Earnings call transcript: KVH Industries Q4 2024 earnings miss expectations

KVH Industries reported its Q4 2024 earnings, revealing a larger-than-expected loss and a decline in revenue, resulting in a negative market reaction. The company posted an EPS of -$0.22, significantly below the forecasted -$0.04, and reported revenue of $26.9 million, falling short of the $28.1 million expectation. Following the announcement, KVH Industries’ stock dropped by 2.44%, reflecting investor concerns over the earnings miss and declining margins. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, despite recent challenges.

Want deeper insights? InvestingPro offers exclusive access to 10 additional ProTips and comprehensive financial analysis for KVHI, helping investors make more informed decisions.

Key Takeaways

• KVH Industries missed EPS expectations by $0.18.
• Revenue decreased by 4.5% year-over-year.
• Airtime gross margin declined to 28.2%.
• The stock price fell by 2.44% post-announcement.
• New product launches aim to offset declining GEO airtime revenue.

Company Performance

KVH Industries faced a challenging Q4 2024, with revenue dipping 4.5% from the same period last year. The company’s transition from solely VSAT services to a multi-orbit, multi-channel solution has yet to offset the declining margins and revenue shortfalls. The mobile connectivity market’s transition, especially with the rise of LEO services, presents both challenges and opportunities for KVH Industries. InvestingPro data shows the company’s revenue has declined 13.48% over the last twelve months, with a Financial Health Score rated as ’FAIR’ at 1.94 out of 5.

Financial Highlights

• Revenue: $26.9 million, down 4.5% year-over-year.
• Earnings per share: -$0.22, missing the forecast by $0.18.
• Adjusted EBITDA for Q4: $500,000.
• Ending cash balance: $50.6 million, an increase of $800,000 from the quarter’s start.

Earnings vs. Forecast

KVH Industries reported an EPS of -$0.22 against a forecast of -$0.04, marking a significant miss. The revenue of $26.9 million also fell short of the expected $28.1 million, resulting in a negative surprise for investors.

Market Reaction

Following the earnings announcement, KVH Industries’ stock experienced a 2.44% decline, closing at $5.74. This reaction reflects investor disappointment in the earnings miss and concerns over declining gross margins. Despite near-term challenges, InvestingPro data reveals the stock has gained nearly 26% over the past six months, with relatively low price volatility. The company maintains a strong balance sheet with a current ratio of 5.58, indicating solid short-term liquidity.

Access the complete KVHI Pro Research Report and discover what Wall Street analysts are saying about the company’s future prospects through InvestingPro.

Outlook & Guidance

Looking ahead, KVH Industries projects 2025 revenue between $115 million and $125 million, with adjusted EBITDA guidance ranging from $9 million to $15 million. The company anticipates that new revenue sources, including STARLINK and other innovations, will mitigate the decline in GEO airtime revenue. InvestingPro analysis indicates the company is quickly burning through cash, with analysts anticipating continued sales decline in the current year. The company’s gross profit margin stands at 24.44%, reflecting ongoing operational challenges.

Executive Commentary

Brent Bruin, CEO, stated, "We have made the hard decisions necessary to reconfigure our business operations, streamline costs and focus on our core strengths." He emphasized the importance of network diversity, noting, "We anticipate a requirement to have diversity of networks."

Risks and Challenges

• Continued decline in airtime gross margins.
• Dependence on new product launches to offset declining GEO revenue.
• Market transition towards LEO services disrupting traditional models.
• Potential supply chain disruptions affecting product availability.
• Macroeconomic pressures impacting overall market demand.

Q&A

During the earnings call, analysts inquired about the activation rates of STARLINK terminals and the pricing strategy for OneWeb terminals. The company also addressed its ongoing efforts to manage VSAT network costs, highlighting its shift towards multi-channel solutions.

Full transcript - KVH Industries Inc (KVHI) Q4 2024:

Olivia, Conference Call Operator: Good day. Thank you for standing by. Welcome to KBS Industries Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session.

Please note that today’s conference may be recorded. I would now like to turn the conference over to Mr. Anthony Pike, Chief Financial Officer. Please go ahead, sir.

