Q3 2023 KVH Industries Inc Earnings Call

November 9, 2023

Speaker 1: Good day and thank you for standing by. Welcome to the Q3 2023 KVH Industries, Inc. earnings conference call. At this time, I'll

Good day and thank you for standing by welcome to the Q3 2023 kv H Industries, Inc earnings Conference call.

At this time all participants are in a listen only mode.

Speaker 1: After the speaker's presentation, there will be a question and answer session.

After the speaker's presentation, there will be a question and answer session.

Speaker 1: To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded.

Speaker 1: I would now like to hand the conference over to your first speaker today, Roger Keeble, Chief Financial Officer. Please go ahead.

I would now like to hand, the conference over to your first speaker today, Roger Cable Chief Financial Officer. Please go ahead.

Speaker 2: Thank you, operator. Good morning, everyone, and thank you for joining us today for KVH Industries' third quarter results, which are included in the earnings release we published earlier this morning.

Thank you operator, good morning, everyone and thank you for joining us today for <unk> industries third quarter results, which are included in the earnings release, we published earlier this morning.

Speaker 2: Joining me on the call are the company's Chief Executive Officer, Brent Bruin, and Chief Operating Officer, Bob Balogh. Before we dive in, the usual announcements. First, 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. If you are listening via the web, feel free to submit questions to ir at kvh.com.

Joining me on the call are the company's Chief Executive Officer, Brian <unk>, and Chief operating Officer, Bob Bailey.

Before we dive in the usual announcements first if you'd like a copy of the earnings release or if you would like to listen to a recording of today's call also will be available on our website.

If you are listening via the web feel free to submit questions to IR at <unk> Dot Com <unk>.

Speaker 2: 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.

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.

Speaker 2: 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'll find a definition of this measure in our press release, as well as a reconciliation to comparable GAAP numbers.

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 youll find the definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers.

Speaker 2: We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading risk factors in our 2022 Form 10-K , which was filed on March 16th, and Form 10-Q , which we plan to file later today. The company's other SEC filings are available directly from the investor information section of our website. Now, to walk you through the highlights of our third quarter, I'll turn the call over to Brent. Thank you, Roger.

We encourage you to review the cautionary statements made in our SEC filings specifically those under the heading risk factors in our 2022 Form 10-K, which was filed on March 16th and Form 10-Q, which we plan to file later today. The company's other SEC filings are available directly from the Investor information section of our website.

Now to walk you through the highlights of our third quarter, our current turn the call over to Brian.

Thank you Roger good morning, everyone.

Speaker 2: Let me start by saying, KVH is on the right track, thanks to our successful efforts over the last year and a half.

Let me start by saying <unk> is on the right track thanks to our successful efforts over the last year and a half.

Speaker 2: We divested non-strategic businesses, rate-sized our staff in 2022 to focus exclusively on mobile connectivity products and services.

We divested non strategic businesses right size, our staff in 2022 to focus exclusively on mobile connectivity products and services grew our subscriber base by more than 1000 vessels and maintained a debt free balance sheet.

Speaker 2: grew our subscriber base by more than 1,000 vessels, and maintained a debt-free balance sheet.

Speaker 2: In our most recent quarter, our airtime sales grew 3% year over year, and we maintained our airtime subscriber base at roughly 7,100 vessels, a slight dip from the all-time high we hit last quarter. Although we are pleased with modest year over year growth, it is a bit lower than past quarters due to increased demand for competing data and content streaming services.

And our most recent quarter, our airtime sales grew 3% year over year, and we maintained our airtime subscriber base at roughly one 7100 vessels a slight dip from the all time high we hit last quarter.

Although we are pleased with modest year over year growth is a bit lower than past quarters due to increased demand for competing data and content streaming services.

Speaker 2: We are now focused on positioning KVH within a rapidly changing marketplace. Ever since we have entered the satellite space with our maritime TV receive-only antennas and then with our VSAT terminals and network, we won against traditional competitors due to four key differentiators. First are proprietary terminals.

We are now focused on positioning <unk> within a rapidly changing marketplace ever since we have entered the satellite space with our maritime TV receive only antennas and then with our VSAT terminals in network, we won against traditional competitors due to four key differentiators.

