Q3 2025 KVH Industries Inc Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to the Q3 2025 kV Industries , Inc. Earnings Conference Call . At this time , all participants are in the listen only mode .
Speaker #1: 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 one on your telephone .
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Speaker #1: Please be advised that today's conference is being recorded . I would now like to hand the conference call over to your first speaker today , chief Financial Officer Anthony Pike .
Speaker #1: Please go ahead .
Speaker #2: Thank you . Dana . Good morning , everyone , and thank you for joining us today . For kV industries . Third quarter results , which are included in the earnings release .
Speaker #2: We published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent Bruun. Before I get into the numbers, a few standard statements.
Speaker #2: 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 .
Speaker #2: And if you are listening via the web , please feel free to submit questions to IR at CVS comm . 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 .
Speaker #2: You will find the 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 .
Speaker #2: In our most recently filed 10-q , 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 .
Speaker #2: I'll turn the call over to Brent .
Speaker #3: Thank you , Anthony , and good morning , everyone . The positive momentum that we reported in the second quarter has continued into the third quarter .
Speaker #3: On our last call , we talked about an inflection point that and this quarter we have reinforced that inflection point . This is due to our strategic focus on Leo airtime revenue and subscriber growth , which have yielded positive results .
Speaker #3: Highlights of the quarter include a new record for vessel subscriber growth record , quarterly shipments of satellite communication terminals , sequential and year over year service revenue growth , closing the sale of our Middletown , Rhode Island facility and the acquisition of customer and vendor agreements , along with other assets from a satellite service provider operating in the Asia Pacific region .
Speaker #3: At the same time , we maintained our commitment to strong cost control with flat opex and reduced CapEx compared to the second quarter of 2025 .
Speaker #3: Service revenue for Q3 was $25.4 million , a 10% increase from the prior quarter and a 4% increase from Q3 2020 . For .
Speaker #3: The increase in year over year revenue is particularly encouraging as the prior year included a significant amount of US Coast Guard revenue , which has drastically decreased since the third quarter of last year .
Speaker #3: Equally encouraging are subscriber growth continued in the third quarter . Our total subscribing vessel count increased by 11% to approximately 9000 compared to the second quarter .
Speaker #3: And as a result , our subscribing vessel count is up 26% year to date . This growth is being driven by the ongoing demand for the Starlink and OneWeb Leo services .
Speaker #3: We provide during Q3 . We shipped roughly 1600 terminals , a new record . There continues to be strong demand for both standalone Leo services and hybrid installations , which represent a combined service utilizing Leo service in tandem with our legacy Vsat offering .
Speaker #3: Our Starlink subscriber growth also helped us to meet to helped us to stay on target , to consume the bulk data pool we purchased in July of 2024 , before the end of this year , we are in the final stages of negotiations with Starlink to purchase an additional data pool .
Speaker #3: We expect that the new purchase commitment will scale to reflect the significant growth trajectory of Starlink airtime . As a portion of our business enable us to retain flexibility to create custom competitive data plans to meet our subscribers needs .
Speaker #3: And allow us to sustain solid airtime margins in addition , we continue to pursue strategic growth opportunities in Q3 , we completed the acquisition of the Maritime Communications customer base of a service provider operating in the Asia Pacific region .
Speaker #3: This acquisition is expected to bring on board more than 800 vessels that are currently utilizing satellite communications services . Approximately 300 of which receive our Vsat service .
Speaker #3: More than 4400 land based subscribers who use Inmarsat and Iridium handheld services , and a corresponding increase in annual top line revenue . This strategic move represents an an essential milestone in our evolution , as it is intended to expand our customer base , broaden our product and service portfolio , and significantly increase our land connectivity , subscriber base .
Speaker #3: This step . Now I will turn the call back to Anthony to discuss the numbers . Anthony .
Speaker #2: Sorry about that . Thank you . Brent . As a reminder , I would like to note that similar to our call for Q2 , I will not restate data that is in the earnings release are clearly described in our 10-q .
