KVH Industries, Inc.

Good day and thank you for standing by. Welcome to the Q1 2023 KVH Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Roger Keeble, please go ahead.

Thank you, Gigi. Good afternoon, everyone, and thank you for joining us today for KVH Industries' first quarter results, which are included in the earnings release we published earlier this afternoon. Joining me on the call are the company's Chief Executive Officer, Brent Bruin, and Chief Operating Officer, Bob Balogh. Brent is actually calling in from Singapore, which is why we are having the call at this time of day instead of our usual morning timeframe. Before we dive in, a couple of quick announcements. First, if you'd like a copy of the earnings release, it is available on our website and from our investor relations team. If you would like to listen to a recording of today's call, it will be available on our website. If you are listening via the web, feel free to submit questions to ir at kvh.com. Further, this conference call will contain certain forward-looking statements that are subject to numerous assumptions and uncertainties that may cause their actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss adjusted EBITDA, a non-GAAP financial measure. You'll find a definition of this measure in our press release, as well as a reconciliation to comparable GAAP numbers. We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our 2022 Form 10-K, which was filed on March 16th. The company's other SEC filings are available directly from the Investor Information section of our website. Now, to walk you through the highlights of our first quarter, I'll turn the call over to Brent.

Thank you, Roger. Good afternoon, everyone. As Roger mentioned, I'm joining the call today with you from Singapore. One of our competitive advantages is the strength of our partner network, which includes marine electronic dealers and distributors, along with our airtime service providers, who sell our hardware and airtime while managing installations and technical support regionally. Much of our success stems from the health and commitment of that partner network. Illustrating this is a recent competitive win by one of our airtime service providers, which is now converting the 70-vessel fleet from a competing L-band service to our global HTS network. Over the last two months, I've been on the road a lot with our partners and customers worldwide. In March, I met with our premium EMEA dealers during a multi-day event in Madrid. My current trip has brought me to our Asia-Pacific headquarters in Singapore, after which I'll travel to Manila, Hong Kong, Osaka, and Tokyo. I'll meet with our most predominant partners and customers to reinforce our relationships and evaluate opportunities to expand global sales. Moving on to our financial results, Q1 was solid with revenue of $33.7 million. Although we recorded an operating loss of roughly half a million dollars, given the seasonality of various income and expense items, this was in line with our expectations, and our guidance for the year is unchanged. Our airtime revenue was up 13% year-over-year to $27 million, with airtime gross margin of 42%. We also increased our total subscriber base to more than 7,000. Our balance sheet is strong, with quarter-end cash of $69 million and no debt. We are maintaining the solid financial foundation that we have worked hard to build over the last 12 months. Airtime remains the primary driver of our growth, and we are laser-focused on this. Expanding airtime sales was a significant part of my conversations with our EMEA service providers last month and that I will be having with our service providers during my Asia-Pac trip. ARPU measure on total subscribers remains steady at approximately $1,300 per month. We are now seeing opportunities to build our Airtime with airtime upgrade and value-added services. That's why we've rolled out incentives for customers to upgrade to larger airtime packages. It's also the reason we're opening up our airtime and global HDS network to non-KVH antennas for the first time. This new initiative enables us to convert VSAT antennas made by companies such as Atelier and Cobham to work with KVH's VSAT airtime without hardware changes. This approach makes it quick, convenient, and easy for our new subscribers to transfer their services to our network. This program also offers benefits at the OEM level, as boat builders can install virtually any antenna on a leisure yacht or new commercial build, and we can support it with airtime once the customer takes delivery. Our goals for this program are to drive new airtime revenue from all of our current markets, expand our airtime subscriber base with revenue and revenue with no hardware costs, take full advantage of our existing services and hardware infrastructure, and to convert competitor systems to gain market share. As an example, we're already halfway through converting more than 40 superyachts with high-value airtime packages. We've completed training for our global sales partners and are receiving inquiries from commercial fleets, some of which currently deploy a mixed solution of KVH and competing antennas. We are also leveraging our existing hybrid technology to counter new LEO systems entering the market. Every TrackNote system includes integrated Wi-Fi and 5G cellular capability. 5G is emerging as an increasingly valuable and versatile solution for maritime applications. From a speed perspective, it can be as fast as 1 gigabit per second. That's 4 to 10 times faster than the typical maximum speed offered by LEO solutions. While the actual data rates will vary based on the distance to the cell tower, excuse me, cell towers, we've observed tracking assistance reaching download speeds of 350 megabits per second with underlying costs that are competitive to Starlink. Our 5G service is now available in more than 50 countries, while our 4G and LTE service is available in more than 150. At the same time, our analyses indicate that our customers' vessels typically spend 60 to 70% of their time within the range of cell service, which can be as far as 20 miles offshore when using our TrackNet terminals. These vessels include recreational boaters and commercial ships moving up and down the coast. However, as a much lower percentage of our TrackNet customers are activating our 5G and However, a much lower percentage of TrackNet customers are activating the 5G LTE service than we'd like to see. As a result, we are missing out on the advantages of our intelligent hybrid design. That's why we've launched a new 5G LTE auto-activation program with two free months of data. When the VSAT service for any TrackNet terminal is activated, we also activate our global SIM card. Our intelligent hybrid design Channel switching will then automatically manage the connectivity using the VSAT, 5G, and Wi-Fi. This new program offers customers a risk-free introduction to our unique hybrid solution, which we believe will lead to more cellular subscriptions and a superior user experience. Next, we are taking steps to boost the accessibility and demand for our TrackNet H90. The H90 is our first KU-band only one meter system and offers many advantages. It's lighter than competing one meter antennas, which makes installation faster, easier, and less costly. It also includes our integrated hybrid technology and offers significant airtime gain and cost efficiencies. We're taking advantage of those efficiencies to reduce airtime costs to customers while enhancing the user experience by lifting any data limits any data limits on data rates in our unlimited use plan. Together with the reduction in the price of the terminal, we believe these steps can potentially increase H-90 deployments through sales and Agile plan subscriptions, generate higher monthly ARPUs, and lower our airtime costs. And finally, we are now shipping Starlink terminals. Starlink is the best efforts network without the service level agreements and commitments on speeds and value-added services our customers expect. That's why we believe the Starlink systems will work best when deployed in a hybrid configuration with our terminals to optimize availability and support our customers' enterprise-grade requirements. We are only selling Starlink terminals in tandem with new TrackNet systems or as an add-on for existing TrackNet and TrackPhone terminals. While Starlink is generating a lot of buzz in the market, they aren't the only non-geosynchronous orbit solution in the market. As I've discussed in the past, we have flexibility to work with multiple LEO and NEO networks, should we choose to offer an American alternative to Starlink. At this time, we are in later stage negotiations with another NGSO operator. We hope to wrap up these discussions in the coming weeks and make an announcement by the start of summer. So wrapping up, I believe we're in a favorable position for the start of the year. While there may be challenges ahead, we remain confident in our ability to deliver our strategic objectives for the year, which are to expand our suite of value-added services, to gain scale through organic growth, and to pursue airtime subscribers through new hardware agnostic approaches. In addition, we have a clearly defined development path for several new products, that will include new airtime revenue streams, which we anticipate releasing later this year or to start 2024. Finally, we continue to evaluate other avenues for growth and investment. All of these actions are being taken to achieve healthy growth and sustained profitability. Now I'll turn it over to Roger for the financial details.