KVH INDUSTRIES INC DE Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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The following discussion and analysis should be read in conjunction with the
other financial information and consolidated financial statements and related
notes appearing elsewhere in this annual report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of a variety of factors, including those discussed under
the heading "Item 1A. Risk Factors" and elsewhere in this annual report.

Overview

We design, develop, manufacture and market mobile connectivity products and services for maritime and land mobile markets, and inertial navigation products for defense and commercial markets. Our reporting segments are:

•the mobile connectivity segment and
•the inertial navigation segment

Through these segments, we manufacture and sell our solutions in a number of
major geographic areas, including internationally. We generate a majority of our
revenues from various international locations, primarily consisting of
Singapore, Canada, Europe, countries in Africa, other Asia/Pacific countries,
the Middle East, and India.

Management transition and restructuring

On March 7, 2022, we announced that our President and Chief Executive Officer,
Martin Kits van Heyningen, was retiring from his executive and Board roles after
more than 40 years of service. The Board of Directors has engaged an executive
search firm to identify a new Chief Executive Officer. Brent C. Bruun, our Chief
Operating Officer, has been appointed as our interim President and Chief
Executive Officer. We expect to incur one-time and ongoing costs associated with
the management transition, including the cost of the executive search firm,
professional fees, salary continuation for Mr. Kits van Heyningen of up to
approximately $0.5 million for advisory services and a one-time separation
payment to Mr. Kits van Heyningen of $0.2 million (inclusive of amounts he may
have otherwise earned under our 2021 executive bonus plan), as well as expenses
associated with continued vesting of his equity awards.

In March 2022, we have also restructured our operations to reduce costs and better reflect a more focused strategy. We

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reduced our workforce by approximately 10% and expect to reduce expenses from
these actions. There will be one-time costs to be incurred in the first quarter
of fiscal year 2022, with the benefit to earnings expected to begin in the
second quarter of fiscal year 2022.


Mobile connectivity segment

Our mobile connectivity segment offers satellite communications products and
services. Our mobile connectivity products enable customers to receive voice and
Internet services and live digital television via satellite services in marine
vessels, recreational vehicles, buses and automobiles. We sell our mobile
connectivity products through an extensive international network of dealers and
distributors. We also sell and lease products to service providers and directly
to end users.

Our mobile connectivity service sales include sales of satellite voice and
Internet airtime services, engineering services provided under development
contracts, sales from product repairs, and extended warranty sales. This
segment's sales also include the distribution of entertainment, including news,
sports, music, and movies, to commercial and leisure customers in the maritime,
hotel, and retail markets through KVH Media Group. We typically recognize
revenue from media content sales ratably over the period of the service
contract. We provide, for monthly fixed fees and usage-based fees, satellite
connectivity services for broadband Internet, data and VoIP service to our
mini-VSAT Broadband customers. We also earn monthly usage fees for third-party
satellite connectivity for voice, data and Internet services to our Inmarsat and
Iridium customers who choose to activate their subscriptions with us.

Within the mobile connectivity segment, our marine leisure business is highly
seasonal, and seasonality can also impact our commercial marine business.
Historically, we have generated the majority of our marine leisure product
revenues during the first and second quarters of each year, and these revenues
typically decline in the third and fourth quarters of each year, compared to the
first two quarters. Temporary suspensions of our airtime services typically
increase in the third and fourth quarters of each year as boats are placed out
of service during the winter months.

Depreciation charges – KVH Media Group

The COVID-19 pandemic impacted various aspects of our operations in 2020, and we
monitored the impact of this global crisis carefully. We particularly monitored
the operations of KVH Media Group, which depends heavily on travel and
travel-related industries. The revenues and cash flows of KVH Media Group were
significantly impacted by the global reduction in travel commencing with the
start of the pandemic, as the global travel and related industries dropped to
historically depressed levels. In response to the impact of the pandemic,
particularly with respect to our KVH Media Group business, during our 2020
annual budgeting and long-term planning process, we conducted detailed
discussions with many of our largest customers in the KVH Media Group to
validate our assumptions, which indicated further expected delays in recovery,
and certain areas of the KVH Media Group business that might not recover
completely or at all. Accordingly, we updated our long-term revenue and cash
flow forecast to reflect these most recent observations. Based on our other
long-lived asset impairment analysis and annual goodwill impairment test, we
recognized an intangible asset impairment charge of $1.8 million and a goodwill
impairment charge of $8.7 million for the year ended December 31, 2020 related
to KVH Media Group. Our annual impairment analysis in the fourth quarter of 2021
did not identify any further impairment. Please see Note 1(k) to our
accompanying audited consolidated financial statements for additional
information.

