 million of severance charges for this restructuring, which amount reflects a favorable $0.4 million correction in the three months ended September 30, 2024.

The $2.9 million of severance charges incurred during the nine months ended September 30, 2024 consisted of approximately $2.6 million of cash charges and approximately $0.3 million of non-cash charges arising from pre-existing contractual obligations to accelerate vesting of certain outstanding equity compensation awards.

During 2024, we incurred $3.9 million of severance charges for this and other restructurings.

The $3.9 million of severance charges incurred during the year consisted of approximately $3.6 million of cash charges and approximately $0.3 million of non-cash charges arising from pre-existing contractual obligations to accelerate vesting of certain outstanding equity compensation awards.

During the second quarter of 2024, we expanded our relationship with Starlink through a bulk data distribution agreement.

Under the agreement, we prepaid $17.0 million for access to a large block of Starlink Mobile Priority data at favorable rates.

The new agreement offers us increased flexibility in the development and sale of custom airtime plans using Starlink’s Mobile Priority service.

During the third quarter of 2024, we commenced our plan to sell the warehouse building and surface parking lot located at 75 Enterprise Center in Middletown, RI (“75 Enterprise Center”).

Under the agreement, we prepaid $17.0 million for access to a large block of Starlink Global Priority data at favorable rates.

The new agreement offers us increased flexibility in the development and sale of custom airtime plans using Starlink’s Global Priority service.

During the third quarter of 2024, we commenced our plan to sell the warehouse building and surface parking lot located at 75 Enterprise Center in Middletown, Rhode Island (“75 Enterprise Center”).

As of September 30, 2024, 75 Enterprise Center had a carrying value of approximately $7.8 million.

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The estimated fair value was determined based upon the anticipated sales price of these assets based on current market conditions and assumptions made by management, less selling costs.

We recorded an impairment charge of $1.1 million during the three and nine months ended September 30, 2024, as the carrying value of 75 Enterprise Center at the time the asset for sale criteria were met exceeded the fair value less costs to sell.

Additionally, in the third quarter of 2024, we commenced our plan to sell the property, building, improvements, and land located at 50 Enterprise Center in Middletown, RI (“50 Enterprise Center”).

We recorded an impairment charge of $1.1 million in 2024, as the carrying value of 75 Enterprise Center at the time the asset for sale criteria were met exceeded the fair value less costs to sell.

In December 2024, we entered into an agreement to sell 75 Enterprise Center for $8.5 million.

Consummation of the transaction is subject to customary closing conditions.

Under the purchase agreement, the buyer has six months to obtain specified zoning approvals, with up to three 30-day extensions, as well as a 60-day inspection period, subject to potential extension.

The buyer may terminate the agreement at any time before the expiration of the inspection period and may also terminate the agreement if the specified zoning approvals are denied before the expiration of the zoning approval period.

Upon consummation of the sale, we will remain in possession of the property as a tenant under a triple-net lease having an initial term of six months, which we can extend for up to an additional three months.

Rent during the initial term is approximately $25,000 per month, which would increase to approximately $44,000 per month during any extension.

Additionally, in the third quarter of 2024, we commenced our plan to sell the property, building, improvements, and land located at 50 Enterprise Center in Middletown, Rhode Island (“50 Enterprise Center”).

As of September 30, 2024, 50 Enterprise Center had a carrying value of approximately $3.6 million .

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The estimated fair value of 50 Enterprise Center exceeds its carrying value.

In December 2024, we entered into an agreement to sell 50 Enterprise Center, subject to the buyer’s right to terminate the agreement during an inspection period.

In January 2025, before the end of the inspection period, we received notice of termination from the buyer.

In March 2025, we entered into an agreement with another buyer to sell 50 Enterprise Center for $5.3 million.

Consummation of the transaction is subject to customary closing conditions.

Under the purchase agreement, the buyer has a 60-day inspection period and may terminate the agreement at any time before the end of the inspection period.

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

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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 estimates for intangible assets and other long-lived assets are the only estimates critical to an understanding and evaluation of our financial results for the nine months ended September 30, 2024, as discussed below.

We believe that our accounting estimates for intangible assets and other long-lived assets are the only estimates critical to an understanding and evaluation of our financial results for the three months ended March 31, 2025, as discussed below.

