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What changed in KVH INDUSTRIES INC \DE\'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KVH INDUSTRIES INC \DE\'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+339 added−362 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in KVH INDUSTRIES INC \DE\'s 2023 10-K

339 paragraphs added · 362 removed · 230 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

88 edited+29 added−32 removed33 unchanged
Biggest changeThese brands include: • TracVision® - satellite television systems for vessels and vehicles • TracNet™ – integrated hybrid two-way communication terminals with VSAT, 5G/LTE, and shore-based Wi-Fi • KVH ONE™ - global hybrid communication network supporting Internet, VoIP, content delivery, and more • TracPhone® - two-way VSAT-only satellite communications systems • KVH Link – crew wellbeing content subscription service with delivery by IP-Mobilecast • NEWSlink™ - maritime news delivery service through a variety of means • SPORTSlink TM - sporting content delivered through a variety of means • TVlink TM - television programming delivered through a variety of means • MOVIElink TM - movie distribution through a variety of means • MUSIClink™ - music and karaoke delivered through a v • CommBox™ - data management software for maritime communications • KVH OneCare™ - global services and support for TracNet and TracPhone systems 8 Table of Contents • AgilePlans® - Connectivity as a Service Program • KVH Elite TM – unlimited HD-quality streaming service for leisure yachts We sell our products directly and through an international network of independent retailers, chain stores, distributors, and service providers as well as to manufacturers of vessels, maritime equipment, and vehicles.
Biggest changeOur brands include: • AgilePlans® – Connectivity as a Service Program • CommBox™ – data management software for maritime communications • CommBox™ Edge – advanced maritime network optimization and management solution • KVH Elite TM – unlimited HD-quality streaming service for leisure yachts • KVH Link – crew wellbeing content subscription service with delivery by IP-MobileCast • KVH ONE® – global hybrid communication network supporting Internet, VoIP, content delivery, and more • KVH OneCare™ – global services and support for TracNet and TracPhone systems • MOVIElink TM – movie distribution through a variety of means • MUSIClink™ – music and karaoke delivered through a variety of means • NEWSlink™ – maritime news delivery service through a variety of means • OpenNet – delivering KVH VSAT data services to non-KVH Ku-band VSAT terminals • SPORTSlink TM – sporting content delivered through a variety of means • TracNet™ – integrated hybrid two-way communication terminals with VSAT, 5G/LTE, and shore-based Wi-Fi • TracPhone® – two-way VSAT-only satellite communications systems • TracVision® – satellite television systems for vessels and vehicles • TVlink TM – television programming delivered through a variety of means We sell our products directly and through an international network of independent retailers, chain stores, distributors, and service providers as well as to manufacturers of vessels, maritime equipment, and vehicles.
Our certified support network offers our TracVision, TracNet, and TracPhone customers an international network of skilled technical dealers and support centers in many locations where our customers are likely to travel or conduct business.
Our certified support network offers our TracNet, TracVision, and TracPhone customers an international network of skilled technical dealers and support centers in many locations where our customers are likely to travel or conduct business.
Our research and development efforts are directly related to timely development of new and enhanced products and services that are central to our core business strategy and our ability to drive profitable, sustainable growth.
Our research and development efforts are directly related to timely development of new and enhanced services and related products that are central to our core business strategy and our ability to drive profitable and sustainable growth.
The industries in which we compete are subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product and service introductions and enhancements.
The industries in which we compete are subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new service and product introductions and enhancements.
As a result, our success depends in part upon our ability, on a cost-effective and timely basis, to continue to enhance our existing products and to develop and introduce new products and services that improve performance and meet customers’ operational and cost requirements.
As a result, our success depends in part upon our ability, on a cost-effective and timely basis, to continue to enhance our existing services and to develop and introduce new products and services that improve performance and meet customers’ operational and cost requirements.
Under this all-in-one CaaS model, we charge subscribers a single monthly fee in exchange for which we provide either TracNet or TracPhone satellite communication hardware, subsidized shipping and installation, maintenance and support, airtime and VoIP services, a service management portal and certain basic content services with no minimum commitment and no long-term contract required.
Under this all-in-one CaaS model, we charge subscribers a single monthly fee in exchange for which we provide either TracNet or TracPhone satellite communication hardware, subsidized shipping and installation, maintenance and support, airtime and VoIP services, a service management portal and certain basic content services with no minimum commitment and no long-term contract.
Our mobile satellite antenna products use sophisticated robotics, stabilization, and control software, sensing technologies, transceiver integration, and advanced antenna designs to automatically search for, identify, and point directly at the optimal television and communications satellite while the vessel or vehicle is in motion.
Our parabolic mobile satellite antenna products use sophisticated robotics, stabilization, and control software, sensing technologies, transceiver integration, and advanced antenna designs to automatically search for, identify, and point directly at the optimal television and communications satellite while the vessel or vehicle is in motion.
From time to time, we have faced claims by third parties that our products or technologies infringe their patents or other intellectual property rights. We do not generally conduct exhaustive patent searches to determine whether the technology used in our products infringes patents held by third parties.
From time to time, we have faced claims by third parties that our products or technologies infringe their patents or other intellectual property rights. We do not conduct exhaustive patent searches to determine whether the technology used in our products infringes patents held by third parties.
We are also subject to the laws and regulations of the U.S. and foreign jurisdictions in which we offer and sell our satellite communication products and services, including those of the European Union, Brazil, Norway, Singapore, and Japan.
We are also subject to the laws and regulations of the U.S. and foreign jurisdictions in which we offer and sell our satellite communication products and services, including those of the European Union, Brazil, Norway, Singapore, Japan and India.
For both maritime and onshore customers who want to access live television while on the move, we offer a comprehensive family of mobile satellite antenna products marketed under the TracVision brand.
For both maritime and onshore customers who want to access live television while on the move, we offer a comprehensive family of parabolic mobile satellite antenna products marketed under the TracVision brand.
We also register our trademarks in the United States and other key international markets where we do business. Our patents will expire at various dates between January 2024 and May 2037. We enter into confidentiality agreements with our consultants, key employees, and sales representatives and maintain controls over access to and distribution of our technology, software, and other proprietary information.
We also register our trademarks in the United States and other key international markets where we do business. Our patents will expire at various dates between October 2024 and May 2037. We enter into confidentiality agreements with our consultants, key employees, and sales representatives and maintain controls over access to and distribution of our technology, software, and other proprietary information.
Available tools and reports include, among other features, terminal status, real-time data reporting and the ability to 6 Table of Contents manage data access by application category, configure the KVH terminal, optimize performance with Tracking Avoidance Zones, set data usage alerts and get real-time vessel tracking reports with up to one year of historical data.
Available tools and reports include, among other features, terminal status, real-time data reporting and the ability to manage data access by application category, configure the KVH 4 Table of Contents terminal, optimize performance with Tracking Avoidance Zones, set data usage alerts and get real-time vessel tracking reports with up to one year of historical data.
Specifically: • We provide employee wages that we believe are competitive and consistent with employee positions, skill levels, experience, knowledge, and geographic location. • We review compensation and benefits surveys to obtain relevant industry data in order to benchmark our practices against those of industry peers. • We seek to align the interests of our executives with those of our shareholders by paying a significant portion of our executives’ total compensation in the form of equity awards, which increase in value as the price of our common stock increases. • Annual salary increases and incentive compensation include adjustments based on merit, which is communicated to employees through our annual review process and upon internal transfers and/or promotions. • All employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage, subject to applicable regulations.
Specifically: • We provide employee wages that we believe are competitive and consistent with employee positions, skill levels, experience, knowledge, and geographic location. 14 Table of Contents • We review compensation and benefits surveys to obtain relevant industry data in order to benchmark our practices against those of industry peers. • We seek to align the interests of our executives with those of our shareholders by paying a significant portion of our executives’ total compensation in the form of equity awards, which increase in value as the price of our common stock increases. • Annual salary increases and incentive compensation include adjustments based on merit, which is communicated to employees through our annual review process and upon internal transfers and/or promotions. • All U.S. employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage, subject to applicable regulations.
We currently offer three terminals compatible with Iridium Certus service – the Thales VesseLINK 200 (data speeds as fast as 176/176 Kbps down/up), the VesseLINK 700 (data speeds as fast as 704/352 Kbps down/up), and the Cobham Sailor 4300 (data speeds as fast as 704/176 Kbps down/up), which is only available to AgilePlans subscribers (described below).
We currently offer three terminals compatible with Iridium Certus service – the Thales VesseLINK 200 (data speeds as fast as 176/176 Kbps down/up), the VesseLINK 700 (data speeds as fast as 704/352 Kbps down/up), and the Cobham Sailor 4300 (data speeds as fast as 704/176 Kbps down/up), which is only available to AgilePlans subscribers.
In addition, TracNet systems also offer the option to add two additional third-party services and their companion terminals to serve as alternate primary or backup services. In addition, we continue to service and support our legacy TracPhone VSAT-only terminals.
Our TracNet systems also offer the option to add two additional third-party services and their companion terminals to serve as alternate primary or backup services. We also continue to service and support our legacy TracPhone VSAT-only terminals.
Other Marine Solutions. For our legacy TracPhone systems, we offer CommBox, a ship-to-shore network management product that comprises shipboard hardware, a KVH-hosted or privately-owned shore-based hub, and a suite of software applications. Our CommBox offerings are generally integrated into the majority of our VSAT product offerings. We do not generate significant revenue from sales of standalone CommBox hardware.
For our legacy TracPhone systems, we offer CommBox, a ship-to-shore network management product that comprises shipboard hardware, a KVH-hosted or privately-owned shore-based hub, and a suite of software applications. Our CommBox offerings are generally integrated into the majority of our VSAT product offerings. We do not generate significant revenue from sales of standalone CommBox hardware.
Our TracVision R1 delivers standard-definition DIRECTV and high-definition DISH network service through a small 32 cm diameter dome. Our TracVision A9 uses hybrid phased-array antenna technology to provide in-motion reception of satellite TV programming in the continental United States using either the standard-definition DIRECTV or high-definition DISH Network services.
Our TracVision R1 delivers standard-definition DIRECTV and high-definition DISH network service through a parabolic 32 cm diameter antenna. Our TracVision A9 uses hybrid phased-array antenna technology to provide in-motion reception of satellite TV programming in the continental United States using either the standard-definition DIRECTV or high-definition DISH Network services.
VSAT data speeds offered by the TracNet systems vary by antenna diameter: TracNet H30 offers maximum speeds of 6/2 Mbps (down/up), TracNet H60 offers maximum speeds of 10/3 Mbps (down/up), and the TracNet H90 offers maximum speeds of 20/3 Mbps (down/up).
VSAT data speeds offered by the TracNet systems vary by antenna 6 Table of Contents diameter: TracNet H30 offers maximum speeds of 6/2 Mbps (down/up), TracNet H60 offers maximum speeds of 10/3 Mbps (down/up), and the TracNet H90 offers maximum speeds of 20/3 Mbps (down/up).
In June 2018, we introduced the TracPhone LTE-1, which is a high-gain dual antenna array, modem, GPS, and Wi-Fi router inside a 34 cm diameter dome. The TracPhone LTE-1 is equipped with a U.S-only SIM card that provides Internet access in U.S. waters as far as 20 miles or more (32 kilometers or more) offshore.
We offer the TracPhone LTE-1, which is a high-gain dual antenna array, modem, GPS, and Wi-Fi router inside a 34 cm diameter dome. The TracPhone LTE-1 is equipped with a U.S-only SIM card that provides Internet access in U.S. waters as far as 20 miles or more (32 kilometers or more) offshore.
In the U.S., many of these matters are regulated by the Federal Communications Commission. As a result of our international operations, we are subject to a number of additional legal requirements, including the U.S. Foreign Corrupt Practices Act, the U.K.
In the U.S., many of these matters are regulated by the Federal Communications Commission. 12 Table of Contents As a result of our international operations, we are subject to a number of additional legal requirements, including the U.S. Foreign Corrupt Practices Act, the U.K.
Our TracVision HD-series satellite TV antennas are designed to offer a high-definition TV experience comparable to that available to a home DIRECTV HDTV subscriber. Our TracVision UHD7, launched in October 2019, uses a 60 cm diameter satellite TV antenna to receive signals from two DIRECTV Ka-band satellites and one DIRECTV Ku-band satellite simultaneously.
Our TracVision HD-series satellite TV antennas are designed to offer a high-definition TV experience comparable to that available to a home DIRECTV HDTV subscriber. Our TracVision UHD7 uses a 60 cm diameter satellite TV antenna to receive signals from two DIRECTV Ka-band satellites and one DIRECTV Ku-band satellite simultaneously.
Land Mobile Products We design, manufacture, and sell a range of TracVision satellite TV antenna systems for use on a broad array of vehicles, including recreational vehicles (RV), buses, conversion vans, and automobiles. In the RV and bus markets, we offer Ku-band TracVision satellite TV products, intended for both stationary and in-motion use.
Land Mobile Products We sell several TracVision satellite TV antenna systems for use on a broad array of vehicles, including recreational vehicles (RV), buses, conversion vans, and automobiles. In the RV and bus markets, we offer Ku-band TracVision satellite TV products, intended for both stationary and in-motion use.
When appropriate, we seek to file patent applications to protect innovations arising from our research, development and design activities. As of December 31, 2022, our patent portfolio included approximately 12 U.S. and foreign issued patents, including utility patents, design patents and others and one pending U.S. patent application.
When appropriate, we seek to file patent applications to protect innovations arising from our research, development and design activities. As of December 31, 2023, our patent portfolio included approximately 9 U.S. and foreign issued patents, including utility patents, design patents and others and one pending U.S. patent application.
The linkHUB unit allows for a digital rights managed entertainment service without the need for a TracPhone V series or V-HTS series terminal. Customers that subscribe to one of our entertainment packages generally receive a variety of movie and television content that is cached locally onboard.