Speaker #2: I will focus my comments on information that either elaborate on or clarifies the published data . So with respect to our third quarter financial results , airtime , gross margin was 31.9% , which is down by 3.9% compared to the prior quarter .
Speaker #2: Gross margin of 35.8% . This decrease was driven by the reduction in geo airtime margins . As a result of declining revenue set against a relatively fixed cost base .
Speaker #2: That said , geo revenue declined continues to be in line with expectations and is not significantly accelerating . We expect this trend on geo airtime margin to continue in the fourth quarter .
Speaker #2: However , from January 2026 , our minimum commitments for Geo bandwidth declined considerably , considerably by around a third . Which we expect will reduce pressure on margins .
Speaker #2: Our Leo airtime margin was consistent with the prior quarter . Total subscribing vessels at the end of Q3 were just below 9000 , which , as Brent mentioned , is 11% up from the prior quarter .
Speaker #2: And 26% up from the beginning of the year . Reported Q3 product gross profit was negative 6.8 million compared to a product gross profit of positive 0.3 million in the prior quarter .
Speaker #2: This quarter's negative product gross profit included a 5.5 million write down of our Vsat inventory based upon reduced demand and pricing . The remaining reduction in profitability of 1.6 million .
Speaker #2: This quarter was driven by price reductions on Starlink and our H-series Vsat antennas . We expect product margins to improve in the fourth quarter from the third quarter of this year , but product margins will remain relatively modest , and we believe the real value of our mobile connectivity hardware shipments is recurring .
Speaker #2: Airtime revenue they generate in the future . The Q3 operating expenses of 9.5 million were flat compared to the prior quarter , and our adjusted EBITDA for the quarter was 1.4 million .
Speaker #2: And our earnings release has a numerical reconciliation of that capital expenditure for the quarter was 1.6 million . This compares to adjusted EBITDA of 2.7 million and capital expenditure of 2.4 million .
Speaker #2: In the second quarter of 2025 . Our ending cash balance of 72.8 million was up approximately 16.9 million from the beginning of the quarter , and as Brent mentioned , net proceeds from the sale of our property at Middletown , Rhode Island , was 7.8 million .
Speaker #2: So overall , we are pleased with the third quarter performance , which shows our strategy to focus on our recurring revenue service business is proving successful with double digit sequential growth on both service revenue and subscribed vessels .
Speaker #2: In the quarter . Although we cannot assure that growth will continue at this rate , our Leo margins remain strong and we are managing the global decline in geo well .
Speaker #2: The sale of our manufacturing facility and the first acquisition we have completed in several years , evidences our strategic intent moving forward , and we are optimistic for the future .
Speaker #2: This now concludes our prepared remarks , and I will turn the call over to the operator to open the line for the Q&A portion of this morning's call .
Speaker #2: Operator .
Speaker #1: Thank you . At this time , we will conduct the question and answer session . As a reminder to ask a question . You will need to press star one one on your telephone and wait for your name to be announced .
Speaker #1: To withdraw your question , please press star one one again . Please stand by while we compile the Q&A roster . Our first question comes from Chris Quality of quality space .
Speaker #1: Your line is now open .
Speaker #4: Thanks , guys . Wanted to dial in a little bit to the growth in the Leo business . I think you said 1600 terminals shipped in the quarter , and historically you were adding 600 a year on the Geo side .
Speaker #4: Where are you seeing the demand come from or the nature of the demand to see the levels climb that quickly ?
Speaker #3: Yeah , the demand is really pretty , pretty evenly spread between all regions and all all types of vessels . So there's not anything specific that's driving the demand .
Speaker #3: Chris . We we probably we did scale back a bit on Leisure Marine in the third quarter , just due to the time of year .
Speaker #3: Right . That's a very , you know , the fourth quarter . First quarter we'll see a lot more activity there as the boats are moving south .
Speaker #3: But it's just not really any significant concentration .