Inertial navigation segment

Our inertial navigation segment offers precision fiber optic gyro (FOG)-based
systems that enable platform and optical stabilization, navigation, pointing,
and guidance. Our inertial navigation products also include tactical navigation
systems that provide uninterrupted access to navigation and pointing information
in a variety of military vehicles, including tactical trucks and light armored
vehicles. Our inertial navigation products are sold directly to U.S. and foreign
governments and government contractors, as well as through an international
network of authorized independent sales representatives. In addition, our
inertial navigation products are used in numerous commercial products, such as
navigation and positioning systems for various applications including autonomous
platforms, precision mapping, dynamic surveying, train location control and
track geometry measurement systems, industrial robotics and optical
stabilization. Our inertial navigation service sales include engineering
services provided under development contracts, product repairs and extended
warranty sales.

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PPP Loan Forgiveness

In September 2021, the U.S. Small Business Administration approved our
application for the forgiveness of the $6.9 million loan (the PPP Loan) we
received in May 2020 pursuant to the Paycheck Protection Program (PPP) under the
Coronavirus Aid, Relief, and Economic Security Act (as modified by the Paycheck
Protection Flexibility Act of 2020, the CARES Act). As a result, we recognized
$7.0 million of other income during the three months ended September 30, 2021.

Summary of Net sales

The following table shows, for the periods indicated, our sales by segment for our continuing operations:

                            Year Ended December 31,
                              2021               2020
                                (in thousands)
Mobile connectivity   $     133,911           $ 119,453
Inertial navigation          37,856              39,280
Net sales             $     171,767           $ 158,733


Product sales in the mobile connectivity segment represented 17% and 18% of our consolidated net sales for 2021 and 2020, respectively. our consolidated net sales for 2021 and 2020, respectively.

Within our inertial navigation segment, net sales of FOG-based guidance and navigation systems represented 16% of our consolidated net sales for 2021 and 2020.

No other product category represented 10% or more of consolidated net sales. No individual customer represented 10% or more of our consolidated net sales for 2021 or 2020.

We operate in a number of major geographic areas across the globe. We generate
our international net sales, based upon customer location, primarily from
customers located in Singapore, Canada, Europe, countries in Africa, other
Asia/Pacific countries, the Middle East, and India. Our international net sales
totaled 60% and 64% of our consolidated net sales for 2021 and 2020,
respectively. Sales to Singapore customers represented 11% of our consolidated
net sales for 2021. No other individual foreign country represented 10% or more
of our consolidated net sales for 2021. No individual foreign country
represented 10% or more of our consolidated net sales for 2020. See Note 12 to
our accompanying audited consolidated financial statements for more information
on our segments.

Client funded research and Development

In addition to our internally funded research and development efforts, we also
conduct research and development activities that are funded by our customers.
These activities relate primarily to engineering studies, surveys, prototype
development, program management, and standard product customization. In
accordance with accounting principles generally accepted in the United States of
America, we account for customer-funded research as service revenue, and we
account for the associated research and development costs as costs of service
and product sales. As a result, customer-funded research and development are not
included in the research and development expense that we present in our
statement of operations. The following table presents our total annual research
and development effort, representing the sum of research costs of service and
product sales and the operating expense of research and development as described
in our statement of operations. Our management believes this information is
useful because it provides a better understanding of our total expenditures on
research and development activities.

                                                                              Year Ended December 31,
                                                                              2021                 2020
                                                                           

(in thousands) Research and development expenses presented in the income statement

                                                              $   

17,766 $15,799
Research and development costs funded by customers included in cost of sales of services

                                                                     803               2,935

Total expenses from the consolidated statements of income for research and development activities

                                              $   

18,569 $18,734

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Contents

Operating results

The following table provides, for the periods indicated, certain financial data expressed as a percentage of net sales:

                                                        Year Ended December 31,
                                                           2021                2020
    Sales:
    Product                                                       38.9  %      40.7  %
    Service                                                       61.1         59.3
    Net sales                                                    100.0        100.0
    Costs and expenses:
    Costs of product sales                                        27.3         26.2
    Costs of service sales                                        37.9         37.5
    Research and development                                      10.3         10.0
    Sales, marketing and support                                  18.2         18.8
    General and administrative                                    16.8         15.4
    Goodwill impairment charge                                       -          5.5
    Intangible asset impairment charge                               -          1.1
    Total costs and expenses                                     110.5        114.5
    Loss from operations                                         (10.5)       (14.5)
    Interest income                                                0.5          0.6
    Interest expense                                                 -            -
    Other income, net                                              4.2          0.1
    Loss before income taxes (benefit) expense                    (5.8)       (13.8)
    Income tax (benefit) expense                                  (0.1)         0.1
    Net loss                                                      (5.7) %     (13.9) %


