Table of ~~this technology could adversely affect sales.~~Contents

Our mini-VSAT Broadband service relies on spread spectrum technology developed by ViaSat, for use with satellite capacity controlled by SES, Eutelsat, Sky Perfect-JSAT, Telesat, Echostar, Intelsat and Star One. Our TracPhone two-way broadband satellite terminals combine our stabilized antenna technology with ViaSat’s ArcLight spread spectrum mobile broadband technology, along with ViaSat’s ArcLight spread spectrum modem. The ArcLight technology is also integrated within the satellite hubs that support this service. Sales of the TracPhone V-IP series products and our mini-VSAT Broadband service could be disrupted if we fail to receive approval from regulatory authorities to provide our spread spectrum service in the waters of various countries where our customers operate or if there are issues with the availability of the ArcLight maritime modems. Moreover, satellite communications technology may continue to evolve, which could reduce the relative attractiveness of the ArcLight technology we currently offer, and our ArcLight technology may cease to be compatible with changes in satellite service offerings. As we transition to our new HTS service over the next several years, we may encounter technological challenges, increased expenses, customer dissatisfaction, inventory obsolescence, interruptions in supply, disruptions in current relationships or arrangements and unforeseen obstacles, any of which could have a material adverse effect on our mobile satellite business, revenues and profitability.

We have single dedicated manufacturing facilities for each of our mobile connectivity and inertial navigation product categories, and any significant disruption to a facility could impair our ability to deliver our products.

Excluding the products manufactured by Videotel and KVH Media Group, which are manufactured in the United Kingdom, we currently manufacture all of our mobile connectivity products at our manufacturing facility in Middletown, Rhode Island, and the majority of our inertial navigation products at our facility in Tinley Park, Illinois. Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of either production facility. For example, our production facilities use some specialized equipment that may take time to replace if they are damaged or become unusable for any reason. In that event, shipments would be delayed, which could result in customer or dealer dissatisfaction, loss of sales and damage to our reputation. Finally, we have only a limited capability to increase our manufacturing capacity in the short term. If short-term demand for our products exceeds our manufacturing capacity, our inability to fulfill orders in a timely manner could also lead to customer or dealer dissatisfaction, loss of sales and damage to our reputation.

~~We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our products on time or at expected cost.~~

We obtain many key components for our products from third-party suppliers, and in some cases we use a single or a limited number of suppliers. Any interruption in supply could impair our ability to deliver our products until we identify and qualify a new source of supply, which could take several weeks, months or longer and could increase our costs significantly. Suppliers might change or discontinue key components, which could require us to modify our product designs. For example, in the past, we have experienced changes in the chemicals used to coat our optical fiber, which changed its characteristics and thereby necessitated design modifications. Department of Defense regulations requiring government contractors to implement processes to avoid counterfeit parts may require us to find new sources of materials or components if the current supplier cannot meet the requirements. In general, we do not have written long-term supply agreements with our suppliers but instead purchase components through purchase orders, which expose us to potential price increases and termination of supply without notice or recourse. It is generally not our practice to carry significant inventories of product components, and this could magnify the impact of the loss of a supplier. If we are required to use a new source of materials or components, it could also result in unexpected manufacturing difficulties and could affect product performance and reliability. In addition, from time to time, lead times for certain components can increase significantly due to imbalances in overall market supply and demand. This, in turn, could limit our ability to satisfy the demand for certain of our products on a timely basis and could result in some customer orders being rescheduled or canceled.

~~We may continue to increase the use of international suppliers to source components for our manufacturing operations, which could disrupt our business.~~

Although we have historically manufactured and sourced raw materials for the majority of our products domestically, in order for us to compete with lower priced competing products while also improving our profitability, in some instances we have found it desirable to source raw materials and manufactured components and assemblies from Europe, Asia, and South America. Reliance on foreign manufacturing and/or raw material supply has lengthened our supply chain and increased the risk that a disruption in that supply chain could have a material adverse effect on our operations and financial performance.

We depend on cloud-based data services operated by third parties, and any disruption in the operation of these services could harm our business.

~~We host some~~Some of our content services and business records ~~using~~are hosted by various cloud-based data services operated by third parties. Any failure or downtime in one of these services could affect a significant percentage of our customers. Although we control and have access to our servers and ~~all of~~ the components of our network that are located in our internal facilities and certain of our external data facilities, we do not control the operation of external facilities. The providers of our data management services have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one or more of our data management service providers is acquired, closes, suffers financial difficulty or is unable to meet our growing capacity needs, we may be required to transfer our data to other services, and we may incur significant costs and service interruptions in connection with doing so, which could harm our reputation with our customers and adversely affect our revenues and results of operations.

~~Adverse economic conditions could result in financial difficulties or bankruptcy for any of our suppliers, which could adversely affect our business and results of operations.~~

The current state of worldwide economic conditions and tight credit could present challenges to our suppliers, which could result in disruptions to our business, increase our costs, delay shipment of our products or delivery of services, and impair our ability to generate and recognize revenue. To address their own business challenges, our suppliers may increase prices, reduce the availability of credit, require deposits or advance payments or take other actions that may impose a burden on us.

They may also reduce production capacity, slow or delay delivery of products, face challenges meeting our specifications or otherwise fail to meet our requirements. In some cases, our suppliers may face bankruptcy. We may be required to identify, qualify, and engage new suppliers, which would require time and the attention of management. Any of these events could impair our ability to deliver our products and services to customers in a timely and cost-effective manner, cause us to breach our contractual commitments or result in the loss of customers.

Our media and entertainment business relies on licensing arrangements with content providers, and the loss of, or changes in, those arrangements could adversely affect our business.

We distribute premium news, sports, movies, and music content for commercial and leisure customers in the maritime, hotel, and retail markets. We ~~do not generate~~license this ~~content but instead license the~~ content from third parties on a non-exclusive ~~basis. We do not have~~basis without long-term license ~~agreements with any content provider. Accordingly, any~~agreements. Any content provider could terminate our ~~existing~~ arrangements ~~with little or no advance~~without notice or could adversely modify the terms of the arrangement, including ~~initiating potential~~ price increases. Further, the licenses we obtain are limited in scope, and any violation of the terms of a license could expose us to liability for copyright infringement. We pay license fees ~~that are~~ based in part on the revenue we generate from sublicenses, and our licensors generally have the right to audit our ~~records to determine whether we have paid all necessary license fees.~~records. Failure to pay required license fees could result in ~~any combination of~~ termination of our license rights, penalties orand damages. The loss of content could adversely affect the attractiveness of our media and entertainment offerings, which could in turn adversely affect our revenues. Any increase in the cost of content could reduce the profitability of these offerings.

Cybersecurity breaches could disrupt our operations, expose us to liability, damage our reputation, and require us to incur significant costs or otherwise adversely affect our financial results.

We are highly dependent on information technology networks and systems, including the Internet and third-party systems, to securely process, transmit and store electronic information, including personal information of our customers. We also retain sensitive data, including intellectual property, proprietary business information, personally identifiable information, credit card information, and usage data of our employees and customers on our computer networks and those of third parties. Although we take certain protective measures and endeavor to modify them as we believe circumstances warrant, invasive technologies and techniques continue to evolve rapidly, and increasingly sophisticated hacking organizations are targeting business systems. As a result, the computer systems, software and networks that we use are vulnerable to disruption, shutdown, unauthorized access, misuse, erasure, alteration, employee error, phishing, computer viruses, ransomware or other malicious code, and other events that could have a security impact. The protective measures on which we rely may be inadequate to prevent or detect cybersecurity breaches or determine the extent of any breach, and there can be no assurance that undetected breaches have not already occurred. If any of these events were to occur, they could disrupt our operations, distract our management, cause us to lose existing customers and fail to attract new customers, as well as subject us to regulatory actions, litigation, fines, damage to our reputation or competitive position, or orders or decrees requiring us to modify our business practices, any of which could have a material adverse effect on our financial position, results of operations or cash flows.

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Risks related to economic conditions and trade relations

Our revenues, results of operations and financial condition have been, and are expected to be, adversely impacted by economic turmoil, political events, macroeconomic conditions, credit tightening and associated declines in consumer and enterprise spending, and by the continuation of the COVID-19 pandemic, including related supply chain issues.

Economic conditions in the various geographic markets we serve have experienced significant turmoil over the last several years, including downturns related to the COVID-19 pandemic, slow economic activity, tight credit markets, inflation and deflation concerns, low consumer confidence, limited capital spending, adverse business conditions, war and refugee crises in the Middle East and Europe, terrorist attacks, the departure of the United Kingdom from the European Union, changes in government priorities, trade wars, a government shutdown, gridlock from a divided Congress, and liquidity concerns. These factors vary in intensity by region. Further, in response to the COVID-19 pandemic, governments have implemented, revised, withdrawn, reinstituted and expanded extensive safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures. Other organizations and individuals continue to take additional steps to avoid or reduce infection, including limiting travel and implementing work-at-home policies. These measures have significantly disrupted normal business operations both in and outside of affected areas, and complying with them has increased our costs. Travel restrictions and safety precautions have also limited our ability to service and install our equipment. Although we are unable to predict the ongoing impact of the pandemic, our mobile communications business in particular largely depends on travel. The operations of our KVH Media Group were particularly impacted due in part to the global reduction in travel resulting from the pandemic. We anticipate that, until the pandemic is contained, governmental, individual, business and other organizational measures to limit the spread of the virus will continue to adversely affect our revenues, results of operations and financial condition, perhaps materially. An outbreak of infection in any of our facilities could severely disrupt our operations. We continue to monitor government recommendations and have made modifications to our operations because of the pandemic. Our customers’ businesses could be further disrupted, and our revenues could continue to be adversely affected. Additionally, global economic disruptions like the COVID-19 pandemic have negatively impacted, and could continue to negatively impact, our supply chain and continue to cause delays in the delivery of raw materials, components and other supplies that we need to conduct our operations and generate revenue. The extent to which the pandemic will continue to impact our business will depend on many factors beyond our control, including the speed of contagion, the appearance of new variants, the development and implementation of effective preventative measures and vaccines, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

There can be no assurances that government programs to maintain or improve economic conditions, including stimulus and other aid programs intended to combat the impact of the pandemic, will be effective. As a result of these and other factors, customers and government entities could continue to slow or suspend spending on our products and services. We may also incur increased credit losses and need to further increase our allowance for doubtful accounts, which would have a negative impact on our earnings and financial condition.

We cannot predict the timing, duration, or ultimate impact of the turmoil in our markets. We expect our business to continue to be adversely impacted by this turmoil, particularly in relation to the COVID-19 pandemic, to varying degrees and for varying amounts of time, in all our geographic markets.

Changes in U.S. trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us.

The change in U.S. presidential administrations may alter the U.S.’s approach to international trade, which may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries. The U.S. has imposed tariffs on certain foreign goods and may increase tariffs or impose new ones, and certain foreign governments have retaliated and may continue to do so. We derive a majority of our revenues from international sales, which makes us especially vulnerable to increased tariffs. Changes in U.S. trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions the U.S. government or foreign governments will or will not take with respect to tariffs or other international trade agreements and policies. Current trade negotiations may fail, which may exacerbate these risks. Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.

Changes in foreign currency exchange rates may negatively affect our financial condition and results of operations.

Because of the scope of our foreign sales and foreign operations, we face significant exposure to movements in exchange rates for foreign currencies, particularly the pound sterling and the euro. For example, during 2020, the U.S. dollar strengthened

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slightly against certain foreign currencies, which adversely affected revenues reported in U.S. dollars and decreased the reported value of our assets in foreign countries.

We also have intragroup receivables and liabilities, such as loans, that can generate significant foreign currency effects. Changes in exchange rates, particularly the U.S. dollar against the pound sterling, could lead to the recognition of unrealized foreign exchange losses.

Moreover, certain of our products and services are sold internationally in U.S. dollars; if the U.S. dollar strengthens, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales. In addition, most of our financial obligations must be satisfied in U.S. dollars. Our exposures to changes in foreign currency exchange rates may change over time as our business practices evolve and could result in increased costs or reduced revenue and could adversely affect our cash flow. Changes in the relative values of currencies occur regularly and may have a significant impact on our operating results. We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can cost-effectively mitigate this exposure.

Risks related to government sales

Our financial performance is impacted by U.S. government contracts, which are subject to uncertain levels of funding and termination

We are unable to predict the impact on our business of Congressional gridlock, tax reform and government policies, including new expenditures to address the COVID-19 pandemic, which have increased already significant budget deficits and may lead to an overall reduction in federal spending on programs important to our business. A reduction in sales to the U.S. government or its contractors, whether due to lack of funding, for convenience or otherwise, or the occurrence of delays, could negatively impact our results of operations and financial condition.

The purchasing and delivery schedules and priorities of the U.S. military, government contractors and foreign governments are often unpredictable and subject to uncertain levels of funding and termination.

We have historically sold a substantial portion of our TACNAV and FOG products and services to the U.S. government and its contractors as well as foreign military and government customers, either directly or as a subcontractor to other contractors. These customers often use a competitive bidding process and have unique purchasing and delivery requirements, which often makes the timing of sales to these customers unpredictable. Factors that affect their purchasing and delivery decisions include increasing budgetary pressures, which may reduce or delay funding for military programs; changes in modernization plans for military equipment; changes in tactical navigation requirements; global conflicts impacting troop deployment, including troop withdrawals; priorities for current battlefield operations; new military and operational doctrines that affect military equipment needs; sales cycles that are long and difficult to predict; shifting response time and/or delays in the approval process associated with the export licenses we must obtain prior to the international shipment of certain of our military products; delays in military procurement schedules; and delays in the testing and acceptance of our products, including delays resulting from changes in customer specifications.

In addition, U.S. government contracts generally permit the government to terminate the contract without prior notice, at the government's convenience or for default based on performance. Government customers can also decline to exercise previously disclosed contract options. A termination arising out of our default could expose us to liability and adversely affect our ability to obtain future contracts and orders. Furthermore, on contracts for which we are a subcontractor and not the prime contractor, the U.S. government could terminate the prime contract for convenience or otherwise, irrespective of our performance as a subcontractor.

These factors periodically cause substantial fluctuations in sales of our TACNAV and FOG products and services. Fluctuating commercial sales of our inertial navigation products are also making it harder to predict our future revenues. For example, TACNAV product sales decreased$2.9 million, or 27%, from 2020 to 2021, while sales of our FOG products increased $3.0 million, or 12%, from 2020 and 2021. Investors should not expect that any periodically high rates of growth will be repeated in future quarters; given the substantial fluctuations in quarterly sales, we could similarly experience substantial reductions in revenue from time to time.

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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.

We derive a significant portion of our inertial navigation revenues from a small number of customers, many of whom are contractors for the U.S. government. KVH products sold to these customers are purchased through orders that can generally range in size from several hundred thousand dollars to several million dollars. For example, we received an order for $7.9 million of FOG products in August 2021, an order for $10.0 million of TACNAV products in July 2020, an order for $4.0 million of FOG products in October 2019 and an order for $6.7 million of TACNAV products and services in September 2019. Orders of this size are often unpredictable and difficult to replicate. As a result, the delay or cancellation of a single order could materially reduce our net sales and results of operations. We routinely experience repeated and unanticipated delays in defense orders, which make our revenues and operating results less predictable. Because our inertial navigation products typically have relatively higher product gross margins than our mobile connectivity products, the loss of an order for inertial navigation products could have a disproportionately adverse effect on our results of operations.

Risks related to our industry

Competition may limit our ability to sell our mobile connectivity products and services and inertial navigation products.

The mobile connectivity and inertial navigation markets are very competitive, and we expect this competition to intensify. We may not be able to compete successfully against current and future competitors, which could impair our ability to sell our products and services. For example, improvements in the performance of lower-cost gyros by competitors, as well as various industry certification requirements, could jeopardize sales of our FOGs and FOG-based systems. As our market share in the mobile satellite communication market has grown, competition has intensified significantly, most notably from companies that seek to compete primarily on price. These companies may continue to implement price reductions and discounts for both products and services, which have required us to reduce our prices or offer discounts in order to maintain or increase our market share. Some of our VSAT competitors have also leveraged partnerships amongst themselves in order to capture larger combined market share. Further, some of the companies that we depend on to supply us with capacity on satellite communications networks may vertically integrate by introducing their own products and services to compete with ours, which might motivate them to stop providing satellite network capacity to us, or to make it available only on less favorable terms.

In the marine market for satellite TV equipment, we compete primarily with Intellian, Cobham SATCOM and Raymarine (Intellian made). In the marine market for voice, fax, data, and Internet communications equipment, we compete primarily with Intellian and Cobham SATCOM. In the marine market for high-speed voice, fax, data, and Internet services, we compete primarily with Inmarsat, Marlink and Network Innovations. We also face competition from providers of low-speed data services, which include Inmarsat, Globalstar LP, and Iridium Satellite LLC. In the market for land mobile satellite TV equipment, we compete primarily with King Controls and Winegard Company. In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures and NewspaperDirect Inc. In the inertial navigation markets, we compete primarily with Honeywell International Inc., Northrop Grumman Corporation, Emcore and Safran. Many of our competitors are well-established companies that have substantially greater financial, managerial, technical, marketing, personnel and other resources than we do, which may help them to compete more effectively against us.

The emergence of a competing small maritime VSAT antenna and complementary service or other similar service could reduce the competitive advantage we believe we currently enjoy with our smaller TracPhone V-HTS series antennas and Ku-band mini-VSAT Broadband service, or with our TracPhone V11-HTS antenna and our C/Ku-band mini-VSAT Broadband service.