First our proprietary terminals.

Our geosynchronous VSAT network.

Speaker 2: Third, our Commvax integrated network management tools. And fourth, our outstanding global service and support.

Third our Com box integrated network management tools and fourth our outstanding Global service and support.

Yes.

Speaker 2: However, the market has changed as communication solutions require faster speeds, highly competitive data rates, lower cost terminals, and multiple communication options.

However, the market has changed as communication solutions require faster speeds highly competitive data rates lower cost terminals and multiple communication options.

Speaker 2: We believe we are well positioned to maintain our mobile connectivity leadership role as we continue our ongoing strategic evolution as an integrated solutions provider.

We believe we are well positioned to maintain our mobile connectivity leadership role as we continue continue our ongoing strategic evolution as an integrated solutions provider.

Speaker 2: That evolution includes a terminal agnostic approach that permits us to integrate our VSAT and cellular terminals with new and emerging hardware from Starlink and other manufacturers.

This evolution includes a terminal agnostic approach that permits us to integrate our VSAT satellite terminals with new and emerging hardware from Starlink and other manufacturers.

Speaker 2: A multi-network approach that includes integration of our global VSAT network with cellular, Wi-Fi, LEO, and other services.

A multi network approach that includes integration of global of our global VSAT network with cellular Wi Fi Leo and other services.

Speaker 2: Our seamless approach to network management that delivers versatile bandwidth management tools along with cybersecurity and value-added services. And of course, our

Our seamless approach to network management that delivers versatile bandwidth management tools, along with cyber security and value added services.

And of course, our global service and support capabilities.

In recent months, we've made two major strategic moves critical to our future growth.

First we strengthened our position as a multi orbit multi channel integrated solutions provider when we entered into an agreement to be a starlink retailer we.

We are now offering sterling, both as a standalone solution and as a hybrid companion with our track net Tracfone and open net terminals.

Okay.

We are activating a starling terminals through <unk> airtime services group, providing $24 seven live technical support and working with leisure boaters commercial customers and both builders to deploy the Starlink service as part of a comprehensive <unk> solution.

Second we entered into an exclusive maritime distribution agreement with cognitive networks, giving us access to their dynamic suite of network and bandwidth management tools. This agreement expands our network management portfolio, which already includes our <unk>.

<unk> bandwidth management suite of services and managed firewall from Fortinet, the cognitive technology enables us to seamlessly integrate communication channels aboard commercial and leisure vessels, such as LTE <unk> VSAT Starlink and Wi Fi. We can also deliver sophisticated in that network and bandwidth management.

For shipboard operations crew owners and guests over the kv H, one global hybrid network.

I believe this new technology and service will be integral to <unk> multi orbit multi channel communication solutions.

We are excited we're excited by these two strategic moves and their implication for our long term strategic direction.

Our arrangements as Starlink and cognitive networks are examples of how we will continue to expand our position within the mobile connectivity market.

Looking ahead, we will continue to leverage our strong distribution channel, while drawing on our large pool.

Agile plans.

Agile plant excuse me looking ahead, we will continue to leverage our strong distribution channel, while drawing on our large pool of agile plan terminals, which will help us reduce capex going forward and support our continued focus on free cash flow. We also plan to continue our efforts to adapt to the changing competitive environment by adjusting our operations.

To improve profitability, where we can I will now turn it over to Roger for some context regarding our results. Thanks, Brent first I would like to note that unless specifically stated otherwise my comments with respect to Q3 of last year related to our continuing operations, which exclude the results of the inertial navigation business that we sold in August.

Last year also and it changed from prior calls I will not restate data that is in the earnings release are clearly described in our 10-Q I'll focus my comments on information that either elaborates on or a clarifies the published data.

Therefore <unk>.

Airtime gross margin, which is not called out in our earnings release was 42, 4% down from 44.0% last year. However, due to a number of factors is still above our near term expectation of high <unk>, which has not changed total subscribers were up about 4% from Q3 of last year, However growth.

Has slowed in Q3, ending subs were basically flat from the end of Q2.

Product gross profit was negative by about 600000, and while the MD&A section of our 10-Q describes the change from Q3 of last year. The primary driver of the negative margin was low unit volumes.

