KVH Industries, Inc. Aktie

Good day and thank you for standing by. Welcome to the Q2 2026 KVH Industries, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Anthony Pike, Chief Financial Officer. 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, and 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, and 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, and 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, and 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, and 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.

So 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. And with that, I'll turn it over to Anthony.

Thank you, Brent. So 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 $3.0 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 US headquarters, which is now complete. The ERP project will be completed by the end of the year. And $0.2 million related to non-cash expenditure on VSAT antennas using 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.

So 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, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator?

[Operator Instructions] Our first question comes from the line of Caleb Henry of Quilty Space. Your line is now open.

First one is just on terminal shipments, the 2,500 I think versus 3,100 in the first quarter. Can you talk a little bit about what is driving the ups and downs there and what you see for the next couple quarters?

Caleb, as I indicated last quarter, the 3,100 was really a high watermark, we felt. Potentially, we'll match that or beat that at some point, but we realized at the time that, that was a bit higher than what we expected. I think in the realm where we see now, which is about 2,500, we should be able to do somewhere in the 2,000 to 3,000 range on a go-forward basis, but that's hard to say as market dynamics are shifting constantly.

Okay, thank you. And then I noticed in the earnings statement, it seemed like a little bit more discussion of OneWeb. I'm curious if you're seeing any customer patterns between who chooses Starlink, who chooses OneWeb, and then also who chooses VSAT, if there's any segmentation there or things that are noteworthy.

Yes, in regards to who chooses what, Starlink is definitely the dominating force as far as connectivity. Customers are still looking for redundancy of network. In particular cases, customers are looking for an alternative to Starlink, which would then be OneWeb. Many of our vessels have 2 or more communication solutions on board. We have customers that actually have all 3 on board, Starlink, OneWeb, and VSAT. We're still shipping VSATs, primarily in tandem with either a OneWeb or Starlink, and in some cases, a OneWeb will be paired with a Starlink as well. So I don't know, Anthony, do you have any more color to add there?

No, I think you covered it. Thanks, Brent.

Okay. And for the GEO VSAT terminals or for vehicles that have decided to discontinue using that service, do those VSATs tend to stay on the vessel or are they typically going silent -- sorry, are they being removed?

Well, if they own it, I'm not sure what they're doing with it, if you're leaving it on board. If it's in Agile, our rental program, they're required to de-install it and ship it back to us.

Okay. And then last question from me. As far as GEO capacity that has been already procured, can you give us a sense of the timeline for where that rolls off and if it has any material impact on gross margins going forward?

Well, the GEO capacity, we're in constant contact with SES. Previously, our arrangement was with -- our contract obligations were with Intelsat. We still have thousands of VSAT terminals in the market. So I wouldn't necessarily say there's an immediate roll-off of VSAT capacity. And we're just working with the provider to keep the service going as long as customers have a demand for it.

Our next question comes from the line of Chris Quilty of Quilty Space. Your line is now open.

Just a follow-up on that last question. I didn't hear a change in the gross margin outlook. So presumably, the balancing of VSAT service revenues, which I think you noted this time was down substantially in the quarter. So that sounds like, you know, more than in the past, but you've been able to balance the cost with the revenue.

Yes. We have been able to balance costs with revenue. As we enter 2027, we'll be able to further balance that cost, if you will. And we don't really anticipate any exposure in regard to VSAT obligations in regard to being mismatched with the revenue stream. Anthony...

I'm sorry, the only thing I would add, Chris, is that from our 10-K, you can see that predominantly our commitment on the GEO bandwidth comes to an end at the end of this year. We have a small commitment for next year. And then, you know, on top of that, we've included in the press release, or if not it'd be in the 8-K later, that 55% of our revenue on the airtime now is driven from LEO. So obviously, if LEO becomes a bigger and bigger portion of that overall revenue, then it kind of de-risks a little bit in terms of the impact on the overall margin as a result of the compressed GEO margins. So you know, as Brent says, we feel fairly comfortable going forward.

Great. And CommBox, did you give the number of units shipped or how is that trending?

Well, it's trending up. I'll defer to Anthony as far as unit shipments, and I don't believe we did disclose it.

No, we haven't. But we've had pretty much 6, 7 quarters now, consistent number of shipments in the region of sort of 200 to 300 a quarter.

Got you. And how do we think about, I mean, you talked about managed services associated with that. I mean, how large of a revenue bundle would you generate from a vessel? Like, is this a material contributor or is it most of the profit on the hardware sale?

