KVH Industries Inc — Earnings Call Q3 2026

Operator: Good day, and thank you for standing by. Welcome to the Q3 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. Anthony Pike: Thank you, Operator. 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. 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 under the heading Risk Factors in our most recently filed Form 10-K and subsequent quarterly reports on Form 10-Q. 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? Brent Bruun: Good morning, everyone, and thank you for joining us. Our third quarter results reflect the work we have done to reshape KVH around LEO connectivity and managed services. With much of the heavy lifting done, we are pleased to see the steady growth in our recurring revenue. Today, we give customers a choice of leading satellite networks so they can use the connectivity that best fits each of their vessels. And we are actively working to expand that choice. Beyond connectivity, we provide services our customers rely on to operate their vessels. Across the maritime industry, fleets are shifting to LEO connectivity, and their expectations of connectivity providers are changing alongside this transition. Rather than simply purchasing bandwidth, they want greater control over how connectivity is managed across their fleets, protection from growing cyber threats, and to keep crew connected at sea. KVH is built to deliver exactly that, with a global installation network and a dedicated support team serving fleets wherever they operate. That came through clearly in the third quarter. Service revenue grew 30% from a year ago, led by our LEO services as more fleets turned to KVH for a combination of choice, service, and support. And we're seeing that momentum across all regions and vessel types. Our subscriber base continues to grow as well. Starting this quarter, we are reporting active subscribing vessels so that our vessel count better reflects the vessels contributing to our recurring revenue. We now exclude vessels in suspension and vessels on plans with very low monthly recurring fees, which today consists primarily of approximately 1,000 small fishing vessels in a single regional market. These vessels are not material to our recurring revenue, gross profit or EBITDA. On this basis, we ended the quarter with approximately 9,300 active vessels, up 6% from approximately 8,800 last quarter. This follows an exceptionally strong second quarter and is consistent with the seasonal trends we typically see in the third quarter. As our customer base grows, we are expanding what we provide to each customer. This quarter, our first customers began subscribing to our managed IT service. Those first customers are part of a growing pipeline of fleets that want a single partner for both connectivity and onboard IT management. In September, we strengthened that offering by adding enhanced cybersecurity and IT tools to CommBox Edge Pro. As cybersecurity requirements continue to increase, more fleets are looking for solutions that help them protect their operations. We see the growing demand for managed IT and cybersecurity services as an opportunity to deepen our customer relationships and expand the services we provide. We are also investing in crew welfare. Link Live, which we launched in September, adds live TV streaming to our crew content service. For fleet operators, keeping crew connected at sea and providing access to news, sports and other content during long voyages has become a priority, creating an opportunity to broaden the adoption of our crew content offerings and build closer relationships with fleet operators. Together, managed IT and content strengthens our relationships with customers, makes the services we provide harder to replace, and helps us grow recurring revenue from the fleets we already serve. Beyond maritime, our land-based business continues to perform well. We now support more than 1,800 sites, applying the same managed connectivity capabilities we have built at sea. Turning to Starlink pricing, Starlink has announced price increases across its maritime services, affecting providers throughout the industry. Accordingly, we will be facing higher Starlink data costs, and as a result, we'll be repricing our Starlink plans from December 1st. We expect these changes to increase service revenue and reduce service gross margin as a percentage, but we do not expect a material change in gross profit. Looking ahead, our priority is to keep growing our LEO customer base and the services we provide to each customer, building a recurring revenue base that is both larger and more durable. With that, I'll turn it over to Anthony to walk through the financials and our updated outlook. Anthony Pike: Thank you, Brent. Total revenue for the third quarter was $38.4 million, up 35% from a year ago and 14% from the second quarter. Service revenue was $33 million, up 30% year over year and 11% sequentially, with LEO airtime now representing 58% of service revenue. Service gross profit was $11.1 million, up 28% from a year ago and 5% from the second quarter. Service gross margin was 34% compared with 36% in the second quarter, reflecting plan mix as several