Results of Operations

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

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

Three Months Ended

Service 85.2 % 85.6 %

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General and administrative 13.9 18.1

Goodwill impairment charge — 16.1 — 5.3

Long-lived assets impairment charge 3.9 2.0 1.3 0.7

Total costs and expenses 108.8 113.0

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Interest income 2.2 3.1

Other income (expense), net 0.7 (0.4) (0.4) (0.6)

Other expense, net — (0.7)

Loss before income tax expense (6.6) (10.6)

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Net loss (6.7) % (10.9) %

Three months ended September 30, 2024 and 2023

Our net sales for the three months ended September 30, 2024 and 2023 were as follows:

For the three months ended September 30, 2024 vs.

Three months ended March 31, 2025 and 2024

Our net sales for the three months ended March 31, 2025 and 2024 were as follows:

For the three months ended March 31, 2025 vs.

2025 2024 $ %

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Net sales $ 25,414 $ 29,267 $ (3,853) (13) %

Net sales decreased by $4.2 million, or 13%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Service sales decreased by $5.0 million, or 17%, to $24.4 million for the three months ended September 30, 2024 from $29.4 million for the three months ended September 30, 2023.

The decrease was primarily due to a $4.6 million decrease in our airtime service sales, driven primarily by a decrease in VSAT-only subscribers, partially offset by an increase in Starlink service sales.

Alternative solutions offered by recent low-earth-orbit (LEO) entrants have heightened competition in the global leisure segment as well as in commercial and government markets.

We expect that VSAT service sales will continue to decline while Starlink services sales will continue to grow.

We expect that the trend of intensifying competition from LEO satellite service providers will continue and that our quarterly revenues from VSAT service sales will continue to decline on a year-over-year basis.

It is possible that the rate of reduction will continue to accelerate.

A key driver of the expected reduction in revenue is the previously disclosed transition by one of our largest customers, the U.S.

Coast Guard, of its primary satellite service relationship to Starlink.

As a result of the transition, the decline in revenue from this customer began late in the third quarter of 2024.

Product sales increased by $0.8 million, or 20%, to $4.6 million for the three months ended September 30, 2024 from $3.8 million for the three months ended September 30, 2023.

The increase in product sales was primarily due to a $1.2 million increase in Starlink product sales and a $0.2 million increase in VSAT Broadband product sales, partially offset by a $0.5 million decrease in accessory product sales and a $0.3 million decrease in TracVision product sales.

The increase in product sales was primarily due to an increase in unit sales volume of Starlink and VSAT Broadband products.

Competition from low-cost alternatives to VSAT, which include streaming capabilities, has had a significant impact on sales of our TracVision products.

Net sales decreased by $3.9 million, or 13%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Service sales decreased by $3.4 million, or 14%, to $21.6 million for the three months ended March 31, 2025 from $25.0 million for the three months ended March 31, 2024.

The decrease in service sales was primarily due to a $3.5 million decrease in our airtime service sales, of which $2.5 million was related to the U.S.

Coast Guard contract downgrade.

In addition, there was a decrease in VSAT-only subscribers, partially offset by an increase in LEO service sales.

Alternative solutions offered by recent LEO entrants have heightened competition in the global leisure segment and in commercial and government markets.

Product sales decreased by $0.5 million, or 11%, to $3.8 million for the three months ended March 31, 2025 from $4.2 million for the three months ended March 31, 2024.

The decrease in product sales was primarily due to a $0.5 million decrease in TracVision product sales and a $0.2 million decrease in accessory and land mobile connectivity product sales, partially offset by a $0.2 million increase in Starlink product sales and a $0.2 million increase in CommBox Edge product sales.

The decline in product sales was primarily driven by product sales mix.

Competition from low-cost alternatives to VSAT, which include streaming capabilities, has had a significant impact on sales of both TracVision and VSAT Broadband products.

Costs of Sales

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

Costs of sales decreased by $1.1 million, or 5%, in the three months ended September 30, 2024 to $19.7 million from $20.7 million in the three months ended September 30, 2023.

The decrease in costs of sales was driven by a $1.3 million decrease in costs of service sales, partially offset by a $0.2 million increase in costs of product sales.

As a percentage of net sales, costs of sales were 68% and 63% for the three months ended September 30, 2024 and 2023, respectively.

Costs of sales decreased by $1.4 million, or 7%, in the three months ended March 31, 2025 to $18.0 million from $19.4 million in the three months ended March 31, 2024.

The decrease in costs of sales was driven by a $1.6 million decrease in costs of product sales, partially offset by a $0.2 million increase in costs of service sales.