Speaker #4: And how about I mean are seeing these as competitive wins . Or are these new installs or is that mix changing ?
Speaker #3: It's a bit of both . It's definitely some competitive wins . The new installs also because we're going further downstream . And that trend is continued with the service plans that we offer .
Speaker #3: And the price per bit delivered . It's opened up the market quite a bit to the lower end .
Speaker #4: Gotcha . And I think I received my first Starlink email yesterday offering me free equipment . On the consumer side , but apparently you're also seeing that on the you on the maritime enterprise side .
Speaker #4: How are you managing the hardware? You know, inventory and pricing with what's been a pretty dynamic pricing environment?
Speaker #5: Yeah .
Speaker #3: Yeah . Well , and as Anthony alluded to , they've reduced price . We're not necessarily offering we're not offering free equipment for maritime unless you know something I don't .
Speaker #3: But they have reduced price . Its caused a bit . It's difficult . You have to manage it because when you're buying inventory and you have it at a higher price and then they're selling it lower and you need to drop your price .
Speaker #3: It did impact our margins to a degree . I'm on a go forward basis . We have an understanding with Starlink and how to handle this a bit better .
Speaker #3: And if in fact , they have further price concessions , we would anticipate that any stock that we're holding , we would get a corresponding reduction .
Speaker #3: You know , in or credit for the difference between the previous purchase price and the new purchase price .
Speaker #4: Gotcha . And can you can you contrast that with your OneWeb terminal sales ? Where I think you mentioned a lot of those are being sold under agile plan , where you know , your capitalizing the cost .
Speaker #4: There . Is the differential price differential or CapEx requirements on your part ? You know , causing a shift in terms of how customers are looking at the one service versus the other ?
Speaker #3: If the price definitely has an you know , it's we've we've shipped quite a few more starlinks in Oneweb's . There are alternatives to using a OneWeb and not necessarily just on a standalone basis .
Speaker #3: We talk about our hybrid service offering , which is primarily concentrating on Leo service with Vsat , but it we also have some customers that have that are provided two different Leo services on board to ensure diversity .
Speaker #4: Understand on the Geo side , is it fair to assume the Coast Guard headwind going into the fourth quarter is probably like less than $1 million ?
Speaker #3: The you mean as far as the amount of revenue we recognize in the fourth quarter of last year ? When you say headwind , we had a significant amount of revenue in the third quarter .
Speaker #3: But the contract was expired at the end of September of 24 . And we've retained a small amount of Coast Guard revenue . So it's not it's not completely gone .
Speaker #3: But that small amount was representative in 2024 . And for Q 24 . And it will be in for Q 25 . So it's really not going to be a factor in a year to year over year comparison .
Speaker #3: In the fourth quarter . If that's your question .
Speaker #4: Yeah , that was it . And aside from the Coast Guard , what are you seeing in the trends on the Geo . Arpus .
Speaker #6: Yeah , I'll .
Speaker #3: Defer to Anthony on that question .
Speaker #2: Yeah . So the Geo Arpus this year have been fairly , fairly fairly static . The first to the second quarter , they dropped a little bit .
Speaker #2: But since then they've been very static . So we're very pleased with the third quarters . Apples on our geo side . You know they seem to be remaining .
Speaker #4: Great . And you guys didn't talk about comebacks much in the quarter . Was there any significant movement in customer adoption or you had the new .
Speaker #5: Cybersecurity . coming out ?
Speaker #3: Yeah . Well , the cyber security features being well received . There's not necessarily new news on that , but it's being well received .
Speaker #3: We shipped I don't have the exact number , but but hundreds of combo boxes and we activated hundreds of services . And it's being well received in the market .
Speaker #3: But we didn't really see a need to call it out specifically this quarter . It was it was shipments were and shipments were up sequentially in the third quarter versus the second .
Speaker #2: Yeah . I mean , if I could just jump in there , Brent , I mean , revenue was about revenue was up about 30 mid 30% , I think 36% .