large, high-usage customers came onto lower-margin plans. Airtime depreciation, a non-cash charge included in service gross profit, represented 6% of service revenue this quarter, compared with 7% in the second quarter. Moving into 2027, service gross profit should benefit from the step-down in our legacy GEO network commitment, with a material reduction in GEO bandwidth costs expected next year. Turning to shipments, we shipped over 4,000 connectivity terminals in the quarter across a range of terminal types. This included more than 1,600 Starlink High-Performance terminals, which serve the core of our commercial maritime business. We also continue to ship OneWeb and VSAT terminals alongside Starlink Mini and Standard terminals, reflecting the breadth of our connectivity portfolio. Those shipments drove product revenue of $5.5 million, up 79% year over year. Product gross profit included a $2.3 million non-cash write-down of our TV receive-only inventory, reflecting reduced demand and pricing, and which is excluded from adjusted EBITDA. Operating expenses were $9.7 million in the third quarter compared with $10.4 million in the second quarter. Adjusted EBITDA for the third quarter was $3.9 million compared to $3 million in the second quarter and $1.4 million a year ago. Capital expenditures for the quarter were $1.5 million, including $0.2 million of non-cash expenditure on VSAT antennas used in our Agile rental program that were purchased in prior periods. Turning to capital allocation. We ended the quarter with $50.7 million in cash and no debt. Cash declined approximately $7 million during the quarter, primarily as a result of $10.7 million of share repurchases, which completed our $15 million program. We do not currently have a repurchase authorization in place. Our priorities are growing our LEO customer base, expanding the managed IT, content and other services that keep those customers with KVH, and pursuing selective acquisitions that add recurring revenue. Our Board continuously evaluates the best use of our cash within that framework. Finally, our outlook. With 3 quarters of the year complete, we are narrowing our full year 2026 guidance and raising the low end of both ranges. We now expect revenue of $137 million to $143 million and adjusted EBITDA of $13 million to $15 million. At the midpoint, that represents year-on-year total revenue growth of approximately 26%, including a modest lift from Starlink repricing in December, and adjusted EBITDA growth of roughly 73% as the operating leverage in our business comes through. 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: [Operator Instructions] Our first question comes from the line of Chris Quilty of Quilty Space. Christopher Quilty: Gentlemen, can you hear me okay? Brent Bruun: Can hear you fine, Chris. Christopher Quilty: Congrats on the results here. A question for you, can you give us an update on what you saw in terms of terminal shipments both for the LEO product and CommBox, and any changes you're seeing in the momentum there with either product line? Brent Bruun: Yes, I'll defer to Anthony to talk about the specific numbers, but we're not seeing any shift in the product line necessarily. Anthony? Anthony Pike: Yes, sure. In CommBox, the CommBox shipments were very consistent with prior quarters, so 200, 250 a quarter we've been running at for probably 6, 7 quarters now. And then on the Starlink side, I think the most important number is really the number I discussed in my script, which was, I think, over 1,600 of the High-Performance terminals, which we're very pleased with. That's quite an increase from the prior quarter, where we did around 1,000. I mean, Brent, maybe you can talk to the Mini and the Standard Starlink antennas, which we tend to see used more on the leisure market, and really it's the High-Performance antennas we think are most relevant. Brent Bruun: Yes, they're the most relevant. The Minis are used in the lower-end, more coastal type of maritime services, as well as our land-based sites. So, as we talked about, we're growing our land-based sites throughout the U.S. and it's gaining good momentum. The Standard kind of fits in between to some degree but it doesn't have as much adoption as the High-Performance or the Mini. Christopher Quilty: Great. And maybe does that apply equally to the land market or do you see a different mix there? Brent Bruun: The land is almost entirely Mini, the smaller terminals, because they're not in motion; they don't need really that high performance. The speed is still very high, so it works very well. And that's why we're seeing so many Minis going out the door. Christopher Quilty: Great. And what are you seeing in terms of customer reaction from the Starlink price increase? Does that make customers more or less willing to look at a VSAT or a OneWeb solution? Or have you seen any slowdown or acceleration in terminal orders associated with that? Brent Bruun: It's still early days, so that's probably going to be a much better question for next quarter since we haven't officially introduced the price increase, although we have informed the channel. So we don't have any clear indication of negative