As a percentage of net sales, costs of sales were 71% and 66% for the three months ended March 31, 2025 and 2024, respectively.

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, product installation costs, media materials and distribution costs, and service repair materials.

For the three months ended September 30, 2024, costs of service sales decreased by $1.3 million or 8%, to $15.0 million from $16.2 million in the three months ended September 30, 2023, primarily due to a $1.3 million decrease in airtime costs of service sales.

As a percentage of service sales, costs of service sales were 61% and 55% for the three months ended September 30, 2024 and 2023, respectively, driven primarily by fixed costs.

During the second quarter of 2024, we purchased from Starlink access to a large block of data at favorable rates.

As a result of this purchase, during the three months ended September 30, 2024 our gross margin percentage on Starlink airtime services improved.

The increase in gross margin on Starlink airtime services was higher than previously anticipated, but we may be unable to maintain this higher gross margin percentage during future periods.

For the three months ended March 31, 2025, costs of service sales increased by $0.2 million, or 1%, to $14.2 million from $14.0 million for the three months ended March 31, 2024, primarily due to a $0.2 million increase in content services cost of service sales.

As a percentage of service sales, costs of service sales were 66% and 56% for the three months ended March 31, 2025 and 2024, respectively, driven primarily by fixed costs.

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

For the three months ended September 30, 2024, costs of product sales increased by $0.2 million, or 5%, to $4.7 million from $4.5 million in the three months ended September 30, 2023, primarily due to a $1.1 million increase in Starlink product sales and a $0.3 million increase in VSAT Broadband cost of product sales, partially offset by a $0.9 million decrease in various manufacturing and other unabsorbed expenses, which primarily consists of labor, purchase price variance, excess and obsolescence write down, absorption and severance costs, and a $0.2 million decrease in TracVision cost of product sales.

As a percentage of product sales, costs of product sales were 103% and 119% for the three months ended September 30, 2024 and 2023, respectively.

Cost of product sales decreased as a percentage of product sales primarily due to improved absorption driven by the reduction in headcount of manufacturing employees and the ramp up of production.

For the three months ended March 31, 2025, costs of product sales decreased by $1.6 million, or 30%, to $3.7 million from $5.3 million in the three months ended March 31, 2024, primarily due to a $1.2 million decrease in various manufacturing and other unabsorbed expenses, a $0.4 million decrease in TracVision cost of product sales and a $0.2 million decrease in accessory cost of product sales, partially offset by a $0.2 million increase in Starlink cost of product sales.

As a percentage of product sales, costs of product sales were 99% and 126% for the three months ended March 31, 2025 and 2024, respectively.

Cost of product sales decreased as a percentage of product sales primarily due to the decrease in various manufacturing and other unabsorbed expense.

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 September 30, 2024 decreased by $1.0 million, or 41%, to $1.4 million from $2.4 million for the three months ended September 30, 2023.

The decrease in research and development expense resulted primarily from a $0.8 million decrease in salaries, benefits and taxes, which was driven by the reduction in our workforce begun in February 2024 and concluded in June 2024.

As a percentage of net sales, research and development expense was 5% and 7% for the three months ended September 30, 2024 and 2023, respectively.

Research and development expense for the three months ended March 31, 2025 decreased by $1.9 million, or 61%, to $1.2 million from $3.0 million for the three months ended March 31, 2024.

The decrease in research and development expense resulted primarily from a $1.7 million decrease in salaries, benefits and taxes, after giving effect to $0.8 million in costs incurred during the three months ended March 31, 2024 related to the reduction in our workforce.

As a percentage of net sales, research and development expense was 5% and 10% for the three months ended March 31, 2025 and 2024, 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 September 30, 2024 increased by $0.1 million, or 2%, to $4.9 million from $4.8 million for the three months ended September 30, 2023.

As a percentage of net sales, sales, marketing and support expense was 17% and 15% for the three months ended September 30, 2024 and 2023, respectively.

Sales, marketing and support expense for the three months ended March 31, 2025 decreased by $0.4 million, or 8%, to $5.0 million from $5.4 million for the three months ended March 31, 2024.

The decrease in sales, marketing and support expense resulted primarily from a $0.4 million decrease in salaries, benefits and taxes, after giving effect to $0.3 million in costs incurred during the three months ended March 31, 2024 related to the reduction in our workforce.