The linkHUB unit allows for a digital rights managed entertainment service without the need for a TracPhone or TracNet terminal. Customers that subscribe to one of our entertainment packages generally receive a variety of movie and television content that is cached locally onboard.
In addition to the TracNet systems, we also continue to offer our TracPhone V30 marine VSAT antenna, which was introduced in March 2021. The TracPhone V30 combines the small 37 cm antenna size, easy installation, and fast data speed to make Internet connectivity, content streaming, and social media use possible on sailboats, center console boats, and recreational boats.
In addition to the TracNet systems, we also continue to offer our TracPhone V30 marine VSAT antenna. The TracPhone V30 combines the small 37 cm antenna size, easy installation, and fast data speed to make Internet connectivity, content streaming, and social media use possible on sailboats, center console boats, and recreational boats.
Our TracNet hybrid terminals and KVH ONE hybrid network offer an end-to-end, multichannel connectivity solution. Every TracNet terminal includes an integrated Ku-band VSAT antenna, high-efficiency 5G/LTE cellular antenna, and high-powered Wi-Fi bridge for connections to shore-based Wi-Fi channels. TracNet systems offer intelligent hybrid channel switching based on factors such as service availability, costs, and the quality of data transfer.
Satellite Internet and Phone. Our TracNet hybrid terminals offer an end-to-end, multichannel connectivity solution. Every TracNet terminal includes an integrated Ku-band VSAT antenna, high-efficiency 5G/LTE cellular antenna, and high-powered Wi-Fi bridge for connections to shore-based Wi-Fi channels. TracNet systems offer intelligent hybrid channel switching based on factors such as service availability, costs, and the quality of data transfer.
Overall, our global HTS network currently uses a combination of 159 Ku-band transponders (5 of which we directly contract for) on 22 satellites to provide Ku-band coverage throughout the northern and southern hemispheres. Of the 22 satellites, 3 are considered high-throughput satellites that provide coverage via overlapping high-powered spot beams. Of the 159 Ku-band transponders, 136 are on high-throughput satellites.
Overall, our global HTS network currently uses a combination of 178 Ku-band transponders (5 of which we directly contract for) on 22 satellites to provide Ku-band coverage throughout the northern and southern hemispheres. Of the 22 satellites, 6 are considered high-throughput satellites that provide coverage via overlapping high-powered spot beams. Of the 178 Ku-band transponders, 158 are on high-throughput satellites.
Our customer portal, myKVH, is a secure site that offers KVH customers easy access to technical support, product warranty and user documentation, billing, and our VSAT Manager and next-generation KVH Manager system and network tools.
Our customer portal, myKVH, is a secure site that offers KVH customers easy access to technical support, product warranty and user documentation, billing, and our system and network tools.
In June 2021, we introduced the LTE-1 Global marine communications system, which is equipped with a global SIM card that supports cellular data service in more than 150 countries with Internet access as far as 20 miles or more (32 kilometers or more) offshore. The system utilizes LTE Advanced cellular network technology, which is faster than regular 4G LTE.
We also offer the LTE-1 Global marine communications system, which is equipped with a global SIM card that supports cellular data service in more than 150 countries with Internet access as far as 20 miles or more (32 kilometers or more) offshore. The system utilizes LTE Advanced cellular network technology, which is faster than regular 4G LTE. Other Marine Solutions.
In addition, we actively market and sell a 37 cm VSAT-only TracPhone V30 antenna and support our legacy family of other VSAT-only terminals marketed under the TracPhone brand and using our global HTS network.
In addition, we offer a 37 cm parabolic VSAT-only TracPhone V30 antenna and support our legacy family of other VSAT-only terminals marketed under the TracPhone brand and using our global HTS network.
While Starlink offers a simple data pipe, we believe that a KVH/Starlink companion deployment offers a more robust solution thanks to our intelligent hybrid switching, KVH ONE global hybrid network, integrated services, enterprise-grade cybersecurity, and other features.
While Starlink offers a fast and lower-cost data pipe, we believe that a KVH and Starlink hybrid deployment offers a more robust solution thanks to our intelligent channel switching, KVH ONE global hybrid network, integrated services, enterprise-grade cybersecurity, and other features.
Optional routing enables onboard data to switch between our KVH ONE hybrid network services and Iridium Certus. In addition to our TracNet hybrid and TracPhone VSAT-only products and associated airtime services service, we also offer a family of Inmarsat-compatible TracPhone products that provide in-motion access to global satellite communications.
Optional routing enables onboard data to switch between our KVH ONE hybrid network services and Iridium Certus. In addition to our TracNet hybrid and TracPhone VSAT-only products and associated airtime services service, we also offer the Inmarsat-compatible TracPhone FleetOne product that provides in-motion access to global satellite communications.
When the high-speed data bundle is consumed, subscribers have the option to maintain high data speed at all times with low per MB overage rates or to shift to a slower unlimited use data speed for the remainder of the month. Our unlimited use data plans offer plans based on maximum upload and download speeds.
Our high-speed plans offer simple, usage-based monthly data bundles. When the high-speed data bundle is consumed, subscribers have the option to maintain high data speed at all times with low per MB overage rates or to shift to a slower unlimited use data speed for the remainder of the month.
These sizes and speeds ensure that we offer a suite of products and services to support a wide range of vessels from leisure craft as small as 40 feet long and small fishing vessels to superyachts and large commercial vessels.
These sizes and speeds support a wide range of vessels from leisure craft as small as 40 feet long and small fishing vessels to superyachts and large commercial vessels.
For mobile access to the Internet and VoIP services, which we refer to collectively as our airtime services, we offer a family of hybrid mobile satellite antenna products and communication services using global VSAT service, 5G/LTE cellular service, and shore-based Wi-Fi, which are marketed under the TracNet hybrid terminal and KVH ONE hybrid network brands, respectively.
For mobile access to the Internet and VoIP services, which we refer to collectively as our airtime services, we offer communication services using global VSAT service, 5G/LTE cellular service, and shore-based Wi-Fi, which are marketed under the KVH ONE hybrid network brand.
All TracNet and TracPhone 60 cm and 1 meter antennas support simultaneous high-speed and unlimited use plans for optimal flexibility while all 37 cm terminals offer a single high-speed data channel.
Our unlimited use data plans offer plans based on maximum upload and download speeds. All TracNet, TracPhone, and OpenNet 60 cm to 1 meter antennas support simultaneous high-speed and unlimited use plans for optimal flexibility, while all 37 cm terminals offer a single high-speed data channel.
We are committed to continued improvements to our safety, health, and wellness programs to meet our employees’ needs, which we believe is critical to attract and retain talent.
We are committed to continued improvements to our safety, health, and wellness programs to meet our employees’ needs, which we believe are critical to attract and retain talent. We believe that creating a safe and supportive workplace is vital to our success.
In October 2017, we launched our next-generation, advanced maritime broadband network with Intelsat. The HTS high-speed network incorporates Intelsat Epic satellite services and the IntelsatOne Flex platform, a global managed service designed to optimize bandwidth allocations and provide flexible coverage where it is needed. Our global HTS network also benefits from Asian satellite capacity provided by SKY Perfect JSAT.
The HTS high-speed network incorporates Intelsat satellite services, including Epic satellites, and the IntelsatOne Flex platform, a global managed service designed to optimize bandwidth allocations and provide flexible coverage where it is needed. Our global HTS network also benefits from Japanese satellite capacity provided by SKY Perfect JSAT.
Health and Safety We are committed to protecting the health and safety of our employees and others who enter any of our facilities, wherever located. In 2022, KVH’s Occupational Safety and Health Administration (OSHA) total recordable incident rate was 0.73% which is favorable compared to the 2022 OSHA national average of 2.9.
Benefits for international employees vary by country. Health and Safety We are committed to protecting the health and safety of our employees and others who enter our facilities. In 2023, KVH’s Occupational Safety and Health Administration (OSHA) total recordable incident rate was 2.2%, which is favorable compared to the 2023 OSHA national average of 2.9%.
Under our CaaS model, we retain ownership of the hardware and do not sell it to subscribers, who must return it to us if they terminate our service.
Under our CaaS model, we retain ownership of the hardware and do not sell it to subscribers, who must return it to us if they terminate our service. Returned units may be refurbished and redeployed for new AgilePlans subscriptions.
We offer AgilePlans customers a variety of airtime data plans with varying data allotments and fixed data usage levels with our exclusive dual-channel configuration with dual channel airtime plans delivering both a high-speed channel and an unlimited use data channel.
AgilePlans customers may also choose to add a Starlink terminal and data plan to a new or existing AgilePlans subscription. We offer AgilePlans customers a variety of airtime data plans with varying data allotments and fixed data usage levels with our exclusive dual-channel configuration, with dual channel airtime plans delivering both a high-speed channel and an unlimited use data channel.
Value-added Services We also recognize that our customers desire more than just a simple pipe for data and connectivity. Our TracNet and TracPhone systems are designed to support an expanding suite of value-added services that both increase the capabilities of our customers' systems as well as generate additional recurring revenue for KVH.
Our TracNet and TracPhone systems are designed to support an expanding suite of value-added services that both increase the capabilities of our customers' systems as well as generate additional recurring revenue for KVH.
Sales of content services accounted for 4% and 6% of our consolidated net sales for 2022 and 2021, respectively. In the global maritime market, we believe that there is significant demand for mobile access to the Internet, operational data, voice services, entertainment content, and satellite television.
We also manufacture in-motion, stabilized antennas that provide receive-only satellite television services. Product sales accounted for 13% and 19% of our consolidated net sales for 2023 and 2022, respectively. In the global maritime market, we believe that there is significant demand for mobile access to the Internet, operational data, voice services, entertainment content, and satellite television.
Because we manufacture the onboard hardware, we can integrate the full rack of discrete belowdecks equipment typically used on traditional VSAT systems into a single, streamlined unit that is significantly easier to deploy than competing VSAT solutions. 4 Table of Contents In July 2022, we introduced our TracNet H-series terminals with three options: the 37 cm TracNet H30, the 60 cm TracNet H60, and the 1 meter TracNet H90.
We integrate the full rack of discrete below-deck equipment typically used on traditional VSAT systems into a single, streamlined unit that is significantly easier to deploy than competing VSAT solutions. We offer three TracNet H-series terminals: the 37 cm TracNet H30, the 60 cm TracNet H60, and the 1 meter TracNet H90.
These laws and regulations are subject to change, and any such change may require us to improve our technologies, incur expenditures, or both, in order to comply with such laws and regulations.
Government Regulation Our manufacturing operations are subject to various laws governing the protection of the environment and our employees. These laws and regulations are subject to change, and any such change may require us to improve our technologies, incur expenditures, or both, in order to comply with such laws and regulations.
It includes an IP-enabled antenna control unit and, as with the TracVision TV-series, the TracVision UHD7 offers configuration, status, and service capabilities via the optional, free TracVision application for use on iOS and Android mobile devices.
It also supports Ku-band DISH Network in the United States, select portions of the Caribbean, and Bell TV in Canada. It includes an IP-enabled antenna control unit and, as with the TracVision TV-series, the TracVision UHD7 offers configuration, status, and service capabilities via the optional, free TracVision application for use on iOS and Android mobile devices.
All of these products and services provide an end-to-end solution for offshore mobile connectivity to commercial, leisure, and government customers seeking an integrated hardware and service solution for mobile communications and seamless region-to-region roaming. We design and manufacture the TracNet and TracPhone terminals, acquire bandwidth through third-party providers such as Intelsat, manage our network operations, and provide 24/7/365 after-sale support.
Together with our airtime services, these products provide an end-to-end solution for offshore mobile connectivity to commercial, leisure, and government customers seeking an integrated hardware and service solution for mobile communications and seamless region-to-region roaming. We manufacture the TracNet and TracPhone terminals and provide 24/7/365 after-sale support.
Our Asia-Pacific headquarters are managed through our office in Singapore. 9 Table of Contents Intellectual Property We currently hold a collection of intellectual property rights relating to various aspects of our hardware products, software and services.
Our Asia-Pacific headquarters are managed through our office in Singapore. 9 Table of Contents Intellectual Property We currently hold intellectual property rights relating to various aspects of our hardware products, software and services. We believe that our ability to compete effectively depends in part on our ability to protect these intellectual property rights and our proprietary information.
Content Services We offer a variety of value-added services to our maritime customers as well as news content to our hotel customers. The vast majority of these value-added services are subscription-based.
Network and bandwidth configuration are controlled via compact onboard services and both cloud-based and mobile applications. Content Services We offer a variety of value-added services to our maritime customers as well as news content to our hotel customers. The vast majority of these value-added services are subscription-based.
Because we sell and support our products globally, we have a globally distributed workforce to manufacture products in the U.S. and support our customers in the U.S. and internationally: KVH Team Member Headcount Country # Brazil 2 Cyprus 1 Denmark 15 Germany 1 Greece 2 Hong Kong 2 India 28 Italy 1 Japan 1 Netherlands 1 Norway 5 Philippines 66 Poland 1 Singapore 13 South Africa 1 United Kingdom 65 United States 192 Total 397 Approximately 128 team members, or 32%, are directly involved in supporting our technology in positions such as engineers, technicians, or software developers. 13 Table of Contents Employee Engagement We believe we have strong relationships with our workforce.
Because we sell and support our products globally, we have a globally distributed workforce to manufacture products in the U.S. and support our customers in the U.S. and internationally: 13 Table of Contents KVH Team Member Headcount Country Number at December 31, 2023 Number After February 2024 Reduction in Force United States 182 112 Philippines 61 61 United Kingdom 49 49 Denmark 12 10 Singapore 12 12 India 10 9 Norway 5 3 Greece 3 3 Brazil 2 2 Hong Kong 2 2 Cyprus 1 1 Germany 1 1 Italy 1 1 Japan 1 1 Netherlands 1 1 Poland 1 1 South Africa 1 1 Total 345 270 Approximately 61 team members, or 18%, are directly involved in supporting our technology in positions such as engineers, technicians, or software developers.