Years completed December 31, 2021 and 2020

Net sales

As discussed further under the heading "Segment Discussion" below, product sales
increased $2.3 million, or 3%, to $66.9 million in 2021 from $64.6 million in
2020, due to an increase in mobile connectivity product sales of $2.1 million
and an increase in inertial navigation product sales of $0.1 million. Service
sales for 2021 increased $10.8 million, or 11%, to $104.9 million from $94.1
million in 2020 primarily due to an increase in mobile connectivity service
sales of $12.3 million, partially offset by a decrease in inertial navigation
service sales of $1.5 million.

Costs of sales

Costs of sales consists of costs of product sales and costs of service sales.
Costs of sales increased in 2021 to $112.0 million from $101.1 million in 2020.
The increase in costs of sales was driven by a $5.6 million increase in costs of
service sales and a $5.2 million increase in costs of product sales. As a
percentage of net sales, costs of sales was 65% and 64% for 2021 and 2020,
respectively.

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Our costs of product sales consist primarily of materials, manufacturing
overhead, and direct labor used to produce our products. For 2021, costs of
product sales increased by $5.2 million, or 13%, to $46.8 million from $41.6
million in 2020. As a percentage of product sales, costs of product sales were
70% and 64% for 2021 and 2020, respectively. Mobile connectivity costs of
product sales increased by $2.4 million, or 11%, due to a $2.3 million increase
in our marine mobile connectivity cost of product sales and a $0.2 million
increase in our land mobile connectivity costs of product sales. Mobile
connectivity costs of product sales as a percentage of mobile connectivity
product sales were 80% and 77% for 2021 and 2020, respectively. Inertial
navigation costs of product sales increased by $2.8 million, or 14%, primarily
due to a $1.9 million increase in FOG and OEM costs of product sales and a $1.6
million increase in expensed material and other manufacturing period costs,
offset slightly by a $0.7 million decrease in our TACNAV costs of product sales.
Inertial navigation costs of product sales as a percentage of inertial
navigation product sales was 62% and 55% for 2021 and 2020, respectively, which
increased primarily due to product mix with a decrease in high margin TACNAV
product sales.

Our costs of service sales consist primarily of satellite service capacity,
depreciation, service network overhead expense associated with our mini-VSAT
Broadband network infrastructure, direct network service labor, Inmarsat service
costs, product installation costs, engineering and related direct costs
associated with customer-funded research and development, media materials and
distribution costs, and service repair materials. For 2021, costs of service
sales increased by $5.6 million, or 9%, to $65.2 million from $59.5 million in
2020. As a percentage of service sales, costs of service sales were 62% and 63%
for 2021 and 2020, respectively. Mobile connectivity costs of service sales
increased by $7.8 million, or 14%, primarily due to a $8.0 million increase in
mini-VSAT airtime costs of service sales. Mobile connectivity costs of service
sales as a percentage of mobile connectivity service sales were 62% for both
2021 and 2020. Inertial navigation costs of service sales decreased by $2.1
million, or 67%, primarily due to a decrease in contract engineering services
sales. Inertial navigation costs of service sales as a percentage of inertial
navigation service sales was 103% and 124% for 2021 and 2020, respectively. The
decrease in costs of inertial navigation service sales was primarily due to a
decrease in costs relating to an engineering and services development contract
from a major U.S. defense contractor.

Functionnary costs

Research and development expense consists of direct labor, materials, external
consultants, and related overhead costs that support our internally funded
product development and product sustaining engineering activities. Research and
development expense for 2021 increased by $2.0 million, or 12%, to $17.8 million
from $15.8 million in 2020. The primary reason for the increase in research and
development expense was a $2.1 million decrease in funded engineering expenses
(and a corresponding reallocation of the expense of the underlying engineering
work from costs of service sales (where funded engineering expenses are
reflected) to research and development expense (where unfunded engineering
expenses are reflected)) and a $0.2 million increase in consulting fees. As a
percentage of net sales, research and development expense was 10% in both 2021
and 2020.

We expect that in 2022 our research and development expense will decrease
year-over-year due to the restructuring announced in March 2022 as we scale back
our long-term research initiatives and focus on development initiatives related
to our core products.