Yes. It's definitely the most, the profit would be on the recurring revenue. As far as the size of the opportunity, it really depends on the end customer and what their requirements are, but we would anticipate as we further roll out our IT managed services and using the CommBox Edge as the backbone to increase our ARPUs. I wouldn't say significantly, but a nice uptick. I'd put it that way.

Great. Final question. I guess several months ago, Starlink closed their reseller channel. Can you talk about what impact, if any, that's had on your business?

They closed their reseller channel for what they refer to as local priority, which is basically for brown water and land-based applications. They have not closed their reseller program for global priority, which is the bulk of our business with Starlink.

Great. And I know there's been both new products and new pricing plans that Starlink has come out with. Have those impacted the business in any way?

Not at this point.

Good luck going forward.

All right. Thank you, Chris.

Thanks, Chris.

Thank you. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q1 2026 KVH Industries Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anthony Pike, CFO. Please go ahead.

Thank you, operator. Good morning, 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 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, and 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, and 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, and 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. The shift to LEO that we highlighted last quarter continues to gain traction. And our first quarter results demonstrate that KVH is successfully capitalizing on this momentum. We are encouraged by the results that reflect sustained demand for our solutions, along with strong execution across the organization.

Total revenue for the quarter came in at $32.3 million, increasing sequentially from the fourth quarter of 2025. This growth was primarily driven by strong shipments of our communication terminals, which continue to see healthy demand across our core markets, and those shipments are the foundation of our recurring revenue model and a leading indicator for future subscriber activations.

As expected, service revenue was consistent with the previous quarter. The first quarter typically reflects seasonal patterns in our business, where service revenue is either flat or slightly down compared to the fourth quarter. This trend has held steady over the past several years, and this quarter was no exception. One of the highlights of the quarter was our record level of connectivity unit shipments. We shipped approximately 3,100 units, a 70% increase over our previous high achieved in the third quarter of 2025.

This milestone reflects both strong market demand and our team's ability to execute at scale. Importantly, these shipments position us well for anticipated activation growth as we move into the second quarter, which brings me to our subscriber base. We ended the quarter with approximately 9,600 vessels. This reflects continued adoption of our solutions and the strength of our value proposition in the maritime market. And within that base, the shift I described is visible in the numbers.

LEO services now represent over 45% of our airtime revenue, up from less than 30% a year ago. Our stand-alone VSAT subscriber base saw a decrease during the quarter as expected, reflecting the ongoing industry-wide shift toward LEO. We continue to view this business as an important part of our portfolio as customers migrate to our broader multi-orbit offering.

And we are exploring an additional LEO service that will further strengthen our multi-orbit offering, giving customers more choice and flexibility for their onboard connectivity. Additionally, we are working to expand our onboard role beyond connectivity. We are seeing encouraging progress in our newer service offerings. In particular, our IT service is gaining traction with the service currently being evaluated on a number of vessels.

While still early, feedback has been positive, and we see this as an important step toward expanding our role as a broader solutions provider. We also remain focused on our existing differentiated value-added services. In addition to managed IT, we have made meaningful progress with our Link content platform. Crew welfare has always been important in maritime operations, and it has gained even greater attention in recent years.

Our Link service directly addresses this need by delivering content that enhances crew morale and onboard experience. We are encouraged by the traction we are seeing and are continuing to invest in the platform. In the coming months, we plan to introduce live-stream content, further increasing its value to customers and crew alike. Finally, we continue to focus on expanding our global footprint.

We see significant opportunities in key growth regions, particularly India and Latin America, where demand for reliable connectivity solutions is increasing. Our efforts in these regions are aimed at strengthening partnerships, increasing market presence and capturing long-term growth opportunities.

So in conclusion, here is what we delivered in the first quarter. Record shipments, a growing subscriber base, LEO mix shifting exactly as planned, managed IT in early trials, a content platform expanding its reach and a geographic footprint linked to market opportunities. The shift is real, and we're capturing it. Last quarter, I said I've never been more confident in KVH's direction. Q1 only strengthens that conviction. We remain firmly focused on disciplined execution as we advance our transition to LEO-based solutions. Thank you. And with that, I'll turn it over to Anthony.

Thank you, Brent. So with respect to our first quarter financial results, service gross profit was $9.8 million, which is consistent with the prior quarter. Service gross margin was 35%, which was up slightly from 34% in the prior quarter. Airtime depreciation expense, which is a noncash charge, represented 7% and 8% of the service revenue in the first and fourth quarters, respectively, which impacted these gross margins.