Our TracPhone V-HTS and V-IP systems offer customers a range of benefits due to their integrated design, hardware costs that are lower than existing maritime Ku-band VSAT systems, and broadband technology. We currently compete against companies that offer established maritime Ku-band VSAT service using, in some cases, antennas 1-meter in diameter or larger. While we are unaware of any company offering a 37-cm VSAT solution comparable to our TracPhone V3-HTS or V30, we are encountering regional competition from companies offering 60-cm VSAT systems and services, which are comparable in size to our TracPhone V7-HTS. Likewise, our TracPhone V11-HTS, at 1.1-meters in diameter, is approximately 85% smaller and lighter than competing C-band maritime VSAT systems, which use antennas in excess of 2.4-meters in diameter to provide similar global services. We are unaware of any competitor currently offering a similar size solution for global C-band coverage, but any introduction of such a product could adversely impact our success. In addition, other companies could replicate some of the distinguishing features of our TracPhone V-HTS series products, which could potentially reduce the appeal of our solution, increase price competition, and adversely affect sales. We compete against Inmarsat's Fleet Xpress service, a global Ka-band mobile VSAT service that Inmarsat claims is faster and has a lower price per megabit than existing Ku-band services. This

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service may continue to adversely impact sales of our mini-VSAT Broadband service and related equipment. Our arrangement to use the IntelsatOne Flex service for our HTS network is not exclusive, and competitors’ use of this service could also adversely impact sales. Moreover, consumers may choose other services such as FleetBroadband or Iridium OpenPort for their service coverage at potentially lower hardware costs despite higher service costs and slower data rates.

Any failure to maintain and expand our third-party distribution relationships may limit our ability to penetrate markets for mobile connectivity products and services.

We market and sell our mobile connectivity products and services through an international network of independent retailers, chain stores and distributors, as well as to manufacturers of marine vessels, recreational vehicles and buses. ~~Many~~Most of our distributors are also responsible for providing onsite support and installation for our products, which requires our distributors to employ highly skilled workers and maintain facilities in locations convenient to our customers, such as at maritime ports. We also expect our distributors to assist us in expanding internationally. Some of our distributionthese relationships are new, and our new distributors may not be successful in marketing and selling our products and services. In addition, our distribution partners do not have exclusive relationships with us and may sell products of other companies, includingnon-exclusive, allowing these third parties to market competing ~~products, and are generally not required to purchase minimum quantities of our~~ products. Our competitors may be able to cause our current or potential distributors to favor their services over ours, either through financial incentives, technological innovation, by offering a broader array of services to these service providers or otherwise, which could reduce the effectiveness of our use of these distributors. If we fail to maintain relationships with our current distributors, fail to develop relationships with new distributors in new and existing markets, or manage, train, or provide appropriate incentives to our existing distributors, or if our distributors are not successful in their sales efforts, sales of our products and services may decline and our operating results could be harmed.

We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our products on time or at expected cost.

We obtain many key components for our products from third-party suppliers, and in some cases we use a single or a limited number of suppliers. Any interruption in supply could impair our ability to deliver our products until we identify and qualify a new source of supply, which could take several weeks, months or longer and could increase our costs significantly. For example, the global chip shortage and supply chain constraints resulting from the COVID-19 pandemic have impacted our ability to deliver products in a timely manner and have increased our cost of sales due to rising prices for materials. In the fourth quarter of 2021, we estimate that raw material costs exceeded our expectations by approximately $0.4 million, and that orders for approximately $2.0 million could not be filled due to component shortages. We may not be able to pass along any or all of these cost increases to our customers, and customers may not wait for our products to become available. These disruptions in our supply chain could continue or worsen, which could continue to delay delivery of our products and services and adversely affect our revenue and results of operations in future periods. Suppliers might change or discontinue key components, which could require us to modify our product designs. Regulations requiring government contractors to implement processes to avoid counterfeit parts may require us to find new sources of materials or components if a supplier cannot meet those requirements. In general, we do not have written long-term supply agreements with our suppliers but instead buy components through purchase orders, which expose us to potential price increases and termination of supply without notice or recourse. We generally do not carry significant inventories of product components, which could magnify the impact of the loss of a supplier. If we must use a new source of supply, we could face unexpected manufacturing difficulties and loss of product performance or reliability. In addition, from time to time, lead times for certain components can increase significantly due to imbalances in overall market supply and demand. This, in turn, could limit our ability to satisfy demand for our products on a timely basis and could result in the cancellation of customer orders. Further, adverse economic conditions, including conditions caused by the current COVID-19 pandemic, could result in financial difficulties or bankruptcy for any of our suppliers, which could adversely affect our business and results of operations.

We may source more materials and components from international suppliers, which could disrupt our business.

Although we have historically manufactured and sourced raw materials for the majority of our products domestically, in order for us to compete with lower priced competing products while also improving our profitability, in some instances we have found it desirable to source raw materials and manufactured components and assemblies from Europe, Asia, and South and North America. Reliance on foreign manufacturing and/or raw material supply has lengthened our supply chain and increased the risk that a disruption in that supply chain could have a material adverse effect on our operations and financial performance.

Changes in the competitive environment, customer demand, supply chain issues, and the transition to new products may require inventory write-downs.

From time to time, we have recorded significant inventory charges and/or inventory write-offs as a result of substantial declines in customer demand. For example, in 2019, we recorded a $2.3 million inventory reserve relating to our TracPhone V-IP products as we decided to no longer promote sales of these products but instead to focus our efforts on migrating customers to our HTS network and products. Market or competitive changes could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors.

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Risks related to intellectual property

We are devoting significant resources to research and development efforts that may be unsuccessful. If we are unable to improve our existing mobile connectivity and inertial navigation products and services and develop new, innovative products and services, our sales and market share may decline.

The markets for mobile connectivity products and services and inertial navigation products and services are each characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving industry standards. For example, we now compete with Inmarsat's Fleet Xpress satellite communications products and services. If we fail to make innovations in our existing products and services and reduce the costs of our products and services in a timely way, our market share may decline. For example, the introductions of our TracVision TV-series antennas in 2014 occurred later than we had anticipated, which we believe led certain customers to purchase competing products. Products or services using new technologies, or emerging industry standards, could render our products and services obsolete. If our competitors successfully introduce new or enhanced products or services that outperform our products or services, or are perceived as doing so, we may be unable to compete successfully in the markets affected by these changes.

Research and development in our industry is inherently complex and uncertain, and our current and anticipated research and development projects may not achieve the results we seek. The financial resources that we can devote to our research and development efforts may be insufficient to achieve our goals. Our efforts may not result in any viable products or may result in products whose performance, features, price or availability may not be attractive to customers or that we cannot manufacture and sell profitably.

Our business may suffer if we cannot protect our proprietary technology.

Our ability to compete depends significantly upon our patents, copyrights, source code, and other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents will eventually expire and could be challenged, invalidated or circumvented. Customers or others with access to our proprietary or licensed media content could copy that content without permission or otherwise violate the terms of our customer agreements, which would adversely affect our revenues and could impair our relationships with content providers. In addition, the laws of some foreign countries do not protect our proprietary technology to the same extent as the laws of the United States, which could increase the likelihood of misappropriation. Any misappropriation of our technology or the development of competing technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, distract the attention of management, and there can be no assurance that we would prevail.

Also, we have delivered certain technical data and information to the U.S. government under procurement contracts, and it may have unlimited rights to use that technical data and information. There can be no assurance that the U.S. government will not authorize others to use that data and information to compete with us.

Claims by others that we infringe their intellectual property rights could harm our business and financial condition.

Our industries are characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. We cannot be certain that our products do not and will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others.

From time to time we have faced claims by third parties that our products or technology infringe their patents or other intellectual property rights, and we may face similar claims in the future. For example, we were sued for patent infringement in 2015, and we settled this claim in January 2016 with a payment of cash. Any claim of infringement could cause us to incur substantial costs defending against or settling the claim, even if the claim is invalid, and could distract the attention of our management. If any of our products are found to violate third-party proprietary rights, we may be required to pay substantial damages. In addition, we may be required to re-engineer our products or obtain licenses from third parties to continue to offer our products. Any efforts to re-engineer our products or obtain licenses on commercially reasonable terms may not be successful, which would prevent us from selling our products, and, in any case, could substantially increase our costs and have a material adverse effect on our business, financial condition and results of operations.

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Risks related to indebtedness

Our credit facility contains financial and restrictive covenants that we may not satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness and limit our ability to borrow additional funds. The credit facility also imposes restrictions that may limit our ability to pursue business opportunities.

Although no amounts were outstanding under the agreements governing our secured credit facility as of December 31, 2021, the agreements subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to a maximum consolidated leverage ratio and a minimum trailing four-quarter consolidated adjusted EBITDA of $3.0 million and covenants requiring the mandatory prepayment of amounts outstanding under the revolver under specified circumstances. The agreements also subject us to various restrictions on our ability to engage in certain activities, such as raising capital or acquiring businesses. These restrictions may limit or restrict our cash flow and our ability to pursue business opportunities or strategies that we would otherwise consider to be in our best interests.

Risks related to government regulation

Our international operations complicate our business ~~operations expose~~and require us to ~~a number of difficulties in coordinating our activities abroad and in dealing~~comply with multiple regulatory environments.

Historically, sales to customers outside the United States have accounted for a significant portion of our net sales. We derived ~~62%, 63%,~~60% and ~~67%~~64% of our revenues in ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively, from sales to ~~customers outside the United States.~~these foreign customers. We have foreign ~~sales~~ offices in Denmark, the United Kingdom, Singapore, ~~Hong Kong,~~ Japan, Norway, Cyprus and the Philippines, as well as a subsidiary in Brazil that manages local sales. ~~However, aside from these international sales offices,~~Nonetheless, substantially all of our personnel and operations ~~particularly~~ for both our mobile connectivity equipment business and our inertial navigation business are located in the United States. Our limited international operations ~~in foreign countries~~ may impair our ability to compete successfully in international markets and to meet the service and support needs of our customers in countries where we have little to no infrastructure. We ~~are subject to~~face a number of risks associated with our international business activities, which may increase our costs and require significant management attention. These risks ~~include:~~

include restrictions on international travel, which may restrict our ability to grow and service our business; tariffs; sanctions or other trade restrictions that preclude or restrict doing business with particular foreign governments, companies or individuals; technical challenges we may face in adapting our mobile connectivity products to function with different satellite services and technology in use in various regions around the world;

satisfaction of international regulatory requirements and delays and costs associated with procurement of any necessary licenses or permits;

the potential unavailability of content licenses covering international waters and foreign locations;

restrictions on the sale of certain inertial navigation products to foreign military and government customers;

increased costs of providing customer support in multiple languages;

increased costs of managing operations that are international in scope;

potentially adverse tax consequences, including restrictions on the repatriation of earnings;

protectionist laws and business practices that favor local competitors, which could slow our growth in international markets;

potentially longer sales ~~cycles, which could slow our revenue growth from international sales;~~

cycles; potentially longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and

economic and political instability in some international markets.

We could incur additional legal compliance costs associated with our international operations and could become subject to legal penalties if we do not comply with certain regulations.

As a result of our international operations, we are subject to a number of legal requirements, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and the customs, export, trade sanctions and anti-boycott laws of the United States, including those administered by the U.S. Customs and Border Protection, the Bureau of Industry and Security, the Department of Commerce, the Department of State, and the Office of Foreign Assets Control of the Treasury Department, as well as those of other nations in which we do business. In addition, ~~the governments of~~ many of the countries where our customers use our products and services ~~maintain~~have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in ~~the country’s~~ territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of voice over Internet services using such equipment, and, in some cases, the reception of certain video programming services. These laws and regulations are continually changing, ~~continuously, and~~making compliance ~~with these laws and regulations is~~ complex. We incur significant costs identifying and maintaining compliance with applicable licensing and regulatory requirements. In addition, our training and compliance programs and our other internal control policies may be insufficient to protect us from acts committed by our employees, agents or third-party contractors. Any violation of these requirements by us or our employees, agents or third-party contractors may subject us to significant criminal and civil liability.

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Exports of certain inertial navigation products are subject to the U.S. Export Administration Regulations and the International Traffic in Arms Regulations and require a license from the U.S. Department of State prior to shipment.

We must comply with the United States Export Administration Regulations and the International Traffic in Arms Regulations, or ITAR. Certain of our products have military or strategic applications and are on the munitions list of the ITAR and require an individual validated license in order to be exported to certain jurisdictions. Any changes in export regulations or reclassifications of our products may further restrict the export of our products, and we may cease to be able to procure export licenses for our products under existing regulations. The length of time required by the licensing process can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue. Any restriction on the export of a product line or any amount of our products could cause a significant reduction in net sales.

We are subject to FCC rules and regulations, and any non-compliance could subject us to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our ~~services.~~services

The satellite communications industry is regulated by the Federal Communications Commission in the United States and, as a result, we are subject to existing and potential FCC regulations relating to privacy, contributions to the Universal Service Fund, or USF, and other requirements. If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, substantial fines, penalties, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services. Any enforcement action by the FCC, which may be a public process, could hurt our reputation in the industry, possibly impair our ability to sell our services to customers and could harm our business and results of operations.

Reform of federal and state USF programs could increase the cost of our service to our customers, diminishing or eliminating our pricing advantage.

The FCC has been considering reform or other modifications to its USF ~~program. The~~program, which, if implemented, could change the way we calculate our contribution to ~~USF may change if the FCC engages in reform or adopts other modifications.~~USF. In April 2012, the FCC released a ~~Further Notice of Proposed Rulemaking~~proposal to consider reforms to the manner in which companies like us contribute to the federal USF program. In general, the ~~Further Notice of Proposed Rulemaking~~proposal indicates that the FCC is considering changes to the companies that should contribute, how contributions should be assessed, and methods to improve the administration of the system. We cannot predict the outcome of this proceeding or its impact on our ~~business at this time.~~business. The changes in the ~~leadership of the~~ U.S. ~~Government resulting from the federal election in 2016~~administration may renew interest in completing this proceeding.

Should the FCC adopt new contribution mechanisms or otherwise modify contribution obligations that increase our contribution burden, we will either need to raise the amount we currently collect from our customers to cover this obligation or absorb the costs, which would reduce our profit margins. The attractiveness of our services may also be reduced as compared to the services of our competitors that do not appear to contribute to USF, or do not do so to the same extent that we do.

Privacy concerns and domestic or foreign laws and regulations may reduce demand for our services, increase our costs and harm our business.

Our company and our customers can ~~potentially~~ use our services to collect, use and store personal, confidential and sensitive information ~~including personally identifiable information or other information treated as confidential,~~ regarding the content and manner of usage of our services by them, their employees and maritime crews. Federal, state and foreign governments ~~and agencies~~ have adopted and are ~~considering adopting, or may adopt~~proposing new and more stringent laws and regulations regarding the collection, use, storage and ~~disclosure~~transfer of ~~such~~ information, ~~obtained from consumers and individuals,~~ such as the European Union’s ~~new~~ General Data Protection Regulation ~~which takes effect in May 2018.~~(“GDPR”). The costs of compliance with, and other burdens imposed by, such laws and regulations ~~that are applicable to us and the operations of our customers~~ may limit the use and adoption of our services and reduce overall ~~demand, and any non-compliance~~demand. Non-compliance with these laws and regulations could lead to significant remediation expenses, fines, penalties or other ~~regulatory~~ liabilities, such as orders or consent decrees ~~forcing us~~that require modifications to ~~modify~~ our privacy practices, as well as reputational damage or third-party lawsuits seeking damages or other relief. For example, the GDPR imposes a strict data protection compliance regime with penalties of up to the greater of 2%-4% of worldwide revenue or €10-20 million.

Domestic and international legislative and regulatory initiatives may harm our ability, and the ability of our customers, to process, handle, store, use and transmit information, ~~including demographic and personally identifiable information or other information treated as confidential, regarding individual users of the services,~~ which could reduce demand for some of our services, increase our costs and force us to change our business practices. These laws and regulations are still evolving, ~~and~~ are likely to be in flux and may be subject to uncertain interpretation for the foreseeable future. Our business also could be harmed if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent from country to country ~~and~~or inconsistent with our current policies and practices or those of our customers. In addition, foreign data protection, privacy, and consumer protection laws and regulations are often more stringent than those in the United States. In particular, the European Union and its member states traditionally

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We may have ~~imposed greater legal obligations on companies that collect and process personal data.~~

~~Acquisitions may disrupt our operations or adversely affect our results.~~

We evaluate strategic acquisition opportunities to acquire other businesses as they arise, such as our acquisitions of Videotel in July 2014 and KVH Media Group in May 2013. The expenses we incur evaluating and pursuing these and other such acquisitions could have a material adverse effect on our results of operations. For example, during 2014, we incurred significant expenses related to the acquisition of Videotel. If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own. Moreover, we may be unable to realize the strategic, financial, operational and other benefits we anticipate from any acquisition, and any acquisition may increase our overall operating expenses. Competition for acquisition opportunities could increase the price we pay for businesses we acquire and could reduce the number of potential acquisition targets. Further, our approach to acquisitions may involve a number of special financial and business risks, such as:

~~entry into new and unfamiliar lines of business or markets, which may present challenges or risks that we did not anticipate;~~

~~entry into new or unfamiliar geographic regions, including~~ exposure to additional tax liabilities, which could negatively impact our income tax expense, net income and ~~regulatory regimes;~~cash flow.

~~increased expenses associated with~~

We are subject to income and other taxes in the ~~amortization of acquired intangible assets;~~

~~increased exposure to fluctuations~~U.S. and the foreign jurisdictions in ~~foreign currency exchange rates;~~

~~charges related to any potential acquisition from~~ which we ~~may withdraw;~~

~~diversion~~operate. The determination of our ~~management’s time, attention,~~worldwide provision for income taxes and ~~resources;~~

~~loss of key acquired personnel;~~

~~increased costs to improve or coordinate managerial, operational, financial,~~current and ~~administrative systems, including compliance with~~deferred tax assets and liabilities requires significant judgment and estimation. In the ~~Sarbanes-Oxley Act of 2002;~~

~~dilutive issuances of equity securities;~~

~~the assumption of legal liabilities; and~~

~~losses arising from impairment charges associated with goodwill or intangible assets.~~

For example, we incurred additional expenses to implement internal control over financial reporting appropriate for a public company at Videotel and KVH Media Group, which previously operated as private companies not subject to U.S. generally accepted accounting principles.

~~If we cannot effectively manage changes in our rate of growth, our business may suffer.~~

We have previously expanded our operations to pursue existing and potential market opportunities, and we are continuing to expand our international operations. For example, we expanded our service offerings through the acquisitions of Videotel in 2014 and KVH Media Group in 2013. This growth placed a strain on our personnel, management, financial and other resources and increased our operating expenses. If any portionordinary course of our business, ~~grows more rapidly than~~there are many transactions and calculations where the ultimate tax determination is uncertain. Although we ~~anticipate~~believe our tax estimates are reasonable, the ultimate tax outcome may differ materially from our estimates and may materially affect our income tax benefit or expense, net loss or income, and cash flows in the period in which such determination is made. As of December 31, 2021, we ~~fail~~had gross uncertain tax positions of $1.9 million, consisting of a $1.3 million reduction to ~~manage that growth properly, we may incur unnecessary expenses,~~deferred tax assets and a $0.6 million liability for uncertain tax positions.

