KVH Industries, Inc. Q2 FY2025 earnings call

• Successful business model transformation with revenue, adjusted EBITDA, and subscriber base up.
• Revenue declined YoY due to loss of VSAT airtime but had sequential growth since Q2 2023.
• Airtime gross margin up over 4% QoQ, adjusted EBITDA up $1.7M QoQ.
• Shipped over 1,300 communication terminals for 2nd consecutive quarter including Starlink, TracNet, etc.
• Transition to LEO-focused service provider with LEO revenue offsetting legacy GEO decline.
• Strong Starlink demand in commercial and leisure marine, expanding land sales in Latin America.
• OneWeb service launched end of Jan, growing steadily; CommBox Edge subscribers up 24% QoQ.
• Completed sale of headquarters, expecting factory sale in Sep, leased new facility in RI, share buyback in Q2.

In the second quarter, revenue was $26.6 million, down year-over-year primarily due to loss of VSAT airtime revenue including the U.S. Coast Guard. However, sequential airtime and service revenue growth resumed since Q2 2023, with a $1.2 million increase from Q1 2025. Airtime gross margin was 35.8%, up more than 4% sequentially. Adjusted EBITDA was $2.7 million, a $1.7 million increase from Q1 2025. Total subscribing vessels ended Q2 just above 8,000, up 8.3% QoQ and 13.5% YoY. LEO revenue increase more than offset decline in legacy VSAT business. Product gross profit was $0.3 million in Q2 compared to breakeven in prior quarter.

Updated guidance for 2025: revenue expected to be $107 million to $114 million and adjusted EBITDA $8 million to $12 million. This is based on ARPUs slightly less than anticipated but gross profit margins better than expected.

Forward-looking statements subject to numerous assumptions and uncertainties; refer to SEC filings, specifically Risk Factors in Q2 2025 Form 10-Q for detailed risks.

Q: Some good progress in the quarter. You didn't give the total number of activated Starlink terminals, which you have done in the past. Where did you finish out the quarter in terms of net adds in total?

A: I'll just get you the -- so in terms of total new Starlink stand-alone additions in the quarter -- bear with me one second. We were up to about 2,500 stand-alone, but we do have an awful lot, which were included as hybrids, which I think we quote as combined previously. So all in, it was just short of 4,000.

Q: You mentioned when you added those OneWeb units, it was using AgilePlans. Does that mean you still have -- you've sort of shifted the AgilePlan onto OneWeb? And are you doing that for Starlink also or just OneWeb because of the higher cost of the terminal?

A: We do offer it for Starlink, but with the cost of the terminal in mind, many -- most customers choose to purchase the units.

Q: The customers who are purchasing OneWeb, how do they differ from your Starlink subscribers? And what are you seeing in terms of network service and performance?

A: Yes. The network is performing well. As I'm sure you're aware, they don't have complete global coverage. So it definitely opens up the door to have a hybrid solution until they get their complete global coverage. And as far as the differentiation, it's just more of customers wanting diversity from Starlink. There's no real rhyme or reason to why they would choose one over the other from our perspective.

Q: You mentioned that the GEO costs may go up in the second half of the year. I thought those were relatively fixed over the course of the year. Or are there new coming costs on?

A: No. They are, I'd just say, broadly fixed. What we were saying there is that we had a slight dip in the cost in Q2. And so Q3 and Q4 might be slightly higher than Q2, but the overall cost for the year is fixed. And I think we've discussed previously our commitments to disclosing following in our 10-K filing.

Q: When you look at the margin outlook, are you still -- and this is on the service margin, are you still targeting that sort of 35% to 40% range? Or what are you seeing in terms of the mix changes between OneWeb, Starlink and legacy GEO products?

A: So I think we are certainly looking to keep in the range you described. But as we said in the prepared remarks, really, what's happening is as LEO becomes a bigger proportion of the overall airtime revenue, that's driving the margins a little bit. And obviously, as the GEO revenue declines with a fixed broadly, a significant amount of fixed cost in the cost of sales for GEO, that's going to put pressure on the GEO margin. But the 2 broadly offsetting each other, we're hopeful to retain in that sort of range that you described.

Q: You said the renewal or you're in discussions with your prepurchase on Starlink, so 2 questions. One, do you anticipate doing the same with OneWeb? And number two, as you look at the prior deal you cut with Starlink, how has the market or market demand changed for their pricing plans? And do you -- in other words, do you anticipate a similar sort of arrangement? Or has the planned pricing changed significantly that this deal might look significantly different?

A: We're not at liberty to discuss the OneWeb, what price we might be doing with them. And we're also quite limited to what we can say in regard to Starlink. What I will say is that the terminal access charge that they've introduced to all end users will be included in our follow-on.

Q: And is that a onetime access charge? Or is that done on a monthly basis?

A: It's a monthly charge.

Q: And presumably, that would just accrue to the gross margins directly?

A: It's a part of our cost.

Q: A question on CommBox. It looks like you've had good growth in that. But what type of attachment rates are you seeing with subscribers and where do you think you will get to in the longer term?

A: The attachment rate right now is 1/8. And last quarter, it was much higher than that, right? So we disclosed that we have over 1,000 subscribers. I don't know if we did disclose that. How many -- we disclosed the percentage increase? It's right around it. It's right around 1,000. So we have about 8,000 vessels. We would anticipate that growing quite a bit as a percentage because of the interest of what's going on, because of the need for hybrid solutions, the need for the secure suite. So the attachment rate on a go-forward basis on a quarterly basis of new activations from a commercial maritime perspective should be close to anywhere from 1/4 to 1/2 of our customers, but that's a bit of guesswork on my part.

Q: Maybe a final question here on just the end market. Obviously, you don't see a huge impact from tariffs, but have you seen any changes in customer demand or patterns in sort of global shipping that are impacting the take-up rate in your view?

A: We haven't seen any impact.

Q: And the overall commercial maritime market in terms of container rates and fuel prices and everything relatively stable from your perspective?

A: At this point, yes. Just one point of clarification, Chris. I overstated the number of CommBox subs out there by a bit. It's actually closer to about 600, 700 at the end of the quarter, but it's a number that we look at every day.