Temporary suspensions of our airtime services typically increase in the third and fourth quarters of each year as boats are placed out of service during the winter months.
Temporary suspensions of our airtime services typically increase in the fourth and first quarters of each year as boats are placed out of service during the winter months. Competition We encounter intense competition in the markets we serve, and we expect the intensity of competition to continue to increase in the future.
Product sales accounted for 19% and 22% of our consolidated net sales for 2022 and 2021, respectively. On the services side of our business, sales of our global high-throughput satellite (HTS) airtime service accounted for 74% and 69% of our consolidated net sales for 2022 and 2021, respectively.
On the services side of our business, sales of our global high-throughput satellite (HTS) airtime service accounted for 81% and 75% of our consolidated net sales for 2023 and 2022, respectively. Sales of content services accounted for 3% and 4% of our consolidated net sales for 2023 and 2022, respectively.
Our "news from home" digital newspaper service includes more than 100 daily newspapers in more than 20 languages that at the end of 2022 was delivered to more than 6,000 commercial ships, hotels, and cruise ships. The digital content can be printed onboard or viewed on a tablet, smartphone, or laptop.
Our "news from home" digital newspaper service includes more than 100 daily newspapers in more than 20 languages. The digital content can be printed onboard or viewed on a TV, tablet, smartphone, or laptop.
We are also a leading provider of commercially licensed entertainment, including news, sports, music, and movies, to commercial customers in the maritime and hotel markets, along with supplemental value-added services. We manufacture our products in Middletown, Rhode Island and sell our solutions in a number of major geographic areas, including internationally.
We are also a leading provider of commercially licensed entertainment, including news, sports, music, and movies, to commercial customers in the maritime and hotel markets, along with supplemental value-added cybersecurity, email, and crew internet services.
We transmit local "news from home" and international news segments in a variety of languages on a daily, weekly or monthly basis, a library of movies plus daily sports, news clips and special programming such 7 Table of Contents as the highlights of sporting events.
We transmit local "news from home" and international news segments in a variety of languages on a daily, weekly or monthly basis, a library of movies plus daily sports, news clips and special programming such as the highlights of sporting events. Value-added Services We recognize that our customers desire more than just a simple pipe for data and connectivity.
The continuity of our employee base is important to the success of our business, as our employees have deep knowledge of our products and are critical to the services that we provide to our customers. KVH surveys team member engagement at least annually.
The continuity of our employee base is important to the success of our business, as our employees have deep knowledge of our products and are critical to the services that we provide to our customers. Inclusion and Diversity KVH strives to recruit and retain a diverse and inclusive workforce.
We have established relationships with major universities, professional associations, and industry groups to proactively attract talent. In 2022, we hired 17 professional level team members. Working Capital and Seasonality We hold significant inventory to support our customers and provide prompt delivery of finished goods. As a consequence, we expend substantial working capital in advance of receipt of customer orders.
Working Capital and Seasonality We hold significant inventory to support our customers and provide prompt delivery of finished goods. As a consequence, we expend substantial working capital in advance of receipt of customer orders.
The TracPhone FB250, FB500 and FleetOne products are manufactured by Cobham and distributed on an original equipment manufacturer basis by us in North America under our TracPhone brand and distributed in other markets on a non-exclusive basis.
The FleetOne terminals are manufactured by Cobham and distributed on an original equipment manufacturer basis by us in North America under our TracPhone brand and distributed in other markets on a non-exclusive basis. In March 2023, we began selling Starlink terminals as companion terminals for new TracNet installations as well as for existing TracNet and TracPhone systems.
KVH Team Member Headcount Category # Full-Time Employees 351 Part-Time Employees 34 Long-term Contractors 12 Total 397 Our team members are directly responsible for the creation, development, manufacture, marketing, sale, repair and support of our products and services.
KVH Team Member Headcount Category Number at December 31, 2023 Number After February 2024 Reduction in Force Full-Time Employees 325 252 Part-Time Employees 13 11 Long-term Contractors 7 7 Total 345 270 Our team members are directly responsible for the creation, development, manufacture, marketing, sale, repair and support of our products and services.
Among these value-added services are a new enterprise-grade Managed Firewall powered by industry leader Fortinet, a cloud email system for commercial fleets and seafarers, real-time vessel tracking, and our KVH Link content service.
Among these value-added services are an enterprise-grade Managed Firewall powered by industry leader Fortinet, a cloud email system for commercial fleets and seafarers, crew Internet support, real-time vessel tracking, our KVH Link content service, and CommBox Edge. We expect that the majority of these services will also be available through third-party antennas connected to our network.
While traditionally we licensed this content to commercial maritime customers primarily through the distribution of DVDs, we have now also automated the transmission of this type of entertainment via KVH Link. In June 2020, we also launched our standalone digital service, linkHUB, as an alternative to DVDs.
Historically, studios have granted KVH Media Group permission to license non-theatrical exhibitions aboard ships. While traditionally we licensed this content to commercial maritime customers primarily through the distribution of DVDs, we have automated the transmission of this type of entertainment via KVH Link. We also offer linkHUB, a standalone digital service.
We had 397 team members as of December 31, 2022, including full-time employees, part-time employees, and long-term contractors. The figures in this section provide information as of December 31, 2022.
For more information, see “Risk Factors – Risks related to government regulation.” KVH Team Demographics KVH team members are essential to the success of KVH. We had 345 team members as of December 31, 2023, including full-time employees, part-time employees, and long-term contractors. The figures in this section provide information as of December 31, 2023.
We offer the Iridium hardware and service along with our own hybrid and VSAT solutions with the integrated CommBox functionality, which will switch over to the Iridium service if KVH’s VSAT, 5G/LTE, or shore Wi-Fi services are not available. Some of our customers add the Iridium service to expand the geographic coverage of the system or as a backup service.
Iridium OpenPort service provides data rates up to 128 kilobits per second (Kbps) and covers the entire world, including the polar regions. We offer the Iridium service along with our own hybrid and VSAT solutions with the integrated CommBox functionality, which will switch over to the Iridium service if KVH’s VSAT, 5G/LTE, or shore Wi-Fi services are not available.
We have selected technical dealers based on their technical expertise, professionalism, and commitment to quality, and regularly provide them with extensive training in the sale, installation, and support of our products. Maritime Products In the marine market, we offer a range of mobile satellite TV and communications products. Satellite Internet and Phone.
We have selected these dealers based on their technical expertise, professionalism, and commitment to quality, and regularly provide them with extensive training in the sale, installation, and support of our products. We also rely on this same sales and technical partner network to support our LEO hardware and airtime customers.
We provide integrated, end-to-end hardware, software, and services that support our customers’ need for access to the Internet, VoIP, operations content, and entertainment services.
Please see Notes 1 and 14 to our accompanying audited consolidated financial statements for additional information. 3 Table of Contents Our Business We provide integrated, end-to-end services, software, and hardware that support our customers’ need for access to the Internet, VoIP, operations content, and entertainment services while on the move.
We expect that, as customers subscribe to our AgilePlans service, our revenues from product sales will continue to decline, and our provision of this equipment to subscribers will continue to increase our capital expenditures, which over time will continue to increase our costs of service sales as we depreciate these assets.
We expect that, as customers subscribe to our AgilePlans service, our revenues from product sales will continue to decline, and our provision of this equipment to subscribers will continue to comprise the majority of our capital expenditures. In October 2017, we launched our next-generation, advanced maritime broadband network with Intelsat.
Our diversity and inclusion principles are also reflected in our employee training, in particular with respect to our policies against harassment in the workplace. Competitive Pay and Benefits KVH’s compensation programs are designed to align the compensation of our employees with KVH’s performance and provide incentives to attract, retain and motivate employees to achieve superior results.
Competitive Pay and Benefits KVH’s compensation programs are designed to align the compensation of our employees with KVH’s performance and provide incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
On August 9, 2022, we sold our inertial navigation business, which offered a portfolio of innovative digital compass and fiber optic gyro based systems, to EMCORE Corporation. We are headquartered in Middletown, Rhode Island, with active operations in Denmark, the United Kingdom, the Philippines, and Singapore.
We are headquartered in Middletown, Rhode Island, with active operations in Denmark, the United Kingdom, the Philippines, and Singapore. KVH is a Delaware corporation formed in 1985. We operate as one reportable segment as a result of the sale of our inertial navigation business on August 9, 2022.
For movie and television content, we are an approved distributor of licensed content for certain Hollywood, Bollywood, and independent studios worldwide. We offer a content subscription service called KVH Link, delivered by IP-MobileCast wherein content and data files are transmitted using multicast technology across our global satellite networks to every vessel that has an active, compatible TracPhone V-series terminal.
For movie and television content, we are an approved distributor of licensed content for certain Hollywood, Bollywood, and independent studios worldwide. 5 Table of Contents We offer a content subscription service called KVH Link, which is delivered by IP-MobileCast.
Many of our primary competitors are well-established companies and some have substantially greater financial, managerial, technical, marketing, operational, and other resources than we do. In the marine market for satellite TV equipment, we compete primarily with Intellian, Cobham SATCOM and Raymarine (Intellian made).
Many of our primary competitors are large, well-established companies, many have substantially greater financial, managerial, technical, marketing, operational, and other resources than we do, and others have entered the markets with significantly disruptive new technology and services. In the marine market for high-speed Internet, voice, fax, and data services, we compete primarily with Inmarsat, Marlink, Speedcast, Viasat and Network Innovations.
Our operations are also subject to various domestic and international privacy laws, including the European Union’s General Data Protection Regulation.
Our operations are also subject to various domestic and international privacy laws, including the European Union’s General Data Protection Regulation. These laws and regulations, as well as the interpretation and application of these laws and regulations, are subject to change, and any such change may affect our ability to offer and sell existing and planned satellite communications products and services.
The key features of KVH’s airtime services are a choice of high-speed and unlimited use airtime plans, a network management portal, and a comprehensive global customer support program. Our high-speed plans offer simple, usage-based monthly data bundles.
We acquire satellite bandwidth through third-party providers, manage our network operations, and provide 24/7/365 after-sale support. We offer a variety of rate plans that are flexible to meet customer needs. The key features of KVH’s VSAT-based airtime services are a choice of high-speed and unlimited use airtime plans, a network management portal, and a comprehensive global customer support program.
We believe that creating a safe and supportive workplace is vital to our success. 14 Table of Contents KVH Team Member Recruitment We work diligently to attract the best available talent from a diverse range of sources to meet the current and future demands of our business.
KVH Team Member Recruitment We work diligently to attract the best available talent from a diverse range of sources to meet the current and future demands of our business. We have established relationships with major universities, professional associations, and industry groups to proactively attract talent. In 2023, we hired 11 professional level team members.
On the hardware side of our business, we primarily manufacture and distribute a comprehensive family of mobile satellite antenna products that provide two-way access to the Internet and VoIP services outside the range of cellular phone service, along with in-motion, stabilized antennas that provide receive-only satellite television services.
On the hardware side of our business, we currently manufacture and distribute a comprehensive family of mobile satellite antenna products that provide two-way access to the Internet and VoIP services using Ku-band VSAT service with integrated 5G/LTE cellular service and support for shore-based Wi-Fi. We distribute products manufactured by third-parties that support low earth orbit (LEO) satellite services.
In the markets for media content, we compete primarily with Swank Motion Pictures, Baze Technology, and 11 Table of Contents Newspapersdirect Inc. In the markets for mobile satellite connectivity products, the principal competitive factors are product size, features, design, performance, reliability, and price.
In the markets for media content, the principal competitive factors are price, license rights, and distribution. In the markets for mobile satellite connectivity products, the principal competitive factors are price, product size, features, design, performance, and reliability. As noted above, as a result of increased competition, we are winding down our product manufacturing operations.
The TracVision A9 stands approximately five inches high and mounts either to a vehicle’s roof rack or directly to the vehicle’s roof, making it practical for use aboard minivans, SUVs and other passenger vehicles.
The TracVision A9 stands approximately five inches high and mounts either to a vehicle’s roof rack or directly to the vehicle’s roof, making it practical for use aboard minivans, SUVs and other passenger vehicles. 8 Table of Contents Sales, Marketing and Support Our sales, marketing, and support efforts target markets that are substantial and complex, and require, in many cases, networks of intermediaries, such as dealers, distributors, airtime service providers, and manufacturers’ representatives, to reach our end-user customers.
The content is either stored on the terminal itself or on a KVH-supplied media server, which is required for digital rights managed content such as movies. Copyright law requires permission from the rights holder for exhibitions of copyrighted film and television. Historically, studios have granted KVH Media Group permission to license non-theatrical exhibitions aboard ships.
Before multicasting, large data files were generally transmitted across satellite networks “on demand,” or unicast, which consumes significant bandwidth. The content is stored on the terminal itself, which is required for digital rights managed content such as movies. Copyright law requires permission from the rights holder for exhibitions of copyrighted film and television.
In September 2019, we began offering Iridium Certus, a next-generation L-band solution providing pole-to-pole global coverage.
Some of our customers add the Iridium service to expand the geographic coverage of the system or as a backup service. We offer Iridium Certus, a next-generation L-band solution providing pole-to-pole global coverage.
Additionally, we are starting to face competition from new low earth orbit (LEO) networks such as SpaceX's Starlink and OneWeb. We also face competition from providers of low-speed data services, which include Inmarsat and Iridium Satellite LLC. In the market for land mobile satellite TV equipment, we compete primarily with King Controls and Winegard Company.
More recently, SpaceX's Starlink has emerged as a significant competitor with flat- 11 Table of Contents panel, electronically steered array (ESA) terminals and its new LEO network. Other LEO services, such as Eutelsat OneWeb, are also entering the market. In addition, we face some competition from providers of low-speed data services, which include Inmarsat and Iridium Satellite LLC.
In 2022, our global turnover rate was 18%, including voluntary and involuntary separations. Among our 65 key executive leaders and most critical individual technology contributors, our turnover rate was 12% in 2022.