Deferred tax assets are recognized for the expected future tax consequences of temporary differences between the carrying amount for financial reporting purposes and the ~~efficiency~~tax bases of assets and liabilities, and for net operating losses and tax credit carry forwards. We have historically recorded valuation allowances to reduce our ~~operations may decline.~~deferred tax assets to estimated realizable value. We review our deferred tax assets and valuation allowance requirements quarterly. If we are unable to ~~adjust~~demonstrate that it is more likely than not that we will not be able to generate sufficient future taxable income to realize the net carrying value of deferred tax assets, we will record a valuation allowance to reduce the deferred tax assets to estimated realizable value, which could result in a material income tax charge. As part of our ~~operating expenses on a timely basis in response to changes in revenue cycles, our~~review, we consider positive and negative evidence, including cumulative results of ~~operations may be harmed. To manage changes in our rate of growth effectively, we must, among other things:~~recent years.

~~match our manufacturing facilities and capacity~~Risks related to ~~demand for our products and services in a timely manner;~~

~~secure appropriate satellite capacity to match changes in demand for airtime services in a timely manner;~~

~~successfully attract, train, motivate and manage appropriate numbers of employees for manufacturing, sales, marketing and customer support activities;~~

~~effectively manage our inventory and working capital;~~

~~maintain the efficiencies within our operating, administrative, financial and accounting systems; and~~

~~ensure that our procedures and internal controls are revised and updated to remain appropriate for the size and scale of our business operations.~~

~~We may be unable to hire and retain the skilled personnel we need to expand our operations.~~

To meet our growth objectives, we must attract and retain highly skilled technical, operational, managerial and sales and marketing personnel. If we fail to attract and retain the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales. We face significant competition for these skilled professionals from other companies, research and academic institutions, government entities and other organizations.

~~Our success depends on the services of our executive officers.~~

Our future success depends to a significant degree on the skills and efforts of Martin Kits van Heyningen, our co-founder, President, Chief Executive Officer, and Chairman of the Board. If we lost the services of Mr. Kits van Heyningen, our business and operating results could be seriously harmed. We also depend on the ability of our other executive officers to work effectively as a team. The loss of one or more of our executive officers could impair our ability to manage our business effectively.

~~Our business may suffer if we cannot protect our proprietary technology.~~

Our ability to compete depends significantly upon our patents, copyrights, source code, and other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents could expire or be challenged, invalidated or circumvented, and the rights we have under our patents could provide no competitive advantages. Existing trade secret, copyright, and trademark laws offer only limited protection. Customers or others with access to our proprietary or licensed media content could copy that content without permission or otherwise violate the terms of our customer agreements, which would adversely affect our revenues and could impair our relationships with content providers. In addition, the laws of some foreign countries do not protect our proprietary technology to the same extent as the laws of the United States, which could increase the likelihood of misappropriation. Furthermore, other companies could independently develop similar or superior technology without violating our intellectual property rights. Any misappropriation of our technology or the development of competing technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales.

If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, distract the attention of management, and there can be no assurance that we would prevail.

~~Claims by others that we infringe their intellectual property rights could harm our business and financial condition.~~

We do not generally conduct exhaustive patent searches to determine whether the technology used in our products infringes patents held by third parties. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies.

From time to time we have faced claims by third parties that our products or technology infringe their patents or other intellectual property rights, and we may face similar claims in the future. For example, we were sued for patent infringement in 2015, and we settled this claim in January 2016 with a payment of cash to Advanced Media Network. Any claim of infringement could cause us to incur substantial costs defending against or settling the claim, even if the claim is invalid, and could distract the attention of our management. If any of our products are found to violate third-party proprietary rights, we may be required to pay substantial damages. In addition, we may be required to re-engineer our products or obtain licenses from third parties to continue to offer our products. Any efforts to re-engineer our products or obtain licenses on commercially reasonable terms may not be successful, which would prevent us from selling our products, and, in any case, could substantially increase our costs and have a material adverse effect on our business, financial condition and results of operations.

~~Cybersecurity breaches could disrupt our operations, expose us to liability, damage our reputation, and require us to incur significant costs or otherwise adversely affect our financial results.~~

We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information, including personal information of our customers. We also retain sensitive data, including intellectual property, proprietary business information, personally identifiable information, credit card information, and usage data of our employees and customers on our computer networks. Although we take certain protective measures and endeavor to modify them as we believe circumstances warrant, invasive technologies and techniques continue to evolve rapidly, and our computer systems, software and networks are vulnerable to disruption, shutdown, unauthorized access, misuse, erasure, alteration, employee error, phishing, computer viruses or other malicious code, and other events that could have a security impact. Any security breach may compromise information stored on our networks and may result in significant data losses or theft of our, our customers', our business partners' or our employees' sensitive information. Public reports suggest that cybersecurity incidents are happening more often and with increasingly severe consequences. We may be required to expend substantial additional resources to augment our efforts to address potential cybersecurity risks, which could adversely affect our results of operations.

If any of these events were to occur, they could disrupt our operations, distract our management, cause us to lose existing customers and fail to attract new customers, as well as subject us to regulatory actions, litigation, fines, damage to our reputation or competitive position, or orders or decrees requiring us to modify our business practices, any of which could have a material adverse effect on our financial position, results of operations or cash flows.

~~Our media business may expose us to claims regarding our media content.~~

Our media business produces training films and eLearning computer-based training courses, including programs on safety, maintenance, security and regulatory compliance, and also provides commercially licensed maritime charting and navigation information. Our efforts to ensure the accuracy and reliability of the content we provide could be inadequate, and we could face claims of liability based on this content. Contractual and other measures we take to limit our liability may be inadequate to protect us from these claims. Although we have certain rights of indemnification from third parties for certain portions of the content we provide to customers, it may be time-consuming and expensive to enforce our rights, and the third parties may lack the resources to fulfill their obligations to us. Further, our insurance coverage is subject to deductibles, exclusions and limitations of coverage, and there can be no assurance that our insurance coverage would be available to satisfy any claims against us. Any such claims may have a material adverse effect on our financial condition and results of operations.

~~Fluctuations in our quarterly net sales and results of operations could depress the market price of~~owning our common ~~stock.~~stock

We have at times experienced significant fluctuations in our net sales and results of operations from one quarter to the next. Our future net sales and results of operations could vary significantly from quarter to quarter due to a number of factors, many of which are outside our control. Accordingly, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. It is possible that our net sales or results of operations in a quarter will fall below the expectations of securities analysts or investors. If this occurs, the market price of our common stock could fall significantly. Our results of operations in any quarter can fluctuate for many reasons, including:

~~changes in demand for our mobile connectivity products and services and inertial navigation products and services, including as a result of our AgilePlans;~~

~~the timing and size of individual orders from military customers, which may be delayed or canceled for various reasons;~~

~~the mix of products and services we sell, including the mix of fixed rate and metered contracts for airtime services;~~

~~our ability to manufacture, test and deliver products in a timely and cost-effective manner, including the availability and timely delivery of components and subassemblies from our suppliers;~~

~~our success in winning competitions for orders;~~

~~the timing of new product introductions by us or our competitors;~~

~~the scope of our investments in research and development;~~

~~expenses incurred in pursuing acquisitions;~~

~~expenses incurred in expanding, maintaining, or improving our mini-VSAT Broadband network;~~

~~market and competitive pricing pressures;~~

~~unanticipated charges or expenses, such as increases in warranty claims;~~

~~general economic climate; and~~

~~seasonality of pleasure boat and recreational vehicle usage.~~

In 2018, in light of our current investments in research and development and the establishment and expansion of our new HTS network, we expect that our operating expenses in each quarter of 2018 could increase significantly over the amount we incurred in the comparable quarter of 2017.

In late 2015, we introduced new rate plans for our airtime services, including various rate plans that offer higher data speeds with usage caps. Under these rate plans, customers receive a base level of service for a fixed fee and pay additional fees for usage over the base level. Accordingly, the revenue we generate from a customer may vary with that customer's usage. We are unable to predict accurately the extent to which customers will transition to particular metered rate plans or the degree to which usage, and therefore our revenue, may vary from quarter to quarter.

A large portion of our expenses, including expenses for network infrastructure, facilities, equipment, and personnel, are relatively fixed. Accordingly, if our net sales decline or do not grow as much or as quickly as we anticipate, we might be unable to maintain or improve our operating margins. Any failure to achieve anticipated net sales could therefore significantly harm our operating results for a particular fiscal period.

The market price of our common stock may be volatile.

Our stock price has historically been volatile. During the period from January 1, ~~2015~~2018 to December 31, ~~2017,~~2021, the trading price of our common stock ranged from ~~$7.31~~$6.36 to ~~$15.79.~~$15.29. Many factors may cause the market price of our common stock to fluctuate, ~~including:~~

including variations in our quarterly results of operations;

the introduction of new products and services by us or our competitors;

changing needs of military customers;

changes in estimates of our performance or recommendations by securities analysts;

the hiring or departure of key personnel;

acquisitions or strategic alliances involving us or our competitors;

market conditions in our industries; and

the global macroeconomic and geopolitical environment.

In addition, the stock market can experience extreme price and volume fluctuations. Major stock market indices experienced dramatic declines in 2008, in the first quarter of 2009 and in January 2016. These fluctuations are often unrelated to the operating performance of particular companies. These broad Broad market fluctuations may adversely affect the market price of our common stock. When the market price of a company’s stock drops significantly, stockholders often institute securities litigation against that company. Any such litigation could cause us to incur significant expenses defending against the claim, divert the time and attention of our management and result in significant damages.

~~We may have exposure to additional tax liabilities, which could negatively impact our income tax expense, net income and cash flow.~~

We are subject to income taxes and other taxes in both the U.S. and the foreign jurisdictions in which we currently operate. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires significant judgment and estimation. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to regular review and audit by both domestic and foreign tax authorities and to the prospective and retrospective effects of changing tax regulations and legislation. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax benefit or expense, net loss or income, and cash flows in the period in which such determination is made. As of December 31, 2017, we had liabilities for uncertain tax positions of $1.6 million.

Deferred tax assets are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. In certain instances, a valuation allowance may be recorded to reduce certain deferred tax assets to estimated realizable value. We review our deferred tax assets and valuation allowance requirements on a quarterly basis. If, during our quarterly reviews of our deferred tax assets, we determine that it is more likely than not that we will not be able to generate sufficient future taxable income to realize the net carrying value of deferred tax assets, we will record a valuation allowance to reduce the tax assets to estimated realizable value, which could result in a material income tax charge. As part of our review, we consider positive and negative evidence, including cumulative results of recent years. As of December 31, 2017, we had recorded $16.0 million of valuation allowances against our gross deferred tax assets of $17.8 million.

~~Our effective tax rate fluctuates, and we may incur obligations in tax jurisdictions in excess of accrued amounts.~~

As a global company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each jurisdiction. Our effective tax rate, however, may be different than experienced in the past due to numerous factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, changes in accounting for income taxes and changes in tax laws, including the 2017 Tax Act. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations.

In addition, our inability to secure or sustain acceptable arrangements with tax authorities and future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.

The 2017 Tax Cuts and Jobs Act (the "Tax Act") has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income or "GILTI". These changes are effective beginning in 2018.

The 2017 Tax Act also includes the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings. The Transition Toll Tax may be paid over an eight-year period, starting in 2018, and will not accrue interest.

We have made a preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities as of December 31, 2017. The preliminary estimate is subject to change as we finalize our analysis and as interpretations of the provisions of the 2017 Tax Act continue to develop. The final determination of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates, which could have a material adverse effect on our business, results of operations or financial conditions.

~~Changes in the competitive environment or supply chain issues may require inventory write-downs.~~

From time to time, we have recorded significant inventory charges and/or inventory write-offs as a result of substantial declines in customer demand. Market or competitive changes could lead to future charges for excess or obsolete inventory, especially if we are unable to appropriately adjust the supply of material from our vendors.

~~If goodwill or other intangible assets that we have recorded in connection with our acquisitions of other businesses become impaired, we could have to take significant charges against earnings.~~

As a result of our acquisitions, we have recorded, and may continue to record, a significant amount of goodwill and other intangible assets. Under current accounting guidelines, we must assess, at least annually and potentially more frequently, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in additional charges against earnings, which could materially reduce our reported results of operations in future periods.

~~Our charter and by-laws and Delaware law may deter takeovers.~~

Our certificate of incorporation, by-laws and Delaware law contain provisions that could have an anti-takeover effect and discourage, delay or prevent a change in control or an acquisition that many stockholders may find attractive. These provisions may also discourage proxy contests and make it more difficult for our stockholders to take some corporate actions, including the election of directors. These provisions relate to:

~~the ability of our Board of Directors to issue preferred stock, and determine its terms, without a stockholder vote;~~

~~the classification of our Board of Directors, which effectively prevents stockholders from electing a majority of the directors at any one annual meeting of stockholders;~~

~~the limitation that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of our shares of capital stock entitled to vote;~~

~~the prohibition against stockholder actions by written consent;~~

~~the inability of stockholders to call a special meeting of stockholders; and~~

~~advance notice requirements for stockholder proposals and director nominations.~~



ITEM 1B.			Unresolved Staff Comments

None.



ITEM 2.			Properties

The following table provides information about our principal facilities as of December 31, ~~2017.~~

2021.

Location

Type

Segment

Principal Uses

Approximate

Square

Footage

Ownership

Lease

Expiration

Middletown,
Rhode Island

Office

Both

Corporate headquarters, research and development, sales and service, marketing and administration

75,000

Owned

—

Middletown,
Rhode Island

Plant and warehouse

Manufacturing and warehousing (mobile connectivity products)

75,300

Owned

—

Tinley Park, Illinois

Plant and warehouse

Manufacturing, warehousing, research and development (inertial navigation products)

101,000

Owned

—

~~Horten, Norway~~

~~Office~~

~~Research and development, sales, marketing and support~~

~~4,400~~

~~Leased~~

~~December 2018~~

~~Singapore~~

~~Office~~

~~Asian headquarters and sales office~~

~~3,444~~

~~Leased~~

~~April~~

~~2022~~

Kokkedal, Denmark

Office and warehouse

European headquarters, sales, marketing and support

11,000

Leased

Upon 3 month notice

~~Leeds, UK~~

~~Media Lab~~

~~Audio/video production, sales and support~~

~~2,608~~

~~Leased~~

~~January~~

~~2020~~

~~Liverpool, UK~~

~~Office~~

~~Maritime sales, news production, marketing and support~~

~~4,692~~

~~Leased~~

~~June~~

~~2023~~

~~London, UK~~

~~Office~~

~~Sales, production, dispatch, and general office~~

~~5,654~~

~~Leased~~

~~August~~

~~2019~~

~~Leeds, UK~~

~~Office~~

~~Audio/video production, Media distribution, sales and administration~~

~~3,628~~

~~Leased~~

~~January~~

~~2020~~

~~Manila, Philippines~~

~~Office~~

~~News production, inside sales, support~~

~~7,440~~

~~Leased~~

~~September 2021~~

~~New Delhi, India~~

~~Office~~

~~News production~~

~~1,800~~

~~Leased~~

~~November 2025~~

Both- mobile connectivity segment and inertial navigation segment

MC- mobile connectivity segment

IN- inertial navigation segment

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ITEM 3.			Legal Proceedings

From time to time, we are involved in litigation incidental to the conduct of our business. In the ordinary course of business, we are a party to inquiries, legal proceedings and claims including, from time to time, disagreements with vendors and customers.



ITEM 4.			Mine Safety Disclosures

Not applicable.

PART II



ITEM 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. Our common stock trades on the NASDAQ Global Select Market under the symbol “KVHI.” ~~The following table provides, for the periods indicated, the high and low sale prices for our common stock as reported on the NASDAQ Global Select Market.~~

High Low
Year Ended December 31, 2017:
First quarter $ 11.90
$ 7.70
Second quarter 10.20
7.65
Third quarter 12.22
9.10
Fourth quarter 12.65
9.60
Year Ended December 31, 2016:
First quarter $ 9.88
$ 8.00
Second quarter 10.20
7.51
Third quarter 9.24
7.31
Fourth quarter 12.75
7.50

Stockholders. As of ~~February 28, 2018~~,March 1, 2022, we had 7065 holders of record of our common stock. This number does not include stockholders for whom shares were held inby a nominee or in “street” name.

Dividends. We have never declared or paid cash dividends on our capital stock, and we have no plan to pay any cash dividends in the foreseeable future. We currently intend to retain any future earnings to finance our operations and future growth. ~~In addition, the terms of our senior credit agreement, which we entered into in July 2014, place restrictions on our ability to pay cash dividends on our common stock.~~

~~Issuer Purchases of Equity Securities.~~ On November 26, 2008, our Board of Directors authorized a program to repurchase up to one million shares of our common stock. The repurchase program is funded using our existing cash, cash equivalents, marketable securities, and future cash flows. Under the repurchase program, at management’s discretion, we may repurchase shares on the open market from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement. The timing of such repurchases depends on availability of shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements. The program may be modified, suspended, or terminated at any time without prior notice. The repurchase program has no expiration date. There were no other repurchase programs outstanding during the year ended ~~December 31, 2017, and no repurchase programs expired during the period.~~

~~We did not repurchase any shares of our common stock in open market transactions during the years ended December 31, 2017, 2016, and 2015.~~

During the year ended December 31, 2017, 43,000 vested restricted shares were surrendered in satisfaction of tax withholding obligations at an average price of $9.08 per share. There were no shares repurchased in satisfaction of tax withholding obligations during the fourth quarter ended December 31, 2017.

~~STOCK PERFORMANCE GRAPH~~

The following graph compares the performance of our cumulative stockholder return with that of the NASDAQ Composite Index, a broad equity market index, and the NASDAQ Telecommunications Index, a published industry index. The cumulative stockholder returns for shares of our common stock and for the market indices are calculated assuming $100 was invested on December 31, 2012. We paid no cash dividends during the periods shown. The performance of the market indices is shown on a total return (dividends reinvested) basis. Measurement points are the last trading days of the years ended December 2013, 2014, 2015, 2016, and 2017.

