Mixed Q1 results. AEBITDA improved 43% y/y to $3.3M, in line with our estimate but 18% below consensus. Revenues increased ~2% y/y but missed consensus by 5% due to a precipitous drop in product sales. VSAT airtime revenues up 13%.
Airtime revenues grew at a double-digit rate for the eighth time in the past nine quarters, lifted by ~8% y/y growth in subscribers and improving ARPUs.
VSAT margins top 40%. KVH reported its fifth straight quarter of >40% margins following the shutdown of KVH’s legacy Arclight network at the end of 2021, although management continues to guide margins in the high-30s.
Opex down 24%. Headcount reductions, implemented in March ‘22 continue to deliver cost savings across all opex categories.
Negative product margins. Product sales declined 25% and KVH reported its third consecutive quarter of negative product margins, driven by weak leisure demand, competition from Starlink, and supply chain constraints. We are lowering our 2023 margins from ~21% to ~6% and our 2024 estimate from ~21% to 14%.
KVH ONE gaining steam. Launched in July 2022, the KVH ONE hybrid network and H-series antennas now offer 5G service in 50+ countries, with 4G/LTE service available in more than 150. Additionally, KVH completed training for its global sales partners on its new “open network” strategy of selling KVH services on third-party hardware.
Tweaking estimates. KVH affirmed its 2023 guidance which calls for midpoint revenue growth of 8% and AEBITDA growth of >50%. Given recent product struggles, however, we are cutting our product revenue/margin forecasts for 2023/2024, resulting in 1% lower revenues in both years and an AEBITDA reduction of 6% in 2023 and 1% in 2024.