Among our 41 key executive leaders and most critical individual technology contributors, our turnover rate was 5% in 2023. The average length of employee service is 10.5 years.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur results of operations in any quarter can fluctuate for many reasons, including changes in demand for our products and services; delays in order fulfillment, including as a result of shortages of components and raw materials; the mix of products and services we sell, including the mix of fixed rate and metered contracts for airtime services; our ability to manufacture, test and deliver products in a timely and cost-effective manner, including the availability of components and subassemblies from our suppliers; our success in winning competitions for orders; the timing of new product introductions by us or our competitors; the scope and success of our investments in research and development; expenses incurred in pursuing acquisitions and investments; expenses incurred in expanding, maintaining, or improving our global HTS network; market and competitive pricing pressures; unanticipated charges or expenses, such as increases in warranty claims; expenses incurred in responding to stockholder activism; general economic climate; seasonality of pleasure boat and recreational vehicle usage; and the impact of supply chain disruptions.
Biggest changeOur results of operations can fluctuate for many reasons, including changes in demand for our products and services; delays in order fulfillment, including as a result of shortages of components and raw materials; the mix of products and services we sell, including the mix of fixed rate and metered contracts for airtime services; our ability to manufacture, test and deliver products in a timely and cost-effective manner; the timing of new service and product introductions by us or our competitors; the scope and success of our investments in research and 15 Table of Contents development; expenses incurred in pursuing acquisitions and investments; expenses incurred in expanding, maintaining, or improving our global HTS network; market and competitive pricing pressures; unanticipated charges or expenses, such as the aggregate $6.0 million impairment charges to goodwill and long-lived assets we recorded in the third quarter of 2023; the $5.2 million charge related to the inventory write-down, the $3.6 million provision for excess purchase order obligations and the $2.1 million charge for the discontinuation of a project for implementing a new manufacturing-centric accounting system that we recorded in the fourth quarter of 2023; expenses incurred in responding to stockholder activism; general economic climate; seasonality of pleasure boat and recreational vehicle usage; and the impact of supply chain disruptions.
Our inability to accomplish any of these goals could have a material adverse effect on our revenues, profitability and cash flow, and we cannot assure you when, or whether, we will regain profitability. Fluctuations in our quarterly net sales and results of operations could depress the market price of our common stock.
Our inability to accomplish any of these goals could have a material adverse effect on our revenues, profitability and cash flow, and we cannot assure you when, or whether, we will regain sustained profitability. Fluctuations in our quarterly net sales and results of operations could depress the market price of our common stock.
In addition, the unexpected failure of a satellite could disrupt the availability of programming and services, which could reduce the demand for, or customer satisfaction with, our products. We depend on cloud-based data services operated by third parties, and any disruption in the operation of these services could harm our business.
In addition, the unexpected failure of a satellite could disrupt the availability of programming and services, which could reduce the demand for, or customer satisfaction with, the products and services we offer. We depend on cloud-based data services operated by third parties, and any disruption in the operation of these services could harm our business.
If we are unable to renew these agreements on commercially reasonable terms, or if one or more of our data management service providers is acquired, closes, suffers financial difficulty or is unable to meet our growing capacity needs, we may be required to transfer our data to other services, and we may incur significant costs and service interruptions in connection with doing so, which could harm our reputation with our customers and adversely affect our revenues and results of operations. 18 Table of Contents Our media and entertainment business relies on licensing arrangements with content providers, and the loss of, or changes in, those arrangements could adversely affect our business.
If we are unable to renew these agreements on commercially reasonable terms, or if one or more of our data management service providers is acquired, closes, suffers financial difficulty or is unable to meet our growing capacity needs, we may be required to transfer our data to other services, and we may incur significant costs and service interruptions in connection with doing so, which could harm our reputation with our customers and adversely affect our revenues and results of operations. 20 Table of Contents Our media and entertainment business relies on licensing arrangements with content providers, and the loss of, or changes in, those arrangements could adversely affect our business.
Domestic and international legislative and regulatory initiatives may harm our ability, and the ability of our customers, to process, handle, store, use and transmit information, which could reduce demand for some of our services, increase our costs and force us to change our business practices.
Domestic and international legislative and regulatory initiatives may harm our ability, and the ability of our customers, to process, handle, store, use and transmit information, which could reduce demand for our services, increase our costs and force us to change our business practices.
We distribute premium news, sports, and movies to commercial customers in the maritime and hotel markets. We license this content from third parties on a non-exclusive basis without long-term license agreements. Any content provider could terminate our arrangements without notice or could adversely modify the terms of the arrangement, including price increases.
We distribute premium news, television shows, sports, and movies to commercial customers in the maritime and hotel markets. We license this content from third parties on a non-exclusive basis without long-term license agreements. Any content provider could terminate our arrangements without notice or could adversely modify the terms of the arrangement, including price increases.
If we are unable to reach economical agreements with third-party satellite providers to support our global HTS service and its technology or if transponder capacity is unavailable to meet growing demand in a given region, our ability to provide airtime services will be at risk and could reduce the attractiveness of our products and services.
If we are unable to reach economical agreements with third-party satellite providers to support our global satellite services and its technology or if transponder capacity is unavailable to meet growing demand in a given region, our ability to provide airtime services will be at risk and could reduce the attractiveness of our products and services.
These laws and regulations are continually changing, making compliance complex. We incur significant costs identifying and maintaining compliance with applicable licensing and regulatory requirements. In addition, our training and compliance programs and our other internal control policies may be insufficient to protect us from acts committed by our employees, agents or third-party contractors.
These laws and regulations are continually changing, making compliance complex. We incur significant costs identifying and maintaining compliance with applicable licensing and regulatory requirements. Our training and compliance programs and our other internal control policies may be insufficient to protect us from acts committed by our employees, agents or third-party contractors.
In addition, many of the countries where our customers use our products and services have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of VoIP services using such equipment, and, in some cases, the reception of certain video programming services.
In addition, many of the countries where our customers use our products and services have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of VoIP services using such equipment and the reception of certain video programming services.
These risks include restrictions on international travel, which may restrict our ability to grow and service our business; tariffs; sanctions or other trade restrictions that preclude or restrict doing business with particular foreign governments, companies or individuals; technical challenges we may face in adapting our products to function with different satellite services and technology in use in various regions around the world; satisfaction of international regulatory requirements and delays and costs associated with procurement of any necessary licenses or permits; the potential unavailability of content licenses covering international waters and foreign locations; increased costs of providing customer support in multiple languages; increased costs of managing 23 Table of Contents operations that are international in scope; potentially adverse tax consequences, including restrictions on the repatriation of earnings; protectionist laws and business practices that favor local competitors, which could slow our growth in international markets; potentially longer sales cycles; potentially longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and economic and political instability in some international markets.
These risks include restrictions on international travel, which may restrict our ability to grow and service our business; international shipping delays; tariffs; sanctions or other trade restrictions that preclude or restrict doing business with particular foreign governments, companies or individuals; technical challenges we may face in adapting our solutions to function with different satellite services and technology in use in various regions around the world; satisfaction of international regulatory requirements and delays and costs associated with procurement of any necessary licenses or permits; the potential unavailability of content licenses covering international waters and foreign locations; increased costs of providing customer support in multiple languages; increased costs of managing operations that are international in scope; potentially adverse tax consequences, including restrictions on the repatriation of earnings; protectionist laws and business practices that favor local competitors, which could slow our growth in international markets; potentially longer sales cycles; potentially longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and economic and political instability in some international markets.
We currently offer satellite television products compatible with the DIRECTV and DISH Network services in the United States, the Bell TV service in Canada, the Sky Mexico service in Mexico, the Sky UK service in the United Kingdom, Canal+ service in France and Movistar service in Spain, and other regional satellite TV services in other parts of the world.
We currently offer satellite television solutions compatible with the DIRECTV and DISH Network services in the United States, the Bell TV service in Canada, the Sky Mexico service in Mexico, the Sky UK service in the United Kingdom, Canal+ service in France and Movistar service in Spain, and other regional satellite TV services in other parts of the world.
If customers become dissatisfied with the programming, pricing, service, availability, or other aspects of any of these satellite services, or if any one or more of these services becomes unavailable for any reason, we could suffer a substantial decline in sales of our satellite products.
If customers become dissatisfied with the pricing, service, availability, programming or other aspects of any of these satellite services, or if any one or more of these services becomes unavailable for any reason, we could suffer a substantial decline in sales of the satellite products or services we offer.
There may be no alternative satellite service provider available to us in a particular geographic area, and our modem or other technology may not be compatible with the technology of any alternative service provider that may be available.
There may be no alternative satellite service provider available to us in a particular geographic area, and the modem or other technology our customers use may not be compatible with the technology of any alternative service provider that may be available.
For example, during 2022, the U.S. dollar strengthened against certain foreign currencies, which adversely affected revenues reported in U.S. dollars and decreased the reported value of our assets in foreign countries. We also have intragroup receivables and liabilities, such as loans, that can generate significant foreign currency effects.
For example, during 2022, the U.S. dollar strengthened against certain foreign currencies, which adversely affected revenues reported in U.S. dollars and decreased the reported value of our assets in foreign countries. Conversely, the U.S. dollar weakened against certain foreign currencies during 2023. We also have intragroup receivables and liabilities, such as loans, that can generate significant foreign currency effects.
Research and development in our industry is inherently complex and uncertain, and our current and anticipated research and development projects may not achieve the results we seek. The financial resources that we can devote to our research and development efforts may be insufficient to achieve our goals.
Research and development is inherently complex and uncertain, and our current and anticipated research and development projects may not achieve the results we seek. The financial resources that we can devote to our research and development efforts may be insufficient to achieve our goals.
We recorded substantial losses from continuing operations in each of the last three fiscal years (notwithstanding the income we recognized in 2022 from the sale of the inertial navigation business and in 2021 from the forgiveness of the PPP Loan).
We recorded substantial losses from continuing operations in each of the last four fiscal years (notwithstanding the income we recognized in 2022 from the sale of the inertial navigation business and in 2021 from the forgiveness of the PPP Loan).
In order to achieve sustained profitability, we must grow our airtime subscriber base, reduce our bandwidth costs, and continue to introduce new and improved products in order to maintain and improve our competitive position and generate revenue.
In order to maintain and improve our competitive position, generate revenue and achieve sustained profitability, we must grow our airtime subscriber base, reduce our bandwidth costs, and continue to introduce new and improved solutions.
Our ability to compete depends significantly upon our patents, copyrights, source code, and other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents will eventually expire and could be challenged, invalidated or circumvented.
Our ability to compete depends in part upon our patents, copyrights, source code, and other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents will eventually expire and could be challenged, invalidated or circumvented.
Any enforcement action by the FCC, which may be a public process, could hurt our reputation in the industry, possibly impair our ability to sell our services to customers and could harm our business and results of operations. Privacy concerns and domestic or foreign laws and regulations may reduce demand for our services, increase our costs and harm our business.
Any enforcement action by the FCC, which may be a public process, could hurt our reputation, impair our ability to sell our services to customers and harm our business and results of operations. Privacy concerns and domestic or foreign laws and regulations may reduce demand for our services, increase our costs and harm our business.
Even if available, delays caused by switching our technology to another service provider, if available, and qualifying this new service provider could materially harm our customer relationships, business, financial condition, and operating results.
Even if available, delays caused by switching our systems to another service provider, if available, and qualifying this new service provider could materially harm our customer relationships, business, financial condition, and operating results.
In addition, the laws of some foreign countries do not protect our proprietary technology to the same extent as the laws of the United States, which could increase the likelihood of misappropriation. Any misappropriation of our technology or the development of competing technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales.
In addition, the laws of some foreign countries do not protect our proprietary technology to the same extent as the laws of the United States, which could increase the likelihood of misappropriation. Any misappropriation of our technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales.
Moreover, certain of our products and services are sold internationally in U.S. dollars; if the U.S. dollar continues to strengthen, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales. In addition, most of our financial obligations must be satisfied in U.S. dollars.
Certain of our products and services are sold internationally in U.S. dollars; if the U.S. dollar strengthens, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales. In addition, most of our financial obligations must be satisfied in U.S. dollars.
We could incur additional legal compliance costs associated with our international operations and could become subject to legal penalties if we do not comply with certain regulations. As a result of our international operations, we are subject to a number of legal requirements, including the U.S. Foreign Corrupt Practices Act, the U.K.
We could incur additional legal compliance costs associated with our international operations and could become subject to legal penalties if we do not comply with certain regulations. Our international operations subject us to a number of legal requirements, including the U.S. Foreign Corrupt Practices Act, the U.K.
Broad market fluctuations may adversely affect the market price of our common stock. When the market price of a company’s stock drops significantly, stockholders often institute securities litigation against that company. Any such litigation could cause us to incur significant expenses defending against the claim, divert the time and attention of our management and result in significant damages. ITEM 1B.
Broad market fluctuations may adversely affect our stock price. When the market price of a company’s stock drops significantly, stockholders often institute securities litigation against that company. Any such litigation could cause us to incur significant expenses defending against the claim, divert the time and attention of our management and result in significant damages. ITEM 1B. Unresolved Staff Comments None.
Our industries are characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. We cannot be certain that our products do not and will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. We cannot be certain that our products and services do not and will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others.
The costs of compliance with, and other burdens imposed by, such laws and regulations may limit the use and adoption of our services and reduce overall demand.
The costs of 23 Table of Contents compliance with, and other burdens imposed by, such laws and regulations may limit the use and adoption of our services and reduce overall demand.
We may not be able to pass along any or all of these cost increases to our customers, and customers may not wait for our products to become available. These disruptions in our supply chain could continue or worsen, which could delay delivery of our products and services and adversely affect our revenue and results of operations in future periods.
We may not be able to pass along any of these cost increases to our customers, and customers may not wait for our products to become available. These disruptions in our supply chain could worsen, which could delay delivery of our products and services and adversely affect our revenue and results of operations.