Speaker #2: Quarter on quarter , which just shows , you know , we're getting some successful growth and the growth from that we discussed in prior quarters continued , both in terms of shipments and activations .
Speaker #5: Great .
Speaker #4: And sorry I'm all over the map . I should have organized my questions . But Anthony , did you mention how many Leo terminals were activated in the quarter ?
Speaker #2: I did not know . I'm not sure . Brent . Do we ?
Speaker #6: Yeah . So basically , you know , we talked about .
Speaker #3: You know . our your our growth , you know , which went , you know , was approximately 1000 from 8000 to 9000 is significant portion majority of those would be Leo .
Speaker #3: As far as the vessels that we have out there, 9,000, more than half are receiving Starlink services. But we'd like to just keep it at that level.
Speaker #3: You know , and know that our overall subscriber subscribing vessels are are significant . And they've had significant growth in the quarter , which we hope we anticipate where we hope will continue .
Speaker #3: There's no guarantees . And as we move forward , a larger and larger portion of our installed base will be receiving Leo services .
Speaker #3: You know , and for the current time period , in particular , Starlink .
Speaker #5: Great .
Speaker #4: Are you starting to hear whispers from the Amazon guys coming to market ?
Speaker #3: Yeah , there's there's all kinds of there's not whispers . I think they're shouting from the mountaintops . So .
Speaker #5: Great .
Speaker #4: And does that look like it'll be a competitive service based upon what you're seeing in terms of .
Speaker #3: Yeah , I mean , on paper , yes . You know , the proof is in the pudding . So let's , let's once we are able to test it and see what the , the cost of the equipment is , the data speeds , the ability to maintain link and the overall quality of the service will will , when that all comes to fruition and we're able to do significant testing , we'll be able to answer that question a bit more concisely .
Speaker #3: But on paper , it looks like it will be compelling .
Speaker #5: Great .
Speaker #4: With the acquisition , did I think you mentioned 800 vessels that obviously didn't show up in the numbers for this quarter ? Will we see AA1 time jump of 800 vessels ?
Speaker #4: That happens in Q4 ?
Speaker #3: Yeah , let's let's be let's just be clear . Yes . But over 500 vessels , right . So we 300 of those vessels were already receiving our service .
Speaker #3: We'll be able to achieve higher margin on those vessels because we were selling it to the service provider . And service provider was charging their end customer a higher price .
Speaker #3: But those will be reflected in our fourth quarter . That net 500 will be reflected in our fourth quarter numbers .
Speaker #4: Gotcha . You had previously talked about primarily Latin American land growth , but it sounds like there's an element of that with with this acquisition .
Speaker #4: And I think he's called out the sat part of their business . Is that a focus or is it more around , you know , again , traditional land terminals in the Asian market ?
Speaker #3: Well , a bit of both in this particular case , it was opportunistic because that's what they provided . So we're taking it on .
Speaker #3: We do have we think it would make sense to go into adjacent and adjacent market outside of maritime and provide land services . Since we have the infrastructure to support it .
Speaker #3: And we're looking into that to do more .
Speaker #4: Gotcha . And is that expanding products or services ? You know , is this . All Satcom related services or do you move into other adjacent communication services ?
Speaker #3: It probably primarily will be satcom . You know , the handhelds are very high volume , low rpu type business . So it's you get a lot of them out there to make any type of significant revenue .
Speaker #4: And final question , just because I don't pay as close attention to the maritime market any notable trends due to , you know , tariffs or global geopolitical situations that , you know , you're watching in terms of the demand and uptake on the maritime side ?
Speaker #3: Yeah . Well , of course we watch it . We pay attention to what's going on , but we're not seeing any significant impact from tariffs or the geopolitical environment .
Speaker #4: Right . That's it for me , gentlemen . Thank you .
Speaker #3: All right . Thanks so much Chris .
Speaker #7: Thank you Chris .
Speaker #1: I'm showing no further questions at this time . Thank you for your participation in today's conference call . This does conclude the program .