Anthony Pike, Chief Financial Officer, KVH Industries: Thank you, Olivia. Good morning, everyone, and thank you for joining us today for KVH Industries’ fourth quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company’s Chief Executive Officer, Brent Bruin. Before I get into the numbers, a few standard statements. Firstly, if you would like a copy of the earnings release or if you would like to listen to a recording of today’s call, both will be available on our website.

And if you are listening via the web, please feel free to submit questions to irkvh.com. Further, this conference call will contain certain forward looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss adjusted EBITDA, which is a non GAAP financial measure. You will find a definition of this measure in our press release, as well as a reconciliation to comparable GAAP numbers.

We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our 2024 Form 10 K, which we plan to file later today. The company’s other SEC filings are available directly from our Investor Information section of our website. Now to walk you through the highlights of our fourth quarter, I’ll turn the call over to Brent.

Brent Bruin, Chief Executive Officer, KVH Industries: Thank you, Anthony, and good morning, everyone. Before discussing our high level results, I want to address the overall shift in our business. During 2024, we continued our transition from focusing solely on VSAT services to offering multi orbit, multi channel solutions. What does this mean? In addition to VSAT services, we now offer LEO solutions, the most significant of which is STARLINK.

We have also expanded our portfolio to include a high speed cellular solution. Additionally, we added a cutting edge appliance, the Combox Edge, to deliver advanced and easy to use onboard remote bandwidth management from multiple wide and local area networks. Over the course of 2024, we integrated each of these elements into our go to market strategy, which is steadily building positive momentum. In the fourth quarter, we shipped more than 1,000 STARLINK units and roughly 200 VSAT terminals. Our fourth consecutive quarterly record for terminal shipments.

With more than 2,300 active maritime STARLINK terminals at the end of twenty twenty four, STARLINK is our fastest growing product line in our history. And currently, there are roughly 1,000 STARLINK terminals in the field that are awaiting activation. Our customers find our custom Starlink data plans along with our live twenty fourseven technical and airtime support compelling differentiators. Additionally, our KVH Manager platform offers a robust and secure set of tools to track and control onboard data usage. These factors are driving our unit growth in both leisure and commercial markets.

We recently completed the installation and activation of STARLINK terminals across the entire Vroom fleet. The addition of STARLINK to their existing KVH VSAT service illustrates a strong demand for hybrid connectivity. In fact, roughly 50% of our STARLINK terminals have been activated in tandem with a new or existing VSAT terminal. Our CommVox Edge communication gateway introduced early in 2024 is the heart of our integrated connectivity approach. Demand for CommVox Edge remains strong.

Q4 activations were double the number of activations in Q3. We are now preparing to roll out a range of new CommBox Edge capabilities, including a suite of security features that deliver integrated cybersecurity, intrusion protection and risk mitigation tools. In December, we launched our new Tracnet Coastal cellular Wi Fi system cellular and Wi Fi system, excuse me, which offers data speeds as fast as 300 megabits per second and data costs as low as $1 per gigabyte. FactNet Ecoastal uses our unique Fusion eSIM technology to create a high performance marine grade cellular solution offering connectivity in 135 countries. The Fusion eSIM enables us to add and provision multiple cellular services over the air and then switch intelligently among them based on geographic location or other parameters.

As a result, we can deliver a maintenance free and seamless global cellular service that makes Pecnet Coastal an attractive enhancement for VSAT and LEO services as well as a standalone communication system. I’m also pleased to inform you that we’ve added OneWeb to our satellite communications service portfolio. Seaspan, a leading owner and operator of container ships recently signed an agreement with us to equip its fleet with the OneWeb service. They will be among the first commercial fleets to install OneWeb and use it in an expanded hybrid configuration alongside KVH VSAT and Starling services. These strategic initiatives are beginning to take hold and will position us well in 2025.

Total revenue for the fourth quarter was $26,900,000 roughly a 4.5% decrease from fourth quarter of twenty twenty three. But a more relevant comparison is our third quarter revenue of $29,000,000 Excluding the U. S. Coast Guard revenue reduction of $1,700,000 revenue was effectively flat sequentially. Non U.