As Brent mentioned, total subscribing vessels at the end of Q1 were over 9,600, which is up 7% from the prior quarter. The Q1 operating expenses totaled $9.7 million compared to operating expenses of $10.5 million in the prior quarter. However, Q4 operating expenses included $0.8 million of nonrecurring costs related to transaction costs from the acquisition we completed in Q4 as well as some restructuring costs.

Our adjusted EBITDA for the quarter was $2.8 million and capital expenditure for the quarter was $2.6 million. The capital expenditure of $2.6 million included $1 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters, both of which will be completed in 2026, and $0.4 million related to noncash expenditure on VSAT antennas using our Agile rental program, where the inventory has already been purchased in prior periods. And this EBITDA compares to $3.1 million and capital expenditure of $2.4 million in the fourth quarter of 2025.

Our ending cash balance of $59.2 million was down approximately $10.8 million from the beginning of the quarter, and this decrease was driven by installment payments to Starlink of $16 million related to our bulk purchase of data. So overall, we are encouraged with the first quarter's performance. We had another record quarter for connectivity antenna shipments, representing, as Brent mentioned, an increase of 70% from the previous high in Q3 2025.

Subscribing connectivity vessels were up 7% quarter-on-quarter and 30% year-on-year, and our LEO airtime revenue is very close to overtaking our legacy VSAT airtime revenue for the first time, all of which evidences our continued success in executing our strategy to transition to LEO-driven maritime satellite communications market leader. This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call.

Operator?

[Operator Instructions] Our first question comes from the line of Chris Quilty of Quilty Space.

Brent, a question for you. I mean you did say 3,100 units shipped in the quarter because I think like the best you've ever done is 1,600 previously.

Yes, Chris, 3,100 is correct. The previous high, and Anthony can give you the exact number, was approximately 1,800, a bit more, I believe, around 1,850. So...

That's a crazy number. Was there -- I mean this is sort of a crazy number. Was there something unusual going on in the quarter maybe related to Iran? Or do you think that is just uptick in the new markets?

It didn't have anything to do specifically with Iran. We did sell a number of units into the Asia-Pac region for low data plans that will be used on fishing fleets. But nevertheless, they will still turn into paying subscribers.

Got you. So do you -- I mean is that level sustainable? I think I only had like 3,400 net adds this year. And what sort of transition are you seeing from shipment? Is it still the sort of 60 to 90 days from shipment to initiation of service?

That's pretty typical. 60 to 90 days, and it does take a while. Would I anticipate that we're going to stay at this rate? Not necessarily. I think that we'll stay at a good rate. But I think this quarter, in particular, I'd just like to point out that it was particularly high. And I think it has to do with the seasonality aspects, too, in that although the revenue was flat because of suspended vessels, it's the time of the year where both in the leisure and in particular, fishing, they're getting their boats in and ready to go.

Got you. And there was no new market expansion. You have talked about stepping up your efforts in India and Latin America. Does that involve incremental costs of people on the ground or advertising?

Yes, there'll be incremental costs. We're looking to expand our sales team in addition to marketing efforts, but not beyond what we had anticipated this year and the budget that is embedded into the guidance that we provided.

Got you. Now India has not yet given the full license for Starlink or OneWeb service at this point, have they?

No. OneWeb, I believe, is further along. And VSAT is still -- is being widely adopted there.

Until the LEO shows up so...

So they're trialing OneWeb right now. So they're a bit ahead. So our focus is on both VSAT, OneWeb and Starlink when it's ready to go.

Yes. Again, back to the unit shipped this quarter, was the greater availability of OneWeb a major factor in that or any pricing changes? I'm just trying to get to the bottom, that's kind of a shockingly big number.

Well, OneWeb wasn't a major factor. As I'm sure you're aware, Starlink has made their antennas even more affordable. As I say, and I think a lot of this was prepped for the upcoming seasons for both leisure and fishing.

Got you. Anthony, when you look at the roll-off of the GEO capacity, and I know you've got some step-downs in the contracts for GEO capacity. Has anything changed from last quarter or last year in terms of the margin profile that you expect out of that business for the year?

Not particularly. We disclosed previously the drop in the commitment. And so where we are, we're fairly happy with. I think the decline has been very steady. So it has been more predictable in recent times. So no, Chris, the short answer is no.

Got you. The managed IT services, where do those revenues land? And again, like the market expansion, are there any anticipated significant costs with stepping this up? Or can you generally match costs as you scale with revenue?

Well, there are costs, but it's the same answer as the previous one. The budgeted costs is embedded with the guidance that we provided. So Chris, may I wish to give other people a chance to ask questions. If you have any others, we can take at the end.