As a percentage of net sales, sales, marketing and support expense was 20% and 18% for the three months ended March 31, 2025 and 2024, 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 September 30, 2024 decreased by $0.6 million, or 13%, to $3.8 million from $4.4 million the three months ended September 30, 2024.

The decrease in general and administrative expense resulted primarily from a $0.7 million decrease in salaries, benefits and taxes, which was driven by the reduction in our workforce begun in February 2024 and concluded in June 2024.

As a percentage of net sales, general and administrative expense was 13% for both the three months ended September 30, 2024 and 2023.

Interest and Other Income (Expense), 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 $0.4 million to $0.6 million for the three months ended September 30, 2024 from $1.0 million for the three months ended September 30, 2023.

Of the current period interest income of $0.6 million, $0.5 million is attributable to interest earned on cash and cash equivalents, while the remaining $0.1 million was attributable to interest from lease receivables.

Other income (expense), net changed by $0.3 million to other income, net of $0.2 million for the three months ended September 30, 2024 from other expense, net of $0.1 million for the three months ended September 30, 2023, which was driven by the disposal of fixed assets.

Income Tax Expense

Income tax expense for each of the three months ended September 30, 2024 and 2023 was $0.1 million and related to taxes on income earned in foreign jurisdictions.

Nine months ended September 30, 2024 and 2023

Our net sales for the nine months ended September 30, 2024 and 2023 were as follows:

For the nine months ended September 30, 2024 vs.

2024 2023 $ %

(dollars in thousands)

Service $ 74,122 $ 86,883 $ (12,761) (15) %

Product 12,789 14,041 (1,252) (9) %

Net sales $ 86,911 $ 100,924 $ (14,013) (14) %

Net sales decreased by $14.0 million, or 14%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Service sales decreased by $12.8 million, or 15%, to $74.1 million for the nine months ended September 30, 2024 from $86.9 million for the nine months ended September 30, 2023.

The decrease was primarily due to a $12.0 million decrease in our airtime service sales, driven primarily by a decrease in VSAT-only subscribers, partially offset by an increase in Starlink service sales.

Alternative solutions offered by recent LEO entrants have heightened competition in the global leisure segment and in commercial and government markets.

Product sales decreased by $1.3 million, or 9%, to $12.8 million for the nine months ended September 30, 2024 from $14.0 million for the nine months ended September 30, 2023.

The decrease in product sales was primarily due to a $2.2 million decrease in VSAT Broadband product sales, a $1.7 million decrease in TracVision product sales and a $1.2 million decrease in accessory and service product sales, partially offset by a $3.8 million increase in Starlink product sales and a $0.4 million increase in CommBox Edge product sales.

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

Competition from low-cost alternatives to VSAT, which include streaming capabilities, has had a significant impact on sales of both TracVision and VSAT Broadband products.

Costs of Sales

Costs of sales decreased by $5.1 million, or 8%, in the nine months ended September 30, 2024 to $58.8 million from $63.9 million in the nine months ended September 30, 2023.

The decrease in costs of sales was driven by a $3.4 million decrease in costs of service sales and a $1.7 million decrease in costs of product sales.

As a percentage of net sales, costs of sales were 68% and 63% for the nine months ended September 30, 2024 and 2023, respectively.

For the nine months ended September 30, 2024, costs of service sales decreased by $3.4 million, or 7%, to $44.5 million from $47.8 million for the nine months ended September 30, 2023, primarily due to a $3.6 million decrease in airtime costs of service sales.

As a percentage of service sales, costs of service sales were 60% and 55% for the nine months ended September 30, 2024 and 2023, respectively, driven primarily by fixed costs.

For the nine months ended September 30, 2024, costs of product sales decreased by $1.7 million, or 11%, to $14.3 million from $16.0 million in the nine months ended September 30, 2023, primarily due to a $2.3 million decrease in various manufacturing and other unabsorbed expenses, which primarily consists of labor, purchase price variance, excess and obsolescence write down, absorption and severance costs, a $1.3 million decrease in TracVision cost of product sales, a $1.1 million decrease in VSAT Broadband cost of product sales and a $0.5 million decrease in accessory cost of product sales, partially offset by a $3.5 million increase in Starlink cost of product sales.

As a percentage of product sales, costs of product sales were 112% and 114% for the nine months ended September 30, 2024 and 2023, respectively.

Cost of product sales increased as a percentage of product sales primarily due to lower product sales volume, as well as product sales mix.

