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The big news from KVH’s financial overview covers two points, really. Martin Kits Heyningen, President and CEO, is retiring, and Brent Bruun is covering the position in the interim, moving from his role of COO. Having interviewed Brent for past research reports, I know firsthand he knows the maritime connectivity industry inside out. He also still maintains primary contact with some of the company’s bigger customers, when I interview them separately. “We know Brent”, they reply.
Additionally, the firm is reducing its workforce headcount by 10%; hoping to save at least $5m in annual savings going forward. This is never good news to hear. However, with multiples years on the bounce of negative operating income, it was perhaps an inevitable result.
Having followed KVH and collaborated with some of the people in its maritime satellite and IoT services teams; I know how hard they have worked and the repercussions of this are obviously sad. We at Valour, wish them all well.
Breaking down the recent announcements, this is our take from a maritime connectivity and IoT perspective:
- In 2021, mobile connectivity sales by service increased to $133.9m from $119.5min 2020.
- VSAT Broadband airtime revenues continue to increase YoY by 18%, to $23.9m , driven primarily by a 12% jump in subscribers. This was highlighted with the record shipments of VSAT systems in the previous quarter. Furthermore, its HTS subscribers are on average, much higher revenue value users than its older legacy business, which KVH has almost completely switched over.
- Although not reported in the presentation, Agile Plans still account for over 70% of the KVH shipments/subscriber base.
- Interestingly, a good portion of leisure users still buy its equipment outright
- KVH aim to get a new CEO within 60 to 90 days. The key criteria for the position is multi-national leadership, transition, telecoms and technology experience.
- Unfortunately, it seems the demise of the KVH Watch antenna business model service has been sounded. No more KVH Watch antennas (systems primarily for IoT use paid by other parties rather than the operator or owner of the vessel) will be shipped and the system will be consolidated with its traditional VSAT systems. Little statistical/financial information has been released about this new service, despite being operating for several years. This probably shows its installed base was in the hundreds rather than the thousands.
- Flow and Remote Expert Intervention services, as part of its wider digital offerings, are all still functional on traditional VSAT airtime plans. The challenge for KVH will be migrating “Cloud Connect”, previously dedicated for KVH Watch antennas only, to its existing VSAT installed base.
- Additionally, the purpose of Watch was that other parties or partners would pay for connectivity rather its traditional customer base of shipping owners and operators. Moving this back to a traditional business model would appear to be challenging.
- That being said, the V7 and V11 systems have two channels; one being high-speed and capped and the other being unlimited but much less speedy. It would all depend on the contracting terms, but it would not be beyond of the realms of possibility for IoT to be switched to the unlimited data channel. Also, KVH do have unlimited plans for the V3-HTS and V30 so someone could use that primarily for IoT. Further, Iridium’s Certus services (MSS or L-band back-up) base a lot of its value on this idea.