Temporary suspensions of our airtime services typically increase in the third and fourth quarters of each year as boats are placed out of service during winter months. Our leisure marine business is also significantly affected by the weather.
Temporary suspensions of our airtime services typically increase in the fourth and first quarters of each year as boats are placed out of 17 Table of Contents service during winter months. Our leisure marine business is also significantly affected by the weather.
Nonetheless, substantially all of our operations and approximately one-half of our personnel are located in the United States. Our limited international operations may impair our ability to compete successfully in international markets and to meet the service and support needs of our customers in countries where we have little to no infrastructure.
Nonetheless, substantially all of our operations and a significant number of our personnel are located in the United States. Our limited international operations may impair our ability to compete successfully in international markets and to meet the service and support needs of our customers in countries where we have little to no infrastructure.
If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, substantial fines, penalties, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.
If we do not comply with FCC regulations, we could face enforcement actions, substantial fines, penalties, loss of licenses and possibly restrictions on our ability to operate or offer services.
We derived 62%, 58% and 58% of our revenues from continuing operations in the years ended December 31, 2022, 2021, and 2020, respectively, from sales to these foreign customers. We have foreign offices in Denmark, the United Kingdom, Singapore, Japan, Norway and the Philippines, as well as a subsidiary in Brazil that manages local sales.
We derived 68% and 63% of our revenues from continuing operations in the years ended December 31, 2023 and 2022, respectively, from sales to these foreign customers. We have foreign offices in Denmark, the United Kingdom, Singapore, Japan, Norway and the Philippines, as well as a subsidiary in Brazil that manages local sales.
Risks related to government regulation Our international operations complicate our business and require us to comply with multiple regulatory environments. Historically, sales to customers outside the United States have accounted for a significant portion of our net sales.
Risks related to government regulation 22 Table of Contents Our international operations complicate our business and require us to comply with multiple regulatory environments. Historically, sales to customers outside the United States have accounted for an increasingly significant portion of our net sales.
Many factors may cause the market price of our common stock to fluctuate, including variations in our quarterly results of operations; the introduction of new products and services by us or our competitors; changes in estimates of our performance or recommendations by securities analysts; the hiring or departure of key personnel; acquisitions or strategic alliances involving us or our competitors; market conditions in our industries; and the global macroeconomic and geopolitical environment.
Many factors may cause our stock price to fluctuate, including variations in quarterly results; the introduction of new products and services by us or our competitors; adverse business developments; reductions-in-force; changes in estimates of our performance or recommendations by securities analysts; the hiring or departure of key personnel; acquisitions or strategic alliances involving us or our competitors; market conditions in our industry; and the global macroeconomic and geopolitical environment.
If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, distract the attention of management, and there can be no assurance that we would prevail. Claims by others that we infringe their intellectual property rights could harm our business and financial condition.
If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive. The proceedings could distract the attention of management, and we may not prevail. Claims by others that we infringe their intellectual property rights could harm our business and financial condition.
The expenses we incur evaluating and pursuing acquisitions and strategic relationships could have a material adverse effect on our results of operations. If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own.
We evaluate opportunities to acquire other businesses and pursue other strategic relationships as they arise. The expenses we incur evaluating and pursuing acquisitions and strategic relationships could have a material adverse effect on our results of operations. If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own.
It is possible that our net sales or results of operations in a quarter will fall below the expectations of securities analysts or investors. If this occurs, the market price of our common stock could fall significantly.
Our net sales or results of operations in a quarter may fall below the expectations of securities analysts or investors. If this occurs, the market price of our common stock could fall significantly.
Risks related to economic conditions and trade relations Our revenues, results of operations and financial condition may be adversely impacted by economic turmoil, political instability, declines in consumer and enterprise spending, and a resurgence of the COVID-19 pandemic.
Risks related to economic conditions and trade relations Our revenues, results of operations and financial condition may be adversely impacted by economic turmoil, war, political instability, declines in consumer and enterprise spending.
Changes in U.S. trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions governments will or will not take with respect to tariffs or other international trade agreements and policies. Current trade negotiations may fail, which may exacerbate these risks.
Changes in U.S. trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions governments will or will not take with respect to tariffs or other international trade agreements and policies.
Intelsat and Sky Perfect-JSAT currently provide the satellite capacity to support our global high-throughput satellite (HTS) broadband service and our TracNet H-series and TracPhone V-HTS series products. Vodafone provides the 5G/LTE services used by our TracNet H-series terminals to provide cellular service in 150+ countries. We rely on Inmarsat for satellite communications services for our FleetBroadband-compatible and FleetOne-compatible TracPhone products.
Intelsat and Sky Perfect-JSAT currently provide the satellite capacity to support our global high-throughput satellite (HTS) broadband service, our TracNet H-series and TracPhone V-HTS series products and third-party products compatible with our services. Vodafone currently provides the 5G/LTE services used by our TracNet H-series terminals and compatible third-party products to provide cellular service in 150+ countries.
Further, our approach to acquisitions and strategic relationships may involve a number of special financial and business risks, such as entry into new and unfamiliar lines of business or markets, which may present challenges or risks that we did not anticipate; entry into new or unfamiliar geographic regions, including exposure to additional tax and regulatory regimes; increased expenses associated with the amortization of acquired intangible assets; increased exposure to fluctuations in foreign currency exchange rates; charges related to any abandoned acquisition; diversion of our management’s time, attention, and resources; loss of key personnel; increased costs to improve or coordinate managerial, operational, financial, and administrative systems, including internal control over financial reporting; dilutive issuances of equity securities; the assumption of legal liabilities; and losses arising from impairment charges associated with goodwill or intangible assets. 17 Table of Contents Risks related to our dependence on third parties and third party technology Our mobile satellite products currently depend on satellite services, gateway teleports and terrestrial networks provided by third parties, and a disruption in those services could adversely affect sales.
Further, our approach to acquisitions and strategic relationships may involve a number of special financial and business risks, such as entry into new and unfamiliar lines of business or markets, which may present challenges or risks that we did not anticipate; entry into new or unfamiliar geographic regions, including exposure to additional tax and regulatory regimes; increased expenses associated with the amortization of acquired intangible assets; increased exposure to fluctuations in foreign currency exchange rates; charges related to any abandoned acquisition; diversion of our management’s time, attention, and resources; loss of key personnel; increased costs to improve or coordinate managerial, operational, financial, and administrative systems, including internal control over financial reporting; dilutive issuances of equity securities; the assumption of legal liabilities; and losses arising from impairment charges associated with goodwill or intangible assets.
Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations. 19 Table of Contents Changes in foreign currency exchange rates may negatively affect our financial condition and results of operations.
Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, 21 Table of Contents increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.
If we fail to retain and attract the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales.
If we fail to retain and attract the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales. The current job market for personnel is very competitive, resulting in increased compensation.
These factors vary in intensity by region. We cannot predict the timing, duration, or ultimate impact of turmoil on our markets or our suppliers. We expect our business would be adversely impacted by any significant turmoil, particularly a resurgence of the COVID-19 pandemic, to varying degrees and for varying amounts of time, in all our geographic markets.
We cannot predict the timing, duration, or ultimate impact of turmoil on our markets or our suppliers. We expect our business would be adversely impacted by any significant turmoil, to varying degrees and for varying amounts of time, in all our geographic markets.
Economic and political conditions in the geographic markets we serve have experienced significant turmoil over the last several years, including a potential global recession, downturns related to the COVID-19 pandemic, slow economic activity, tight credit markets, inflation and deflation concerns, low consumer confidence, limited capital spending, adverse business conditions, war and refugee crises in the Middle East and Europe, terrorist attacks, the departure of the United Kingdom from the European Union, changes in government priorities, trade wars, restrictions on commercial fishing, a government shutdown, gridlock from a divided Congress, and liquidity concerns.
Economic and political conditions in the geographic markets we serve have experienced significant turmoil over the last several years, including a potential global recession, slow economic activity, war and refugee crises in the Middle East and Europe, tight credit markets, inflation and deflation concerns, increased interest rates, low consumer confidence, limited capital spending, adverse business conditions, terrorist attacks, changes in government priorities, trade wars, anti-globalization movements, efforts to combat climate change, restrictions on commercial fishing, a government shutdown, gridlock from a divided Congress, and liquidity concerns.
Our executive officers are at-will employees, competition is intense for executive management, and they could terminate their employment with us at any time. We do not maintain key-person life insurance on any of our personnel. Accordingly, the loss of one or more of our executive officers or key employees could have a material adverse effect on our business.
Our executive officers and key employees are at-will employees, competition is intense for senior management, and they could terminate their employment with us at any time. We do not maintain key-person life insurance on any of our personnel.
Further, some of the companies that we depend on to supply us with capacity on satellite communications networks may vertically integrate by introducing their own products and services to compete with ours, which might motivate them to stop providing satellite network capacity to us, or to make it available only on less favorable terms.
Further, some of the companies that we depend on to supply us with capacity on satellite communications networks may vertically integrate by introducing their own products and services to compete with ours, which might motivate them to stop providing satellite network capacity to us, or to make it available on less favorable terms. 18 Table of Contents The Starlink LEO service continues to adversely impact our business, particularly within the global leisure segment.
We face a number of risks associated with our international business activities, which may increase our costs and require significant management attention.
Risks associated with our international business activities may increase our costs and require significant management attention.
Our satellite antenna products include the equipment necessary to utilize satellite services. We do not own the satellites that provide two-way satellite communications or the terrestrial networks that interconnect our facilities with the satellite teleports that communicate with the satellites.
Our mobile satellite communications solutions utilize third-party satellite services. We do not own the satellites that provide two-way satellite communications or the terrestrial networks that interconnect our facilities with the satellite teleports that communicate with the satellites.
For example, the global chip shortage and supply chain constraints resulting from the COVID-19 pandemic have impacted our ability to deliver products in a timely manner and have increased our cost of sales due to rising prices for materials.
For example, the global chip shortage and supply chain constraints resulting from the COVID-19 pandemic adversely impacted our ability to deliver products in a timely manner and increased our cost of sales due to rising prices for materials. We estimate that raw material costs exceeded our expectations by approximately $0.8 million in 2023.
A large portion of our expenses, including expenses for network infrastructure, facilities, equipment, and personnel, are relatively fixed. Accordingly, if our net sales decline or do not grow as much or as quickly as we anticipate, we might be unable 15 Table of Contents to maintain or improve our operating margins.
A large portion of our expenses, including expenses for network infrastructure, facilities, equipment, and personnel, are relatively fixed. If our net sales decline or do not grow as we anticipate, we may be unable to maintain or improve our operating margins. Any failure to achieve anticipated net sales could therefore significantly harm our operating results.
In general, we do not have written long-term supply agreements with our suppliers but instead buy components through purchase orders, which expose us to potential price increases and termination of supply without notice or recourse. We generally do not carry significant inventories of product components, which could magnify the impact of the loss of a supplier.
Suppliers might change or discontinue key components, which could require us to modify our product designs or cease production. In general, we do not have written long-term supply agreements with our suppliers but instead buy components through purchase orders, which expose us to potential price increases and termination of supply without notice or recourse.
We are highly dependent on the efforts and abilities of qualified personnel at all levels, including our senior management team and other key technical, operational, managerial and sales and marketing personnel, each of whom brings a valuable set of skills that would be difficult to replace.
We are highly dependent on qualified personnel at all levels, including our senior management team and other key technical, operational, managerial and sales and marketing personnel, each of whom would be difficult to replace. Our current reduction-in-force increases our dependence on continuing personnel.
Because of the scope of our foreign sales and foreign operations, we face significant exposure to movements in exchange rates for foreign currencies, particularly the pound sterling and the euro.
Changes in foreign currency exchange rates may negatively affect our financial condition and results of operations. We face significant exposure to movements in exchange rates for foreign currencies, particularly the pound sterling and the euro.
During the period from January 1, 2018 to December 31, 2022, the trading price of our common stock ranged from $6.36 to $15.29.
Our stock price has historically been volatile. During the period from January 1, 2018 to December 31, 2023, the trading price of our common stock ranged from $4.30 to $15.29.
From time to time, we have recorded significant inventory charges and/or inventory write-offs as a result of substantial declines in customer demand.
Changes in the competitive environment, customer demand, supply chain issues, and the transition to new products may require inventory write-downs. From time to time, we have recorded significant inventory charges and/or inventory write-offs as a result of substantial declines in customer demand.
Many of our competitors are well-established companies that have substantially greater financial, managerial, technical, marketing, personnel and other resources than we do, which may help them to compete more effectively against us.
Many of our competitors are well-established companies that have substantially greater financial, managerial, technical, marketing, personnel, and other resources than we do, which may help them to compete more effectively against us. We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our products on time or at expected cost.
As a result of our global HTS network infrastructure, our cost of sales for services includes certain costs that generally do not vary directly in proportion with the volume of service sales, and we have limited ability to reduce these fixed costs in the short term.
We must generate a certain level of service sales in order to maintain or improve our service gross margins. As a result of our global satellite network infrastructure, we incur certain costs that generally do not vary directly in proportion to the volume of service sales, and we have limited ability to reduce these fixed costs.
We have a single dedicated manufacturing facility for all of our product categories, and any significant disruption to this facility will impair our ability to deliver our products. We currently manufacture all of our products at our manufacturing facility in Middletown, Rhode Island.
We are winding down our single manufacturing facility, and any significant disruption to this facility in the near term will impair our ability to deliver our products. We manufacture all of our products at our manufacturing facility in Middletown, Rhode Island, and we have begun to wind down our manufacturing operations at that facility.
To manage changes in our business effectively, we must, among other things, match our manufacturing facilities and capacity to demand for our products and services; secure appropriate satellite capacity to match changes in demand for airtime services; effectively manage our inventory and working capital; ensure robust cybersecurity protection of Company and customers data and systems; and ensure that our procedures and internal controls are revised and updated to remain appropriate for our realigned workforce and the size and scale of our business operations.