Okay. My apologies, I will pass the floor.

[Operator Instructions]

Okay. I guess, Chris, if you have any other questions, we can go back to him, operator.

All right. We're back to Chris Quilty.

All right. You couldn't get rid of me. But really only had one more question. Just CommBox, any updates there on product features, distribution, attachment rate?

Yes, that's a great question. We recently introduced a paywall, which will enable point-of-sale type of purchases for our customers that take it from us. They need to set up the payment stream, and we have plans to increase that where we would actually have the point-of-sale application come to KVH where we could sell crew bandwidth directly. So that's the biggest development in CommBox this past quarter.

Got you. And actually, I know I already asked this question somewhat, but do you see any lasting impact out of the Iranian conflict that drives connectivity in any way? I mean all the stranded sailors using more capacity or you lose customers because the dark fleet goes away?

Yes. Well, we're not seeing any impact now. Obviously, like everyone, we hope this all dies down. But I wouldn't anticipate any reduction in capacity. If you go back to COVID, when people were trapped on vessels for weeks at a time, our usage actually went up. So these vessels are sitting idle. They're still using bandwidth. But up to this point, we haven't seen any meaningful impact one way or the other.

I am showing no further questions at this time. So this does conclude our session today. You may now disconnect. Thank you so much.

Thank you. Have a good day, everyone.

Good day, and thank you for standing by. Welcome to the Q4 2025 KVH Industries, Inc. Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Anthony Pike. Please go ahead.

Thank you, [ Antonio ]. Good morning, everyone, and thank you for joining us today for KVH Industries' fourth 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 and a recording of today's call will be available on our website at ir.kvh.com. This conference call contains forward-looking statements that are subject to 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, and you should review the cautionary statements in our most recently filed Form 10-Q under the heading Risk Factors. We will also discuss adjusted EBITDA, a non-GAAP financial measure, and our press release defines this term and reconciles it to the GAAP net income or loss. Brent?

Good morning, everyone, and thank you for joining us. The maritime connectivity market is undergoing a fundamental transformation, and 2025 was the year KVH proved it is positioned to lead it. Let me explain what I mean. For years, the maritime satellite industry was built on GEO technology, reliable, established, but limited in speed and capacity. The arrival of LEO constellations changed everything. Vessels that once relied on modest bandwidth can now access high-speed, always-on connectivity at sea. New providers are entering the market, customer expectations are rising and the addressable opportunity is expanding rapidly.

KVH saw this shift coming. we made a deliberate strategic decision to reposition our business around LEO airtime, subscriber growth and high-value managed services. 2025 was the year that strategy began to pay off.

Here's what we delivered. In the fourth quarter, service revenue grew to $28.3 million, a 27% increase from Q4 2024. We contracted for our second Starlink data pool, a 300% increase from our initial pool, representing a $45 million 18-month commitment. We made this commitment with confidence. Demand for LEO airtime across our customer base is strong and growing. And we delivered our strongest adjusted EBITDA quarter of the year. For the full year, service revenue grew 2% to $98.4 million. That headline number understates the real momentum in our business. Stripping out the $7.7 million in U.S. Coast Guard revenue that did not reoccur in 2025, underlying service revenue grew 11%, a meaningful reflection of what our core maritime connectivity business looks like.

We grew our subscriber base by approximately 2,000 vessels, a 28% increase, ending the year with more than 9,000 vessels under contract. That is a significant and growing installed base that generates recurring revenue and creates the platform for everything we are building. We surpassed 1,000 CommBox Edge subscribers. CommBox Edge will be integral to our vessel-based managed IT solution, which we plan to introduce in the coming weeks. This is the next chapter for KVH, moving beyond connectivity into a broader, higher-valued managed service relationship with our customers.

We also expanded our global footprint, successfully completing the integration of a maritime communications customer base in the Asia Pacific region, adding more than 800 vessels and more than 4,400 land-based subscribers. And we delivered $8.1 million in adjusted EBITDA for the full year, including $3.1 million in the fourth quarter alone, reflecting the operating leverage we are beginning to generate as the business scales. None of this happened by accident. We made deliberate choices, investing in LEO capacity, growing our subscriber base, reducing operating costs by 17% and selling our Middletown facility to strengthen our balance sheet.

The result is a company that is leaner, more focused and better positioned than it ever has been. That financial strength gives our Board the confidence to act given our recent top line growth in a rapidly growing market, improving profitability, positive free cash flow and no debt, our Board continues to view our common stock as undervalued. With that said, the Board has authorized an increase in our share repurchase program from $10 million to $15 million, which we believe is a prudent next step in returning value to our shareholders.