Operating expenses, excluding the impairment charge were $11 6 million, we expect that will tick up in the fourth quarter as we filled several key positions and we also have some normal seasonally higher opex in Q4.

As such we continue to expect the normal quarterly run rate to be between 12, 5% and $13 million.

The impairment charge of approximately $6 million represents a write off of all of the Companys remaining goodwill as well as approximately $660000 of media group assets discharge is described in detail within the footnotes in our 10-Q. However, just to clarify it was a noncash event and was driven by the decline in our stock price in August.

When the market value of our equity fell below the book value of our net assets. Our adjusted EBITDA for the quarter was a positive $4 5 million and our earnings release has the usual reconciliation of that capital expenditures for the quarter were $2 4 million and so adjusted EBITDA less capex was positive by over $2 million or any.

Cash balance of $69 million was down one $8 million from the beginning of the quarter. However that decrease was.

That decrease was due to increases in our inventory and prepaid so without those our cash balance would have been up by more than the amount of our interest income.

With respect to the full year given that adjusted EBITDA for the first nine months was $12 million. We are increasing the low end of our guidance from 12 million to 13 million, giving a new range of 13 to 15.

For total revenue we are also narrowing the range to $133 million to a $136 million.

This concludes our prepared remarks, and I'll now turn the call over to the operator to open the line for the Q&A portion of this morning's call operator.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Chris Quilty of Quilty space. Your line is now open.

Thanks, gentlemen.

As a follow up a little bit on Star Link I think originally you plan was the only bundle that.

With the caveats VSAT suite. It sounds like you are now selling that individually.

Two questions, one what sort of drove that change and number two.

Can you just remind us I mean, when you settle starlink hardware that is sold at basically no margin. So really it's only the services associated with that.

So if youre selling starlink alone are you able to actually wrapped in services with it.

Yes, good morning, Chris.

To answer the first part of your question.

We felt it was a requirement to sell it as a standalone service in particular for leisure Marine leisure Marine users arent as focused on having a bundled solution along with the VSAT, So and the majority of our Activations that have been standalone have been leisure marine.

In regards to your second question, yes, the margins are rather tight we do add a few other components that aren't necessary included like such as longer linked cable and other type of options we do.

We do.

The installation and we provide other value add services onboard.

Got you.

So the.

Year over year, having the subs about flat.

Is there something seasonal or is it really just started like impact.

Question on how you treat those starlink subs do they count as subs for your total.

Or do they not count since Youre not doing the service revenue at this point at this point.

They are not a factor as far as our overall sales count we just entered into the arrangement. We starlink at the end of September So in regard to third quarter results.

Darling terminals are not included in those subs as.

As we go forward, we very well may break those out separately, we haven't really crossed that bridge yet.

Gotcha.

Can you I know you had the press release, which I read but can you give us maybe a little bit of background on both our relationship the decision to do an exclusive and what what you gave up.

To get that exclusive and how.

How that positions you relative to other players in the market clearly starwood authors almost nothing but a lot of your larger competitors do have these sort of suites does it feel like it's something that is.

Hugely incremental or is it just bringing you up to par with where competitors are.

I think I think its bit of both actually is definitely incremental.

In regards to where we're going with her.

Our multichannel multi orbit approach that we need to join different types of communication channels on wording network that gives you.

A tremendous number.

<unk> activities that we couldn't do with our core comp box functionality, such as channel bonding, which is.

Which is incredibly important to take advantage of the multiple channels onboard the vessel.

And it also enables us to have a seamless approach to bringing on competitors he sets.

We have our own means that we have a complex technology embedded software embedded into our VSAT designed but when we're bringing on a terminal made from another manufacturer.

It enables us to provide more bad bandwidth management tools.

There are actually more advanced than what we've previously provided with our <unk> suite of services.

Got you and.

The relationship there how did you.

When it come together with them.

They have been in the market as shown in to maritime.

I've been in the satellite industry for quite some time im familiar with the ninth time Gogo it's just.

We were working with them.

In regard to some standalone customers airtime customers that migrated over to our network talking about competing terminals. So it just.

It was just a natural progression.

Yes, Bob.

I want to add something.