2012 2013 2014 2015 2016 2017
KVH Industries, Inc. $ 100
$ 93
$ 90
$ 67
$ 84
$ 74
NASDAQ Composite 100
138
157
166
178
229
NASDAQ Telecommunications 100
124
135
125
144
169



ITEM 6.			~~Selected Financial Data~~Removed and reserved.

We have derived the following selected financial data from our audited consolidated financial statements. You should read this data in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.”

In May 2013, we acquired Headland Media Limited (now known as the KVH Media Group) for $24.2 million. In July 2014, we acquired Videotel for $47.4 million. See Note 1 to our consolidated financial statements for a summary of significant accounting policies and the effects on the year-to-year comparability of the selected financial data.

Year Ended December 31,
2017 2016 2015 2014 2013
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Sales:
Product $ 56,968
$ 73,075
$ 76,213
$ 81,143
$ 90,295
Service 103,120
103,047
108,421
91,448
71,993
Net sales 160,088
176,122
184,634
172,591
162,288
Costs and expenses:
Costs of product sales 37,474
46,334
47,404
48,843
51,518
Costs of service sales 52,692
52,966
54,816
50,301
45,058
Research and development 15,858
16,030
14,039
14,101
12,987
Sales, marketing and support 33,896
33,942
35,714
32,976
28,792
General and administrative 28,932
28,172
29,453
24,448
17,764
Total costs and expenses 168,852
177,444
181,426
170,669
156,119
(Loss) income from operations (8,764 ) (1,322 ) 3,208
1,922
6,169
Interest income 659
513
546
738
657
Interest expense 1,467
1,436
1,460
1,296
637
Other (expense) income, net (366 ) 275
372
(39 ) 494
(Loss) income before income taxes (9,938 ) (1,970 ) 2,666
1,325
6,683
Income tax expense 1,096
5,547
413
1,284
2,150
Net (loss) income $ (11,034 ) $ (7,517 ) $ 2,253
$ 41
$ 4,533
Per share information:
Net (loss) income per common share, basic $ (0.67 ) $ (0.47 ) $ 0.14
$ —
$ 0.30
Net (loss) income per common share, diluted $ (0.67 ) $ (0.47 ) $ 0.14
$ —
$ 0.30
Number of shares used in per share calculation:
Basic 16,419
15,834
15,625
15,420
15,144
Diluted 16,419
15,834
15,834
15,605
15,341

December 31,
2017 2016 2015 2014 2013
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and marketable securities $ 42,915
$ 52,134
$ 45,338
$ 49,802
$ 55,744
Working capital 54,430
69,189
71,534
65,200
78,933
Total assets 196,239
199,757
226,277
235,837
183,849
Line of credit —
—
—
—
30,000
Long-term debt, excluding current portion 44,572
50,153
58,054
64,687
7,094
Other long-term obligations 19
326
1,391
1,459
204
Total stockholders’ equity 105,665
106,502
118,176
116,540
116,467



ITEM 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 the marine and land mobile markets, and inertial navigation products for ~~commercial~~the defense and ~~defense~~commercial markets. Our reporting segments are as follows:

•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, ~~(both inside and outside the European Union),~~countries in Africa, other Asia/Pacific ~~and~~countries, the Middle ~~East.~~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 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. ~~Our CommBox offers a range of tools designed to increase communication efficiency, reduce costs, and manage network operations.~~ We sell ~~and lease~~ 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. ~~Our mobile connectivity service~~This segment's sales also include ~~our~~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, as well as the distribution of training films and eLearning computer-based training courses to commercial customers in the maritime market through our Videotel business.~~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 ~~Voice over Internet Protocol (VoIP)~~VoIP service to our ~~TracPhone V-series~~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. ~~Our service sales~~

Within the mobile connectivity segment, our marine leisure business is highly seasonal, and seasonality can also impact our commercial marine business. Historically, we have ~~grown as a percentage of total revenue from 59%~~generated the majority of our ~~net sales~~marine leisure product revenues during the first and second quarters of each year, and these revenues typically decline in ~~2015~~the third and ~~2016~~fourth quarters of each year, compared to ~~64%~~the first two quarters. Temporary suspensions of our airtime services typically increase in ~~2017, a portion~~the third and fourth quarters of each year as boats are placed out of service during the winter months.

Impairment Charge – 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 ~~is attributable~~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 ~~acquisition~~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 ~~May 2013 and~~ the ~~Videotel business in July 2014. The majority~~fourth quarter of ~~Videotel’s services are invoiced in pounds sterling, which increases~~2021 did not identify any further impairment. Please see Note 1(k) to our ~~exposure to fluctuations in exchange rates.~~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, ~~autonomous vehicles,~~ 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 provides, for the periods indicated, our sales by ~~segment:~~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

Year Ended December 31,
2017 2016 2015
(in thousands)
Mobile connectivity $ 132,227
$ 141,507
$ 147,809
Inertial navigation 27,861
34,615
36,825
Net sales $ 160,088
$ 176,122
$ 184,634

Product sales within the mobile connectivity segment accounted for ~~20%, 23%~~17% and ~~23%~~18% of our consolidated net sales for ~~2017, 2016~~2021 and ~~2015,~~2020, respectively. Sales of mini-VSAT Broadband airtime service accounted for ~~41%, 37%,~~54% and ~~35%~~51% of our consolidated net sales for ~~2017, 2016,~~2021 and ~~2015, respectively. Sales of content and training services within the mobile connectivity segment accounted for 20%, 20% and 21% of our consolidated net sales for 2017, 2016 and 2015,~~2020, respectively.

Within our inertial navigation segment, net sales of FOG-based guidance and navigation systems accounted for ~~13%, 10%, and 10%~~16% of our consolidated net sales for ~~2017, 2016,~~both 2021 and ~~2015, respectively.~~2020.

No other single product class accounted for 10% or more of consolidated net sales. No individual customer accounted for 10% or more of our consolidated net sales for ~~2017, 2016~~2021 or ~~2015.~~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 ~~62%, 63%~~60% and ~~67%~~64% of our consolidated net sales for ~~2017, 2016~~2021 and ~~2015,~~2020, respectively. Sales to Singapore customers ~~located in Canada~~ represented 11% ~~and 10%~~ of our consolidated net sales for ~~the years ended December 31, 2016 and 2015, respectively.~~2021. No other individual foreign country represented 10% or more of ~~the Company’s~~our consolidated net sales for ~~2016 or 2015.~~2021. No individual foreign country represented 10% or more of our consolidated net sales for ~~the year ended December 31, 2017.~~2020. See Note 12 to our accompanying audited consolidated financial statements for more information on our segments.

Customer-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 expense presented in the statement of operations	$	17,766	$	15,799
Costs of customer-funded research and development included in costs of service sales	803		2,935
Total consolidated statements of operations expenditures on research and development activities	$	18,569	$	18,734

Year ended December 31,
2017 2016 2015
(in thousands)
Research and development expense presented on the statement of operations $ 15,858
$ 16,030
$ 14,039
Costs of customer-funded research and development included in costs of service sales 1,510
498
1,546
Total consolidated statements of operations expenditures on research and development activities $ 17,368
$ 16,528
$ 15,585

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Results of Operations

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)	%

Year Ended December 31,
2017 2016 2015
Sales:
Product 35.6 % 41.5 % 41.3 %
Service 64.4
58.5
58.7
Net sales 100.0
100.0
100.0
Costs and expenses:
Costs of product sales 23.4
26.3
25.7
Costs of service sales 32.9
30.1
29.6
Research and development 9.9
9.1
7.6
Sales, marketing and support 21.2
19.3
19.3
General and administrative 18.1
16.0
16.0
Total costs and expenses 105.5
100.8
98.2
(Loss) income from operations (5.5 ) (0.8 ) 1.8
Interest income 0.4
0.3
0.3
Interest expense 0.9
0.8
0.7
Other (expense) income, net (0.2 ) 0.2
0.2
(Loss) Income before income taxes (6.2 ) (1.1 ) 1.6
Income tax expense 0.7
3.1
0.2
Net (loss) income (6.9 )% (4.2 )% 1.4 %

Years ended December 31, ~~2017~~2021 and ~~2016~~2020

Net Sales

As discussed further under the heading "Segment Discussion"below, product sales ~~decreased $16.1~~increased $2.3 million, or ~~22%~~3%, to ~~$57.0~~$66.9 million in ~~2017~~2021 from ~~$73.1~~$64.6 million in ~~2016,~~2020, due to ~~a decrease~~an increase in mobile connectivity product sales of ~~$8.7~~$2.1 million and ~~a decrease~~an increase in inertial navigation product sales of ~~$7.4~~$0.1 million. Service sales for ~~2017~~2021 increased ~~$0.1~~$10.8 million, or ~~less than 1%~~11%, to ~~$103.1~~$104.9 million from ~~$103.0~~$94.1 million in ~~2016~~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 ~~$0.7 million and a decrease in mobile connectivity service sales of $0.6~~$1.5 million.

~~We have adopted the revenue recognition guidance provided by Accounting Standards Codification (ASC) 606,~~ ~~Revenue from Contracts with Customers,~~ effective January 1, 2018 using the modified retrospective method. We expect the adoption of the new guidance to impact the timing of revenue recognition and corresponding costs of product sales for certain mini-VSAT Broadband hardware customer contracts to be deferred and recognized over the estimated customer life of the associated mini-VSAT Broadband service contracts. Please see Note 1 to our accompanying audited consolidated financial statements for further discussion of the impact of our adoption of ASC 606.

Costs of Sales

Costs of sales consists of costs of product sales and costs of service sales. Costs of sales ~~decreased~~increased in ~~2017~~2021 to ~~$90.2~~$112.0 million from ~~$99.3~~$101.1 million in ~~2016.~~2020. The ~~reduction~~increase in costs of sales was driven by a ~~decrease~~$5.6 million increase in ~~overall~~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 ~~56%~~65% and 64% for ~~both 2017~~2021 and ~~2016,~~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 ~~2017,~~2021, costs of product sales ~~decreased~~increased by ~~$8.8~~$5.2 million, or ~~19%~~13%, to ~~$37.5~~$46.8 million from $41.6 million in ~~2017 from $46.3 million in 2016.~~2020. As a percentage of product sales, costs of product sales were ~~66%~~70% and ~~63%~~64% for ~~2017~~2021 and ~~2016,~~2020, respectively. ~~The increase in the costs of product sales as a percentage of product sales was due to product mix, primarily due to lower TACNAV product sales, which generally have higher gross margins.~~ Mobile connectivity costs of product sales ~~decreased~~increased by ~~$7.1~~$2.4 million, or ~~24%~~11%, ~~primarily~~ due to a ~~$5.9~~$2.3 million ~~decrease~~increase in our marine ~~and product accessories~~ mobile connectivity ~~costs~~cost of product sales and a ~~$1.2~~$0.2 million ~~decrease~~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 ~~71%~~80% and ~~74%~~77% for ~~2017~~2021 and ~~2016,~~2020, respectively. ~~The decrease was principally driven by product mix.~~ Inertial navigation costs of product sales ~~decreased~~increased by ~~$1.7~~$2.8 million, or ~~11%~~14%, primarily due to a ~~$3.3~~$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, offset by a $1.6 million increase in our FOG~~ costs of product sales. Inertial navigation costs of product sales as a percentage of inertial navigation product sales was ~~58%~~62% and ~~50%~~55% for ~~2017~~2021 and ~~2016, respectively. The increase was principally driven by~~2020, respectively, which increased primarily due to product ~~mix.~~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 ~~2017,~~2021, costs of service sales ~~decreased~~increased by ~~$0.3~~$5.6 million, or 1%9%, to ~~$52.7~~$65.2 million from $59.5 million in ~~2017 from $53.0 million in 2016.~~2020. As a percentage of service sales, costs of service sales were ~~51% in each of 2017~~62% and ~~2016.~~63% for 2021 and 2020, respectively. Mobile connectivity costs of service sales ~~decreased~~increased by ~~$1.3~~$7.8 million, or 2%14%, primarily due to a ~~$2.4 million decrease in content and training costs, partially offset by a $0.9~~$8.0 million increase in mini-VSAT airtime ~~costs and $0.2 million increase in airtime services and repairs~~ costs of service ~~sales due to an increase in installations.~~sales. Mobile connectivity costs of service sales as a percentage of mobile connectivity service sales ~~was 51%~~were 62% for both 2021 and ~~52% for 2017 and 2016, respectively.~~2020. Inertial navigation costs of service sales ~~increased~~decreased by ~~$1.0~~$2.1 million, or ~~200%~~67%, primarily due to ~~an increase~~a decrease in contract engineering ~~service revenues.~~services sales. Inertial navigation costs of service sales as a percentage of inertial navigation service sales was ~~48%~~103% and ~~21%~~124% for ~~2017~~2021 and ~~2016,~~2020, respectively. The ~~increase~~decrease in ~~the inertial navigation~~ costs ~~of service sales as a percentage~~ of inertial navigation service sales was primarily due to ~~the increase~~a decrease in ~~the relative material~~costs relating to an engineering and ~~labor components needed for the different~~services development contract ~~engineering services projects completed in the two periods.~~from a major U.S. defense contractor.

We expect that our costs of sales will generally increase in correlation with our expected growth in our mobile connectivity and inertial navigation net sales. We expect that the mobile connectivity costs of service sales as percentage of mobile connectivity sales will increase as we integrate our HTS airtime network.

Operating Expenses

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 ~~2017 decreased~~2021 increased by ~~$0.1~~$2.0 million, or 1%12%, to ~~$15.9~~$17.8 million from ~~$16.0~~$15.8 million in ~~2016.~~2020. The primary ~~reasons~~reason for the ~~decrease~~increase in research and development expense ~~in 2017 were~~was a ~~$1.1~~$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 ~~$0.4 million decrease in expensed materials and hardware maintenance, partially offset by a $1.5~~$0.2 million increase in ~~salaries and employee benefits.~~consulting fees. As a percentage of net sales, research and development expense was 10% in both 2021 and ~~9% in 2017 and 2016, respectively.~~2020.

We expect that in 2022 our research and development expense will ~~grow~~decrease year-over-year due to the restructuring announced in March 2022 as we ~~continue~~scale back our long-term research initiatives and focus on development initiatives related to ~~invest in developing new technologies and applications for~~ 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 ~~remained flat at $33.9~~increased by $1.4 million, ~~for 2017~~or 5%, to $31.2 million in 2021 from $29.8 million in 2020. The increase in sales, marketing and ~~2016. In 2017 there was~~support expense resulted primarily from a ~~$0.6~~$1.6 million ~~decrease~~increase in ~~warranty expense, which was offset by~~salaries and associated compensation, a ~~$0.1~~$0.3 million increase in external commission expenses, a $0.2 million increase in bad debt ~~expense due to improved collection efforts~~expenses and a ~~$0.5~~$0.2 million increase in ~~employee termination costs primarily related to staff reductions.~~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 ~~21%~~18% and 19% in ~~2017~~2021 and ~~2016,~~2020, respectively.

We expect that in 2022 our sales, marketing, and support expense will ~~increase~~decrease year-over-year ~~primarily driven by increased personnel, marketing and technology investments~~due to ~~support product sales and launches.~~the March 2022 restructuring.

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salaries and employee benefits, including employee termination costs. This was partially offset by a $0.4 million decrease in depreciation and amortization, a $0.4 million decrease in legal and professional fees and a $0.2 million decrease in expensed materials and hardware maintenance.associated compensation. As a percentage of net sales, general and administrative expense was ~~18%~~17% and ~~16%~~15% for ~~2017~~2021 and ~~2016,~~2020, respectively.

We expect that in 2022 our general and administrative ~~expenses~~expense will decrease year-over-year due to ~~increase year-over-year in 2018, primarily driven by increased personnel costs.~~ the March 2022 restructuring.

Interest and Other ~~(Expense)~~ Income, Net

Interest income ~~increased by $0.2 million, or 40%, to $0.7 million from $0.5 million for 2016 and relates to~~represents interest earned on our cash and cash equivalents, as well as from ~~investments.~~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 ~~2017~~2021 increased byto $0.1 million from less than $0.1 million ~~or 7%,~~for 2020. Other income, net for 2021 increased to ~~$1.5~~$7.2 million from ~~$1.4~~other income, net of $0.2 million for ~~2016~~2020 primarily due to the change in the variable interest rate related to our term loan. Other (expense) income, net for 2017 decreased by $0.7 million or 233%, primarily due to $0.6 million of foreign exchange transaction losses in 2017 compared to $0.1 million of foreign exchange translation gains in 2016, primarily due to fluctuationforgiveness of the ~~pounds sterling.~~PPP Loan.

Income Tax (Benefit) Expense

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 ~~2017~~2020 was ~~$1.1~~$0.2 million ~~as compared to $5.5 million for 2016. Current year income tax expense is related~~due to taxes onrelated to income earned in foreign ~~jurisdictions. The current year loss~~jurisdictions and no associated tax benefit related to losses incurred in the U.S. ~~and Brazil did not result in income tax benefit~~ due to ~~recording an additional~~a full valuation allowance ~~of $3.3 million~~ on ~~the~~our related ~~net~~ deferred tax assets. In 2016, the Company recorded a valuation allowance on its U.S. and Brazilian deferred tax assets of $6.8 million. This valuation allowance was recorded as we concluded that it was more likely than not that certain of our U.S. and Brazilian deferred tax assets were not realizable primarily based on the three-year cumulative pre-tax loss as of December 31, 2016.

The effective tax rate for ~~2017~~2021 was ~~(11.0%)~~1.1%. The primary driver of the difference between our effective tax rate as compared to the United States federal statutory rate was the ~~impact~~change in the valuation reserve against the U.S. deferred tax assets, research tax credits, state taxes and the non-taxability of ~~recording valuation reserves on~~ the ~~current year tax benefit generated on U.S. net operating losses and tax credits. This impact was partially offset by income taxed at lower foreign tax rates.~~forgiveness of the PPP Loan. The effective income tax rate of ~~(281.6%)~~(0.8)% for ~~2016~~2020 differs from the U.S. federal statutory rate ~~principally as a result~~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.