S. Coast Guard GEO airtime revenue in the fourth quarter contracted by around $1,000,000 which was offset by increased STARLINK revenues in the same period. Going forward, we anticipate STARLINK as well as other new revenue sources to outpace the decrease in GEO airtime revenue. Additionally, we anticipated a contraction in revenue in 2024 and worked diligently to implement cost reduction initiatives. As a result, we brought recurring OpEx down by almost 10% for the full year.

So to wrap things up, mobile connectivity remains a market in transition as the Geo marketplace continues to adjust to the new disruption caused by legal services such as Starlink and OneWeb. While our results reflect the impact of the dynamic nature of the geo market, the decisive steps we have taken to embrace Starlink while adding supplemental offerings such as OneWeb, Combox Edge and a global five gs cellular service are creating a foundation for future growth. We have made the hard decisions necessary to reconfigure our business operations, streamline costs and focus on our core strengths. We are in a stronger position now than a year ago and I believe we are on a path towards renewed growth and profitability. I will now turn the call back to Anthony to discuss the numbers.

Anthony Pike, Chief Financial Officer, KVH Industries: Thank you, Brent. As a reminder, I would like to note that similar to our call for Q3, I will not restate data that is in the earnings release or clearly described in our 10 K. I’ll focus my comments on information that Eva elaborates on or clarifies the published data. With respect to our fourth quarter financial results, Airtime gross margin, which is not reported in our earnings release, was 28.2%, which is down compared to the prior quarter gross margin of 36.5%. Excluding depreciation, our airtime gross margin for the fourth quarter was 41.4% compared to 48.6% in the prior quarter.

This drop can be mostly attributed to the nature of our broadly fixed cost VSAT services as we continue to see churn from our geo based VSAT network, including the U. S. Coast Guard. However, our LEO margins remain strong. Our geo bandwidth commitment will reduce by $5,000,000 in 2025 and then a further $5,000,000 in 2026.

Total subscribing vessels at the end of Q4 were just below 7,100, which is approximately 4% up from the prior quarter. Reported Q4 product gross profit was positive $300,000 as compared to a negative $600,000 excluding non recurring charges in Q4 of last year. The Q4 operating expenses of $9,300,000 were $1,000,000 or 10% down compared to the prior quarter and $1,600,000 or 15% down from the fourth quarter of twenty twenty three on a like for like basis excluding non recurring charges. Our adjusted EBITDA for the quarter was $500,000 and our earnings release has a usual reconciliation of that. Capital expenditures for the quarter was $800,000 and so adjusted EBITDA less CapEx, which we believe is a good proxy for free cash flow generated from our ongoing business was negative $300,000 This compares to an adjusted EBITDA less CapEx of $1,400,000 positive in the third quarter with adjusted EBITDA of $2,900,000 less capital expenditures of $1,500,000 So for the full year, adjusted EBITDA was $8,100,000 dollars and CapEx was $7,400,000 So adjusted EBITDA less CapEx was $700,000 Our ending cash balance of $50,600,000 was up approximately $800,000 from the beginning of quarter.

And finally, our earnings release provides our guidance for 2025, which is revenue of $115,000,000 to $125,000,000 and adjusted EBITDA of $9,000,000 to $15,000,000 This concludes our prepared remarks. And I will now turn the call over to the operator to open the line for the Q and A portion of this morning’s call. Operator?

Olivia, Conference Call Operator: Thank And we have a question from Caleb Hendry with Quilty Space. Your line is now open.

Caleb Hendry, Analyst, Quilty Space: Hey guys, a couple of questions mostly related to LEO services. You mentioned having 1,000 new ads from Starlink this quarter. I’m wondering if that’s sort of your expectation going forward on a quarterly basis or if you have any expectation of roughly how many Starlink ads you’ll anticipate seeing?