Operating Expenses

Research and development expense for the nine months ended September 30, 2024 decreased by $0.6 million, or 8%, to $6.8 million from $7.4 million for the nine months ended September 30, 2023.

The decrease in research and development expense resulted primarily from a $1.0 million decrease in salaries, benefits and taxes, excluding costs related to the previously mentioned reduction in workforce, and a $0.2 million decrease in expensed materials.

These decreases were partially offset by $0.9 million in costs incurred related to the reduction in our workforce begun in February 2024 and concluded in June 2024.

As a percentage of net sales, research and development expense was 8% and 7% for the nine months ended September 30, 2024 and 2023, respectively.

Sales, marketing and support expense for the nine months ended September 30, 2024 remained flat period-over-period at $15.7 million for both the nine months ended September 30, 2024 and 2023.

During the nine months ended September 30, 2024, we incurred $0.4 million in costs related to the reduction in our workforce begun in February 2024 and concluded in June 2024, which was partially offset by a $0.4 million decrease in external commissions.

As a percentage of net sales, sales, marketing and support expense was 18% and 16% for the nine months ended September 30, 2024 and 2023, respectively.

General and administrative expense for the nine months ended September 30, 2024 increased by $0.1 million, or 1%, to $13.2 million from $13.1 million for the nine months ended September 30, 2023.

The increase in general and administrative expense resulted primarily from $0.7 million in costs incurred related to the reduction in our workforce begun in February 2024 and concluded in June 2024 and a $0.7 million reduction in reimbursements made by EMCORE for expenses incurred under the transition services agreement relating to the sale of the inertial navigation business in August 2022.

Partially offsetting these items were a $0.9 million decrease in professional fees, driven by additional accounting and consulting costs incurred during the nine months ended September 30, 2023 to prepare our 2022 annual filings and a $0.3 million decrease in salaries, benefits and taxes, excluding costs related to the previously mentioned reduction in workforce.

As a percentage of net sales, general and administrative expense was 15% and 13% for the nine months ended September 30, 2024 and 2023, respectively.

General and administrative expense for the three months ended March 31, 2025 decreased by $1.8 million, or 33%, to $3.5 million from $5.3 million for the three months ended March 31, 2024.

The decrease in general and administrative expense resulted primarily from a $1.6 million decrease in salaries, benefits and taxes, after giving effect to $0.6 million in costs incurred during the three months ended March 31, 2024 related to the reduction in our workforce, and a $0.3 million decrease in depreciation expense.

As a percentage of net sales, general and administrative expense was 14% and 18% for the three months ended March 31, 2025 and 2024, respectively.

Interest and Other Expense, Net

Interest income decreased by $0.2 million to $2.4 million for the nine months ended September 30, 2024 from $2.7 million for the nine months ended September 30, 2023.

Interest income decreased by $0.3 million to $0.6 million for the three months ended March 31, 2025 from $0.9 million for the three months ended March 31, 2024.

Of the current period interest income of $0.6 million, $0.5 million is attributable to interest earned on cash and cash equivalents, and $0.1 million was attributable to interest from lease receivables.

Other expense, net decreased by $0.2 million to other expense, net of $0.3 million for the nine months ended September 30, 2024 from other expense, net of $0.6 million for the nine months ended September 30, 2023.

This decrease was driven by a $0.4 million decrease in the loss on disposal of fixed assets, offset by a $0.3 million increase in foreign exchange losses.

Other expense, net decreased by $0.2 million to other expense, net of less than $0.1 million for the three months ended March 31, 2025 from other expense, net of $0.2 million for the three months ended March 31, 2024.

This decrease was driven by a $0.2 million decrease in the loss on disposal of fixed assets.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2024 and 2023 was $0.1 million and $0.2 million, respectively, and related to taxes on income earned in foreign jurisdictions.

Income tax expense for the three months ended March 31, 2025 was less than $0.1 million and related to states taxes and taxes on income earned in foreign jurisdictions.

Income tax expense for the three months ended March 31, 2024 was $0.1 million and related to taxes on income earned in foreign jurisdictions.

Liquidity and Capital Resources

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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 September 30, 2024, we had $49.8 million in cash, cash equivalents, and marketable securities, of which $3.5 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries.

Our foreign subsidiaries held no marketable securities as of September 30, 2024.

As of September 30, 2024, we had $108.1 million in working capital.

As of March 31, 2025, we had $48.6 million in cash and cash equivalents, of which $3.5 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries.

