Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KVH Industries Inc (KVHI, Financial) is transitioning to a multi-orbit, multi-channel network strategy, which is expected to enhance service offerings and customer engagement.
- The company introduced CommBox Edge, an advanced network and bandwidth management solution, which has received positive feedback and is generating significant interest.
- KVH Industries Inc (KVHI) has seen strong demand for Starlink, nearly doubling terminal shipments compared to the previous quarter, with expectations of increased airtime subscriptions.
- The reorganization efforts are projected to result in annualized savings of approximately $9 million, with benefits starting in the third quarter of this year.
- KVH Industries Inc (KVHI) has secured a multiyear agreement with OneWeb, allowing the company to buy wholesale and create unique airtime plans, enhancing its service portfolio.
Negative Points
- Q1 airtime revenue decreased by $3.5 million from the previous year, and total revenue for Q1 was down roughly 14% due to a decline in product sales and a reduction in the vessel base.
- The company reported a product gross profit of negative $1.1 million for Q1, influenced by restructuring charges and the wind-down of manufacturing activities.
- KVH Industries Inc (KVHI) is experiencing a contraction in GEO-only subscriptions as the market shifts towards GEO/LEO hybrid solutions.
- The company has lowered its revenue and adjusted EBITDA expectations for 2024 due to intensifying competition and the transition of a major customer to another service provider.
- There is an increased risk of variability between forecasted and actual financial results due to the broad industry transition currently underway.
Q & A Highlights
Q: The gross margins here in the first quarter were a little bit better than I was expecting where there's some one-offs there, and I think you did indicate we should expect more towards mid-30s gross margin on the airtime.
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: Yes, we anticipate new margins to contract somewhat. We had some good pickup in the quarter, particularly on the Starlink side, not only on a base Starlink, but more for the services that we're combining with Starlink.
Q: The contract that you have with Intelsat for capacity, up until a year ago, you were sort of scaling up the amount of capacity and agreements there, what are the provisions for that contract as we're seeing demand for GEO capacity going down? Do you get stuck with some percentage in fixed costs associated with that?
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: Our contract with Intelsat really mirrors what we anticipate going on within the market as far as reduction in bandwidth. We feel comfortable with how we structured our renewed arrangement with them, which we renewed last year, and it commenced at the beginning of this year.
Q: How about OneWeb, how is that capacity arrangement? Is that -- you're sort of paying by the drink? Or do you anticipate entering into some sort of a long-term agreement there?
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: We've already signed an agreement with OneWeb last year. They're just building out their lander stations. We've made arrangements to procure terminals. It's basically a multiyear arrangement where we can buy wholesale from them and create our own unique airtime plans.
Q: Presumably that capability is all already layered into the CommBox Edge?
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: Yes.
Q: Great. And did you -- are you sure you mentioned that you have already begun shipping yet or is that a product that starts --?
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: The CommBox Edge we shipped it. It's the services launched. We have two variants of the low decks unit, one with six ports, one with two. It's being very well received and we've done a tremendous amount of work as far as getting the word out, if you will through both training sessions with our service providers, our employees, our dealer network, and we've done it all. And we provided these same physicians all around the world and through a web-based and/or teams-based overviews.
Q: Great. And I guess finally, just circling back to Starlink, do you see them -- their penetration of the market, is it fairly steady? Do you think -- see things accelerating? And I think you did mention that some of the customers who are signing up are nontraditional customers that you wouldn't have seen before? Are there opportunities to sell them other services that they might not have?
A: Brent Bruun, KVH Industries Inc - President, Chief Executive Officer, Director: Yes, absolutely. And we are seeing an acceleration as I said on the call, we shipped twice as many terminals in the first quarter as we did in the fourth, but only half of those have been activated. So we should see the tail effect from an airtime taking hold. And we're selling that both as a standalone solution as well as a bundled solution with our VSAT service.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