To manage changes in our business effectively, we must, among other things, successfully complete the wind-down of our manufacturing operations, including correctly estimating the number of units to produce; secure appropriate satellite capacity to match demand for airtime services; manage our inventory more effectively, particularly in light of the substantial provision for excess and obsolete inventory that we recorded in the fourth quarter of 2023; effectively manage our working capital; ensure robust cybersecurity protection of 16 Table of Contents Company and customer data and systems; and ensure that our procedures and internal controls are revised and updated to remain effective for our smaller workforce and the reduced size and scale of our business operations.
Our future net sales and results of operations could continue to vary significantly from quarter to quarter due to a number of factors, many of which are outside our control. Accordingly, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance.
Our quarterly net sales and results of operations could continue to vary significantly for various reasons, many of which are outside our control. For example, product sales declined 48% in the fourth quarter of 2023 compared to the fourth quarter of 2022. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance.
We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our products on time or at expected cost. We obtain many key components for our products from third-party suppliers, and in some cases we use a single or a limited number of suppliers.
We obtain many key components for our products from third-party suppliers, and in some cases we use a single or a limited number of suppliers.
We also face competition from providers of low-speed data services, which include Inmarsat and Iridium Satellite LLC. In the market for land mobile satellite TV equipment, we compete primarily with King Controls and Winegard Company. In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures, Baze Technology, and NewspaperDirect, Inc.
In the marine market for two-way communications equipment, we compete primarily with Intellian and Cobham SATCOM. In the market for land mobile satellite TV equipment, we compete primarily with King Controls and Winegard Company. In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures, Baze Technology, and NewspaperDirect, Inc.
Our business also could be harmed if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent from country to country or inconsistent with our current policies and practices or those of our customers. 24 Table of Contents We may have exposure to additional tax liabilities, which could negatively impact our income tax expense, net income and cash flow.
Our business also could be harmed if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent from country to country or inconsistent with our current policies and practices or those of our customers. Risks related to owning our common stock The market price of our common stock may be volatile.
Bribery Act and the customs, export, trade sanctions and anti-boycott laws of the United States, including those administered by the U.S.
Bribery Act and the customs, export, trade sanctions and anti-boycott laws of the United States, including those administered by the U.S. Customs and Border Protection, the Bureau of Industry and Security, the Department of Commerce, the Department of State, and the Office of Foreign Assets Control of the Treasury Department, as well as those of other nations.
Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of our production facility. For example, our production facility uses some specialized equipment that may take time to replace if it is damaged or becomes unusable for any reason.
For example, we use some specialized equipment that may take time to replace if it is damaged or becomes unusable for any reason. In that event, shipments would be delayed, which could result in customer or dealer dissatisfaction, loss of sales and damage to our reputation.
These companies may continue to implement price reductions and discounts for both products and services, which have required us to reduce our prices or offer discounts in order to maintain or increase our market share. Some of our VSAT competitors have already leveraged partnerships amongst themselves in order to capture larger combined market share.
These companies may continue to implement price reductions and discounts for both products and services, which have required us to reduce our prices or offer discounts in an effort to maintain or increase our market share. The majority of our customers have no long-term commitment and can switch providers without penalty.
We are subject to FCC rules and regulations, and any non-compliance could subject us to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services The satellite communications industry is regulated by the Federal Communications Commission in the United States (FCC) and, as a result, we are subject to existing and potential FCC regulations relating to privacy, contributions to the Universal Service Fund, or USF, and other requirements.
We are subject to FCC rules and regulations, and any non-compliance could subject us to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.
However, there can be no assurance that our remaining goodwill and other intangible assets will not be further impaired. Risks related to our operations Our future success will depend in part on the services of our executive officers. The Company's future success depends to a significant degree on the skills and efforts of our executive officers.
Our future success will depend in part on the services of our executive officers and key employees. The Company's future success depends to a significant degree on the skills and efforts of our executive officers and key employees.
If we cannot effectively manage changes in our business and continue to attract and retain skilled personnel, our business may suffer.
Accordingly, the loss of one or more of our executive officers or key employees could have a material adverse effect on our business. If we cannot effectively manage changes in our business and continue to attract and retain skilled personnel, our business may suffer.
If we are unable to improve our existing products and services and develop new, innovative products and services, our sales and market share may decline. The market for mobile connectivity products and services is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving industry standards.
The market for mobile connectivity solutions is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving industry standards. For example, we are facing competition from new LEO networks such as SpaceX’s Starlink and OneWeb.
Although our continuing operations were profitable in the fourth quarter of 2022, we may incur losses in the future as we increase satellite capacity to handle our growing subscriber base, as we confront supply chain constraints and as we continue to invest in research and development to improve our existing products and develop new products.
Although our continuing operations were profitable in the fourth quarter of 2022 and second quarter of 2023, we may incur losses in the future as we face increasingly stiff competition and as we increase satellite capacity to handle our growing subscriber base. Recent inflation in the prices of goods and services, including wages, has hampered our ability to improve profitability.
We may not be able to compete successfully against current and future competitors, which would impair our ability to sell our products and services. Competition has intensified significantly in recent years, both from companies that seek to compete primarily on price as well as new, emerging non-geostationary satellite orbit (NGSO) services, such as Starlink, OneWeb, Kuiper, Telesat, and others.
Competition continued to intensify significantly in 2023, both from companies that seek to compete primarily on price as well as new, emerging NGSO services, such as Starlink and OneWeb, as well as future LEO services such as Kuiper, Telesat, and others.
If sales of our TracNet H-series and TracPhone V-HTS series products, including through our AgilePlans subscription model, 16 Table of Contents do not generate the level of revenue that we expect or if those revenues decline, our service gross margins may decline.
The cost of our HTS network has increased significantly each year as we have expanded our network to accommodate additional subscriber demand and/or coverage areas. If service sales, including through our AgilePlans subscription model, do not generate the level of revenue that we expect or if those revenues decline, our service gross margins would likely decline.
In the marine market for high-speed Internet, voice, fax, and data services, we compete primarily with Inmarsat, Marlink, Speedcast, Viasat, and Network Innovations, along with smaller, single-hub regional services. Additionally, we are starting to face competition from new NGSO networks such as SpaceX's Starlink and OneWeb.
If this trend continues and we are unable to develop a competitive alternative, it could have a material adverse effect on our revenue, profitability, and cash flow. In the marine market for high-speed Internet, voice, fax, and data services, we compete primarily with Inmarsat, Marlink, Speedcast, Viasat, and Network Innovations, along with smaller, single-hub regional services.
Divergent stockholder expectations for our remaining business, including expectations regarding the use of proceeds, profitability and cash flow, may lead to significant fluctuations in our stock price. Risks related to our industry Competition may limit our ability to sell our products and services. The mobile connectivity market is very competitive, and we expect this competition to intensify.
Risks related to our industry Increasingly intense competition may limit our ability to sell our products and services. The mobile connectivity market is intensely competitive, and we expect the intensity of competition to continue to increase in the future.
We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can cost-effectively mitigate this exposure. Risks related to the sale of our inertial navigation business We face potential liabilities and disruptions arising from the sale of our inertial navigation business.
We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can cost-effectively mitigate this exposure. Risks related to intellectual property and technological innovation Our research and development efforts may be unsuccessful. If we are unable to improve our existing solutions and develop new, innovative solutions, our sales and market share may decline.
Replacing key personnel may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully execute our business strategy, and we cannot assure you that we will be able to identify or employ qualified personnel for any such position on acceptable terms, if at all.
We face challenges retaining our personnel and attracting new personnel to fulfill our unmet needs, particularly in light of our recent reductions-in-force. Replacing key personnel may be difficult and may take an extended period of time because of the limited number of individuals with the skills and experience to execute our business strategy.
If we must use a new source of supply, we could face unexpected manufacturing difficulties and loss of product performance or reliability. In addition, from time to time, lead times for certain components can increase significantly due to imbalances in overall market supply and demand.
We generally do not carry significant inventories of product components, which could magnify the impact of the loss of a supplier. If we must use a new source of supply, we could face unexpected manufacturing difficulties and loss of product performance or reliability.
In order to retain and attract qualified personnel, we may need to pay higher compensation than we currently expect, which would make it more difficult to achieve our goal of returning to profitability.
We may be unable to identify or employ qualified personnel for any such position on acceptable terms, if at all. We may also need to pay higher compensation than we expect, which would make it more difficult to achieve our goal of sustained profitability. Future strategic activities could disrupt our business and affect our results of operations.
Market or competitive changes could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors. 22 Table of Contents Risks related to intellectual property and technological innovation We are devoting significant resources to research and development efforts that may be unsuccessful.
Market or competitive changes, such as a continuation of the decline in demand for our TracVision products that we experienced in 2023, could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors, as we were unable to do in 2023. 19 Table of Contents Risks related to our dependence on third parties and third-party technology Our mobile satellite communications solutions currently depend on third-party satellite services, gateway teleports and terrestrial networks provided by third parties, and a disruption in those services could adversely affect sales.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Type Principal Uses Approximate Square Footage Ownership Lease Expiration Middletown, Rhode Island Office Corporate headquarters, research and development, sales and service, marketing and administration 75,000 Owned — Middletown, Rhode Island Plant and warehouse Manufacturing and warehousing 75,300 Owned — Kokkedal, Denmark Office and warehouse European headquarters, sales, marketing and support 11,000 Leased 1/31/2023
Biggest changeITEM 2. Properties The following table provides information about our principal facilities as of December 31, 2023. Location Type Principal Uses Approximate Square Footage Ownership Lease Expiration Middletown, Rhode Island Office Corporate headquarters, research and development, sales and service, marketing and administration 75,000 Owned — Middletown, Rhode Island Plant and warehouse Manufacturing and warehousing 75,300 Owned —
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ITEM 2. Properties The following table provides information about our principal facilities as of December 31, 2022.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. Legal Proceedings From time to time, we are involved in litigation incidental to the conduct of our business. In the ordinary course of business, we are a party to inquiries, legal proceedings and claims including, from time to time, disagreements with vendors and customers. 25 Table of Contents ITEM 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeITEM 3. Legal Proceedings From time to time, we are involved in litigation incidental to the conduct of our business. In the ordinary course of business, we are a party to inquiries, legal proceedings and claims including, from time to time, disagreements with vendors and customers.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information. Our common stock trades on the Nasdaq Global Select Market under the symbol “KVHI.” Stockholders. As of March 1, 2023, we had 59 holders of record of our common stock.
Biggest changeITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information. Our common stock trades on the Nasdaq Global Select Market under the symbol “KVHI.” Stockholders. As of March 1, 2024, we had 58 holders of record of our common stock.
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We currently intend to retain any future earnings to finance our operations and future growth. ITEM 6. Reserved
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We currently intend to retain any future earnings to finance our operations and future growth. Issuer Purchases of Equity Securities . In January 2023, we repurchased 23,415 shares of common stock to satisfy specific tax withholding obligations arising from accelerated vesting of executive stock grants for an aggregate purchase price of $0.2 million, or $10.22 per share. ITEM 6. Reserved

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee Note 12 to our accompanying audited consolidated financial statements for more information on our segments. 28 Table of Contents Results of Operations The following table provides, for the periods indicated, certain financial data relating to our continuing operations expressed as a percentage of net sales: Year Ended December 31, 2022 2021 Sales: Product 19.4 % 22.4 % Service 80.6 77.6 Net sales 100.0 100.0 Costs and expenses: Costs of product sales 18.1 17.9 Costs of service sales 44.0 47.9 Research and development 7.5 8.3 Sales, marketing and support 16.7 19.1 General and administrative 17.8 21.5 Total costs and expenses 104.1 114.7 Loss from operations (4.1) (14.7) Interest income 1.1 0.7 Interest expense — — Other income, net 0.6 5.3 Loss from continuing operations before income taxes (benefit) expense (2.4) (8.7) Income tax expense (benefit) from continuing operations 0.4 (0.1) Net loss from continuing operations (2.8) % (8.6) % Years ended December 31, 2022 and 2021 Our net sales for 2022 and 2021 were as follows: Change Year Ended December 31, 2022 vs. 2021 2022 2021 $ % (in thousands) Product sales $ 26,970 $ 30,012 $ (3,042) (10) % Service sales 111,908 103,899 8,009 8 % Net sales 138,878 133,911 4,967 4 % Net sales increased by $5.0 million, or 4%, in 2022 as compared to 2021.
Biggest changeOn December 31, 2022, all four executives also became entitled to one year of accelerated vesting of their outstanding equity awards. 28 Table of Contents Results of Operations The following table provides, for the periods indicated, certain financial data relating to our continuing operations expressed as a percentage of net sales: Year Ended December 31, 2023 2022 Sales: Product 13.4 % 19.3 % Service 86.6 80.7 Net sales 100.0 100.0 Costs and expenses: Costs of product sales 22.0 18.1 Costs of service sales 49.4 44.0 Research and development 7.1 7.5 Sales, marketing and support 15.8 16.7 General and administrative 14.3 17.8 Goodwill impairment charge 4.0 — Long-lived assets impairment charge 0.5 — Total costs and expenses 113.1 104.1 Loss from operations (13.1) (4.1) Interest income 2.8 1.1 Interest expense — — Other (expense) income, net (1.1) 0.6 Loss from continuing operations before income taxes expense (11.4) (2.4) Income tax expense from continuing operations 0.2 0.4 Net loss from continuing operations (11.6) % (2.8) % Years ended December 31, 2023 and 2022 Our net sales for 2023 and 2022 were as follows: Change Year Ended December 31, 2023 vs. 2022 2023 2022 $ % (in thousands) Product sales $ 17,757 $ 26,842 $ (9,085) (34) % Service sales 114,622 111,908 2,714 2 % Net sales 132,379 138,750 (6,371) (5) % Net sales decreased by $6.4 million, or 5%, in 2023 as compared to 2022.