Hey, Chris.

And easy way to think about it as you know of course for years, we've had com box and we've had built in switching in the H series to switch between the different Wan channels.

It provides a really decent functionality it automatically does the switch and keeps you connected keep share user experience.

Always in a state where you are online.

The cognitive networks devices do is they are really sort of the next generation step up as far as network management goes.

And they are providing things, it's really a tiered layered offering.

When you upgrade to that sort of performance now youre getting share channel bonding youre getting channel balancing and that kind of stuff Super important when you throw on multiple.

On a larger boat multiple starlink terminals, where you've got blockage on one or the other and you wanted to make sure the experience stays seamless.

They also allow us to provide.

Just application filtering and things like that data usage monitoring it allows us to do it all the way down to the device level. So we could for example, led one of the ships turn off a crew member there was using up too much data on the specific application.

There are several tiers of that offering so really what we're doing is going really strong into the value added services to layer all of that stuff on them to give the customers exactly what they are looking for and levels of performance.

Great that's good detail.

Switching gear on the hardware I mean, we've run negative margins for several quarters now.

Do you see a path forward to getting back to profitability or are you engaged in some sort of strategic review around what you should do with the manufacturing side of the business on hardware.

I think it's something.

We've been evaluating.

It's.

It's a somewhat complicated issue I would say, we're just in the process of sort of evaluating what the right next step is.

Fair enough.

And.

I missed on the forward guidance I think you gave revenue 33% to 36 did you gave EBITDA.

Yes, 13% adjusted EBITDA. It was 12 to 15, we're moving at 13% to 15.

Great.

And I guess final question here.

With regard to agile plans that we've historically a big capex.

<unk> for you.

Do you expect that to be as large now that youre.

Forgive me I forget the surface of the cases that PVH, one where youre putting.

Using competitors hardware.

We will be backing off on the amount of capex in the agile plans one of the reasons is using competitors soft hardware as you just indicated.

Secondly, we've had the program in place here for almost 10 years.

Of course, we've had a bit of churn, which we do and just in the normal course, so we have a pool of assets that we refurbish and redeploy so as far as the Capex is concerned.

Every unit that goes out the door, even though we're activating new agile customers all the time.

The capex for that unit.

Could have been spent many years ago, two or three years ago.

So the answer is we are going to be reducing capex on a go forward basis.

And have you seen any change in the churn I mean, you made it through the Covid without a big spike in churn as starling.

The impact that at all.

We've had had an uptick in churn in particular with leisure marine.

Going back to your original question about selling Sterling as a stand alone basis on a standalone basis.

We've seen the most.

Gotcha.

Were still good in terms of satellite capacity.

Still a 100% <unk> base.

Are you on capacity and what do you I mean, I know, obviously Intelsat has four software defined satellites on orbit.

And we've got more than a year out for that capacity to come online and in store.

<unk> trailing everyday.

Are you still in a good position.

And we're in a prime position in regard to the satellite capacity.

Okay.

Great.

And final question I know I said that before.

You already have the final question.

No I know.

So the.

With the competitor terminals when you bring those on those just show up as regular subs right. If you switch, yes swaps a competitor okay.

And have you had I know that program was just launched recently and I think last quarter. You were just tooling up are you starting to see any pickups.

A small amount.

Okay.

Very good well I appreciate all the color guys.

Good quarter.

Okay. Thank you.

Alright. Thank you one moment for our next question.

Our next question comes from the line of Ryan Koontz of Needham <unk> Company. Your line is now open.

Hi, good morning.

Thanks, most of my questions have been answered here, but.

Just following up on the on the Starlink model sounds like.

Are you taking a proactive role on the support side there was sterling maybe your customers can't get direct.

Yes, where we're providing $24 seven live technical support.

Four as we always have so sterling is just another component of that support that we provide.

Got it.

And on this.

Cognitive relationship.

Any more about the company you can share in terms of their position in the market and what are the markets we serve.

No.

And anything any color you can provide a company is helpful. Thanks.

It made the most.

<unk>.

Inroads into the maritime industry.

We'd like to expand beyond maritime into other fixed and enterprise solutions.

But I'm really not in a position to speak on behalf of their company.