Sales, marketing, and support expense consists primarily of salaries and related
expenses for sales and marketing personnel, commissions for both in-house and
third-party representatives, costs related to the co-development of certain
content, other sales and marketing support costs such as advertising, literature
and promotional materials, product service personnel and support costs,
warranty-related costs and bad debt expense. Sales, marketing and support
expense also includes the operating expenses of our sales office subsidiaries in
Denmark, Singapore, Brazil, and Japan. Sales, marketing, and support expense
increased by $1.4 million, or 5%, to $31.2 million in 2021 from $29.8 million in
2020. The increase in sales, marketing and support expense resulted primarily
from a $1.6 million increase in salaries and associated compensation, a $0.3
million increase in external commission expenses, a $0.2 million increase in bad
debt expenses and a $0.2 million increase in professional fees, partially offset
by a $0.8 million decrease in warranty expenses and a $0.2 million decrease in
travel expenses. As a percentage of net sales, sales, marketing and support
expense was 18% and 19% in 2021 and 2020, respectively.

We expect that in 2022, our sales, marketing and support expenses will decrease year over year due to the March 2022 restructuring.

General and administrative expense consists of costs attributable to management,
finance and accounting, information technology, human resources, certain outside
professional services, and other administrative costs. General and
administrative expense for 2021 increased by $4.3 million, or 18%, to $28.8
million from $24.4 million for 2020. The increase in general and administrative
expense resulted primarily from a $3.5 million increase in professional fees,
primarily arising from a stockholder's nomination of a competing slate of
directors at our annual meeting of stockholders, and a $1.0 million increase in
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salaries and associated compensation. As a percentage of net sales, general and
administrative expense was 17% and 15% for 2021 and 2020, respectively.

We expect that in 2022, our general and administrative expenses will decrease year over year due to the March 2022 restructuring.

Interest and other income, net

Interest income represents interest earned on our cash and cash equivalents, as
well as from investments and our sale-type lease receivables. Interest income
decreased by $0.1 million to $0.9 million from $1.0 million for 2020, primarily
due to lower interest related to our marketable securities. Interest expense for
2021 increased to $0.1 million from less than $0.1 million for 2020. Other
income, net for 2021 increased to $7.2 million from other income, net of $0.2
million for 2020 primarily due to the forgiveness of the PPP Loan.

Income tax expense (benefits)

Income tax benefit for 2021 was $0.1 million and related to losses generated in
foreign jurisdictions. There was no associated tax benefit related to losses
incurred in the U.S. due to a full valuation allowance on our related deferred
tax assets. Income tax expense for 2020 was $0.2 million due to taxes related to
income earned in foreign jurisdictions and no associated tax benefit related to
losses incurred in the U.S. due to a full valuation allowance on our related
deferred tax assets.

The effective tax rate for 2021 was 1.1%. The primary driver of the difference
between our effective tax rate as compared to the United States federal
statutory rate was the change in the valuation reserve against the U.S. deferred
tax assets, research tax credits, state taxes and the non-taxability of the
forgiveness of the PPP Loan. The effective income tax rate of (0.8)%
for 2020 differs from the U.S. federal statutory rate due to the impact of
recording the valuation reserve against the U.S. deferred tax assets, which was
partially offset by income taxed at lower foreign tax rates.

Sector Discussion – Fiscal Years Ended December 31, 2021 and 2020

Our net sales by segment for 2021 and 2020 were as follows:

                                                                                                                  Change
                                                             For the year ended December 31,                  2021 vs. 2020
                                                                 2021                2020                  $                    %
                                                                                      (dollars in thousands)
Mobile connectivity sales
Product                                                      $   30,012          $  27,863          $       2,149                 8  %
Service                                                         103,899             91,590                 12,309                13  %
Net sales                                                    $  133,911          $ 119,453          $      14,458                12  %

Inertial navigation sales
Product                                                      $   36,858          $  36,756          $         102                 -  %
Service                                                             998              2,524                 (1,526)              (60) %
Net sales                                                    $   37,856          $  39,280          $      (1,424)               (4) %



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Operating income (loss) by segment for 2021 and 2020 were as follows:
                                                                                                              Change
                                                          For the year ended December 31,                  2021 vs. 2020
                                                              2021                2020                  $                   %
                                                                                   (dollars in thousands)
Mobile connectivity (1)                                   $    2,749          $ (10,071)         $      12,820              127  %
Inertial navigation                                            1,649              4,799                 (3,150)             (66) %
                                                          $    4,398          $  (5,272)         $       9,670              183  %
Unallocated                                                  (22,344)           (17,665)                (4,679)             (26) %
Loss from operations                                      $  (17,946)         $ (22,937)         $       4,991               22  %



(1) Mobile connectivity loss from operations for 2020 includes a $10.5 million
goodwill and intangible asset impairment charge. See Note 1(k) and Note 9 to our
accompanying audited consolidated financial statements for more information.