We held no marketable securities as of March 31, 2025.

As of March 31, 2025, we had $108.5 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 $13.6 million for the nine months ended September 30, 2024 compared to net cash used in operations of $2.7 million for the nine months ended September 30, 2023.

The $10.9 million increase in net cash used in operations was primarily the result of a $14.6 million increase in cash outflows relating to prepaid expenses and other current assets, a $10.6 million increase in cash outflows relating to accrued compensation, product warranty and other expenses, a $3.5 million increase in net loss (which included a $1.1 million impairment charge during the nine months ended September 30, 2024), a change of $2.5 million related to non-cash items, a $2.5 million increase in cash outflows relating to inventories, a $0.5 million decrease in cash inflows relating to deferred revenue, and a $0.4 million increase in cash outflows related to other non-current assets, partially offset by a $22.2 million decrease in cash outflows related to accounts payable and a $1.5 million increase in cash inflows relating to accounts receivable.

Net cash provided by investing activities was $16.5 million for the nine months ended September 30, 2024 compared to net cash used in investing activities of $9.2 million for the nine months ended September 30, 2023.

The $25.7 million change in net cash provided by investing activities was primarily the result of a $25.1 million decrease in net investment in marketable securities and a $0.6 million decrease in capital expenditures.

Net cash provided by financing activities was $0.1 million for the nine months ended September 30, 2024 compared to net cash provided by financing activities of $2.3 million for the nine months ended September 30, 2023.

The $2.2 million decrease in net cash provided by financing activities is primarily attributable to a $2.5 million decrease in cash inflows relating to proceeds from the exercise of stock options and purchases under our employee stock purchase plan, partially offset by a $0.2 million decrease in cash outflows related to the repurchase of common stock to satisfy specific tax withholding obligations arising from accelerated vesting of executive stock grants in 2023.

Net cash used in operations was $1.3 million for the three months ended March 31, 2025 compared to net cash used in operations of $0.8 million for the three months ended March 31, 2024.

The $0.5 million increase in net cash used in operations was primarily the result of a $3.1 million increase in cash outflows related to accounts payable, a $1.3 million decrease in cash inflows relating to accounts receivable, a change of $0.7 million related to non-cash items and a $0.5 million increase in cash outflows related to prepaid expenses and current assets, partially offset by a $2.5 million decrease in cash outflows relating to accrued compensation, product warranty and other expenses, a $1.5 million decrease in net loss and a $1.0 million decrease in cash outflows relating to inventories.

Net cash used in investing activities was $0.6 million for the three months ended March 31, 2025 compared to net cash provided by investing activities of $0.9 million for the three months ended March 31, 2024.

The $1.4 million change in net cash provided by investing activities was primarily the result of a $3.3 million decrease in proceeds from net sales of marketable securities, which was driven by the liquidation of our marketable securities held by Wells Fargo in 2024, partially offset by a $1.3 million decrease in capital expenditures and a $0.6 million increase in proceeds from the sale of fixed assets.

Net cash used in financing activities was $0.2 million for the three months ended March 31, 2025 compared to net cash provided by financing activities of $0.1 million for the three months ended March 31, 2024.

The $0.3 million change in net cash used in financing activities is primarily attributable to a $0.2 million increase in cash outflows related to the repurchase of treasury stock and $0.1 million decrease in cash inflows relating to proceeds from the exercise of stock options and purchases under our employee stock purchase plan.

Other Matters

On December 9, 2024, our Board of Directors authorized a share repurchase program pursuant in which we may purchase outstanding shares of our common stock for an aggregate purchase price of up to $10 million.

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

We may elect to make purchases under Rule 10b-18 under the Securities Exchange Act of 1934, as amended, which imposes certain volume limitations, and/or under Rule 10b5-1 under that act, which would permit repurchases to occur during periods when we might otherwise be precluded from making purchases under insider trading laws or our company policy.

The volume and timing of any such repurchases will depend on a variety of factors, including the availability of shares, price, market conditions, alternative uses of capital, liquidity, general business conditions, satisfaction of debt covenants, and applicable regulatory requirements.

The program does not obligate us to repurchase any minimum number or dollar amount of shares, and the program may be modified, suspended or terminated at any time without prior notice.

During the three months ended March 31, 2025, we repurchased 30,818 shares of common stock in open market transactions at a cost of $0.2 million.

Except as noted above, there were no other repurchase programs outstanding.

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 2. Management’s Discussion and Analysis