Segment Discussion - Years ended December 31, ~~2017~~2021 and ~~2016~~2020

Our net sales by segment for ~~2017~~2021 and ~~2016~~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)	%

Change
For the year ended December 31, 2017 vs. 2016
2017 2016 $ %
(dollars in thousands)
Mobile connectivity sales
Product $ 32,175
$ 40,904
$ (8,729 ) (21 )%
Service 100,052
100,603
(551 ) (1 )%
Net sales $ 132,227
$ 141,507
$ (9,280 ) (7 )%

Inertial navigation sales
Product $ 24,793
$ 32,171
$ (7,378 ) (23 )%
Service 3,068
2,444
624
26 %
Net sales $ 27,861
$ 34,615
$ (6,754 ) (20 )%

Table of Contents

Operating ~~earnings~~income (loss) by segment for ~~2017~~2021 and ~~2016~~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	%

Change
For the year ended December 31, 2017 vs. 2016
2017 2016 $ %
(dollars in thousands)
Mobile connectivity $ 7,334
$ 10,041
$ (2,707 ) (27 )%
Inertial navigation 556
5,272 (4,716 ) (89 )%
$ 7,890
$ 15,313
$ (7,423 ) (48 )%
Unallocated (16,654 ) (16,635 ) (19 ) — %
Operating loss $ (8,764 ) $ (1,322 ) $ (7,442 ) 563 %

~~Mobile Connectivity Segment~~

~~Net sales in the mobile connectivity segment decreased $9.3 million, or 7%, in 2017 as compared to 2016.~~(1) Mobile connectivity ~~product sales decreased by $8.7~~loss from operations for 2020 includes a $10.5 million ~~or 21%, to $32.2 million in 2017 from $40.9 million in 2016. The decrease was primarily due to a $7.4 million, or 20%, decrease in marine mobile connectivity product sales~~goodwill and a $1.3 million, or 29%, decrease in sales of our land mobile connectivity products. The decrease was partly due to the receipt of a particularly large order in 2016, as well as the impact of the new AgilePlans subscription service. The hurricanes in the Caribbeanintangible asset impairment charge. See Note 1(k) and the Gulf of Mexico in the 2017 third quarter and inclement weather in the 2017 second quarter, particularly in the US East Coast region, also impacted our marine business as boat owners delayed the seasonal retrofitting of their vessels.

We have adopted the revenue recognition guidance under ASC 606 effective January 1, 2018 using the modified retrospective method. We expect the adoption of the new guidance to impact the timing of revenue recognition and corresponding costs of product sales for certain mini-VSAT Broadband hardware customer contracts to be deferred and recognized over the estimated customer life of the associated mini-VSAT Broadband service contracts. Please see Note 19 to our accompanying audited consolidated financial statements for ~~further discussion~~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 increasewas primarily the result of ~~the impact of our adoption of ASC 606.~~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 ~~decreased~~increased by ~~$0.6~~$12.3 million, or 1%13%, to ~~$100.0~~$103.9 million in ~~2017~~2021 from ~~$100.6~~$91.6 million in ~~2016.~~2020. The ~~decrease~~increase was primarily due to a $3.1 million decrease in our content and training service revenue, which resulted primarily from exchange rate fluctuations impacting our content and training service sales recorded in pounds sterling, a decrease in fleet subscribers and a large film contract that occurred in the third quarter of 2016, and a $0.5 million decrease in Inmarsat service sales due to an overall decrease in Inmarsat airtime customers. Partially offsetting these decreases was a $2.8$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 ~~the number of installed mini-VSAT units, as well as an increase in the number of~~our content service ~~offerings~~sales and a ~~$0.2~~$0.3 million increase in ~~activations~~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 ~~other mobile connectivity~~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 ~~that our mini-VSAT service sales will~~to continue ~~to grow year-over-year, primarily through~~re-signing former legacy network customers throughout 2022, particularly in the ~~continued expansion of our mini-VSAT Broadband customer base, and due to~~spring as seasonal leisure customers commission their vessels for the ~~availability of our AgilePlans subscription service model which~~summer. However, we ~~initiated in our 2017 second quarter. We~~do not expect that ~~mini-VSAT product sales may decline if customers select~~we will succeed in re-signing all of them. For the ~~new subscription service model.~~full year, we expect airtime revenue growth but at a lower rate than we saw in 2021.

Operating ~~earnings~~income (loss) for the mobile connectivity segment ~~decreased~~increased $12.8 million in 2021 to an operating gain of $2.7 million ~~or 27%, in 2017~~ as compared to ~~2016.~~an operating loss of $10.1 million for 2020. This ~~decrease~~increase in operating income was primarily due to the ~~result~~impairment of ~~a decrease~~goodwill and other intangible assets of $10.5 million in ~~product~~2020 in KVH Media Group (which was not repeated in 2021), combined with an increase in sales less associated costs of ~~$1.6 million,~~$4.3 million. This was partially offset ~~somewhat~~ by an increase in ~~service sales less~~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 ~~costs of $0.7 million.~~compensation, primarily due to reinstating salaries and associated compensation that were temporarily reduced in connection with our response to COVID-19. In addition, ~~operating expenses increased in 2017 due to an~~there was a $0.8 million increase in ~~employee salaries~~research and ~~benefits of $1.8 million and an increase in employee termination costs of $0.8 million,~~development expense, which was offset ~~somewhat~~ by a ~~$0.6~~$0.8 million decrease in warranty ~~expense, and a $0.5 million decrease in external commissions and certain royalty~~ expenses.

We expect our overall mobile connectivity operating earnings to show modest growth in 2018 through market expansion and as existing customers expand their mini-VSAT Broadband usage and as customers take advantage

Table of ~~the AgilePlans subscription service option.~~Contents

Inertial Navigation Segment

Net sales in the inertial navigation segment decreased ~~$6.7~~$1.4 million, or ~~19%~~4%, in ~~2017~~2021 as compared to ~~2016.~~2020. Inertial navigation product sales ~~decreased $7.4~~increased $0.1 million, or ~~23%~~less than 1%, to ~~$24.8~~$36.9 million in ~~2017~~2021 from ~~$32.2~~$36.8 million in ~~2016.~~

~~Specifically,~~2020. The primary driver of the increase was an increase of $3.0 million, or 12%, of sales of our ~~TACNAV~~FOG products, ~~decreased $10.3 million, or 69%, partially~~ offset by a ~~$2.8~~$2.9 million, or ~~16%~~27%, ~~increase~~decrease in TACNAV product sales (for more information, see “Risk Factors — Risks related to government sales — Sales of our FOG ~~product~~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. ~~TACNAV sales decreased due to orders filled in 2016 that did not reoccur in 2017.~~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 ~~increased $0.7~~decreased $1.5 million, or ~~29%~~60%, to ~~$3.1~~$1.0 million in ~~2017~~2021 from ~~$2.4~~$2.5 million ~~for 2016.~~in 2020. The primary reason for the ~~increase~~decrease was a ~~$1.2~~$1.7 million, or ~~86%~~82%, ~~increase~~decrease in contracted engineering ~~services~~service revenues due to a ~~new project that began in January 2017 and was completed in the third quarter of 2017. This increase was partially offset by a $0.5 million~~ decrease in ~~inertial navigation repair revenue.~~services for a project for a major U.S. defense customer.

We expect to see modest growth in our FOG products in 2018 due to a higher backlog entering the year. We also expect to see growth in contracted engineering services year-over-year. However, it is challenging to predict whether sales of our TACNAV products will increase in 2018 as we cannot predict when specific orders, which could be individually significant, may be received, if at all.

Operating ~~earnings~~income for the inertial navigation segment decreased ~~$4.7~~$3.2 million ~~or 89%,~~ in ~~2017~~2021 to an operating gain of$1.6 million as compared to ~~2016.~~an operating gain of $4.8 million for 2020. This decrease iswas primarily due to the ~~net~~ decrease in ~~product~~ sales ~~and service sales~~less associated costs of ~~$6.7~~$2.1 million, a $0.9 million decrease in funded engineering expenses and a ~~$0.2~~$0.3 million increase in ~~employee salaries and benefits,~~external commissions. This was partially offset by a ~~$0.6~~$0.3 million decrease in ~~unfunded engineering costs.~~salaries and associated compensation.

We expect our overall inertial navigation operating earnings to increase modestly in 2018 due to the higher backlog of FOG products entering the year and due to the higher expected increase in contracted engineering service sales.

Unallocated

Certain corporate-level costs have not been allocated because they are not directly attributable to either segment. These costs primarily consist of broad corporate functions, including executive, legal, finance, information technology, and costs associated with corporate actions.

Unallocated operating loss was approximately $16.6 million for both 2017 and 2016. This was due to a $0.4 million decrease in consulting fees, offset by a $0.3 million increase in salaries and benefits and a $0.1 million increase in legal and accounting fees.

~~Years ended December 31, 2016 and 2015~~

~~Net Sales~~

~~As discussed further under the heading "Segment Discussion"below, product sales decreased $3.1~~increased $4.7 million, or 4%26%, ~~to $73.1 million~~ in 2016 from $76.2 million in 2015, due to a decrease in mobile connectivity product sales of $2.2 million and a decrease in inertial navigation product sales of $0.9 million. Service sales for 2016 decreased $5.4 million to $103.0 million from $108.4 million for 2015 due to a decrease in mobile connectivity service sales of $4.0 million and a decrease in inertial navigation service sales of $1.4 million or 35%.

~~Costs of Sales~~

Costs of sales consists of costs of product sales and costs of service sales. Costs of sales decreased in 2016 to $99.3 million from $102.2 million in 2015. The reduction in costs of sales was driven by a decrease in overall sales. As a percentage of net sales, costs of sales was 56% and 55% for 2016 and 2015, respectively. The slightly higher percentage of costs of sales2021 compared to ~~total net sales in 2016 was driven by a slight increase in the percentage of costs of product sales compared to product sales.~~

Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products. For 2016, costs of product sales decreased by $1.1 million, or 2% to $46.3 million in 2016 from $47.4 million in 2015. As a percentage of product sales, costs of product sales were 63% and 62% for 2016 and 2015, respectively.2020. The increase in the percentage of costs of product sales compared to product sales was due to increases in product and freight costs, an increase in wage and benefit expenses due to a slight increase in headcount, as well as lower overhead absorption due to lower manufacturing volumes driven by lower product sales. Mobile connectivity costs of product sales decreased by $1.0 million, or 3%, primarily due to a $1.4 million decrease in our marine mobile connectivity costs of product sales, partially offset by a $0.4 million increase in our land mobile costs of product sales. Mobile connectivity costs of product sales as a percentage of mobile connectivity product sales were 74% and 72% for 2016 and 2015, respectively. The increase was principally driven by lower marine product sales which are higher margin products. Inertial navigation costs of product sales decreased by $0.1 million, or 1%, primarily due to a $0.9 million decrease in our FOG costs of product sales, offset by a $0.8 million increase in our TACNAV costs of product sales. Inertial navigation costs of product sales as a percentage of inertial navigation product sales was 50% and 49% for 2016 and 2015, respectively. The increase was primarily driven by product mix.

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 2016, costs of service sales decreased by $1.9 million, or 3%, to $53.0 million in 2016 from $54.8 million in 2015. As a percentage of service sales, costs of service sales were 51% and 51% for 2016 and 2015, respectively. Mobile connectivity costs of service sales decreased by $0.8 million, or 2%, primarily due to a $1.2 million decrease in airtime costs due to airtime cost-saving initiatives, partially offset by a $0.4 million increase in airtime services and repairs costs of service sales due to an increase in installations. Mobile connectivity costs of service sales as a percentage of mobile connectivity service sales was 52% and 51% for 2016 and 2015, respectively. Inertial navigation costs of service sales decreased by $1.1 million, or 68%, due to the decrease in contract engineering services. Inertial navigation costs of service sales as a percentage of inertial navigation service sales was 21% and 41% for 2016 and 2015, respectively. The decrease in the inertial navigation costs of service sales as a percentage of inertial navigation service sales was primarily due to the differences in the relative material and labor components needed for the different contract engineering services projects completed in the two periods.

~~Operating Expenses~~

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 2016 increased by $2.0 million, or 14%, to $16.0 million from $14.0 million in 2015. The primary reasons for the increase in expense in 2016 were a $1.2 million increase in labor expenses and outside consulting fees, an increase of $0.5 million in expensed materials, and a $0.1 million increase in tooling and set-up charges. The primary reason for the increase in research and development expense is an increase in overall expenditures for new initiatives, as well as a decrease in the level of customer-funded engineering projects where the support costs are included in costs of service sales. As a percentage of net sales, research and development expense was 9% and 8% in 2016 and 2015, respectively.

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 for 2016 decreased by $1.8 million, or 5%, to $33.9 million from $35.7 million for 2015. The primary reasons for the decrease in 2016 were a $1.9 million decrease in commissions due to lower sales and a $0.3 million decrease in bad debt expense due to improved collection efforts, partially offset by a $0.3 million increase in warranty expense primarily related to an increase in the number of our mobile connectivity products under warranty. As a percentage of net sales, sales, marketing and support expense was 19% in both 2016 and 2015.

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 2016 decreased by $1.3 million, or 4%, to $28.2 million from $29.5 million for 2015. The primary reasons for the decrease in 2016 expense were a $1.5 million decrease in compensation and consulting expense primarily due to the decrease in executive bonuses and profit sharing, as well as a decrease in expenses arising from the centralization of administrative functions in the UK and a $0.4 million decrease in legal settlement expense due to settlement of patent infringement matters where settlement was accrued in 2015, partially offset by a $0.5 million increase in computer maintenance for new software subscriptions and software support as a result of additional purchased software and related maintenance. As a percentage of net sales, general and administrative expense was 16% for both 2016 and 2015.

~~Interest and Other Expense (Income), Net~~

Interest income was $0.5 million for both 2016 and 2015 and relates to interest earned on our cash and cash equivalents, as well as from investments. Interest expense for 2016 decreased slightly by $0.1 million, or 7%, to $1.4 million from $1.5 million for 2015 due to a reduction in our overall debt obligations. Other income, net for 2016 decreased by $0.1 million or 25%, to $0.3 million from $0.4 million for 2015 primarily due to foreign exchange transaction losses as a result of the fluctuation of the pounds sterling.

~~Income Tax Expense~~

Income tax expense for 2016 was $5.5 million as compared to $0.4 million for 2015. The significant increase in income tax expense for 2016 was principally due to a change in the valuation allowance of our deferred tax assets of approximately $6.8 million. We assessed evidence of the realizability of our deferred tax assets as of December 31, 2016 and, based on the three-year cumulative pre-tax loss as of December 31, 2016, we concluded that it was more likely than not that certain of our deferred tax assets were not realizable and recorded a full valuation allowance against these deferred tax assets. This is the key driver of the difference between our effective tax rate as compared to the United States federal statutory rate. This impact was partially offset by the impact of foreign tax rates and research and development tax credits. The effective income tax rate of 16% for 2015 differs from the United States federal statutory rate of 35% principally as a result of the impact of foreign tax rates, research and development tax credits and reduction in uncertain tax positions as a result of settlements with taxing authorities partially offset by changes in the valuation allowance against our deferred tax assets.

~~Segment Discussion - Years ended December 31, 2016 and 2015~~

~~Our net sales by segment for 2016 and 2015 were as follows:~~

Change
For the year ended December 31, 2016 vs. 2015
2016 2015 $ %
(dollars in thousands)
Mobile connectivity sales
Product $ 40,904
$ 43,169
$ (2,265 ) (5 )%
Service 100,603
104,640
(4,037 ) (4 )%
Net sales $ 141,507
$ 147,809
$ (6,302 ) (4 )%

Inertial navigation sales
Product $ 32,171
$ 33,044
$ (873 ) (3 )%
Service 2,444
3,781
(1,337 ) (35 )%
Net sales $ 34,615
$ 36,825
$ (2,210 ) (6 )%

~~Operating earnings (loss) by segment for 2016 and 2015 were as follows:~~

Change
For the year ended December 31, 2016 vs. 2015
2016 2015 $ %
(dollars in thousands)
Mobile connectivity $ 10,041
$ 9,459
$ 582
6 %
Inertial navigation 5,272 7,934 (2,662 ) (34 )%
$ 15,313
$ 17,393
$ (2,080 ) (12 )%
Unallocated (16,635 ) (14,185 ) (2,450 ) 17 %
Operating (loss) earnings $ (1,322 ) $ 3,208
$ (4,530 ) (141 )%

~~Mobile Connectivity Segment~~

Net sales in the mobile connectivity segment decreased $6.3 million, or 4%, in 2016 as compared to 2015. Mobile connectivity product sales decreased by $2.3 million, or 5%, to $40.9 million in 2016 from $43.2 million in 2015. The decrease was primarily due to a $2.6 million, or 21%, decrease in European mini-VSAT product sales due to a slowdown in the European maritime markets and a $0.3 million, or 1%, decrease in our US marine mobile connectivity product sales, partially offset by a $0.6 million increase in sales of our land mobile connectivity products. Mobile connectivity service sales decreased by $4.0 million, or 4%, to $100.6 million in 2016 from $104.6 million in 2015. The decrease was primarily due to a $3.6 million decrease in our content and training service revenue, which resulted primarily from exchange rate weakness arising from content and training service sales recorded in pounds sterling, and a $0.7 million decrease in Inmarsat service sales due to a 14% decrease in Inmarsat airtime customers. Partially offsetting these decreases was a $0.3 million increase in mini-VSAT service sales driven by an increase in the number of installed mini-VSAT units, as well as an increase in number of service offerings.

Operating earnings for the mobile connectivity segment increased $0.6 million, or 6%, in 2016 as compared to 2015. This change was principally due to a decrease in operating costs related to the centralization of certain administrative functions in the UK, a decrease in the exchange rate of the pounds sterling and airtime cost savings initiatives. The increase in operating expenses was partially offset by the decrease in product and service sales.

~~Inertial Navigation Segment~~

Net sales in the inertial navigation segment decreased $2.2 million, or 6%, in 2016 as compared to 2015. Inertial navigation product sales decreased $0.9 million, or 3%, to $32.2 million in 2016 from $33.1 million in 2015.