Looking ahead, the satellite communications industry is undergoing a significant transformation. We are still in the early stages of that shift. In the coming years, new LEO-based providers will come to market, expanding the opportunity further. With our growing subscriber base, our demonstrated ability to integrate and scale new satellite technologies and our vessel-based managed IT solution launching in the coming weeks, we believe KVH is uniquely positioned to capture this expanding market and deliver differentiated high-value services to our customers. We enter 2026 momentum, financial strength and a clear strategy and I have never been more confident in KVH's direction.

With that said, I'll turn the call back to Anthony to review the financial details. Anthony?

Thank you, Brent. So with respect to our fourth quarter financial results, service gross profit was $9.8 million, which is up $1.1 million from the prior quarter. Service gross margin was 34%, which remained flat compared to the prior quarter. And airtime depreciation expense, which is a noncash charge, represented 8% and 9% of service revenue in the fourth and third quarters, respectively, which impacted these gross margins. It is also worth noting that our cost of service sales related to our legacy network will reduce in 2026 as our minimum bandwidth commitment reduces by $7 million compared to 2025. And as Brent mentioned, total subscribing vessels at the end of Q4 were just above 9,000, which is up 1% from the prior quarter and 28% from the beginning of the year. Vessel growth in the fourth quarter was lower than prior quarters this year due to the termination of 2 Southeast Asian low ARPU fishing fleets. These 2 fleets contributed very little to our service gross profit. And excluding the loss of these fleets in Q4, total subscribing vessels were up 8% in the fourth quarter and 37% from the beginning of the year.

The Q4 operating expenses totaled $10.5 million compared to $9.5 million in the prior quarter. However, Q4 operating expenses included $0.9 million of nonrecurring costs, which related to transaction costs from the acquisition we completed in Q4 as well as some restructuring costs. As Brent mentioned, our adjusted EBITDA for the quarter was $3.1 million and capital expenditure for the quarter was $2.4 million, of which $1.4 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters. Both of these projects will conclude in 2026. So this compares to adjusted EBITDA of $1.4 million and capital expenditure of $1.6 million in the third quarter of 2025. And so our ending cash balance of $69.9 million was down approximately $2.9 million from the beginning of the quarter, and this decrease was driven by the acquisition we completed in Q4.

So overall, we are very pleased with the fourth quarter performance, which shows a continuation in the execution of our strategy to focus on our recurring revenue business and the transition from our legacy to a LEO-driven maritime SATCOMs market. Our subscribed vessel count continues to grow. Churn in our legacy network is being managed well. Revenue has increased for the third quarter in a row with consistent margins and our costs have remained under control, all of which resulted in our strongest quarterly adjusted EBITDA performance of the year. And so with all that considered, our guidance for 2026 is revenue of $130 million to $145 million and adjusted EBITDA of $11 million to $16 million.

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

[Operator Instructions]

And our first question will be coming from the line of Chris Quilty of Quilty Space.

Good results here. I had a question for you just first on the acquisition. I can't remember when you bought it in the quarter. Is that $2.5 million sort of a good run rate that we should assume for that business on a go-forward basis?

Yes. The business is actually a bit larger, Chris. But yes, $2.5 million is really the net impact. We did have a number of vessels that we were providing our VSAT service through this particular customer. And obviously, we'll pick up the incremental margin on that, but $2.5 million per quarter is pretty close assumption, close estimate.

And I'm assuming part of the acquisition is you'll -- would you actively convert those over to LEO or let them sort of mature on their own?

No. We'll actively look -- understand our customer base, and we'll work with them and we'll provide them with the best solution that's available for them. And our LEO-based services to a large degree, is the best service that we can provide today. And as we've demonstrated, we're doing great in regard to providing LEO services. We're growing our installed base. The usage is up. We've got our new data pool. So it goes without saying that's our focus.

And on the new data pool, Anthony, should we assume similar margin trends that we've been seeing with the prior pool? And the length of that of 18 months, I think, is shorter than your original plan? Or was that also 18 months?

Yes. Let me jump in there first, Anthony. In regard to -- it's the same -- it was a summer 18-month commitment. The fact of the matter is we depleted the pool prior to the -- prior to 18 months. So it might appear like it was less, but we still had some runway to go on that, which we didn't need, which we're hopeful will be the same case with our next pool. As far as the margins, we anticipate consistent margins. But as I'm sure you're aware, Starlink has implemented a terminal access charge. which, in essence, is a pass-through. So that might have a slight impact on the overall margins for the Starlink piece of our business, but I'll let Anthony answer the specific question.