Mobile Connectivity Segment

Net sales in the mobile connectivity segment increased by $14.5 million, or 12%,
in 2021 as compared to 2020. Mobile connectivity product sales increased by $2.1
million, or 8%, to $30.0 million in 2021 from $27.9 million in 2020. The
increase was primarily the result of a $1.1 million increase in TracVision
product sales and $0.9 million increase in mini-VSAT product sales. The
increases in TracVision and mini-VSAT product sales was primarily due to an
increase in unit sales volume.

Mobile connectivity service sales increased by $12.3 million, or 13%, to $103.9
million in 2021 from $91.6 million in 2020. The increase was primarily due to a
$11.5 million increase in mini-VSAT service sales, driven by a 12% increase in
subscribers, primarily as a result of AgilePlans. In addition, there was an
increase of $0.3 million in our content service sales and a $0.3 million
increase in service activation sales. The 12% increase in subscribers is
measured as of noon on December 31, prior to the shutdown of the legacy Arclight
network.

Consistent with our previously disclosed plans, we shut down our legacy Arclight
network at midnight on December 31, 2021. Virtually all costs associated with
that network have ceased, and while we will have additional costs on our HTS
network to service the customers who have migrated from the legacy network, we
expect to see a margin improvement in our mini-VSAT services. We are continuing
with the migration/transition of legacy network customers who did not migrate by
December 31, 2021. As of December 31, 2021, the monthly recurring revenue
associated with those customers was approximately $0.3 million. During January
and February of 2022, we re-signed a total of $0.1 million of recurring monthly
revenue from former legacy customers. We expect to continue re-signing former
legacy network customers throughout 2022, particularly in the spring as seasonal
leisure customers commission their vessels for the summer. However, we do not
expect that we will succeed in re-signing all of them. For the full year, we
expect airtime revenue growth but at a lower rate than we saw in 2021.

Operating income (loss) for the mobile connectivity segment increased $12.8
million in 2021 to an operating gain of $2.7 million as compared to an operating
loss of $10.1 million for 2020. This increase in operating income was primarily
due to the impairment of goodwill and other intangible assets of $10.5 million
in 2020 in KVH Media Group (which was not repeated in 2021), combined with an
increase in sales less associated costs of $4.3 million. This was partially
offset by an increase in mobile connectivity operating expenses, excluding
impairment, of $1.9 million in 2021. The increase in operating expenses was
primarily due to a $1.8 million increase in salaries and associated
compensation, primarily due to reinstating salaries and associated compensation
that were temporarily reduced in connection with our response to COVID-19. In
addition, there was a $0.8 million increase in research and development expense,
which was offset by a $0.8 million decrease in warranty expenses.

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Inertial Navigation Segment

Net sales in the inertial navigation segment decreased $1.4 million, or 4%, in
2021 as compared to 2020. Inertial navigation product sales increased $0.1
million, or less than 1%, to $36.9 million in 2021 from $36.8 million in 2020.
The primary driver of the increase was an increase of $3.0 million, or 12%, of
sales of our FOG products, offset by a $2.9 million, or 27%, decrease in TACNAV
product sales (for more information, see "Risk Factors - Risks related to
government sales - Sales of our FOG systems and TACNAV products generally
consist of a few large orders, and the delay or cancellation of a single order
will substantially reduce our net sales. Only a few customers account for a
substantial portion of our inertial navigation revenues, and the loss of any of
these customers could substantially reduce our net sales."). Inertial navigation
service sales decreased $1.5 million, or 60%, to $1.0 million in 2021 from $2.5
million in 2020. The primary reason for the decrease was a $1.7 million, or 82%,
decrease in contracted engineering service revenues due to a decrease in
services for a project for a major U.S. defense customer.

Operating income for the inertial navigation segment decreased $3.2 million in
2021 to an operating gain of $1.6 million as compared to an operating gain of
$4.8 million for 2020. This decrease was primarily due to the decrease in sales
less associated costs of $2.1 million, a $0.9 million decrease in funded
engineering expenses and a $0.3 million increase in external commissions. This
was partially offset by a $0.3 million decrease in salaries and associated
compensation.

Unallocated

Some company-level costs have not been allocated because they are not directly attributable to either segment. These costs consist primarily of general corporate functions, including management, legal, finance, information technology and costs associated with securities transactions.

Unallocated operating loss increased $4.7 million, or 26%, in 2021 compared to
2020. The increase in unallocated operating loss was primarily the result of a
$3.5 million increase in professional fees, primarily arising from a
stockholder's nomination of a competing slate of directors at our annual meeting
of stockholders, and a $1.2 million increase in salaries and associated
compensation, primarily due to reinstating salaries and associated compensation
that were temporarily reduced in connection with our response to COVID-19. In
addition, there was a $0.3 million increase in computer expenses.