Got it alright.

<unk>.

In terms of the.

Seasonality looking forward any changes that we should consider there on the revenue line in terms of.

Your traditional seasonality going into the winter here.

We don't see.

Seasonality that we've experienced in the past we expect to experience again.

This quarter, the fourth quarter as well as the first quarter.

Got it okay. Thanks, guys.

Alright.

Alright, thank you.

This.

It does conclude the question and answer session and I'm seeing no further questions.

Thank you for your participation in today's conference.

This does conclude the program and you may now disconnect.

Thanks, everyone very much.

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Great.

Good day, and thank you for standing by and welcome to the Q3 2023 Caveats Industries, Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your first speaker today, Roger Cable Chief Financial Officer. Please go ahead.

Joining me on the call are the company's Chief Executive Officer, Brent Berlin, and Chief Operating Officer, Bob Bailey.

Before we dive in the usual announcements first if you'd 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.

Listening via the web feel free to submit questions to IR at <unk> Dot com.

No obligation to update or revise any of these statements. We will also discuss adjusted EBITDA, which is a non-GAAP financial measure youll find the definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers.

Now to walk you through the highlights of our third quarter ill turn the call over to Brian.

Thank you Roger good morning, everyone.

Let me start by saying <unk> is on the right track thanks to our successful efforts over the last year and a half.

We divested nonstrategic businesses right sized our staff in 2022 to focus exclusively on mobile connectivity products and services grew our subscriber base by more than 1000 vessels and maintained a debt free balance sheet.

Although we are pleased with modest year over year growth is a bit lower than past quarters due to increased demand for competing data and content streaming services.

First our proprietary terminals.

Our geosynchronous VSAT network.

Third our Com box integrated network management tools and fourth our outstanding Global service and support.

Thanks.

However, the market has changed as communication solutions require faster speeds highly competitive data rate lower cost terminals and multiple communication options.

We believe we are well positioned to maintain our mobile connectivity leadership role as we continue continue our ongoing strategic evolution as an integrated solutions provider.

This evolution includes a terminal agnostic approach that permits us to integrate our VSAT satellite terminals with new and emerging hardware from Starlink and other manufacturers.

A multi network approach that includes integration of global heat of our global VSAT network with cellular Wi Fi Leo and other services.

Our seamless approach to network management that delivers versatile bandwidth management tools, along with cyber security and value added services.

And of course, our global service and support capabilities.

In recent months, we have made two major strategic moves critical to our future growth.

First we strengthened our position as a multi orbit multi channel integrated solutions provider. When we entered into an agreement to be a starlink retailer. We are now offering sterling both as a standalone solution and as a hybrid companion with our track net Tracfone and open net terminals.

Okay.

<unk> bandwidth management suite of services and managed firewall from Fortinet, the cognitive technology enables us to seamlessly integrate communication channels aboard commercial and leisure vessels, such as LTE <unk> VSAT Star Lincoln Wi Fi, we can also deliver sophisticated in that network and bandwidth management.

For shipboard operations crew owners and guests over the kv H, one global hybrid network.

We believe this new technology and service will be integral to <unk> multi orbit multi channel communication solutions.

We are excited we're excited by these two strategic moves and the implication for our long term strategic direction.

Our arrangements as Starlink and cognitive networks are examples of how we will continue to expand our position within the mobile connectivity market.

Looking ahead, we will continue to leverage our strong distribution channel, while drawing on our large pool.

Agile plans.

To improve profitability, where we can I will now turn it over to Roger for some context regarding our results. Thanks, Brian first I would like to note that unless specifically stated otherwise my comments with respect to Q3 of last year related to our continuing operations, which exclude the results of the inertial navigation business that we sold in August.

Last year.

Also in a changed from prior calls I will not restate data that is in the earnings release are clearly described in our 10-Q I'll focus my comments on information that either elaborates on or a clarifies the published data.

Therefore, airtime gross margin, which is not called out in our earnings release was 42, 4% down from 44.0 present last year. However, due to a number of factors is still above our near term expectation of high <unk>, which has not changed total subscribers were up about 4% from Q3 of last year.

However growth has slowed in Q3, ending subs were basically flat from the end of Q2.