Yes. Just as Brent said, really, we don't -- the only change we expect really on margin is probably driven a little bit by the terminal access charge. But from a dollar profit -- gross profit perspective, that should not be materially affected at all. And we don't -- the new deal we've got should help us maintain the margins.

Very good. And when you look at the product margins here, obviously, actually, I just signed up for Starlink and my antenna is free now, at least on the consumer side, and we've seen some pressure across enterprise. Is that a business where you think you can maintain a breakeven? Or does that become a loss leader over time?

The plan with T2 is to maintain breakeven, but it is an enabler to the airtime, breakeven or slightly better.

As I'm showing no further questions, this will conclude today's program. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q3 2025 KVH Industries, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference call over to your first speaker today, Chief Financial Officer, Anthony Pike. Please go ahead.

Thank you, Dana. Good morning, everyone, and thank you for joining us today for KVH Industries' third 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.

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. And if you are listening via the web, please feel free to submit questions to [email protected].

Further, 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 GAAP numbers.

We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our most recently filed 10-Q. 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 third quarter, I'll turn the call over to Brent.

Thank you, Anthony, and good morning, everyone. The positive momentum that we reported in the second quarter has continued into the third quarter. On our last call, we talked about an inflection point that -- in this quarter, we have reinforced that inflection point. This is due to our strategic focus on LEO airtime revenue and subscriber growth, which have yielded positive results.

Highlights for the quarter include a new record for vessel subscriber growth, record quarterly shipments of satellite communication terminals, sequential and year-over-year service revenue growth, closing the sale of our Middletown, Rhode Island facility and the acquisition of customer and vendor agreements, along with other assets from a satellite service provider operating in the Asia Pacific region. At the same time, we maintained our commitment to strong cost control with flat OpEx and reduced CapEx compared to the second quarter of 2025.

Service revenue for Q3 was $25.4 million, a 10% increase from the prior quarter and a 4% increase from Q3 2024. The increase in year-over-year revenue is particularly encouraging as the prior year included a significant amount of U.S. Coast Guard revenue, which has drastically decreased since the third quarter of last year.

Equally encouraging, our subscriber growth continued in the third quarter. Our total subscribing vessel count increased by 11% to approximately 9,000 compared to the second quarter. And as a result, our subscribing vessel count is up 26% year-to-date. This growth is being driven by the ongoing demand for the Starlink and OneWeb LEO services we provide. During Q3, we shipped roughly 1,600 terminals, a new record. There continues to be strong demand for both stand-alone LEO services and hybrid installations, which represent a combined service utilizing a LEO service in tandem with our legacy VSAT offering.

Our Starlink subscriber growth also helped us to stay on target to consume the bulk data pool we purchased in July of 2024, before the end of this year. We're in the final stages of negotiations with Starlink to purchase an additional data pool. We expect the new purchase commitment will scale to reflect the significant growth trajectory of Starlink airtime as a portion of our business, enable us to retain flexibility to create custom competitive data plans to meet our subscribers' needs and allow us to sustain solid airtime margins.

In addition, we continue to pursue strategic growth opportunities. In Q3, we completed the acquisition of the maritime communications customer base of a service provider operating in the Asia Pacific region. This acquisition is expected to bring on board more than 800 vessels that are currently utilizing satellite communication services, approximately 300 of which receive our VSAT service, more than 4,400 land-based subscribers who use Inmarsat and Iridium handheld services and a corresponding increase in annual top line revenue.

This strategic move represents an essential milestone in our evolution as it is intended to expand our customer base, broaden our product and service portfolio and significantly increase our land connectivity subscriber base. This step is representative of our commitment to investing in KVH and strengthening our market position.

And finally, we successfully closed the sale of our facility in Rhode Island, which generated approximately $8 million in net proceeds.

Now I will turn the call back to Anthony to discuss the numbers. Anthony?

Sorry about that. Thank you, Brent. As a reminder, I would like to note that similar to our call for Q2, I will not restate data that is in the earnings release or clearly described in our 10-Q. I will focus my comments on information that either elaborates on or clarifies the published data.