Specifically, sales of our FOG products decreased $1.2 million, or 7%, partially offset by a $0.3 million, or 2%, increase in TACNAV sales. TACNAV sales increased due to large but anticipated orders that were in our backlog. FOG product sales decreased due to a decrease in sales of our single and dual axis FOG units, partially offset by increased sales of our IMU FOG units. Inertial navigation service sales decreased $1.4 million, or 35%, to $2.4 million in 2016 from $3.8 million for 2015. The primary reason for the decrease was a $1.6 million, or 53%, decrease in contracted engineering services due to a prior year project which was completed during the first half of 2016. This decrease was partially offset by a $0.3 million increase in inertial navigation repair revenue.

Operating earnings for the inertial navigation segment decreased $2.7 million, or 34%, in 2016 as compared to 2015. This decrease is primarily due to the $2.2 million decrease in product and service sales and a $0.6 million decrease in sales representative commissions due to these lower sales. Partially offsetting this decrease is a slight increase in costs of product sales as a percentage of product sales.

~~Unallocated~~

Certain corporate-level costs have not been allocated because they are not attributable to either segment. These costs primarily consist of broad corporate functions, including executive, legal, finance, information technology, and costs associated with corporate actions.

~~Unallocated operating loss was $16.6 million and $14.2 million for 2016 and 2015, respectively. The increase in the~~unallocated operating loss was primarily the result of a ~~$1.4~~$3.5 million increase in ~~salary~~professional fees, primarily arising from a stockholder’s nomination of a competing slate of directors at our annual meeting of stockholders, and ~~benefits due to an increase in corporate headcount partially offset by~~ a ~~decrease in executive bonuses, a $0.5~~$1.2 million increase in ~~outside consulting~~salaries and associated compensation, primarily due to reinstating salaries and associated compensation that ~~includes accounting and legal fees, and~~were temporarily reduced in connection with our response to COVID-19. In addition, there was a ~~$0.5~~$0.3 million increase in computer ~~maintenance fees due to new internal analytical software subscription and support.~~expenses.

Critical Accounting ~~Policies and Significant~~ 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 ~~consolidated financial statements. The significant accounting policies that we believe are the most critical in understanding and evaluating our reported financial results include the following:~~

~~Revenue Recognition~~

~~Product sales.~~ ~~Product sales are recognized when persuasive evidence of an arrangement exists, goods are shipped, title has passed, and collectability is reasonably assured. Our standard sales terms require that:~~

~~All sales are final;~~

~~Terms are generally Net 30;~~

~~Shipments are tendered and shipped FOB (or as may be applicable, FCA or EXW) our plant or warehouse; and~~

~~Title and risk of loss or damage passes to the dealer or distributor at the point of shipment when delivery is made to the possession of the carrier.~~

For certain inertial navigation product sales, customer acceptance or inspection may be required before title and risk of loss transfers to the customer. For those sales, revenue is recognized after transfer of title and risk of loss and after notification of customer acceptance. In certain circumstances customers may request a bill and hold arrangement. Under these bill and hold arrangements, revenue is recognized when we have fulfilled all of our performance obligations, the units are segregated and available for shipment in accordance with the defined contract delivery schedule, and we have received notification of customer acceptance which transfers title and risk of loss to the customer.

Under certain limited conditions, we, at our sole discretion, provide for the return of goods. No product is accepted for return and no credit is allowed on any returned product unless we have granted and confirmed prior written permission by means of appropriate authorization. We establish reserves for potential sales returns, credits and allowances, and evaluate, on a monthly basis, the adequacy of those reserves based upon historical experience and our expectations for the future.

~~Multiple-element revenue arrangements~~. Some of our sales involve multiple-element arrangements that include both hardware-related products and contracted service, or satellite connectivity. We analyze revenue arrangements with multiple deliverables to determine if the deliverables should be divided into more than one unit of accounting. For contracts with more than one unit of accounting, we allocate the consideration we receive among the separate units of accounting based on a selling price hierarchy for determining the selling price of each deliverable, which includes: (1) vendor-specific objective evidence (VSOE) if available; (2) third-party evidence (TPE) if VSOE is not available; and (3) best estimated selling price (BESP), if neither VSOE nor TPE is available. Best estimate selling price is determined based on prices of the deliverables if sold on a stand-alone basis, or if not sold on a stand-alone basis, the prices we would charge if sold on a stand-alone basis. We recognize revenue for each deliverable based on the revenue recognition policies described in this section.

~~Contracted service sales~~. We also engage in contracts for development, production and services activities related to standard product modification or enhancement, which we account for using the proportional performance method of revenue recognition. The use of contract accounting requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, and prices for subcontractor services and materials. Our estimates are based upon the professional knowledge and experience of our engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract's schedule, performance, technical matters, and estimated cost at completion. A cancellation, schedule delay, or modification of a fixed-price contract which is accounted for using the proportional performance method may adversely affect our gross margins for the period in which the contract is modified. Changes in estimates are applied when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.

~~Satellite connectivity and media content sales~~. Directly sold and re-sold satellite connectivity service for voice, data and Internet is recognized monthly based upon minutes or megabytes of traffic processed or contracted fixed fee schedules. Typically, all subscribers enter into a contracted one-year minimum service agreement. We have evaluated the factors within ASC 605 regarding gross versus net revenue reporting for our satellite connectivity service sales and our payments to the applicable service providers. Based on the evaluation of the factors within ASC 605, we have determined that the applicable indicators of gross revenue reporting were met. The applicable indicators of gross revenue reporting included, but were not limited to, the following:

We are the primary obligor in our arrangements with our subscribers. We manage all interactions with the subscribers, while satellite connectivity service providers do not interact with the subscribers. In addition, we assume the entire performance risk under our arrangements with the subscribers and in the event of a performance issue, we may incur reduction in fees without regard for any recourse that we may have with the applicable satellite connective service providers.

We have latitude in establishing pricing, as the pricing under our arrangements with the subscribers is negotiated through a contracting process and we have discretion in establishing pricing. We then separately negotiated the fees with the applicable satellite service providers.

~~We have had complete discretion in determining which satellite service providers with which we will contract with.~~

As a result, we have determined that we earn revenue (as a principal) from the delivery of satellite connectivity services to our subscribers and record all satellite connectivity service sales to subscribers as gross sales. All associated regulatory service fees and costs are recorded net in our consolidated financial statements. Media content sales include our distribution of commercially licensed news, sports, movies and music content for commercial and leisure customers in the maritime, hotel, and retail markets as well as training videos to the merchant marine market that are typically based on a contracted fixed fee schedule. We typically recognize revenue from media content sales ratably over the period of the service contract. The accounting estimates related to the recognition of satellite connectivity and media content service sales in our results of operations require us to make assumptions about future billing adjustments for disputes with subscribers as well as unauthorized usage.

For further discussion of revenue recognition and the impact of the new revenue recognition guidance provided by ASC 606, which we adopted using the modified retrospective method as of January 1, 2018, please refer to Note 1 to our accompanying audited consolidated financial statements.

~~Accounts Receivable Allowance~~

~~Our estimate~~ Critical accounting estimates are those estimates made that involve a significant level of ~~allowance for doubtful accounts related to trade receivables is primarily based on specific~~estimation uncertainty and ~~historical criteria. We evaluate specific accounts where we~~ have information that the customer may have an inability to meet its financial obligations. We make judgments, based on facts and circumstances, regarding the need to record a specific reserve for that customer against amounts owed to reduce the receivable to the amount that we expect to collect. We also provide for a reserve based on an aging analysis of our accounts receivable. We evaluate these reserves on a monthly basis and adjust them as we receive additional information that impacts the amount reserved. If circumstances change, we could change our estimates of the recoverability of amounts owed to us by a material amount. Our bad debt expense decreased by $0.2 million in 2017 from 2016, driven by improved collections efforts.

We wrote off $1.3 million, $0.9 million, and $0.5 million of our accounts receivable in 2017, 2016, and 2015, respectively. These write-offs were driven largely by the financial deterioration of several airtime and lease customers as well as several mobile connectivity product distributors and eLearning customers.

~~Inventories~~

~~Inventory is valued at the lower of cost~~had or net realizable value. We generally must order components for our products and build inventory in advance of product shipments. We regularly review current quantities on hand, actual and projected sales volumes and anticipated selling prices on products and write down, as appropriate, slow-moving and/or obsolete inventory to its net realizable value. In 2017 we wrote off an immaterial balance and in 2016 and 2015, we wrote off $0.2 million and $0.3 million of inventory, respectively, that was previously deemed excess or obsolete inventory and whose carrying values had previously been reduced to zero. However, if we overestimate projected sales or anticipated selling prices, our inventory might be overstocked or overvalued, and we would have to reduce our inventory valuation accordingly.

~~Accounting for Income Taxes~~

We are ~~subject to income taxes in the U.S. and in numerous foreign jurisdictions. The Company accounts for income taxes following ASC 740,~~ ~~Accounting for Income Taxes,~~ recognizing deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is morereasonably likely ~~than not that some or all of a deferred tax asset will not be realized.~~

As part of the process of preparing our financial statements, we are required to estimate our provision for income taxes in each of the jurisdictions in which we operate. This involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and record a valuation allowance to reduce the deferred tax assets to an amount that, in our judgment, is more likely than not to be recovered.

Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. The valuation allowance is based on our estimates of future taxable income and the period over which we expect the deferred tax assets to be recovered. Our assessment of future taxable income is based on historical experience and current and anticipated market and economic conditions and trends. In the event that actual results differ from these estimates or we adjust our estimates in the future, we may need to adjust our valuation allowance, which could materially impact our consolidated financial position and results of operations. In 2016, as a result of negative evidence, principally three years of cumulative pre-tax operating losses, we concluded that it was more likely than not that certain of our deferred tax assets were not realizable and therefore, recorded a full valuation allowance against those deferred tax assets. As of December 31, 2017, we concluded that a net increase of the valuation allowance of $4.4 million was appropriate. As of December 31, 2017, we had valuation allowances of $16.0 million to offset gross deferred tax assets of $17.8 million.

We record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained by the taxing authorities. If this threshold is not met, no tax benefit of the uncertain position is recognized. The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

We recognize interest and penalties within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.

~~Tax Reform~~

The 2017 Tax Cut and Jobs Act (the "Tax Act") has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as GILTI. These changes are effective beginning in 2018.

~~The 2017 Tax Act also includes the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings.~~

Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year ended December 31, 2017, we recorded a reduction in our deferred tax assets and corresponding valuation allowance of $1.7 million and a net tax benefit of $0.1 million related to our estimate of the provision of the 2017 Tax Act. Included in $1.7 million reduction in our deferred tax assets and corresponding valuation allowance, is $0.8 million related to the Transition Toll Tax.

~~We do not expect the 2017 Tax Act~~ to have ~~a significant~~an impact on our ~~effective tax rate in 2017 or 2018 due~~statement of operations. We believe that our accounting policies for goodwill, intangible assets, and other long-lived assets are the only estimates critical to ~~the full valuation reserve recorded on U.S. deferred tax assets.~~

~~The Securities~~an understanding and Exchange Commission released Staff Accounting Bulletin (SAB) No. 118 to provide guidance to companies on how to implement the accounting and disclosure changes as a result of the Tax Act. The SEC staff guidance has recognized that, due to the complexity and timing of the release of the Tax Act, the accounting for this change in the law may be incomplete upon issuance of a company's financial statements for the reporting period in which the Tax Act was enacted. SAB No. 118 states that if a company can determine a reasonable estimate for the effects of the Tax Act then this estimate can be included in the financial statements. We have made a preliminary estimate of the Transition Toll Tax and the remeasurementevaluation of our ~~deferred tax assets and liabilities~~financial results for 2021, as of December 31, 2017. The preliminary estimate is subject to change as we finalize our analysis and as interpretations of the provisions of the 2017 Tax Act continue to develop. The final determination of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates, which could have a material adverse effect on our business, results of operations, financial position and cash flows.discussed below.

~~Warranty Provision~~

We typically offer standard limited warranties that range from one to two years and vary by product. We provide for the estimated cost of product warranties at the time product revenue is recognized. Factors that affect our warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our estimated warranty obligation is affected by ongoing product failure rates, specific product class failures outside our baseline experience, material usage and service delivery costs incurred in correcting a product failure. If actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. For example, our warranty expense decreased $0.7~~million in 2017 from 2016, driven primarily by a decrease in warranty expenses related to our mobile connectivity products.~~

Assumptions and historical warranty experience are evaluated to determine the appropriateness of such assumptions. We assess the adequacy of the warranty provision on a quarterly basis and we adjust this provision when necessary.

~~Stock-Based Compensation~~

Our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.

We use the Black-Scholes valuation model for estimating the fair value on the date of grant of compensatory stock options. Determining the fair value of stock option awards at the grant date requires judgment regarding certain valuation assumptions, including the volatility of our stock price, expected term of the option, risk-free interest rate and expected dividends. Changes in these assumptions and estimates could result in different fair values and could therefore impact our earnings. These changes would not impact our cash flows. The fair value of restricted stock awards is based upon our stock price on the grant date.

The amount of stock-based compensation expense recorded in any period for unvested awards requires estimates of the amount of stock-based awards that are expected to be forfeited prior to vesting. As of January 1, 2017, we adopted ASC Update No. 2016-09, ~~Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. As a result of this adoption, commencing on January 1, 2017 prospectively, we have elected to account for forfeitures as they occur which could result in a significant reversal of previously recognized stock-based compensation expense.

Compensation costs for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award. We have no awards that are subject to performance or market conditions as of December 31, 2017.

Goodwill, Intangible Assets, and other Long-Lived Assets

~~ASC Topic 350, Intangibles—Goodwill~~

We follow Accounting Standards Codification (ASC) Update No. 2017-04, Intangibles-Goodwill and Other ~~(ASC~~(Topic 350): Simplifying the Test of Goodwill Impairment. ASC 350 requires the completion of a goodwill impairment test at least annually. Historically, this goodwill impairment test was comprised of a two-step process. In January 2017, the FASB issued ASC Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment. This ASC simplified the accounting for goodwill impairment for all entities by requiring impairment charges to beannually based on either an optional qualitative assessment or a quantitative analysis comparing the ~~first step of the goodwill impairment test under ASC 350. Under previous guidance, if the~~estimated fair value of a reporting unit ~~is lower than~~to its carrying amount (Step 1), an entity would calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill was calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities would estimate the fair value of any unrecognized intangible assets (including in-process research and development) and any corporate level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step1. Under this new guidance if a reporting unit's carrying value exceeds its fair value, an entity will record an impairment charge based on that difference with such impairment charge limited to the amount of goodwill in the reporting unit. This ASC does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform the existing optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This ASC will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 for public business enterprises. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We have elected to early adopt this ASC as of January 1, 2017. The adoption of this ASC had no impact on our consolidated statements of operations, financial condition or cash flows.

We have historically performed our annual goodwill impairment test as of August 31st. During the three months ended December 31, 2017, we changed our annual impairment assessment date from August 31st to October 1st to better align the timing of the test ~~date with our~~date. Any impairment charges would be based on the quantitative analysis. As a result of the 2020 annual budgeting cycle. We do not consider the change in the annual goodwill impairment testing date to be a material change to our method of applying an accounting principle. In connection with the change in the date of our annual goodwill impairment test, we ~~performed a~~recorded goodwill impairment ~~test as~~charges of ~~both August 31, 2017~~$8.7 million and ~~October 1, 2017, and concluded that the fair value~~intangible asset impairment charges of ~~our~~$1.8 million related to its KVH Media Group reporting ~~units exceeded their carrying value. To date,~~unit. Prior to 2020, we ~~have~~had not ~~had~~ recorded or incurred goodwill impairment ~~losses.~~ charges.

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For the ~~August 31, 2017~~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 ~~approaches to estimate the fair value of our reporting units. We believe that the assumptions we used~~approach to estimate the fair value of our reporting units, ~~were~~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 ~~August 31, 2017.~~October 1, 2020. We ~~note~~estimated that, as of ~~August 31, 2017,~~October 1, 2020, the fair value of ~~all~~our mobile broadband reporting unit exceeded its carrying value by 18%; however, the carrying value of our KVH Media Group reporting ~~units~~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 ~~values~~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 ~~10%~~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 a future goodwill impairment ~~charge,~~charges, which could be material. For the October 1, 2017 test, we performed a qualitative assessment over goodwill impairment concluding it was more-likely-than-not that our reporting units fair value exceeded their carrying value. Accordingly, it was not necessary for us to perform the full Step 1 quantitative analysis.

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 ~~2017,~~2021, there were no events or changes in circumstances that indicated ~~that~~ 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.

~~Contingencies~~

~~We are subject to ongoing business risks arising in the ordinary course of business. See Item 3.~~ ~~Legal Proceedings,for more information regarding litigation matters. An estimated loss~~ contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates in the period they become known. We reserve for legal contingencies and legal fees when the amounts are probable and reasonably estimable. During 2016, we had settled a legal claim for a cash payment by us. The cash payment was included in accrued other in our consolidated balance sheet at December 31, 2015. The cash payment was made in January 2016.

Liquidity and Capital Resources

Our primary liquidity needs ~~are~~have been to fund general business requirements, including working capital requirements and capital ~~expenditures, interest payments, and debt repayments.~~expenditures. In recent years, we have funded our operations primarily from ~~cash flows from operations,~~the sale of a business in 2019 as well as bank financings and proceeds received from exercises of stock ~~options.~~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, ~~2017,~~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 ~~and debt repayment obligations~~ 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.~~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 indebtedness and~~ our satellite service capacity and equipment lease obligations. At December 31, ~~2017,~~2021, we ~~had outstanding debt obligations with a principal balance of $47.1 million and~~ had outstanding non-cancellable satellite service capacity and other lease obligations with future minimum payments of ~~$26.8~~$63.0 million.

Our ability to make payments on our ~~indebtedness and~~ 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, ~~2017,~~2021, we had ~~$42.9~~$24.5 million in cash, cash equivalents, and marketable securities, of which ~~$18.4~~$2.7 million in cash equivalents ~~were~~was held in local currencies by our foreign subsidiaries. ~~There were~~Our foreign subsidiaries held no marketable securities ~~held by our foreign subsidiaries~~ as of December 31, ~~2017.~~2021. As of December 31, ~~2017,~~2021, we had ~~$54.4~~$53.9 million in working capital.