Brent Bruin, Chief Executive Officer, KVH Industries: Let’s be clear. We shipped 1,000 terminals. Anthony, you can see what the actual activations where we had 2,300 active SIROLIC terminals at the end of the quarter and we shipped 1,000 and we also discussed a number of 1,000, there’s about 1,000 there’s approximately 1,000 Starling terminals in the field awaiting activation. Not all those were actually shipped in the fourth quarter. Some of them were shipped in the third quarter and ironically some were shipped in the second quarter.

So we’re staying on top of what’s in the field awaiting activation. A key thing here is any terminal we ship is locked to our service. So we know it can’t be used without our permission to on another service. But as far as activations for the quarter, we activated just under 700 Starlink Maritime Terminals.

Caleb Hendry, Analyst, Quilty Space: Okay. Thanks for the clarification. And what is it that leads companies to delay their activation?

Brent Bruin, Chief Executive Officer, KVH Industries: Well, there’s a couple of things at play here, right? You have commercial leisure and boat builders. So OEMs will buy a StarLink terminal and install it on a boat, which yet hasn’t been taken over by the owner. They may have them on the shelf. What we’re finding is because of the cost of the equipment, in comparison to what VSAT used to cost, people are willing to whether it’s a dealer, distributor, boat builder are willing to take units to have on hand at higher quantities than they did with a VSAT.

And one Starling terminal from our sell price comparison to a VSAT, it’s about an eight:one ratio.

Caleb Hendry, Analyst, Quilty Space: Okay. And then another question just about the customer set that’s procuring maybe STARLINK dishes. Is this mainly like existing customers that you see transitioning to STARLINK or is it more so new customers that never had VSAT before any satellite connectivity that are coming on board?

Brent Bruin, Chief Executive Officer, KVH Industries: Well, as far as our activations are both new and existing customers. As far as the new ones, they may not have had VSAT, they could have had fleet broadband or other lower bit rate type of communication systems. And they’re just taking advantage of the cost structure surrounding the STARLINK terminals and airtime.

Caleb Hendry, Analyst, Quilty Space: Okay. And then thanks. My last question is just around some emerging constellations. I think Kuiper may have some of their first satellites up later this year and seeing some headlines around Chinese constellations that are also starting to launch. Wondering if you have seen any kind of market response to those things or anticipate that during the year?

Brent Bruin, Chief Executive Officer, KVH Industries: I anticipate a market response. I think it’s still too early. Kuiper is testing, but by the time they have a commercial service, it’s going to be well into ’26 or early twenty seven. So it’s just still a bit out until they’re actually up and going, but we’re keeping a close eye on it and we talk to everyone in the industry. Okay,

Caleb Hendry, Analyst, Quilty Space: got it. Thank you.

Brent Bruin, Chief Executive Officer, KVH Industries: Thanks, Craig.

Olivia, Conference Call Operator: Thank you. And our next question coming from the line of Chris Quilty with Quilty Space. Your line is now open.

Chris Quilty, Analyst, Quilty Space: Thanks guys. I guess congrats on getting that OneWeb service launched. Just a general question, how much of a challenge is the terminal pricing relative to SpaceX for customers or are the customers choosing OneWeb for reasons other than cost?

Brent Bruin, Chief Executive Officer, KVH Industries: I think it’s a bit of both. I just talked about the cost of VSAT terminals, Chris. So although OneWeb is more, terminals are more expensive than a Starling terminal, the half duplex is roughly 2x the price. But we see users and we talked about C SPAN that want diversity in network, right. We have hybrid users using both our VSAT and our STARLINK, but like in regard to C SPAN, they’re using STARLINK OneWeb as well as VSAT.

And we anticipate you’re going to have a requirement to have diversity of networks and

Chris Quilty, Analyst, Quilty Space: it could very well be

Brent Bruin, Chief Executive Officer, KVH Industries: a LEO solution. As far as standalone, one web services, they do offer CAR and other compelling features that may make it more attractive for the end user. But as far as the cost, as I said, for the half duplex, about 2x that of the high performance flat panel STARLINK. So it’s not a huge difference as like the eight:one ratio I talked about VSAT a few minutes ago.

Chris Quilty, Analyst, Quilty Space: Right. Switching gears, it sounds like you’re getting good traction with the Combox. Any lessons learned there? And what seems to be an increasingly competitive marketplace of, let’s call them, CommBox equivalents, do you still feel like the feature set that you guys are offering stands out?