Critical accounting estimates

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosure at the date of our
financial statements. Our significant accounting policies are summarized in Note
1 to our accompanying audited consolidated financial statements. Critical
accounting estimates are those estimates made that involve a significant level
of estimation uncertainty and have had or are reasonably likely to have an
impact on our statement of operations. We believe that our accounting policies
for goodwill, intangible assets, and other long-lived assets are the only
estimates critical to an understanding and evaluation of our financial results
for 2021, as discussed below.

Good willIntangible assets and other long-lived assets

We follow Accounting Standards Codification (ASC) Update No. 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill
Impairment. ASC 350 requires the completion of a goodwill impairment test at
least annually based on either an optional qualitative assessment or a
quantitative analysis comparing the estimated fair value of a reporting unit to
its carrying value as of the test date. Any impairment charges would be based on
the quantitative analysis. As a result of the 2020 annual impairment test, we
recorded goodwill impairment charges of $8.7 million and intangible asset
impairment charges of $1.8 million related to its KVH Media Group reporting
unit. Prior to 2020, we had not recorded or incurred goodwill impairment
charges.

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For the October 1, 2020 test, due to the uncertainty that the global pandemic
presented during 2020, we determined that we should perform a quantitative
analysis of goodwill impairment. We performed this full quantitative analysis in
the fourth quarter of 2020 in conjunction with our annual budgeting and
long-term planning cycle. The revenues and cash flows of KVH Media Group have
been significantly impacted by the global reduction in travel since the start of
the pandemic. With the assistance of our valuation specialists, we utilized an
income approach and market approach to estimate the fair value of our reporting
units, based on assumptions that we believed to be reasonable. As an additional
corroborative test of the reasonableness of those assumptions, we completed a
reconciliation of our market capitalization and overall enterprise value to the
fair value of all of our reporting units as of October 1, 2020. We estimated
that, as of October 1, 2020, the fair value of our mobile broadband reporting
unit exceeded its carrying value by 18%; however, the carrying value of our KVH
Media Group reporting unit exceeded its fair value by $10.2 million, which
signified that an impairment had occurred and identified a triggering event to
review our other long-lived assets for impairment. In accordance with ASC
360-10, Property, Plant and Equipment - Impairment or Disposal of Long-Lived
Assets (ASC 360), with regard to our long-lived assets, we performed an
undiscounted cash flow analysis and concluded that the carrying value of the
asset group was not recoverable. Accordingly, we then performed an analysis to
estimate the fair value of the other long-lived assets and recognized impairment
charge of $1.8 million against the distribution rights intangible asset, the
amount by which the carrying value of the asset group's other long-lived assets
exceeded their estimated fair value, and a reduction in the associated deferred
tax liability of $0.3 million. As a result, we recognized an impairment charge
to KVH Media Group's goodwill in the amount of $8.7 million, the remaining
amount by which the carrying value exceeded its fair value.

For the October 1, 2021 test, we performed a qualitative assessment of goodwill
impairment (Step 0) and concluded that for our mobile broadband reporting unit,
it was more likely than not that, for this reporting unit, the fair value
exceeded the carrying value. For the KVH Media Group reporting unit, we
determined that it was necessary to perform the Step 1 quantitative analysis due
to the ongoing global pandemic and its impacts. We utilized an income approach
to estimate the fair value of the reporting unit. We believe that the
assumptions used to estimate the fair value of our KVH Media Group reporting
unit were reasonable. We estimated that, as of October 1, 2021, the fair value
of KVH Media Group exceeded its carrying value by more than 20%. A negative
trend of operating results or material changes to forecasted operating results
could result in the requirement for additional interim goodwill impairment tests
and the potential of future goodwill impairment charges, which could be
material.

Intangible assets with estimated lives and other long-lived assets are reviewed
for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of intangible
assets with estimated lives and other long-lived assets is measured by a
comparison of the carrying amount of an asset or asset group to future net
undiscounted cash flows expected to be generated by the asset or asset group. If
these comparisons indicate that an asset is not recoverable, we will recognize
an impairment loss for the amount by which the carrying value of the asset or
asset group exceeds the related estimated fair value. Estimated fair value is
based on either discounted future operating cash flows or appraised values,
depending on the nature of the asset. During 2021, there were no events or
changes in circumstances that indicated any of the carrying amounts of our
intangible assets or other long-lived assets may not be recoverable. See Note 9
to our accompanying audited consolidated financial statements for further
discussion of goodwill and intangible assets.