So with respect to our third quarter financial results, airtime gross margin was 31.9%, which is down by 3.9% compared to the prior-quarter gross margin of 35.8%. This decrease was driven by the reduction in GEO airtime margins as a result of declining revenue set against a relatively fixed cost base. That said, GEO revenue decline continues to be in line with expectations and is not significantly accelerating. We expect this trend on GEO airtime margin to continue in the fourth quarter. However, from January 2026, our minimum commitments for GEO bandwidth declined considerably by around 1/3, which we expect will reduce pressure on margins. Our LEO airtime margin was consistent with the prior quarter.

Total subscribing vessels at the end of Q3 were just below 9,000, which, as Brent mentioned, is 11% up from the prior quarter and 26% up from the beginning of the year.

Reported Q3 product gross profit was negative $6.8 million compared to a product gross profit of positive $0.3 million in the prior quarter. This quarter's negative product gross profit included a $5.5 million write-down of our VSAT inventory based upon reduced demand and pricing. The remaining reduction in profitability of $1.6 million this quarter was driven by price reductions on Starlink and our H-Series VSAT antennas. We expect product margins to improve in the fourth quarter from the third quarter of this year, but product margins will remain relatively modest, and we believe the real value of our mobile connectivity hardware shipments is the recurring airtime revenue they generate in the future.

The Q3 operating expenses of $9.5 million were flat compared to the prior quarter. And our adjusted EBITDA for the quarter was $1.4 million, and our earnings release has a numerical reconciliation of that. Capital expenditure for the quarter was $1.6 million. This compares to adjusted EBITDA of $2.7 million and capital expenditure of $2.4 million in the second quarter of 2025.

Our ending cash balance of $72.8 million was up approximately $16.9 million from the beginning of the quarter. And as Brent mentioned, net proceeds from the sale of our property at Middletown, Rhode Island was $7.8 million.

So overall, we are pleased with the third quarter performance, which shows our strategy to focus on our recurring revenue service business is proving successful with double-digit sequential growth on both service revenue and subscribed vessels in the quarter, although we cannot assure that growth will continue at this rate. Our LEO margins remain strong, and we are managing the global decline in GEO well. The sale of our manufacturing facility and the first acquisition we have completed in several years evidences our strategic intent moving forward, and we are optimistic for the future.

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

[Operator Instructions] Our first question comes from Chris Quilty of Quilty Space.

I wanted to dial in a little bit to the growth in the LEO business. I think you said 1,600 terminals shipped in the quarter. And historically, you were adding 600 a year on the GEO side. Where are you seeing the demand come from or the nature of the demand to see the levels climb that quickly?

Yes. The demand is really pretty evenly spread between all regions and all types of vessels. So there's not anything specific that's driving the demand, Chris. We did scale back a bit on leisure marine in the third quarter just due to the time of year, right? That's a very -- fourth quarter, first quarter, we'll see a lot more activity there as the boats are moving south. But it's just not really any significant concentration.

And how about -- I mean, are you seeing these as competitive wins? Or are these new installs? Or is that mix changing?

It's a bit of both. It's definitely some competitive wins, on the new installs also because we're going further downstream, and that trend has continued with the service plans that we offer and the price per bit delivered, it's opened up the market quite a bit to the lower end.

Got you. And I think I received my first Starlink e-mail yesterday, offering me free equipment on the consumer side. But apparently, you're also seeing that on the maritime enterprise side. How are you managing the hardware inventory and pricing with what's been a pretty dynamic pricing environment?

Yes. Well, and as Anthony alluded to, they've reduced price. We're not necessarily offering -- we're not offering free equipment for maritime unless you know something I don't. But they have reduced price. It's caused a bit -- it's difficult. You have to manage it because when you're buying inventory, you have it at a higher price and then they're selling it lower, and you need to drop your price. It did impact our margins to a degree.

On a go-forward basis, we have an understanding of Starlink, of how to handle this a bit better. And if, in fact, they have further price concessions, we would anticipate that any stock that we're holding, we would get a corresponding reduction and/or credit for the difference between previous sale purchase price and the new purchase price.

Got you. And can you contrast that with your OneWeb terminal sales where I think you mentioned a lot of those are being sold under AgilePlan where you're capitalizing the cost there. Is the differential -- price differential or CapEx requirements on your part causing a shift in terms of how customers are looking at the One service versus the other?

Price definitely has an impact. It's -- we've shipped quite a few more Starlinks and OneWebs. There are alternatives to using a OneWeb and not necessarily just on a stand-alone basis. We talk about our hybrid service offering, which is primarily concentrating on a LEO service with VSAT, but it doesn't -- we also have some customers that have provided two different LEO services on board to ensure diversity.

Understand. On the GEO side, is it fair to assume the Coast Guard headwind going into the fourth quarter is probably like less than $1 million?