feedback. But I would anticipate that it will -- it's still -- when you go back 5 years, 3 years, 2 years even, it's still incredibly inexpensive even with a price increase coming for the amount of data that you're receiving. If OneWeb has prices that are a bit lower, it might make that service a bit more attractive, but I wouldn't see it really impacting the overall trajectory of what we're seeing in our Starlink business. Christopher Quilty: Got you. And just a macro question for you, Brent, given a lot of the impact of the Persian Gulf on the broader global maritime shipping, has that had any impact on the business, either slowing orders or accelerating the need for connectivity? Brent Bruun: Well, I'll answer the second part first. We haven't seen a slowdown for the need of connectivity. But we have seen a bit of softness in the Middle East, in particular out of Dubai, but it's a small part of our overall market as it is, so it doesn't have any real material impact on our business. Christopher Quilty: Got you. A question for Anthony. With the way that you're now restating the active vessels, can we get the sort of historic numbers maybe offline just for comparison and trends? And with that shift to removing ships that are not active, does that cause a little bit more seasonality around the first quarter or so that we should expect for the total vessel count? Anthony Pike: Yes, I mean, a couple of points there. Suspensions as a proportion of our total vessel count has been pretty static over the last sort of 2 years, somewhere between 10% and 13%, so that should help you with your first question. But yes, as we're disclosing just active, you are going to see some seasonality -- obviously underlying growth in the active vessel count with also some seasonality. And as you say, that's primarily based around the leisure market, but also around our fishing customers as well. Brent Bruun: We will see a bit of uptick in suspensions in the fourth quarter, which is typical. Christopher Quilty: Okay. With the shift to providing -- well, let me ask first, can you provide us with the airtime margins? And I ask that because I know you're now giving service margins but you've got a significant growing non-airtime with the streaming service and CommBox and the managed services, which I assume those all fall into what used to be the other category. Is that true? Or do they all fold right into the airtime services? Anthony Pike: That is correct, but frankly, Chris, because our airtime was such a large proportion, that businesses, as we discussed, the content and the managed IT are still sort of growing and are still, as a portion of the overall revenue, relatively small, although they're growing very, very fast. The airtime margins and the service margins as a whole, there's not a great deal of difference at all between them. I think it's just simplification really moving forward to discuss service margins as opposed to airtime. Christopher Quilty: Understand. And I think it's still less than 10% of revenues but is there a margin differential between the airtime and the other services? Anthony Pike: Yes, the other services margins, particularly the managed IT services and the content services margins, are much higher, almost double what we have in the airtime. So that drags -- from airtime to service margin, it drags the service margin up ever so slightly, but as you say, it's still 5% or so of revenue, so it's a percentage point or 2. Christopher Quilty: Got it. And a clarification. You said that the Starlink price increase will result in revenues up but gross margins down. I'm assuming that's like 100 to 200 bps, not 500 to 1,000 bps impact on gross margin. Brent Bruun: Well, I sure hope it's not 1,000. We're still working through the modeling, but I'd say that 1,000 would be quite a bit, but you could see a couple hundred, a few hundred. And we can't really disclose that exact number yet, but we'll talk about it during our fourth quarter call. Christopher Quilty: Got you. And now that the managed services are live, can you walk us through -- because you're now presumably making forward content purchases or capacity purchases for things other than the LEO broadband, whether it's cellular or other services, how are you seeking to manage that, or are you making any forward purchases? Brent Bruun: We're not making any significant forward purchases. We work with a company by the name of Kognitive for onboard bandwidth management, and we have some obligations to them, which are relatively small. As far as the content, we just pay a monthly licensing fee. Beyond that, any type of commitments we have revolve around satellite bandwidth. Anthony, do you have anything to add to that? Anthony Pike: No, I think that covers it. Christopher Quilty: Got you. Well, looking good, guys. Congrats on -- I think this was the biggest sequential increase I've seen in terms of service revenue. And presumably we'll see more in the fourth quarter, at least with the price increase and with the shipments here. So congrats on a nice quarter. Brent Bruun: Okay. Thanks, Chris. Anthony Pike: Thanks, Chris. Operator: 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.