Cash and capital resources

Our primary liquidity needs have been to fund general business requirements,
including working capital requirements and capital expenditures. In recent
years, we have funded our operations primarily from the sale of a business in
2019 as well as bank financings and proceeds received from exercises of stock
options and the issuance of stock.

In May 2020, we received a $6.9 million loan from Bank of America, N.A. (the
Lender), under the PPP, which was established under the CARES Act. Pursuant to
the terms of the CARES Act, in August 2021, we applied for forgiveness of the
full amount of the PPP Loan. On September 24, 2021, we received notification
from the bank that, on September 19, 2021, the U.S. Small Business
Administration (the SBA) had determined that the PPP Loan forgiveness
application was approved, and the PPP Loan, including all accrued interest
thereon, was paid in full by the SBA.

We believe that our cash and cash equivalents as of December 31, 2021, our
estimated cash flows from operations, and borrowings available under our credit
agreement will be sufficient to fund our operations and anticipated capital
expenditures through at least the next twelve months based on our current
operating plans. However, as the need or opportunity arises, we may seek to
raise additional capital through public or private sales of securities or
through additional debt financing. There are no assurances that we will be able
to obtain any additional funding or that such funding will be available on terms
acceptable to us, or at all.

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We believe that our primary long-term capital requirements relate to AgilePlans
revenue-generating assets, as well as servicing and repaying our satellite
service capacity and equipment lease obligations. At December 31, 2021, we had
outstanding non-cancellable satellite service capacity and other lease
obligations with future minimum payments of $63.0 million.

Our ability to make payments on our satellite service capacity and equipment
lease obligations, as well as our ability to fund planned capital expenditures,
will depend on our ability to generate cash in the future. Our ability to
generate cash in the future will depend upon, among other things, the
performance of our operating segments and general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.

As of December 31, 2021, we had $24.5 million in cash, cash equivalents, and
marketable securities, of which $2.7 million in cash equivalents was held in
local currencies by our foreign subsidiaries. Our foreign subsidiaries held no
marketable securities as of December 31, 2021. As of December 31, 2021, we had
$53.9 million in working capital.

Operational activities

Operating activities provided $2.9 million of net cash in 2021 and used $3.1
million of net cash in 2020, an increase in net cash provided by operating
activities of $6.0 million. The $6.0 million increase in net cash provided by
operating activities is primarily due to a $12.2 million decrease in net loss, a
$4.4 million decrease in cash outflows related to accounts payable and accrued
expenses, a $1.2 million decrease in cash outflows related to inventories, a
$1.0 million decrease in cash outflows related to other non-current assets and
non-current contract assets, a $0.6 million increase in cash inflows relating to
accounts receivable, and a $0.5 million decrease in cash outflows relating to
prepaid expenses, other current assets, and current contract assets. Partially
offsetting these items were a $14.1 million decrease in non-cash items, which
was primarily driven by the 2020 impairment charges to goodwill and intangible
assets and the 2021 PPP loan forgiveness.

Investing activities

Net cash used in investing activities for 2021 was $6.7 million as compared to
net cash used in investing activities of $9.3 million for 2020. The $2.6 million
decrease in net cash used in investing activities was primarily the result of a
$7.2 million increase in net cash inflows relating to the purchase and sale of
marketable securities. Partially offsetting these items was a $4.7 million
increase in capital expenditures.

Fundraising activities

Net cash provided by financing activities for 2021 was $2.6 million as compared
to net cash provided by financing activities in 2020 of $7.1 million. The $4.5
million decrease in net cash provided by financing activities is primarily
attributable to the $6.9 million decrease in cash inflows from long-term
borrowings. This decrease in cash inflows was partially offset by a $1.7 million
increase in cash inflows relating to proceeds from stock options exercises and
the employee stock purchase plan, a $0.4 million decrease in cash outflows
relating to the repurchase of common stock and a $0.3 million decrease in cash
outflows for capital lease payments.

Terms of borrowing

Paycheck Protection Program Loan

In May 2020, we received a $6.9 million loan from the Lender under the PPP,
which was established under the CARES Act and is administered by the SBA. The
term of the PPP Loan was two years from the funding date, and the interest rate
was 1.00%. Interest on the loan accrued from the funding date, but was deferred.
In August 2021, we applied for forgiveness of the full amount of the PPP Loan.
On September 24, 2021, we received notification from the Lender that, on
September 19, 2021, the SBA had determined that the PPP Loan forgiveness
application was approved, and the PPP Loan, including all accrued interest
thereon, was paid in full by the SBA. The forgiveness of the PPP Loan is
recognized in Other income, net in the accompanying consolidated statements of
operations for the year ended December 31, 2021.

