KVH Industries, Inc.

Good day, and thank you for standing by. Welcome to Quarter 1, 2024 KVH Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anthony Pike, Chief Financial Officer. Please go ahead.

Thank you, Operator. 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 is the company's Chief Executive Officer, Brent Bruin. Before I get into the numbers, a few standard statements. Firstly, if you would like a copy of the earnings release, or if you would like to listen to a recording of today's call, both will be available on our website. If you are 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, which is a non-GAAP financial measure. You will find a definition of this measure in our press release. as well as a reconciliation to comparable gap numbers. We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading risk factors in our 2023 Form 10-K, which was filed on March 15th. 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, Anthony, and hello, everyone. Let me start out by providing a high-level overview of our results. Q1 airtime revenue was $23.6 million, down $3.5 million from Q1 2023. Airtime gross margins remained steady compared to Q1 2023, and total revenue for Q1 was $29.3 million, roughly a 14 percent decrease from Q1 2023. due to the continuing decline in our product sales and an approximate 4% reduction in our vessel base. We believe that the changes we are making within our business will reverse the contraction in revenue that we have experienced. We've had a very productive two months since our Q4 2023 earnings call. We made substantial progress on our reorganization effort, which was initiated in February. This effort enables us to focus on our commitment to deliver integrated services using our multi-orbit, multi-channel network strategy, and to accelerate our evolution from a capital-intensive, hardware-focused business into a more nimble, integrated, solutions-oriented organization. KBH's maritime VSAT and television antennas continue to be a valuable component of our portfolio. However, the changing product mix, driven by new LEO services, does not warrant the continuing operation of a dedicated manufacturing facility. We are in the midst of buying components to complete our final build plan. All component purchases and a substantial portion of the VSAT and TVRO terminals will be completed by the end of June, at which time we will significantly reduce the number of employees in the facility. The remaining reduced staff will focus on repairs, refurbishments, and will continue to slowly build antennas for the remainder of this year and next year. We will have sufficient TrackNet and TrackVision terminals to meet anticipated demand through 2025 and possibly a portion of 2026. We anticipate that our reorganization efforts will result in annualized savings of approximately $9 million, with the initial benefits being realized in the third quarter of this year. New additions to our product and service portfolio are generating significant interest. During the first quarter, we introduced Combox Edge, an advanced network and bandwidth management solution. As fleet managers and yacht owners begin to add new communication systems such as LEO and 5G cellular to their existing VSAT systems, we expect that the ability to manage those channels will become increasingly vital. Our Combox Edge service offering delivers those capabilities affordably and securely using the Combox Edge 6 and Combox Edge 2 below-decks units and powerful cloud-based tools. Combox Edge also augments the tools available from other services. For example, Combox Edge expands the reporting for Starlink data usage and adds management tools not currently available from Starlink. We are very excited about the enthusiastic response to these tools and their modern, mobile-friendly user interface received from our customers. The fastest-growing addition to our portfolio is Starlink. Demand remains strong. In fact, we almost doubled our Starlink terminal shipments compared to Q4 of last year. Just under half of those systems have been activated, so we will see airtime Subscriptions from Starlink and the companion KVH OneCare service fees begin to contribute in Q2. Offering Starlink also lets us engage with new customers who have never worked with KVH and retain existing customers who might have otherwise left as they shift their primary communications away from VSAT to this new low Earth orbit service. At the same time, we are making excellent progress integrating OneWeb's global service into our multi-orbit, multi-channel network strategy. We expect to launch the service by the end of the second quarter. We have commenced pre-sales efforts, which are resulting in a robust opportunity pipeline. Subscriber growth through Starlink, OneWeb, Combox Edge, and other value-added services are key to our future success. Where we once measured our progress based on the number of terminals we shipped, Airtime and service subscriptions now represent the bulk of our revenue. With that in mind, we are changing how we calculate and report our active subscribers. Previously, we reported the number of VSAT terminals as our subscriber count. That worked fine when we were only shipping VSAT systems. However, our evolution to a multi-orbit, multi-channel model means more vessels are turned to KVH for more than one satellite-based communications terminal. As a result, we are now using a more straightforward approach and report on the total number of subscribing vessels. We believe this is representative of the changes in the market and our business while providing more clarity on the number of subscribers. Based on our previous reporting method, we ended Q4 of 2023 with roughly 6,900 subscribers. Based on this new reporting method, we ended 2023 with 6,700 subscribing vessels and 6,600 vessels at the end of the first quarter. We believe that our accelerating Starlink activations, the addition of OneWeb, and Combox Edge deployments will spur new subscriber growth beginning in the third quarter. The reality of our industry is that geo-only subscriptions are contracting, while geo-LEO hybrid solutions are becoming more popular. The planned acquisition of Intelsat by SES is an illustration of the pressure on the geo market. Intelsat is our KU geo-partner, and at this time, we do not anticipate any disruptions to our service or changes to our arrangement with Intelsat. We are on our way to achieving strategic and operational goals. We have a plan to resume the growth of our subscriber base, airtime revenue, value-added service descriptions in the second half of this year. While we are facing some turbulence during this transition, I believe we're on the right path and will emerge as a financially sound growing world-class solutions provider built on global airtime and superior service and support. Now I'd like to hand it back to our CFO, Anthony Pike, for a look at the numbers.