Operating Activities

~~Net~~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 ~~operations for 2017 was $11.5~~operating activities of $6.0 million. The $6.0 million ~~as compared to $18.7 million for 2016. The $7.2 million decrease~~increase in net cash provided by operating activities is primarily due to a $8.0 decrease in cash inflows related to accounts receivable, a $6.9 million net decrease in non-cash items, a $3.5 million increase in net loss, a $2.8 million increase in cash outflows related to inventory, and a $1.6$12.2 million decrease in ~~cash inflows related to deferred revenue. Partially offsetting the increase in cash outflows were~~ net loss,a ~~$7.5~~$4.4 million decrease in cash outflows related to accounts payable and accrued expenses, a ~~$4.5~~$1.2 million decrease in cash outflows related to ~~accrued expenses,~~inventories, a ~~$1.7~~$1.0 million decrease in cash outflows related to other non-current assets and non-current contract assets, a ~~$1.4~~$0.6 million increase in cash inflows relating to accounts receivable, and a $0.5 million decrease in cash outflows ~~related~~relating to prepaid expenses, ~~and~~ other current assets, and current contract assets. Partially offsetting these items were a ~~$0.6~~$14.1 million decrease in ~~cash outflows related to other long term liabilities.~~

Net cash provided by operations for 2016 was $18.7 million as compared to $8.4 million for 2015. The $10.3 million increase is primarily due to a $16.5 million increase in cash inflows related to accounts receivable, a $4.6 million decrease in cash outflows related to inventory, a $3.5 million net increase in non-cash items, ~~a $3.1 million increase in cash inflows related~~which was primarily driven by the 2020 impairment charges to ~~deferred revenue, a $2.6 million decrease in cash outflows related to accounts payable,~~goodwill and a $1.2 million decrease in cash outflows related to prepaid expenses and other assets. Partially offsetting the increase in cash inflows were a $9.8 million shift from net income to net loss, a $6.7 million increase in cash outflows related to accrued expenses, a $3.9 million increase in cash outflows related to other non-currentintangible assets and ~~a $0.8 million increase in cash outflows related to other long term liabilities.~~the 2021 PPP loan forgiveness.

Investing Activities

Net cash ~~provided by~~used in investing activities for ~~2017~~2021 was ~~$4.5~~$6.7 million as compared to net cash used in investing activities of ~~$8.7~~$9.3 million for ~~2016.~~2020. The ~~$13.2 million increase was principally the result of a $20.5~~$2.6 million decrease in net investments in available-for-sale marketable securities, which was partially offset by a $7.2 million increase in capital expenditures. The change in investing activities was primarily due to an increase in capital expenditures for key strategic initiatives, additional principal repayment on our Term Note, extinguishment of our Equipment Loan, and to fund current year operations.

~~Net cash used in investing activities for 2016 was $8.7 million as compared $3.8 million for 2015. The $4.9 million increase in~~ cash used in investing activities was ~~principally driven by an increase in available-for-sale marketable securities purchases~~primarily the result of ~~$1.9 million and~~ a decrease in available-for-sale marketable securities maturities or sales of $3.1 million, resulting in an overall increase in available-for-sale marketable securities held as of December 31, 2016. The net cash used in investing activities of $8.7 million for 2016 was principally comprised of $5.6 million of capital expenditures and a net increase in available-for-sale marketable securities held of $3.1 million.

~~Financing Activities~~

~~Net cash used in financing activities for 2017 was $9.7 million as compared to $4.4 million for 2016. The $5.3~~$7.2 million increase in net cash ~~used~~inflows relating to the purchase and sale of marketable securities. Partially offsetting these items was a $4.7 million increase in capital expenditures.

Financing 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 ~~$4.1~~$1.7 million increase in ~~repayments of our term loan in 2017 that we undertook in connection with the acquisition of Videotel in July 2014, a $0.9 million decrease in~~cash inflows relating to proceeds from ~~the exercise of~~ stock options exercises and the ~~purchase of shares under our~~ employee stock purchase plan, a $0.4 million decrease in cash outflows relating to the repurchase of common stock and a $0.3 million ~~increase~~decrease in ~~repayments of long-term debt under our credit agreement and a $0.1 million increase in payments of employee restricted stock withholdings.~~cash outflows for capital lease payments.

Net cash used in financing activities for 2016 was $4.4 million as compared to $6.3 million for 2015. Net cash used in financing activities primarily consists of repayments of our term loan we undertook in connection with the acquisition of Videotel in July 2014 and other long-term debt as well as the payment of employee withholdings on stock-based awards. Proceeds from stock purchases under our equity incentive plans increased by $2.2 million from 2015 to 2016.

Borrowing Arrangements

~~Principal Credit Facility~~

AsPaycheck 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, ~~2017, there was $44.3 million in aggregate principal amount outstanding under our principal credit facility. On July 1, 2014,~~2021.

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Line of Credit

Effective October 30, 2018, we entered into ~~a five-year~~an amended and restated three-year senior secured credit facility agreement (the 2018 Credit Agreement) with Bank of America, N.A., as ~~administrative agent,~~Administrative Agent, and the lenders named from time to time as parties thereto ~~for an aggregate amount~~(the 2018 Lenders), which included a reducing revolving credit facility (the 2018 Revolver) of up to ~~$80.0~~$20.0 million ~~including a revolving credit facility of up~~initially and reducing to $15.0 million ~~and a term loan of $65.0 million~~on December 31, 2019, to be used for general corporate ~~purposes, including both~~purposes. Our obligations under the ~~refinancing~~2018 Credit Agreement are secured by substantially all of ~~the $30.0 million of indebtedness then outstanding under~~ our former credit facility and permitted acquisitions. The credit agreement was most recently amended in March 2017, to modify the Maximum Consolidated Leverage Ratio, the Applicable Rate, the Consolidated Fixed Charge Coverage Ratio (each as defined in the credit agreement)assets and the ~~amortization schedule~~pledge of ~~the term loan, as well as to make~~equity interests in certain ~~other changes.~~

~~In connection with the March 2017 amendment, we made an additional principal repayment~~ of ~~$6.0 million on the term loan and amended the repayment terms. Under the amended terms, we must make principal repayments~~our subsidiaries. As of $575,000 every three months starting on April 1, 2017 until the loan matures on July 1, 2019. On the maturity date, the entire remaining principal balance of the loan, including any future loans under the revolver, is due and payable, together with all accrued and unpaid interest, penalties, and any otherDecember 31, 2021, no amounts ~~due and payable under the credit agreement. The credit agreement contains provisions requiring the mandatory prepayment of amounts~~were outstanding under the term loan and the revolver under specified circumstances, including (i) 100% of the net cash proceeds from certain dispositions to the extent not reinvested in our business within a stated period, (ii) 50% of the net cash proceeds from stated equity issuances and (iii) 100% of the net cash proceeds from certain receipts of more than $250,000 outside the ordinary course of business. The prepayments are first applied to the term loan, in inverse order of maturity, and then to the revolver. In the discretion of the administrative agent, certain mandatory prepayments made on the revolver can permanently reduce the amount of credit available under the revolver.2018 Revolver.

Loans under the credit agreement bear interest at varying rates determined in accordance with the credit agreement. Each LIBOR Rate Loan, as defined in the credit agreement, bears interest on the outstanding principal amount thereof for each interest period from the applicable borrowing date at a rate per annum equal to the LIBOR Daily Floating Rate or LIBOR Monthly Floating Rate, each as defined in the credit agreement, as applicable, plus the Applicable Rate, as defined in the credit agreement, and each Base Rate Loan, as defined in the credit agreement, bears interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate, as defined in the credit agreement, plus the Applicable Rate. The Applicable Rate ranges from 1.75% to 2.25%, depending on our Consolidated Leverage Ratio, as defined in the credit agreement. The highest Applicable Rate applies when the Consolidated Leverage Ratio exceeds 1.50:1.00. Upon certain defaults, including failure to make payments when due, interest becomes payable at a higher default rate.

Borrowings under the ~~revolver~~2018 Revolver are subject to the satisfaction of ~~numerous~~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 ~~credit agreement.~~2018 Credit Agreement. As of December 31, ~~2017, there~~2021, we were ~~no borrowings outstanding under~~only able to draw on $10.9 million of the ~~revolver, and the full balance of~~ $15.0 million ~~was available for borrowing.~~facility due to covenant restrictions.

The ~~credit agreement contains~~2018 Credit Agreement contained two financial covenants, a ~~Maximum~~maximum Consolidated Leverage Ratio and a ~~Minimum~~minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the ~~credit agreement.~~2018 Credit Agreement. The ~~Maximum~~ Consolidated Leverage Ratio could not exceed 2.50:1.00 through December 31, 2020 and may not ~~be greater than 1.50:1.00.~~exceed 2.00:1.00 after December 31, 2020. The ~~Minimum~~ 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 ~~March 2017 amendment,~~PPP Loan was forgiven in full.

On October 29, 2021, we amended the ~~definition~~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 ~~was amended~~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 ~~include only maintenance capital expenditures, as defined. We were in compliance with these financial ratio debt covenants as~~the Bloomberg Short Term Bank Yield Index. In addition, Bank of ~~December 31, 2017.~~America became the sole lender under the 2018 Credit Agreement.

The ~~credit agreement~~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, ~~entry into~~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.

Our obligation to repay loans under the credit agreement could be accelerated upon a default or event of default under the terms of the credit agreement, including certain failures to pay principal or interest when due, certain breaches of representations and warranties, the failure to comply with our affirmative and negative covenants under the credit agreement, a change of control, certain defaults in payment relating to other indebtedness, the acceleration of payment of certain other indebtedness, certain events relating to our liquidation, dissolution, bankruptcy, insolvency or receivership, the entry of certain judgments against us, certain events relating to the impairment of collateral or the lenders’ security interest therein, and any other material adverse change with respect to us.

~~Mortgage Loan~~

We have a $4.0 million mortgage loan related to our headquarters facility in Middletown, Rhode Island. The loan term is ten years, with a principal amortization of 20 years. The interest rate is based on the BBA LIBOR Rate (as defined in the loan agreement) plus 2.00 percentage points. The mortgage loan is secured by the underlying property and improvements. The monthly mortgage payment is approximately $14,000, plus interest, and increases in increments of approximately $1,000 each year over the life of the mortgage. Due to the difference in the term of the loan and amortization of the principal, a balloon payment of $2.6 million is due in April 2019. The loan contains one financial covenant, a Fixed Charge Coverage Ratio, which applies in the event that our consolidated cash, cash equivalents, and marketable securities balance falls below $25.0 million at any time. As our consolidated cash, cash equivalents, and marketable securities balance was above the minimum threshold throughout 2017, the Fixed Charge Coverage Ratio did not apply.

Under the mortgage loan, we may prepay our outstanding loan balance subject to certain early termination charge. If we were to default on the mortgage loan, the underlying property and improvements would be used as collateral. In 2010, we entered into two interest rate swap agreements that are intended to hedge our mortgage interest obligations over the term of the mortgage loan by fixing the interest rates specified in the mortgage loan to 5.91% for half of the principal amount outstanding as of April 1, 2010 and 6.07% for the remaining half.

Other Matters

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 ~~would~~ plan ~~to seek~~ 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. ~~For example, in December 2011,~~From time to time we have entered into ~~a five-year agreement~~multi-year agreements to lease satellite capacity, ~~from a satellite operator, effective February 1, 2012,~~ and ~~in 2012~~ we have also purchased ~~three~~numerous satellite hubs to support ~~this~~the added capacity. ~~The total cost~~These transactions can involve millions of the five-year satellite capacity agreement, the satellite hubs, and teleport services was $12.2 million, including $2.7 million for the hubs. In January 2013, we borrowed $4.7 million from a bank and pledged as collateral six satellite hubs and related equipment, including the three hubs purchased in 2012. The term of the equipment loan was five years, and the loan bore interest at a fixed rate of 2.76% per annum. In March 2017, we repaid in full the current balance of the loan in advance of the January 30, 2018 original maturity date. In December 2013, we borrowed $1.2 million from a bank and pledged as collateral one satellite hub and related equipment. The term of the equipment loan was five years, and the loan bore interest at a fixed rate of 3.08% per annum. In March 2017, we repaid in full the current balance of the loan in advance of the December 30, 2018 original maturity date.dollars.

On ~~November 26, 2008,~~October 4, 2019, our Board of Directors authorized a share repurchase program pursuant to ~~repurchase~~which we were authorized to purchase up to one million shares of our common stock. The ~~share~~program expired on October 4, 2020. Under the repurchase program, ~~is funded using our existing cash, cash equivalents, marketable securities and future cash flows. As of December 31, 2017, 341,009~~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 ~~our common stock remain available for repurchase under the program. We did not purchase any shares of our~~ common stock in ~~2017.~~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.

~~Contractual Obligations and Other Commercial Commitments~~

Off-Balance Sheet Arrangements

As of December 31, ~~2017, our material contractual commitments consisted of~~2021, except for certain satellite service capacity near-term purchase commitments, term notes payable, a mortgage note payable, equipment notes payable, and equipment and facility leases. Our purchase commitments include unconditional purchase orders for inventory, manufacturing materials and fixed assets extending out over various periods throughout 2018. Weobligations that are ~~also obligated~~not considered operating or financing leases under ~~satellite service capacity leases and multi-year facility leases that terminate at various times between 2018 and 2023.~~

~~The following table summarizes our obligations under these commitments, excluding interest, at December 31, 2017:~~

Payment Due by Period
Contractual Obligations Total
Less than
1 Year
1-3 Years 3-5 Years
More than
5 Years
(in thousands)
Term notes payable $ 44,275
$ 2,300
$ 41,975
$ —
$ —
Satellite service capacity and related equipment lease obligations 24,974
13,008
10,436
1,530
—
Inventory, materials, and fixed asset purchase commitments 13,583
13,583
—
—
—
Mortgage notes payable 2,779
182
2,597
—
—
Facility lease obligations 1,790
674
968
148
—
Total $ 87,401
$ 29,747
$ 55,976
$ 1,678
$ —

~~The above table does not include our obligations related to certain interest rate swap derivative financial instruments that~~ASC 842, we entered into in April 2010 to reduce the volatility of cash flows that arise from change in interest rates in order to hedge our mortgage loan related to our corporate headquarters by fixing the interest rates specified in the mortgage loan to 5.9% for 50% of the principal outstanding and 6.1% for the remaining principal outstanding. These derivative financial instruments mature on April 1, 2019 and as of December 31, 2017, we had a liability of $0.1 million recorded related to the fair value of these derivative financial instruments.

~~The above table also does not reflect our liabilities associated with uncertain tax positions recorded under FIN 48 (codified primarily in ASC 740,~~ ~~Income Taxes~~) totaling $1.6 million. Due to the complexity associated with tax uncertainties, we cannot reasonably make a reliable estimate of the period in which we expect to settle these liabilities. See Note 8 to our consolidated financial statements contained in Item 15 of this Annual Report for more information on our unrecognized tax benefits.

We did not have any ~~other~~ off-balance sheet ~~commitments, guarantees,~~arrangements that have or ~~standby repurchase obligations as~~are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of ~~December 31, 2017.~~

Table of Contents

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 Issued 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.



ITEM 7A.			Quantitative and Qualitative Disclosure About Market Risk

~~Our primary market risk exposures are interest rate risk and foreign currency exchange rate risk.~~

~~We are exposed to changes in interest rates because we finance certain operations through fixed and variable rate debt instruments.~~Not applicable.

~~We had $44.3 million in borrowings outstanding at~~ ~~December 31, 2017, at an interest rate equal to the LIBOR Daily Floating Rate plus 1.50% under our variable-rate credit facility. For more information regarding our credit facility, see Item 7.~~ ~~Management’sDiscussion and Analysis of Financial Condition and Results of Operations - Borrowing Arrangements.~~ A hypothetical 10% increase or decrease in interest rates would have an approximately $0.1 million impact on our annual interest expense, based on the $44.3 million outstanding at December 31, 2017 with an interest rate of 3.32%.

As discussed in Note 15 to the audited consolidated financial statements, effective April 1, 2010, in order to reduce the volatility of cash outflows that arise from changes in interest rates, we entered into two interest rate swap agreements. These interest rate swap agreements are intended to hedge our mortgage loan related to our headquarters facility in Middletown, Rhode Island by fixing the interest rates specified in the mortgage loan to 5.9% for half of the principal amount outstanding and ~~6.1%~~ ~~for the remaining half of the principal amount outstanding as of April 1, 2010 until the mortgage loan expires on April 16, 2019.~~

We are exposed to currency exchange rate fluctuations related to our subsidiary operations in the United Kingdom, Denmark, Norway, Brazil, Singapore, Hong Kong, Cyprus, Japan, Belgium, and the Netherlands. Certain transactions in these locations are made in the local currency, yet are reported in the U.S. dollar, the functional currency. For foreign currency exposures existing at December 31, 2017, a 10% unfavorable movement in the foreign exchange rates for our subsidiary locations would not expose us to material losses in earnings or cash flows.

In the past, we purchased foreign currency forward contracts. These forward contracts were intended to offset the impact of exchange rate fluctuations on cash flows of our foreign subsidiaries. Foreign exchange contracts are accounted for as cash flow hedges and are recorded on the balance sheet at fair value until executed. Changes in the fair value are recognized in earnings. We did not enter into any such contracts during 2015, 2016, or 2017. We do not currently anticipate that we will enter into new agreements to replace the settled contracts.

The primary objective of our investment activities is to preserve principal and maintain liquidity, while at the same time maximizing income. We have not entered into any instruments for trading purposes. Some of the securities that we invest in may have market risk. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities that can include United States treasuries, certificates of deposit, investment grade asset-backed corporate securities, money market mutual funds, municipal bonds, and government agency and non-government debt securities. As of December 31, 2017, a hypothetical 100 basis-point increase in interest rates would have resulted in an immaterial decrease in the fair value of our investments that had maturities of greater than one year. Due to the conservative nature of our investments and the relatively short duration of their maturities, we believe this interest rate risk is substantially mitigated. As of December 31, 2017, all of the $8.3 million classified as available-for-sale marketable securities will mature or reset within one year. Accordingly, long-term interest rate risk is not considered material for our investment activities. We did not invest in any financial instruments denominated in foreign currencies as of December 31, 2017.



ITEM 8.			Financial Statements and Supplementary Data

Our consolidated financial statements, ~~and supplementary data,~~ together with the ~~reports~~report of Grant Thornton LLP thereon, our independent registered public accounting firm, are presented after the signature page to this annual report. The report of Grant Thornton LLP on our internal control over financial reporting is included in ~~Part IV~~Item 9A of this annual report.