You mean as far as the amount of revenue we recognized in the fourth quarter of last year?

Yes.

When you say headwinds. We had a significant amount of revenue in the third quarter, but the contract was expired at the end of September of '24. And we've retained a small amount of Coast Guard revenue, so it's not completely gone, but that small amount was representative in 2024, in 4Q '24, and it will be in 4Q '25. So it's really not going to be a factor in a year-over-year comparison in the fourth quarter, if that's your question.

Yes, that was it. And aside from the Coast Guard, what are you seeing in the trends on the GEO ARPUs?

Yes. I'll defer to Anthony on that question.

Yes. So the GEO ARPUs this year have been fairly static. The first to the second quarter, they dropped a little bit. But since then, they've been very static. So we're very pleased with the third quarter's ARPUs on our GEO side. They seem to be remaining.

Great. And you guys didn't talk about CommBox much in the quarter. Was there any significant movement in customer adoption or -- you had the new cybersecurity feature coming...

Yes. Well, the cybersecurity feature is being well received. There's not necessarily new news on that. It's being well received. We shipped, I don't have the exact number, but hundreds of CommBoxes, and we activated hundreds of services and it's being well received in the market. But we didn't really see a need to call it out specifically this quarter. It was -- and shipments were up sequentially in the third quarter versus the second.

Yes. I mean if I just jump in there, Brent. I mean, revenue was up about mid-30%, I think 36% quarter-on-quarter, which just shows we're getting some successful growth and the growth from -- that we discussed in prior quarters continued both in terms of shipments and activations.

Great. And sorry, I'm all over the map. I should have organized my questions. But Anthony, did you mention how many LEO terminals were activated in the quarter?

No, I did not know. No. I'm not sure, Brent, do we...

Yes. So basically, we talked about our growth, which went -- was approximately 1,000, from 8,000 to 9,000. A significant portion, majority of those would be LEO. As far as the vessels that we have out there, 9,000, more than half are receiving Starlink services. But we'd like to just keep it at that level and know that our overall subscribing vessels are significant, and they've had significant growth in the quarter, which we hope -- we anticipate, or we hope will continue. There's no guarantees. And as we move forward, a larger and larger portion of our installed base will be receiving LEO services and for the current time period, in particular, Starlink.

Great. Are you starting to hear whispers from the Amazon guys coming to market?

Yes, there's all kinds of -- there's not whispers. I think they're shouting from the mountaintop. So...

Right. And does that look like it will be a competitive service based upon what you're seeing in terms of...

Yes. I mean on paper, yes, the proof is in the pudding. So let's -- once we are able to test it and see what the cost of the equipment is, the data speeds, the ability to maintain link and the overall quality of the service, we'll -- when that all comes to fruition and we're able to do significant testing, we'll be able to answer that question a bit more concisely. But on paper, it looks like it will be compelling.

Great. With the acquisition, I think you mentioned 800 vessels that obviously didn't show up in the numbers for this quarter. Will we see kind of a onetime jump of 800 vessels that happens in Q4?

Yes. Let's just be clear, yes, but over 500 vessels, right? So we -- 300 of those vessels were already receiving our service. We'll be able to achieve higher margin on those vessels because we were selling it to the service provider and the service provider was charging their end customer a higher price. But those will be reflected in our fourth quarter. That net 500 will be reflected in our fourth quarter numbers.

Got you. You had previously talked about primarily Latin American land growth, but it sounds like there's an element of that with this acquisition. And I think you specifically called out the sat phone part of their business. Is that a focus? Or is it more around, again, traditional land terminals in Asia...

Well, a bit of both. In this particular case, it was opportunistic because that's what they provided. So we're taking it on. We do have -- we think it would make sense to go into an adjacent market outside of maritime and provide land services since we have the infrastructure to support it. And we're looking into that to do more.

Got you. And is that expanding products or services? Is this all SATCOM-related services? Or do you move into other adjacent communication services?

It primarily will be SATCOM. The handhelds are very high volume, low ARPU type business. So it's -- you need to get a lot of them out there to make any type of significant revenue.

And final question just because I don't pay as close attention to the maritime market. Any notable trends due to tariffs or global geopolitical situations that you're watching in terms of the demand and uptake on the maritime side?

Yes. Well, of course, we watch it, and we pay attention to what's going on, but we're not seeing any significant impact from tariffs or the geopolitical environment.

I'm showing no further questions at this time. Thank you for your participation in today's conference call. This does conclude the program. You may now disconnect.