Brent Bruin, Chief Executive Officer, KVH Industries: Yes, we think the feature set stands out. And as I discussed, the feature set is being expanded, in particular for intrusion protection and cybersecurity. So we feel that adding those elements will make it even more attractive and it’s more than competitive to anything else on the market.

Chris Quilty, Analyst, Quilty Space: Understand. And does Combox have applicability in any of the, I guess, new markets where you’ve started to see some interest, you’ve mentioned land and some things in South America that were off nominal from your traditional business?

Brent Bruin, Chief Executive Officer, KVH Industries: Yes. The short answer is yes, absolutely. We didn’t really talk about our land initiative on this call because it’s still a bit premature, but we’re getting some good traction in land as well. And Combox is being sold in tandem with some of the land opportunities that we’re pursuing.

Chris Quilty, Analyst, Quilty Space: Great. And I guess final question. As you look at the VSAT terminals coming off the network, are you able to cut costs along with the rate of terminal loss so that your margins are not overly impacted on a go forward basis? And I guess more generally, have you seen the rate of VSAT loss stay the same, accelerate, decelerate?

Brent Bruin, Chief Executive Officer, KVH Industries: It’s actually it’s evened out. So it’s almost has decelerated to a degree, but we’re seeing a pretty consistent churn number. And also an important metric is we shipped 200 VSATs this quarter as we did approximately the quarter before that. So there’s still demand and primarily most of those VSATs are being sold in a hybrid configuration. And another nice element about the VSATs for shipping, for the most part, they’re agile units that we’ve gotten back and refurbished.

So we don’t have any significant amount of CapEx to go along with those terminals that we’re shipping. So as we go forward, we’re carefully managing the VSAT network. It’s and we’re concentrating every day. It is a shrinking piece of our business, but as Anthony alluded to, we’re trying to match revenue with expense. We have our commitments being decreased as far as the geo bandwidth.

We’re taking good advantage of our installed base of VSAC terminals. We have special pricing for hybrid configuration to keep terminals active as well as taking advantage of our pool of agile units that we’ve had over the years. So as we go forward, the amount of CapEx that we’ll be incurring in particular for the VSAT service is going to be decreasing. I think Anthony has something you want to add.

Anthony Pike, Chief Financial Officer, KVH Industries: Well, just to give a data point on that, just to evidence that in the fourth quarter, our CapEx, which was related to our Agile program, was a quarter of what it was in the second quarter. So we’ve reduced it significantly just in six months and we expect that trend to continue.

Chris Quilty, Analyst, Quilty Space: And Anthony, what is I mean, if you put aside our Agile plan, what is the base run rate CapEx?

Anthony Pike, Chief Financial Officer, KVH Industries: Well, so Agile’s? Yes.

Brent Bruin, Chief Executive Officer, KVH Industries: It’s a couple of million dollars, right? It’s a small number this year. We’re implementing a new ERP system. So we have about $1,000,000 to this ERP system. But other than that, you’re talking hundreds of thousands of dollars.

It is nothing significant.

Anthony Pike, Chief Financial Officer, KVH Industries: Yes, absolutely. I mean, it’s 70%, eighty % of our CapEx is agile historically moving forward. So we don’t expect much CapEx again outside the new ERP system.

Chris Quilty, Analyst, Quilty Space: Great. So suffice it to say free cash flow positive in 2025?

Anthony Pike, Chief Financial Officer, KVH Industries: Absolutely.

Brent Bruin, Chief Executive Officer, KVH Industries: That’s what we’re striving for, yes.

Chris Quilty, Analyst, Quilty Space: Great. Thanks, gentlemen.

Brent Bruin, Chief Executive Officer, KVH Industries: All right. Thanks, Chris.

Olivia, Conference Call Operator: Thank you. And there are no further questions at this time. Ladies and gentlemen, this concludes today’s conference. Thank you all for your participation and you may now disconnect.

Brent Bruin, Chief Executive Officer, KVH Industries: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.