Please see Note 6 to our accompanying audited consolidated financial statements for additional information on our satellite service capacity obligations. Recently Issued Accounting Pronouncements See Note 1 of our accompanying audited consolidated financial statements for a description of recently issued accounting pronouncements including the dates of adoption and effects on our results of operations, financial position and disclosures.
Please see Note 5 to our accompanying audited consolidated financial statements for additional information on our satellite service capacity obligations. Recently Issued Accounting Pronouncements See Note 1 of our accompanying audited consolidated financial statements for a description of recently issued accounting pronouncements including the dates of adoption and effects on our results of operations, financial position and disclosures.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure at the date of our financial statements. Our significant accounting policies are summarized in Note 1 to our accompanying audited consolidated financial statements.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets 31 Table of Contents and liabilities, revenues and expenses, and related disclosure at the date of our financial statements. Our significant accounting policies are summarized in Note 1 to our accompanying audited consolidated financial statements.
Results for discontinued operations are as follows: Year Ended December 31, 2022 2021 (dollar in thousands) Sales from discontinued operations $ 16,721 $ 37,856 Gain on sale of discontinued operations before tax expense $ 30,763 $ — Income from discontinued operations, net of tax $ 28,025 $ 1,783 Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Results for discontinued operations are as follows: Year Ended December 31, 2022 (dollar in thousands) Sales from discontinued operations $ 16,721 Gain on sale of discontinued operations before tax expense $ 30,763 Income from discontinued operations, net of tax $ 28,025 Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
We recorded a gain on the sale of approximately $0.7 million, which is recorded in other income, net in the accompanying consolidated statements of operations. See Note 9 to our accompanying audited consolidated financial statements for the reduction of goodwill and intangibles associated with the KVH Media Group reporting unit as it relates to the sale of this subsidiary.
We recorded a gain on the sale of approximately $0.6 million, which is recorded in other income, net in the accompanying consolidated statements of operations. See Note 8 to our accompanying audited consolidated financial statements for the reduction of goodwill and intangibles associated with the KVH Media Group reporting unit as it relates to the sale of this subsidiary.
Recoverability of intangible assets with estimated lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group.
Recoverability of intangible assets with finite lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group.
As a percentage of service sales, costs of service sales were 55% and 62% for 2022 and 2021, respectively. 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.
As a percentage of service sales, costs of service sales were 57% and 55% for 2023 and 2022, respectively. 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.
Please see Notes 1 and 16 to our accompanying audited consolidated financial statements for further information.
Please see Notes 1 and 14 to our accompanying audited consolidated financial statements for further information.
Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Intangible assets with finite lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We believe that our primary long-term capital requirements relate to AgilePlans revenue-generating assets, as well as servicing and repaying our satellite service capacity and equipment lease obligations. At December 31, 2022, we had outstanding non-cancellable satellite service capacity and other lease obligations with future minimum payments of $48.4 million.
We believe that our primary long-term capital requirements relate to AgilePlans revenue-generating assets, as well as servicing and repaying our satellite service capacity and equipment lease obligations. At December 31, 2023, we had outstanding non-cancellable satellite service capacity and other lease obligations with future minimum payments of $82.5 million.
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 decreased by $2.3 million, or 9%, to $23.2 million in 2022 from $25.6 million in 2021.
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 decreased by $2.3 million, or 10%, to $20.9 million in 2023 from $23.2 million in 2022.
Investing Activities Net cash provided by investing activities for 2022 was $0.4 million as compared to net cash used in investing activities of $6.7 million for 2021.
Investing Activities Net cash used in investing activities for 2023 was $14.7 million as compared to net cash provided by investing activities of $0.4 million for 2022.
Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our global HTS network infrastructure, direct network service labor, Inmarsat service costs, product installation costs, engineering and related direct costs associated with customer-funded research and development, media materials and distribution costs, and service repair materials.
Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our global HTS network infrastructure, direct network service labor, Iridium and Inmarsat service costs, product installation costs, media materials and distribution costs, and service repair materials.
We do not have any continuing involvement in these operations other than short-term transition services, which are being recorded as an offset to general and administrative expenses in continuing operations. We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20.
We did not have any continuing involvement in these operations other than short-term transition services, which were recorded as an offset to general and administrative expenses in continuing operations. We determined that the sale met the requirements for reporting as discontinued operations in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 205-20.
As a percentage of net sales, sales, marketing and support expense was 17% and 19% in 2022 and 2021, 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 and public company costs.
As a percentage of net sales, sales, marketing and support expense was 16% and 17% in 2023 and 2022, respectively. 30 Table of Contents 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.
Approximately $0.1 million is accrued as of December 31, 2022. In March 2022, we also restructured our operations to reduce costs and pursue a more focused strategy. We reduced our workforce by approximately 10% and began incurring reduced expenses from these actions beginning in the second quarter of 2022.
We incurred aggregate costs relating to the separation agreement of $0.5 million. In March 2022, we also restructured our operations to reduce costs and pursue a more focused strategy. We reduced our workforce by approximately 10% and began incurring reduced expenses from these actions beginning in the second quarter of 2022.
If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset.
If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value.
In recent years, we have funded our operations primarily from the sale of two businesses in 2022, the sale of a business in 2019, a PPP loan, cash flows from operations, bank financings and proceeds received from exercises of stock options and the issuance of stock. In May 2020, we received a $6.9 million loan from Bank of America, N.A.
In recent years, we have funded our operations primarily from the sale of two businesses in 2022, the sale of a business in 2019, a PPP loan that was subsequently forgiven, cash flows from operations and proceeds received from exercises of stock options and the issuance of stock.
These sales also include the distribution of entertainment, including news, sports, music, and movies, to commercial customers in the maritime, hotel, and retail markets through KVH Media Group, along with supplemental value-added services.
Our service sales also include the distribution of entertainment, including news, sports, music, and movies, to commercial customers in the maritime, hotel, and retail markets through KVH Media Group, along with supplemental value-added services. Sales of content services accounted for 3% and 4% of our consolidated net revenues for 2023 and 2022, respectively.
As of December 31, 2022, we had $76.7 million in cash, cash equivalents, and marketable securities, of which $1.9 million in cash equivalents was held in local currencies by our foreign subsidiaries. Our foreign subsidiaries held no marketable securities as of December 31, 2022.
As of December 31, 2023, we had $69.8 million in cash, cash equivalents, and marketable securities, of which $3.7 million in cash equivalents was held in local currencies by our foreign subsidiaries. Our foreign subsidiaries held no marketable securities as of December 31, 2023. As of December 31, 2023, we had $93.8 million in working capital.
As a percentage of net sales, general and administrative expense was 18% and 22% for 2022 and 2021, respectively. 30 Table of Contents Interest and Other Income, Net Interest income represents interest earned on our cash and cash equivalents, as well as from investments and our sale-type lease receivables.
As a percentage of net sales, general and administrative expense was 14% and 18% for 2023 and 2022, respectively. Interest and Other (Expense) Income, 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 increased by $2.1 million to $3.6 million from $1.5 million for 2022.
The holdback was released to us on August 17, 2022. We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20. Accordingly, we have classified the results of the inertial navigation business as discontinued operations for all periods presented.
Discontinued Operations On August 9, 2022, we sold our inertial navigation business for net proceeds of $54.9 million, less specified deductions. We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20. Accordingly, we have classified the results of the inertial navigation business as discontinued operations for all prior periods presented.
As a percentage of net sales, research and development expense was 8% for each of 2022 and 2021.
As a percentage of net sales, research and development expense was 7% and 8% in 2023 and 2022, respectively.
In addition, we earn monthly usage fees for third-party satellite connectivity for VoIP, data and Internet services to our Inmarsat and Iridium customers who choose to activate their subscriptions with us.
Revenue from our cellular airtime service has increasingly 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.
On April 29, 2022, KVH Media Group Limited, our wholly owned subsidiary, sold its subsidiary KVH Media Group Entertainment Limited for net cash proceeds of approximately $2.4 million. This transaction did not meet the criteria for reporting as discontinued operations under ASC 205-20.
Please see Notes 1 and 14 of our accompanying audited consolidated financial statements for further information. On April 29, 2022, we sold KVH Media Group Entertainment Limited for net cash proceeds of $2.4 million. This transaction did not meet the criteria for reporting as discontinued operations under ASC 205-20.
We provide, for monthly fixed fees and per-usage fees, satellite connectivity encompassing broadband Internet, data and VoIP services, to our TracNet H-series and TracPhone V-series customers via our global HTS network.
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.
Approximately $2.2 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022. We also modified impacted employee's stock option and restricted stock awards. Please see Note 7 to our accompanying audited consolidated financial statements for further discussion.
Approximately $2.2 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022. We did not incur any additional expenses associated with this restructuring for the year ended December 31, 2023. We also modified impacted employee's stock option and restricted stock awards.
As a percentage of net sales, costs of sales were 62% and 66% for 2022 and 2021, respectively. Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products.
Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products.
For 2022, costs of service sales decreased by $3.0 million, or 5%, to $61.1 million from $64.1 million in 2021. Costs of service sales decreased primarily due to a $1.5 million decrease in VSAT airtime costs of service sales.
For 2023, costs of service sales increased by $4.3 million, or 7%, to $65.4 million from $61.1 million in 2022. Costs of service sales increase primarily due to a $4.4 million increase in VSAT Broadband airtime costs of service sales.
General and administrative expense for 2022 decreased by $4.1 million, or 14%, to $24.7 million from $28.8 million for 2021.
General and administrative expense for 2023 decreased by $5.8 million, or 23%, to $18.9 million from $24.7 million for 2022.
The $7.1 million change in net cash provided by investing activities was primarily the result of a $55.0 million increase in cash inflows from the proceeds of the sale of the inertial navigation business, a $2.4 million increase in cash inflows from the proceeds of the sale of the KVH Media Group Entertainment Limited subsidiary, and a $4.4 million decrease in cash outflows relating to capital expenditures.
The $15.1 million increase in net cash used in investing activities was primarily the result of a $55.0 million decrease in proceeds from the sale of the inertial navigation business, a decrease of $2.4 million in proceeds from the sale of KVH Media Group Entertainment Limited and a $1.2 million increase in cash paid for acquisition of intangible assets, partially offset by a $39.8 million decrease in net investment in marketable securities and a $3.8 million decrease in capital expenditures.
Off-Balance Sheet Arrangements As of December 31, 2022, except for certain satellite service capacity obligations that are not considered operating or financing leases under ASC 842, we did not have any off-balance sheet arrangements that have or are reasonably likely to have 33 Table of Contents a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
As of that date, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, cash requirements or capital resources.
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed under the heading “Item 1A. Risk Factors” and elsewhere in this annual report. Overview We design, develop, manufacture and market mobile connectivity products and services for the marine and land mobile markets.
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed under the heading “Item 1A. Risk Factors” and elsewhere in this annual report. Overview We are a leading global provider of innovative and technology-driven connectivity solutions to primarily maritime commercial, leisure, and military/government customers.
We believe that our accounting policies for goodwill, intangible assets, and other long-lived assets contain the only estimates critical to an understanding and evaluation of our financial results for 2022, as discussed below. 31 Table of Contents Goodwill, Intangible Assets, and other Long-Lived Assets We follow Accounting Standards Codification (ASC) Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment .
We believe that our accounting estimates for goodwill, intangible assets, and other long-lived assets are the only estimates critical to an understanding and evaluation of our financial results for 2023, as discussed below.
From time to time we have entered into multi-year agreements to lease satellite capacity, and we have also purchased numerous satellite hubs to support the added capacity. These transactions can involve millions of dollars.
From time to time we have entered into multi-year agreements to lease satellite capacity, and we have also purchased numerous satellite hubs to support the added capacity. These transactions can involve millions of dollars. Off-Balance Sheet Arrangements As of December 31, 2023, we had certain satellite service capacity obligations that are not considered operating or financing leases under ASC 842.
Service sales increased by $8.0 million, or 8%, to $111.9 million in 2022 from $103.9 million in 2021. The increase was primarily due to a $10.4 million increase in VSAT service sales, partially offset by a decrease in our content services sales of $2.6 million, primarily driven by the sale of KVH Media Group Entertainment Limited in April 2022.
The increase was primarily due to a $3.9 million increase in our VSAT service sales driven by an increase in average subscribers, partially offset by a $1.0 million decrease in our content services sales, primarily driven by the sale of a subsidiary in April 2022.
Dispositions; Termination of Credit Facility On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for gross proceeds of $55.0 million, less specified deductions and a holdback of $1.0 million and subject to a working capital adjustment.
On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for net proceeds of $54.9 million, less specified deductions.
We generate our international net sales, based upon customer location, primarily from customers located in Singapore, Canada, European Union countries and other European countries, as well as countries in Africa, Asia/Pacific and the Middle East, and India. Revenues are based upon customer location and internationally represented 62% and 58% of our consolidated net sales for 2022 and 2021, respectively.
We generate revenues in the United States and various international locations, including primarily Singapore, Canada, South American countries, European Union countries and other European countries, and countries in Africa, the Middle East and Asia/Pacific, including India. Sales to customers outside the United States accounted for 68% and 63% of our consolidated net revenues for 2023 and 2022, respectively.
Partially offsetting these items was a $54.6 million increase in net cash outflows relating to the purchase and sale of marketable securities. Financing Activities Net cash provided by financing activities for 2022 was $0.7 million as compared to net cash provided by financing activities in 2021 of $2.6 million.
Financing Activities Net cash provided by financing activities for 2023 was $2.3 million as compared to net cash provided by financing activities in 2022 of $0.7 million.
For 2022, costs of product sales increased by $1.2 million, or 5%, to $25.2 million from $24.0 million in 2021, primarily due to a $1.6 million increase in our marine cost of product sales and a $0.4 million decrease in our land costs of product sales.
For 2023, costs of product sales increased by $4.0 million, or 16%, to $29.1 million from $25.2 million in 2022, primarily due a $6.8 million increase in various manufacturing and other unabsorbed expenses, $3.6 million of excess purchase order obligations, a $1.7 million increase in Starlink cost of product sales and a $0.3 million increase in accessories cost of product sales, partially offset by a $4.7 million decrease in TracVision cost of product sales and a $3.3 million decrease in VSAT Broadband cost of product sales.