Product gross profit was negative by about 600000, and while the MD&A section of our 10-Q describes the change from Q3 of last year. The primary driver of the negative margin was low unit volumes.

As such we continue to expect the normal quarterly run rate to be between 12, five and $13 million the.

When the market value of our equity fell below the book value of our net assets.

Our adjusted EBITDA for the quarter was a positive $4 5 million and our earnings release has the usual reconciliation of that capital expenditures for the quarter were $2 4 million and so adjusted EBITDA less capex was positive by over $2 million.

Our ending cash balance of $69 million was down one $8 million from the beginning of the quarter. However that decrease was that decrease was due to increases in our inventory and prepaid so without those our cash balance would have been up by more than the amount of our interest income.

For total revenue we are also narrowing the range to $133 million to a $136 million.

This concludes our prepared remarks, and I'll now turn the call over to the operator to open the line for the Q&A portion of this morning's call operator.

Please standby, while we compile the Q&A roster.

Yes.

Our first question comes from the line of Chris Quilty of Quilty space. Your line is now open.

Thanks, gentlemen.

I wanted to follow up a little bit on Star Link I think originally you plan was the only bundled that with the <unk> suite. It sounds like you are now selling that individually.

Two questions, one what sort of drove that change and number two.

Can you just remind us I mean, when you settle starlink hardware that is sold at basically no margin. So really it's only the services associated with that.

So if youre selling starlink alone are you able to actually wrapped in services with it.

Yes, good morning, Chris.

To answer the first part of your question.

We felt it was a requirement to sell it as a standalone service in particular for leisure Marine leisure Marine users aren't as focused on having a bundled solution along with the VSAT. So and the majority of our Activations that have been standalone have been leisure marine.

In regards to your second question, yes, the margins are rather tight we do add.

Few other components that aren't necessary included like such as longer linked cable and other type of options we do.

We do.

The installation and we provide other value add services onboard.

Got you.

Yes.

The year.

Year over year, having the subs about flat.

Is there something seasonal or is it really just started like impact and I guess question on how you treat those starlink subs do they count as subs for for your total.

Or do they not count since youre not doing the service revenue.

This point at this point.

They are not a factor as far as our overall sales count we just entered into the arrangement. We starlink at the end of September So in regard to third quarter results.

Starlink terminals are not included in those subs.

As we go forward, we very well may break those out separately, we haven't really crossed that bridge yet.

Gotcha.

Can you I know you had the press release, which I read but can you give us maybe a little bit of background on both our relationship the decision to do an exclusive and what what you gave up.

I get that exclusive and.

How that positions you relative to other players in the market clearly starlink offers almost nothing but a lot of your larger competitors do have these sort of suite does it feel like it's something that is.

Hugely incremental or is it just bringing you up to par with where competitors are.

I think I think its bit of both actually is definitely incremental.

In regard to where we're going with her.

Our multichannel multi orbit approach that we need to join different types of communication channels on wording network. Thank you <unk>.

Tremendous number.

Activities that we couldn't do at our core comp box functionality, such as channel bonding, which is.

Which is incredibly important to take advantage of the multiple channels onboard the vessel.

And it also enables us to have a seamless approach to bringing on competitors defects.

We have our own means that we have a complex technology embedded software embedded into our VSAT designed but when were bringing on a terminal made from another manufacturer.

It enables us to provide more bad bandwidth management tools.

There are actually more advanced than what we've previously provided with our <unk> suite of services.

Scott Yes.

The relationship there how did you.

Come together with them.

They have been in the market has shown into maritime on.

I've been in the satellite industry for quite some time im familiar with and not timing Gogo. It's just.

We're working with them.

In regard to some standalone customers airtime customers that migrated over to our network talking about competing terminals. So it just.

It was just a natural progression.

Yes.

Bob wants to add something.

Yes, Hey, Chris and.

And easy way to think about it as you know of course for years, we've had com box and we've had built in switching in the H series to switch between the different Wan channels.

It provides a really decent functionality it automatically does the switch and keeps you connected keep share user experience.

Always in a state where your online.

The cognitive networks devices do is they are really sort of the next generation step up as far as network management goes.

And they are providing things, it's really a tiered layered offering.