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Line of Credit

Effective October 30, 2018, we entered into an amended and restated three-year
senior secured credit facility agreement (the 2018 Credit Agreement) with Bank
of America, N.A., as Administrative Agent, and the lenders named from time to
time as parties thereto (the 2018 Lenders), which included a reducing revolving
credit facility (the 2018 Revolver) of up to $20.0 million initially and
reducing to $15.0 million on December 31, 2019, to be used for general corporate
purposes. Our obligations under the 2018 Credit Agreement are secured by
substantially all of our assets and the pledge of equity interests in certain of
our subsidiaries. As of December 31, 2021, no amounts were outstanding under the
2018 Revolver.

Borrowings under the 2018 Revolver are subject to the satisfaction of various
conditions precedent at the time of each borrowing, including the continued
accuracy of our representations and warranties and the absence of any default
under the 2018 Credit Agreement. As of December 31, 2021, we were only able to
draw on $10.9 million of the $15.0 million facility due to covenant
restrictions.

The 2018 Credit Agreement contained two financial covenants, a maximum
Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage
Ratio, each as defined in the 2018 Credit Agreement. The Consolidated Leverage
Ratio could not exceed 2.50:1.00 through December 31, 2020 and may not exceed
2.00:1.00 after December 31, 2020. The Consolidated Fixed Charge Coverage Ratio
may not be less than 1.25:1.00.

On July 30, 2020, we amended the 2018 Credit Agreement to reflect the incurrence
of the PPP loan. Under the amended facility, the principal and interest on the
PPP loan were not included in the maximum Consolidated Leverage Ratio or the
minimum Consolidated Fixed Charge Coverage Ratio calculations except as to any
portion of the PPP Loan that is not ultimately forgiven. In September 2021, the
PPP Loan was forgiven in full.

On October 29, 2021, we amended the 2018 Credit Agreement to maintain the $15.0
million 2018 Revolver, extend the maturity date of the 2018 Revolver to October
28, 2022, eliminate the Consolidated Fixed Charge Coverage Ratio financial
covenant, add a minimum trailing four-quarter Consolidated Adjusted EBITDA
financial covenant of $3.0 million, modify the definition of Consolidated
Adjusted EBITDA, modify the interest rate margins and certain lender fees, and
transition the interest rate provisions based on LIBOR to the Bloomberg Short
Term Bank Yield Index. In addition, Bank of America became the sole lender under
the 2018 Credit Agreement.

The 2018 Credit Agreement imposes certain other affirmative and negative
covenants, including without limitation covenants with respect to the payment of
taxes and other obligations, compliance with laws, performance of material
contracts, creation of liens, incurrence of indebtedness, investments,
dispositions, fundamental changes, restricted payments, changes in the nature of
our business, transactions with affiliates, corporate and accounting changes,
and sale and leaseback arrangements.

Other topics

We intend to continue to invest in the mini-VSAT Broadband network on a global
basis. As part of the future potential capacity expansion, we plan to acquire
additional satellite capacity from satellite operators, expend funds to seek
regulatory approvals and permits, develop product enhancements in anticipation
of the expansion, and hire additional personnel. From time to time we have
entered into multi-year agreements to lease satellite capacity, and we have also
purchased numerous satellite hubs to support the added capacity. These
transactions can involve millions of dollars.

On October 4, 2019, our Board of Directors authorized a share repurchase program
pursuant to which we were authorized to purchase up to one million shares of our
common stock. The program expired on October 4, 2020. Under the repurchase
program, at management's discretion, we were authorized to repurchase shares on
the open market from time to time, in privately negotiated transactions or block
transactions, or through an accelerated repurchase agreement.

In January 2020, we had repurchased 35,256 shares of common stock in open market
transaction at a cost of approximately $0.4 million. The total amount we
repurchased under the October 4, 2019 repurchase program was 150,272 shares of
common stock at an approximate cost of $1.7 million. There were no repurchase
programs outstanding during 2021.

Off-balance sheet arrangements

As of December 31, 2021, except for certain satellite service capacity
obligations that are not considered operating or financing leases under ASC 842,
we did not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues, expenses, results of
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operations, liquidity, capital expenditures or capital resources. Please see
Note 6 to our accompanying audited consolidated financial statements for
additional information on our satellite service capacity obligations.

Recently published accounting pronouncements

See Note 1 of our accompanying audited consolidated financial statements for a
description of recently issued accounting pronouncements including the dates of
adoption and effects on our results of operations, financial position and
disclosures.

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