Approximately $0.4 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022. 27 Table of Contents Executive Employment Agreements In May 2022, we entered into executive employment agreements with each of Brent C. Bruun, Roger A.
We did not incur any additional expenses associated with this restructuring for the year ended December 31, 2023. Executive Employment Agreements In May 2022, we entered into executive employment agreements with each of Brent C. Bruun, Roger A.
During the third quarter of 2022, we restructured our foreign operations by closing our India and Cyprus offices and our Denmark warehouse to reduce costs.
During the third quarter of 2022, we restructured our foreign operations by closing our India and Cyprus offices and our Denmark warehouse to reduce costs. Approximately $0.4 million of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022.
Research and development expense for 2022 decreased by $0.7 million, or 6%, to $10.4 million from $11.1 million in 2021. The primary reason for the decrease in research and development expense was a $0.4 million decrease in salaries and associated compensation due to the March restructuring and a $0.4 million decrease in professional fees.
Research and development expense for 2023 decreased by $1.0 million, or 9%, to $9.4 million from $10.4 million in 2022. The decrease in research and development expense resulted primarily from a $0.8 million decrease in salaries, benefits and taxes driven by the reduction in our workforce in March 2022.
Costs of sales decreased by $1.8 million, or 2%, in 2022 to $86.3 million from $88.1 million in 2021. The decrease in costs of sales was driven by a $3.0 million decrease in costs of service sales, which was partially offset by a $1.2 million increase in costs of product sales.
Product sales decreased by $9.1 million, or 34%, to $17.8 million in 2023 from $26.8 million in 2022. The decrease in product sales was primarily the result of a $6.2 million decrease in TracVision product sales and a $4.2 million decrease in VSAT Broadband product sales, partially offset by a $1.7 million increase in Starlink product sales.
Supply Chain During the year ended December 31, 2022, we continued to experience delays in the availability and delivery of certain raw material components, which has impacted our manufacturing and resulted in shipping delays in getting products out to our customers. We also experienced increased raw material costs, which we expect to continue into 2023.
Please see Note 15 of our accompanying financial statements for additional details surrounding the wind-down of our manufacturing activities. Supply Chain During 2022 and 2023, we continued to experience delays in the availability and delivery of certain raw material components. We also experienced increased raw material costs.
Revenue from our cellular airtime service has increasingly supplemented, and we expect will continue to supplement, our satellite-only airtime revenue following the mid-2022 launch of the KVH ONE hybrid network and TracNet H-series terminals. This product and service combination integrates global satellite service with KVH-provided cellular service in more than 150 countries, along with shore-based Wi-Fi access.
Sales of our global HTS airtime services accounted for 81% and 75% of our consolidated net sales for 2023 and 2022, respectively. In mid-2022, we launched our KVH ONE hybrid network, which integrates global satellite service with KVH-provided cellular service in more than 150 countries, along with shore-based Wi-Fi access.
The decrease in sales, marketing and support expense resulted primarily from a $1.5 million decrease in salaries and associated compensation due to the March restructuring, a $0.5 million decrease in marketing expenses, a $0.3 million decrease in bad debt expenses, a $0.3 million decrease in external commissions expense and a $0.2 million decrease in professional fees, partially offset by a $0.6 million increase in warranty expenses and a $0.3 million increase in travel expenses.
The decrease in sales, marketing and support expense resulted primarily from a $2.9 million decrease in salaries, benefits and taxes driven by the reduction in our workforce in March 2022 and a $0.7 million decrease in external commission expense, partially offset by a $0.9 million increase in facilities expense and a $0.2 million increase in travel expense.
We sell our products through an extensive international network of dealers and distributors. We also sell and lease products to service providers and end users. Our service sales primarily represent revenue earned from satellite Internet airtime services.
In addition, our in-motion television terminals permit customers to receive live digital television via regional satellite services in marine vessels, recreational vehicles, buses and automobiles. We sell our products through an extensive international network of dealers and distributors. We also sell and lease products to service providers and end users.
Our satellite-only and hybrid products enable marine customers to receive data, Voice over Internet Protocol (VoIP), and value-added services via satellite, cellular, and shore-based Wi-Fi networks onboard commercial, leisure, and military/government vessels. In addition, the Company’s in-motion television terminals permit customers to receive live digital television via regional satellite services in marine vessels, recreational vehicles, buses and automobiles.
Historically, we have also offered satellite communications products, but these products have represented a declining percentage of our revenues in recent years. Our satellite-only and hybrid products enable marine customers to receive data, 26 Table of Contents VoIP, and value-added services via satellite, cellular, and shore-based Wi-Fi networks onboard commercial, leisure, and military/government vessels.
This decrease was primarily driven by the shutdown of our legacy Arclight network, partially offset by an increase in costs associated with our HTS network due to increased capacity required for additional customers. In addition, there was a $1.4 million decrease in content and training cost of service sales, primarily driven by the sale of a subsidiary in April 2022.
The increase in airtime cost of sales is primarily related to capacity increases to support growth in our airtime subscriber base. This was partially offset by a $0.3 million decrease in content services cost of service sales, primarily driven by the sale of a subsidiary in April 2022.
We have incurred approximately $0.7 million of costs associated with the management transition through December 31, 2022, including a separation payment, consulting fees and health insurance coverage for Mr. Kits van Heyningen, as well as professional and advisory fees, and expect to continue to incur ongoing compensation expenses until March 2023.
Management Transition and Restructurings On March 7, 2022, we announced the retirement of our President and Chief Executive Officer, Martin Kits van Heyningen. We negotiated a separation and consulting agreement with Mr. Kits van Heyningen, pursuant to which we provided a separation payment, consulting fees and health insurance coverage, as well as reimbursement of certain professional and advisory fees.
As of December 31, 2022, we had $92.3 million in working capital. 32 Table of Contents Operating Activities Operating activities provided $8.9 million of net cash in 2022 and provided $2.9 million of net cash in 2021, an increase in net cash provided by operating activities of $6.0 million.
Operating Activities Operating activities provided $2.5 million of net cash in 2023 and provided $8.9 million of net cash in 2022, a decrease in net cash provided by operating activities of $6.4 million.
Income tax benefit for 2021 was $0.1 million and related to losses generated in foreign jurisdictions. There was no associated tax benefit related to losses incurred in the U.S. due to a full valuation allowance on our related deferred tax assets. The effective tax rate for 2022 was (16.2)% on continued operations.
Income Tax Expense Income tax expense for 2023 and 2022 was $0.3 million and $0.5 million, respectively, and related to taxes on income earned in foreign jurisdictions. The effective tax rate from continuing operations for 2023 and 2022 was (2.1)% and (15.8)%, respectively.
The $6.0 million increase is primarily due to a $33.9 million increase in net income, an increase in cash inflows of $6.1 million related to accounts payable and accrued expenses, an increase in cash inflows of $1.2 million related to other non-current assets and non-current contract assets, an increase in cash inflows of $1.0 million related to accounts receivable, and a decrease in cash outflows of $0.1 million related to contract liabilities and long-term contract liabilities.
Partially offsetting these items were a change of $37.9 million related to non-cash items, driven by the $30.8 million gain on sale of the inertial navigation business in 2022 and the $6.0 million impairment of goodwill and long-lived assets, a $12.2 million decrease in cash outflows relating to inventories, a $8.4 million decrease in cash outflows relating to accrued compensation, product warranty and other expenses, a $1.2 million increase in cash inflows relating to accounts receivable, and a $0.8 million increase in cash inflows related to deferred revenue.
The $1.9 million decrease in net cash provided by financing activities is primarily attributable to the $2.0 million decrease in cash inflows relating to proceeds from stock options exercises and the employee stock purchase plan.
The $1.6 million increase in net cash provided by financing activities is primarily attributable to a $1.6 million increase in cash inflows relating to proceeds from the exercise of stock options and purchases under our employee stock purchase plan and a $0.2 million decrease in cash outflows related to the payment of finance leases, partially offset by a $0.2 million increase in cash outflows related to the repurchase of common stock to satisfy specific tax withholding obligations arising from accelerated vesting of executive stock grants. 33 Table of Contents Other Matters We intend to continue to invest in our global HTS network on a worldwide basis.
Kuebel, Felise Feingold and Robert Balog in order to retain their services and provide them with certain benefits in the event that we terminated the executive’s employment without cause (as defined in the agreement) or the executive terminated his or her employment for good reason (as defined in the agreement), including following a change of control.
Kuebel, Felise Feingold and Robert Balog in order to retain their services and provide them with certain termination and change of control benefits. The terms of the agreements are substantially identical except as to title, salary, target bonus and reporting responsibilities. In October 2022, we entered into an amendment to the agreement with Mr. Bruun. Pursuant to these agreements, Messrs.
We are continuing to monitor global developments and are prepared to implement any actions that we determine to be necessary to sustain our business. PPP Loan Forgiveness In September 2021, the U.S.
We are continuing to monitor global developments, including the impact of inflation, and are prepared to implement actions that we determine to be necessary to sustain our business. Dispositions 27 Table of Contents On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for net proceeds of $54.9 million, less specified deductions.
Removed
We manufacture and sell our solutions in a number of major geographic areas, including internationally. We generate a majority of our revenues from various international locations, primarily consisting of Singapore, Canada, European Union countries and other European countries, countries in Africa, Asia/Pacific and the Middle East, and India. We offer satellite communications products and services.
Added
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 and hotel markets, along with supplemental value-added cybersecurity, email, and crew internet services.
Removed
Service sales also include sales from product repairs and extended warranty sales. 26 Table of Contents Our marine leisure business is highly seasonal, and seasonality can also impact our commercial marine business.
Added
We expect to earn usage fees from OneWeb service upon the launch of that service in 2024. We also generate service revenue from product repairs and extended warranty sales.
Removed
The finalized working capital adjustment, which resulted in a $0.1 million payment to EMCORE, was recorded in the fourth quarter of 2022. The holdback was released to us on August 17, 2022.
Added
Product sales accounted for 13% and 19% of our consolidated net sales for 2023 and 2022, respectively. In February 2024, we announced a staged wind-down of our product manufacturing operations at our Middletown, Rhode Island location.
Removed
On August 9, 2022, we also entered into a Transition Services Agreement with EMCORE, pursuant to which we agreed to provide certain transition services to support the continued operation of the inertial navigation business for a specified period of time following the sale.
Added
The wind-down was driven by reduced demand for our hardware products in the face of intensifying competition in the third and fourth quarters of 2023. We concluded that we should discontinue our c apital-intensive manufacturing activities and concentrate our efforts on growing sales of our multi-orbit, multi-channel, integrated communications solutions .
Removed
On August 9, 2022, we also terminated our senior secured credit facility agreement (the 2018 Credit Agreement) and the related security and pledge agreements with Bank of America, N.A., as Administrative Agent. At the time of termination, no borrowings were outstanding under the 2018 Credit Agreement. With the termination of this agreement, all associated liens were released.
Added
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 the second quarter of 2024.
Removed
Management Transition and Restructuring On March 7, 2022, we announced that our President and Chief Executive Officer, Martin Kits van Heyningen, was retiring from his executive and Board roles after more than 40 years of service and assuming a consulting position with us. Brent C.
Added
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.
Removed
Bruun, our then Chief Operating Officer, was appointed as our interim President and Chief Executive Officer. Subsequently, on June 15, 2022, he was appointed as our President and Chief Executive Officer and as a Class II member of the Board of Directors.
Added
As part of the restructuring, we expect to reduce our headcount by approximately 75 employees, or approximately 20% of our total workforce as of the time we announced the restructuring. Approximately one-third of the employee terminations have been completed, and the remaining terminations are expected to be completed by the end of the second quarter of 2024.
Removed
The terms of the agreements are substantially identical except as to title, salary, target bonus and reporting responsibilities.
Added
We expect to incur aggregate severance charges of approximately $3.3 million, consisting of approximately $3.0 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.
Removed
The agreements provide that, if the executive continued to serve as an employee through December 31, 2022 (the “Retention Date”), we would pay the executive a retention bonus equal to 75% of the executive’s base salary at the agreement date, and we would accelerate the vesting of the executive’s equity awards that would otherwise have vested in the twelve months after the Retention Date.
Added
In the fourth quarter of 2023, we also recorded a $2.1 million charge related to the write-off of certain costs for a new accounting system intended for use in connection with our manufacturing operations. Our marine leisure business has been highly seasonal, and seasonality can also impact our commercial marine business.
Removed
Brent C. Bruun, Roger A. Kuebel, Felise Feingold and Robert Balog continued to serve as an employee as of December 31, 2022. Please see Note 7 to our accompanying audited consolidated financial statements for further discussion regarding the equity compensation modifications. On October 11, 2022, we entered into an amendment to the employment agreement with Mr.
Added
Impairment Charge During the year ended December 31, 2023, aggregate impairment charges of $6.0 million were taken against goodwill and long-lived assets for the Mobile Broadband reporting unit and the KVH Media Group reporting unit.
Removed
Bruun that, among other things, increased his annual base salary to $448,360 per year, retroactive to July 1, 2022, increased his target annual incentive compensation for the second half of 2022 to 80% of his base salary (without changing his target annual incentive compensation for the first half of 2022), extended his Retention Date from December 31, 2022 to December 31, 2023, which effectively extended the period during which Mr.
Added
The $6.0 million impairment charges were driven by the significant decline in our stock price that followed the August 9, 2023 announcement of our financial results for the second quarter of 2023. Under applicable accounting rules, this circumstance required us to evaluate our goodwill and long-lived assets for impairment.
Removed
Bruun must remain employed by us in order to earn his retention bonus, and modified the amount of the retention bonus from 75% of his base salary in effect on May 2, 2022 to 75% of the highest base salary in effect for Mr.

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