When you upgrade to that sort of performance now youre getting share channel bonding youre getting channel balancing and that kind of stuff Super important when you throw on multiple.

On a larger boat multiple starlink terminals, where you've got blockage on one or the other and you wanted to make sure the experience stays seamless.

They also allow us to provide.

Just application filtering and things like that data usage monitoring it allows us to do it all the way down to the device level. So we can for example, led one of the ships turn off a crew member there was using up too much data on a specific application.

Okay.

Great Thats good detail.

Switching gear on the hardware I mean, we've run negative margins for several quarters now.

Do you see a path forward to getting back to profitability or are you engaging in some sort of strategic review around what you should do with the manufacturing side of the business on hardware.

I think it is something we.

We've been evaluating.

It's.

It's a somewhat complicated issue I would say, we're just in the process of sort of evaluating what the right next step is.

Okay fair enough.

And.

I missed on the forward guidance I think you gave revenue 33% to 36 did you gave EBITDA.

Yes, 13% adjusted EBITDA. It was 12 to 15, we're moving at 13% to 15.

Great.

And I guess final question here.

With regard to agile plans that we've historically a big capex.

Ponant for you.

Do you expect that to be as large now that youre.

Forgive me I forgot that service the cases that PVH, one where youre putting.

Using competitors hardware.

We will be backing off on the amount of Capex in the agile plans one of the reasons is using competitors' software hardware as you just indicated.

Secondly, we've had the program in place here for almost 10 years.

Of course, we've had a bit of churn, which we do and just in the normal course, so we have a pool of assets that we refurbish and redeploy so as far as the Capex is concerned.

Every unit that goes out the door and I know, we're activating new agile customers all the time.

The capex for that unit.

Could have been spent many years ago, two or three years ago.

So the answer is we are going to be reducing capex on a go forward basis.

And have you seen any change in the churn I mean, you made it through the Covid without a big spike in churn and Starlink started to impact that at all.

We've had had an uptick in churn in particular with leisure marine.

Going back to your original question about selling Sterling as a stand alone basis on a standalone basis.

You've seen the most.

Gotcha.

You are still good in terms of satellite capacity.

Still a 100% Ku based.

Yes <unk>.

<unk> and what have you.

Obviously intelsat is for software defined satellites on orbit.

And we've got more than a year out for that capacity to come online.

Starlink trailing everyday are you still in a good position.

And we're in a fine position in regard to the satellite capacity.

Okay.

Great.

And final question I know I said that before.

You already have the final question.

Hi, Noah.

So the.

With the competitor terminals when you bring those on those just show up as regular subs right. If you switch swaps A&D competitor okay.

And have you had I know that program was just launched recently and I think last quarter. You were just tooling up are you starting to see any pickups.

A small amount.

Okay.

Very good well I appreciate all the color guys and good quarter.

Okay. Thank you.

Alright. Thank you one moment for our next question.

Our next question comes from the line of Ryan Koontz of Needham <unk> Company. Your line is now open.

Hi, good morning. Thanks.

Most of my questions have been answered here, but.

Just following up on the on the Starlink model sounds like.

Taking a proactive role in on the support side there was sterling that maybe your customers can't get direct.

Yes, where we're providing $24 seven live technical support for <unk>.

As we always have so starlink is just another component of that support that we provide.

Got it.

And on this on its cognitive relationship.

Any more about the company you can share in terms of their position in the market and what are the markets we serve.

And anything any color you can provide a company's helpful. Thanks.

It made the most.

Inroads into the maritime industry.

We'd like to expand beyond maritime into other fixed and enterprise solutions.

But I'm really not in a position to speak on behalf of their company.

Got it alright.

Ed.

In terms of the.

Seasonality looking forward any changes that we should consider there on the revenue line in terms of.

Your traditional seasonality going into the winter here.

I mean, we we don't see.

Seasonality that we've experienced in the past we expect to experience again.

This quarter, the fourth quarter as well as the first quarter.

Got it okay. Thanks, guys.

Alright.

Okay.

Alright, thank you.

This.

It does conclude the question and answer session and I'm seeing no further questions.

Okay. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

Q3 2023 KVH Industries Inc Earnings Call

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