KVH Industries Inc 2026 Q2 Earnings Call

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 is the company's Chief Executive Officer, Brent Bruun. A copy of the earnings release was filed with the SEC under Form 8-K this morning. A copy of the release, along with a recording of today's call, will be available on our website at ir.kvh.com. This conference call contains certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in these statements. Words such as expect, may, intend, anticipate, will, and similar expressions identify forward-looking statements, which include projections, plans, initiatives, and other future events.

We undertake no obligation to update these statements. You should review the cautionary statements in our most recently filed Form 10-K under the heading Risk Factors. We will also discuss adjusted EBITDA, a non-GAAP financial measure. Our press release defines this term and reconciles it to GAAP net income or loss.

Brent? Good morning, everyone, and thank you for joining us.

Over the last two quarterly calls, I have spoken about the momentum behind our transition to LEO-based connectivity. I'm pleased to say the momentum has continued through the second quarter. Our results demonstrate that we are executing well against our strategy. We are seeing strong demand for our solutions, continued growth in our recurring revenue base, and encouraging progress across several of our strategic initiatives. Total revenue for the second quarter was $33.7 million, an increase of $1.4 million, or 4% sequentially from the first quarter. Up 27% from a year ago. Service revenue reached $29.7 million, increasing 6% sequentially and 29% year-over-year. This growth reflects the continued expansion of our subscriber base and reinforces the strength of a recurring revenue model. During the quarter, we shipped approximately 2,500 communication terminals.

While below the record shipment level we achieved in the first quarter, this represents another quarter of strong demand and continues to support future subscriber growth. We ended the quarter with approximately 10,700 subscribing vessels, adding more than 1,000 net vessels during the quarter. That trend reflects the value customers see in our approach. Growth in LEO service sales driven by Starlink remains our fastest-growing segment. Not every company in our space has navigated the shift successfully. We have, and the results show it. One of the most significant developments this quarter was the introduction of our new multi-network service plans. These plans give customers flexibility to subscribe to a block of data delivered across Starlink, OneWeb, or VSAT, depending on their needs. This is a key milestone in simplifying connectivity for our customers while giving them greater flexibility to take advantage of multiple satellite networks.

Our Link Content platform continues to expand. The new Link streaming service is now undergoing beta trials, and we expect to launch it very soon. This next phase expands the value of the platform by delivering streamed entertainment content that further enhances crew welfare and the onboard experience. Turning to our managed IT service offering, we're making progress converting early customer evaluations into ongoing commercial relationships, and we expect to see this reflected in our recurring revenue stream over the coming months. While still early, we're encouraged by the direction of these conversions, and we look to expand our role beyond connectivity and deliver broader technology solutions for our customers. In parallel, our land-based Starlink initiative continues to expand. We ended the quarter with approximately 1,600 sites, an increase of approximately 500 during the quarter.

It's further evidence of the demand of our managed connectivity solutions beyond the maritime market and broadens our recurring revenue business model. Geographic expansion remains a priority. During the quarter, we strengthened our presence in Latin America by adding a dedicated regional sales leader and expanded our team in Athens, Greece, further enhancing our ability to support customers across Europe and surrounding markets. We also broadened our market reach by opening our first retail location in Fort Lauderdale. Alongside Starlink, the location offers a broad portfolio of communications equipment, including handheld devices and other connectivity solutions. It gives us a new channel to serve both commercial and recreational maritime customers while expanding our presence in an important maritime hub. What did we do in the second quarter? Continued revenue growth. Approximately 10,700 subscribing vessels.

The successful introduction of multi-network service plans, Link streaming entered beta trials, our first cybersecurity pilot engagements, solid growth in our land-based Starlink initiative, continued investment in our global footprint, and the opening of our first retail location. The transformation of KVH continues to gain momentum. We remain focused on disciplined execution, delivering innovative solutions for our customers, expanding our recurring revenue base, and building long-term value as the communications market continues to transition to LEO-enabled connectivity. Thank you. With that, I'll turn it over to Anthony.

Thank you, Brent. With respect to our second quarter financial results, service gross profit was $10.6 million, which is an increase of $0.8 million from the first quarter. Service gross margin was 36%, which was up slightly from 35% in the prior quarter. Airtime depreciation expense, which is a non-cash charge, represented 7% of service revenue in both the second and first quarters, which impacted these gross margins. As Brent mentioned, total subscribing vessels at the end of Q2 were approximately 10,700, which is up 11% from the prior quarter. The Q2 operating expenses totaled $10.4 million, compared to operating expenses of $9.7 million in the prior quarter. This increase was in line with expectations and included $0.2 million in severance costs related to individuals who left the business at the end of the second quarter.

Our adjusted EBITDA for the quarter was $3.6 million, and capital expenditure for the quarter was $1.3 million. Of the $1.3 million in capital expenditures during the quarter, we would note the following items as either temporary in nature or non-cash. $0.4 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters, which is now complete. The ERP project will be completed by the end of the year. $0.2 million related to non-cash expenditure on VSAT antennas used in our agile rental program, where the inventory has already been purchased in prior periods. This adjusted EBITDA and capital expenditure compares to $2.8 million and $2.6 million in the first quarter of 2026, respectively. Our ending cash balance of $57.7 million was down approximately $1.4 million from the beginning of the quarter. This was primarily driven by $2.3 million in stock repurchases.

Giving effect to repurchases made subsequent to quarter end, we expect to conclude our full $15 million authorization within the current month. As a result, the program will then be complete. Overall, we are pleased with the second quarter's performance. As Brent stated, service revenue continues to grow and was up 6% compared to the first quarter of 2026, and 29% from the same quarter last year. We had another strong quarter for connectivity antenna shipments, with over 2,500 units shipped, and subscribing connectivity vessels were up 11% quarter-on-quarter, compared to a 7% increase in the first quarter. On a year-to-date basis, subscribing connectivity vessels have grown by 18%. We hope to build on this strong momentum in the second half of the year and remain very positive about the future.

This concludes our prepared remarks. I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call.