KVH Industries, Inc.

Good day, and thank you for standing by. Welcome to the KVH Industry Second Quarter Earnings Conference. 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, and you will then hear an automated message advising that 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, Roger Kuebel. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today for KVH Industries' second quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call are the company's Chief Executive Officer, Brent Bruin, and Chief Operating Officer, Bob Balog. Before we dive in, a couple of quick announcements. First, if you would like a copy of the earnings release, it's 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're listening via the web, feel free to submit questions to ir at kvh.com. This conference call will contain certain forward-looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. 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, and Form 10-Q, which we plan to file later today. The company's other SEC filings are available directly from the investor information section of our website. Now, to walk you through the highlights of our second quarter, I'll turn the call over to Brent.

Thanks, Roger. Good morning, everyone. Thank you for joining us today. For starters, we are relatively pleased with our Q2 results. in particular with our growth in our airtime revenue. However, our television and leisure B-side antenna shipments fell short of expectations, which resulted in a quarterly revenue of $34.2 million, down roughly 1% from the same period last year. On a positive note, operating income was $300,000, a substantial improvement from the $1 million loss recorded in the second quarter of 2022. To dig a bit deeper into the key service metrics, airtime revenue was up 4% year over year to $26.9 million, with an associated gross margin of 44%. We also increased our total subscriber base to more than 1,000, excuse me, we increased our total subscriber base to more than 7,140 subs. Our balance sheet is solid, with a quarter end cash balance of $71 million. up $2 million sequentially, and no debt. While we believe that the resource levels are appropriately aligned with the current size of our business and that we possess the talent to grow, we continue to adapt to changing market dynamics and heightened competition. I'll touch on that shortly. In May, we launched our OpenNet program, which enables vessels with non-KVH antennas to join our global VSAT network and take advantage of our suite of value-added services. With OpenNet, we also created a new service revenue stream that is not reliant on hardware sales or shipments. In the three months since we introduced OpenNet, we've built a robust pipeline for OpenNet migrations across the leisure and commercial markets. Each of these migrations will take market share from our competitors in an environment where demand for standalone VSAT installations is increasingly competitive. With the collaboration of our service partners, we continue to successfully convert existing Inmarsat fleet broadband systems to KVH VSAT terminals and service. In addition, we see a steady demand for subscription content offerings driven by the need for crew welfare services. Additionally, we are in the process of refining our airtime pricing with the goal of simplifying our offering and making our rate plans more attractive. This initiative is one way we are taking advantage of the additional capacity we have secured following our successful contract extension with Intelsat. The KVH-Intelsat partnership is mutually beneficial for both companies, as our subscribers represent the majority of the users on the Intelsat Flex Maritime HCS network. The extension secures the backbone of our multi-orbit, multi-channel global network for the coming years. As I've discussed in the past, we enjoy the flexibility to work with multiple low-Earth and medium-Earth orbit networks. We continue to offer Starlink terminals as a companion system to our TrackNet and TrackPhone products. We're also in late-stage negotiations with multiple LEO operators with the goal of adding terminals and airtime from one or more of them to our worldwide hybrid network. We hope to wrap these discussions up in the near future. We are, however, experiencing competitive headwinds driven by new LEO services. They transitioned to streaming content rather than satellite TV in the leisure market and a corresponding reduction in satellite TV and leisure and VSAT terminal sales. Given the changing market and competitive environments, we are tempering our guidance for the full year. We now anticipate revenue of $133 million to $139 million, with continued growth in our services revenue and subscribers, along with an adjusted EBITDA between $12 and $15 million. While these adjustments reflect our response to the changing market, we've made good progress on the strategic objectives we set at the start of the year, which are to expand our suite of value-added services to gain scale through organic growth, and to pursue airtime subscriber growth through new hardware agnostic approaches. On a separate note, I want to report that our Board of Directors has concluded its review of strategic alternatives. We presently intend to continue to operate as a standalone company. We are not actively considering any material transactions at the moment, but we plan to continue our usual practice of reviewing opportunities as they may arise. Now I'll turn it over to Roger for the financial details.