ITEM 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.



ITEM 9A.			Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of our disclosure controls and procedures as of December 31, ~~2017,~~2021, the end of the period covered by this annual report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, ~~2017.~~2021.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management has evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2017~~2021 and concluded that it was effective.

Our independent registered public accounting firm, Grant Thornton LLP, has issued a report regarding the effectiveness of our internal control over financial reporting as of December 31, ~~2017,~~2021, and that report is included in Item 9A in this annual report.

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Evaluation of Changes in Internal Control over Financial Reporting

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated changes in our internal control over financial reporting that occurred during the fourth quarter of ~~2017.~~2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Important Considerations

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

KVH Industries, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of KVH Industries, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, ~~2017,~~2021, based on criteria established in the 2013 Internal ~~Control-Integrated~~Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2021, based on criteria established in the 2013 Internal ~~Control-Integrated~~Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 31, ~~2017,~~2021, and our report dated March ~~2, 2018~~11, 2022 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our ~~opinion.~~opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ GRANT THORNTON LLP

~~/s/ GRANT THORNTON LLP~~Boston, Massachusetts

~~Boston, Massachusetts~~
March ~~2, 2018~~11, 2022

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ITEM 9B.			Other Information

None.


ITEM 9C.			Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

We have omitted the information required in Part III of this annual report because we intend to include that information in our definitive proxy statement for our ~~2018~~2022 annual meeting of stockholders, which we expect to file before 120 days after the end of fiscal ~~2017.~~2021. We incorporate the information required in Part III of this annual report by reference to our ~~2018~~2022 proxy statement.



ITEM 10.			Directors, Executive Officers and Corporate Governance

Except as set forth below, the information required by this item is incorporated by reference to our ~~2018~~2022 proxy statement.

Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our directors, executive officers and employees. Our Code of Business Conduct and Ethics can be found on our website, which is located at www.kvh.com. We intend to make all required disclosures concerning any amendments to or waivers from, our Code of Business Conduct and Ethics on our website. Any person may request a copy of the Code of Business Conduct and Ethics, at no cost, by writing to us at the following address: KVH Industries, Inc., 50 Enterprise Center, Middletown, Rhode Island, 02842, Attention: Investor Relations.



ITEM 11.			Executive Compensation

The information required by this item is incorporated by reference to our ~~2018~~2022 proxy statement.



ITEM 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to our ~~2018~~2022 proxy statement.



ITEM 13.			Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated by reference to our ~~2018~~2022 proxy statement.



ITEM 14.			Principal Accountant Fees and Services

The information required by this item is incorporated by reference to our ~~2018~~2022 proxy statement.

Table of Contents

PART IV



~~ITEM 15.~~	~~Exhibits and Financial Statement Schedules~~



ITEM 15.				~~Page~~
~~(a)~~	1.	~~Financial Statements~~

		~~Report of Independent Registered Public Accounting Firm~~	68

		~~Consolidated Balance Sheets as of December 31, 2017~~Exhibits and ~~2016~~	69

		~~Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015~~	70

		~~Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017, 2016 and 2015~~	70

		~~Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015~~	72

		~~Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015~~	73

		~~Notes to Consolidated Financial Statements~~	74

~~(a)~~	2.	Financial Statement Schedules

		~~None.~~

	3.	~~Exhibits~~

Exhibit No. Description
Filed with
this Form
10-K
Incorporated by Reference
Form Filing Date Exhibit No.
3.1
Amended and Restated Certificate of Incorporation, as amended 10-Q
August 6,
2010
3.1
3.2
Amended and Restated Bylaws of KVH Industries, Inc. 8-K April 30, 2014 3.1
3.3
Amended and Restated Bylaws 10-Q November 1, 2017 3.2
4.1
Specimen certificate for the common stock X
*10.1
Second Amended and Restated 2003 Incentive and Nonqualified Stock Option Plan 10-Q May 6, 2009 10.21
*10.2
Fourth Amended and Restated 2006 Stock Incentive Plan DEF 14A April 25, 2013 App. A
*10.3
2016 Equity and Incentive Plan DEF 14A April 25, 2016 App. A
*10.4
Amended and Restated 1996 Employee Stock Purchase Plan DEF 14A April 25, 2016 App. B
*10.5
Form of Incentive Stock Option Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.5
*10.6
Form of Non-Statutory Stock Option Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.6
*10.7
Form of Restricted Stock Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.7
*10.8
Policy Regarding Automatic Grants to Non-Employee Directors 10-Q May 6, 2009 10.23
10.9
Loan Agreement dated April 6, 2009 by and among KVH Industries, Inc., and Bank of America, N.A. 8-K
April 8,
2009
10.1

Exhibit No. Description
Filed with
this Form
10-K
Incorporated by Reference
Form Filing Date Exhibit No.
10.10
Second Amendment, dated June 9, 2011 by and between KVH Industries, Inc. and Bank of America, N.A., amending the Loan Agreement, dated April 6, 2009, as amended 8-K
June 14,
2011
10.2
10.11
Master Loan and Security Agreement, dated as of January 30, 2013 by and between KVH Industries, Inc. and Bank of America Leasing & Capital, LLC 8-K February 5, 2013 10.1
10.12
Equipment Security Note, dated as of January 30, 2013 by and between KVH Industries, Inc. and Bank of America Leasing & Capital, LLC 8-K February 5, 2013 10.2
10.13
Credit Agreement, dated as of July 1, 2014, by and between Bank of America, N.A., The Washington Trust Company and KVH Industries, Inc. 8-K July 3, 2014 10.1
10.14
Term Notes, dated as of July 1, 2014, by and between KVH Industries, Inc. and each of Bank of America, N.A. and The Washington Trust Company 8-K July 3, 2014 10.2
10.15
Revolving Credit Notes, dated as of July 1, 2014, by and between KVH Industries, Inc. and each of Bank of America, N.A. and The Washington Trust Company 8-K July 3, 2014 10.3
10.16
Security Agreement, dated as of July 1, 2014, by and between Bank of America, N.A. and KVH Industries, Inc. 8-K July 3, 2014 10.4
10.17
Pledge Agreements, dated as of July 1, 2014, by and between Bank of America, N.A. and KVH Industries, Inc. with respect to KVH Industries A/S and KVH Industries U.K. Limited 8-K July 3, 2014 10.5
10.18
First Amendment to Credit Agreement, dated as of June 15, 2015, by and among Bank of America, N.A., The Washington Trust Company and KVH Industries, Inc. 10-Q/A August 13, 2015 10.1
10.19
Second Amendment to Credit Agreement, dated as of September 30, 2015, by and among Bank of America, N.A., The Washington Trust Company and KVH Industries, Inc. 8-K October 5, 2015 10.1
10.20
Third Amendment to Credit Agreement, dated as of March 7, 2017, by and among Bank of America, N.A., The Washington Trust Company and KVH Industries, Inc. 8-K March 9, 2017 10.1
21.1
List of Subsidiaries X
23.1
Consent of Grant Thornton LLP X
31.1
Rule 13a-14(a)/15d-14(a) certification of principal executive officer X
31.2
Rule 13a-14(a)/15d-14(a) certification of principal financial officer X
32.1
Rule 1350 certification X

Exhibit No.

Description

Filed with
this Form
10-K

Incorporated by Reference

Form

Filing Date

Exhibit No.

3.1

Amended and Restated Certificate of Incorporation, as amended

10-Q

August 6,
2010

3.1

3.2

Amended and Restated Bylaws

10-Q

November 1, 2017

3.2

4.1

Specimen certificate for the common stock

10-K

March 2, 2018

4.1

4.2

Description of Capital Stock

8-K

August 4, 2020

4.1

*10.1

Amended and Restated 1996 Employee Stock Purchase Plan

DEF 14A

April 25, 2016

App. B

*10.2

Amended and Restated 2016 Equity and Incentive Plan

DEF 14A

April 29, 2020

App. A

*10.3

Form of Incentive Stock Option Agreement granted under the 2016 Equity and Incentive Plan

10-K

March 9, 2017

10.5

*10.4

Form of Non-Statutory Stock Option Agreement granted under the 2016 Equity and Incentive Plan

10-K

March 9, 2017

10.6

*10.5

Form of Restricted Stock Agreement granted under the 2016 Equity and Incentive Plan

10-K

March 9, 2017

10.7

*10.6

Policy Regarding Automatic Grants to Non-Employee Directors

10-Q

May 6, 2009

10.23

Table of Contents

Exhibit No.

Description

Filed with
this Form
10-K

Incorporated by Reference

Form

Filing Date

Exhibit No.

10.7

Amended and Restated Credit Agreement dated as of October 30, 2018 among KVH Industries, Inc., Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and the Lenders party hereto

10-Q

October 31, 2018

10.1

10.8

Amended and Restated Security Agreement dated as of October 30, 2018 between KVH Industries, Inc. and Bank of America, N.A., as Administrative Agent

10-Q

October 31, 2018

10.2

10.9

Amended and Restated Pledge Agreement dated as of October 30, 2018 between KVH Industries, Inc. and Bank of America, N.A., as Administrative Agent with respect to KVH Industries A/S

10-Q

October 31, 2018

10.3

10.10

Amended and Restated Pledge Agreement dated as of October 30, 2018 between KVH Industries, Inc. and Bank of America, N.A., as Administrative Agent with respect to KVH Industries U.K. Limited

10-Q

October 31, 2018

10.4

10.11

Consent dated as of May 13, 2019 among KVH Industries, Inc., as Borrower, Bank of America, N.A., as Lender and Administrative Agent, and The Washington Trust Company, as Lender, under the Amended and Restated Credit Agreement dated as of October 30, 2018 among such parties

8-K

May 16, 2019

10.4

10.12

First Amendment to Amended and Restated Credit Agreement as of July 30, 2020 by and among KVH Industries, Inc., Bank of America, N.A., and The Washington Trust Company

10-Q

July 31, 2020

10.3

10.13

Second Amendment to Amended and Restated Credit Agreement dated as of October 29, 2021 by and among KVH Industries, Inc., and Bank of America, N.A.

10-Q

November 4, 2021

10.1

10.14

Cooperation Agreement, dated as of April 8, 2020, by and among KVH Industries, Inc., Vintage Capital Management, LLC, and Kahn Capital Management, LLC

8-K

April 9, 2020

10.1

10.1 5

Promissory Note dated as of May 1, 2020 and executed on May 3, 2020 by KVH Industries, Inc., in favor of Bank of America, N.A.

8-K

May 6, 2020

10.1

21.1

List of Subsidiaries

23.1

Consent of Grant Thornton LLP

31.1

Rule 13a-14(a)/15d-14(a) certification of principal executive officer

31.2

Rule 13a-14(a)/15d-14(a) certification of principal financial officer

32.1

Rule 1350 certification

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101.1

Interactive Data File regarding (a) our Consolidated Balance Sheets as of December 31, ~~2017~~2021 and ~~2016,~~2020, (b) our Consolidated Statements of Operations for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, (c) our Consolidated Statements of Comprehensive Loss for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, (d) our Consolidated Statements of Stockholders' Equity for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, (e) our Consolidated Statements of Cash Flows for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020, and (e) the Notes to such Consolidated Financial Statements

104.1

Cover Page Interactive Data File (embedded within the Inline XBRL document)


*	* Management contract or compensatory plan.

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ITEM 16.			Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		KVH Industries, Inc.

		~~KVH Industries, Inc.~~

Date: March ~~2, 2018~~11, 2022	By:		/S/ M~~ARTIN~~ ~~A. KITS~~ VAN H~~EYNINGEN~~BRENT C. BRUUN
				~~Martin A. Kits van Heyningen~~ Brent C. Bruun Interim President and Chief Executive Officer ~~and Chairman of the Board~~

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Name

Title

Date

/S/ BRENT C. BRUUN

Interim President and Chief Executive Officer (Principal Executive Officer)

March 11, 2022

Brent C. Bruun

~~Name~~

~~Title~~

~~Date~~

/S/ ~~MARTIN~~ROGER A. ~~KITS VAN HEYNINGEN~~KUEBEL

~~President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)~~

~~March 2, 2018~~

~~Martin A. Kits van Heyningen~~

~~/S/ DONALD W. REILLY~~

Chief Financial Officer (Principal Financial Officer)

March ~~2, 2018~~11, 2022

~~Donald W. Reilly~~Roger A. Kuebel

/S/ JENNIFER L. BAKER

Vice President, Chief Accounting Officer ~~and Corporate Controller~~ (Principal Accounting Officer)

March ~~2, 2018~~11, 2022

Jennifer L. Baker

/S/ ~~MARK S. AIN~~CATHY-ANN MARTINE-DOLECKI

~~Director~~Chair of the Board of Directors

March ~~2, 2018~~11, 2022

~~Mark S. Ain~~Cathy-Ann Martine-Dolecki

/S/ DANELLE M. BARRETT

Director

March 11, 2022

Danelle M. Barrett

/S/ JAMES S. DODEZ

Director

March ~~2, 2018~~11, 2022

James S. Dodez

/S/ ~~STANLEY K. HONEY~~CIELO M. HERNANDEZ

Director

March ~~2, 2018~~11, 2022

~~Stanley K. Honey~~Cielo M. Hernandez

~~/S/ BRUCE J. RYAN~~

~~Director~~

~~March 2, 2018~~

~~Bruce J. Ryan~~

/S/ CHARLES R. TRIMBLE

Director

March ~~2, 2018~~11, 2022

Charles R. Trimble

Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

KVH Industries, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of KVH Industries, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, ~~2017~~2021 and ~~2016,~~2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the ~~three~~two years in the period ended December 31, ~~2017,~~2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2021 and ~~2016,~~2020, and the results of its operations and its cash flows for each of the ~~three~~two years in the period ended December 31, ~~2017~~2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, ~~2017,~~2021, based on criteria established in the 2013 Internal ~~Control-Integrated~~Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March ~~2, 2018~~11, 2022 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Recognition of satellite connectivity services revenue

As described further in Note 1(e) to the financial statements, the Company's satellite connectivity services revenue, including broadband Internet, data and VoIP services, is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed. We identified satellite connectivity services revenue as a critical audit matter.

The principal consideration for our determination that satellite connectivity service sales transactions are a critical audit matter is the complexity of the process used by management for recognizing revenue, given the diversity of data sources, and the number of systems involved, which includes third party systems. This requires a high degree of audit subjectivity and effort in designing and performing audit procedures to evaluate whether the satellite connectivity services revenue is recognized properly.

Our audit procedures related to the satellite connectivity services revenue included the following, among others:

•We tested the design and operating effectiveness of controls related to management’s review and validation of data coming from third parties that is used as an input in revenue recognition as well as the controls over review of appropriate revenue recognition for this revenue stream.

Table of Contents

•We performed detailed transaction testing over the occurrence and accuracy of a sample of the revenue recognized by validating usage data from third party reports which is utilized in customer billing.

•We obtained the billing service provider's SOC-1 report, bridge letter (as applicable), and Management's internal control review of the SOC-1 report. We verified that Management had assessed key complementary user entity controls (“CUEC”s). We inspected the SOC-1 report to verify that there were no failed controls, and that the opinion was unqualified. In addition, we tested key controls that were responsive to the CUECs.



/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2014.

Boston, Massachusetts
March ~~2, 2018~~11, 2022

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	11,376	$	12,578
Marketable securities	13,147		25,141
Accounts receivable, net of allowance for doubtful accounts of $1,636 and $1,596 as of December 31, 2021 & December 31, 2020, respectively	33,648		33,687
Inventories, net	24,640		24,674
Prepaid expenses and other current assets	3,789		3,894
Current contract assets	1,230		1,086

Total current assets	87,830		101,060
Property and equipment, net	60,114		56,273
Intangible assets, net	1,287		2,254
Goodwill	6,570		6,592
Right of use assets	3,055		6,893
Other non-current assets	6,778		7,785
Non-current contract assets	3,104		2,661
Deferred income tax asset	56		73

Total assets	$	168,794	$	183,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,265	$	11,400
Accrued compensation and employee-related expenses	7,053		7,156
Accrued other	7,892		6,597
Accrued product warranty costs	1,179		1,812

Current portion of long-term debt	—		4,992
Contract liabilities	3,989		4,445
Current operating lease liability	1,912		3,826
Liability for uncertain tax positions	592		560

Total current liabilities	33,882		40,788
Other long-term liabilities	30		674
Long-term operating lease liability	1,224		3,204
Long-term contract liabilities	4,466		4,688
Long-term debt, excluding current portion	—		1,935
Deferred income tax liability	215		418

Total liabilities	$	39,817	$	51,707
Commitments and contingencies (Notes 1, 5, 6, 15 and 16)	0		0
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued	—		—
Common stock, $0.01 par value. Authorized 30,000,000 shares, 20,342,695 and 19,862,534 shares issued at December 31, 2021 and December 31, 2020, respectively; and 18,910,001 and 18,429,840 shares outstanding at December 31, 2021 and December 31, 2020, respectively	203		199
Additional paid-in capital	156,199		149,170
Accumulated deficit	(12,165)		(2,402)
Accumulated other comprehensive loss	(3,409)		(3,232)
	140,828		143,735
Less: treasury stock at cost, 1,432,694 shares as of December 31, 2021 and December 31, 2020	(11,851)		(11,851)
Total stockholders’ equity	128,977		131,884
Total liabilities and stockholders’ equity	$	168,794	$	183,591

See accompanying Notes to Consolidated Financial Statements.

December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 34,596
$ 26,422
Marketable securities 8,319
25,712
Accounts receivable, net of allowance for doubtful accounts of $2,852 and $3,477 as of December 31, 2017 & December 31, 2016, respectively 28,316
31,152
Inventories 22,732
20,745
Prepaid expenses and other current assets 3,816
4,801
Total current assets 97,779
108,832
Property and equipment, less accumulated depreciation of $51,099 and $45,766 as of December 31, 2017 & December 31, 2016, respectively 43,521
36,586
Intangible assets, less accumulated amortization of $20,656 and $16,344 as of December 31, 2017 & December 31, 2016, respectively 15,120
17,838
Goodwill 33,872
31,343
Other non-current assets 5,927
5,134
Non-current deferred income tax asset 20
24
Total assets $ 196,239
$ 199,757
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 15,736
$ 8,436
Accrued compensation and employee-related expenses 5,358
4,766
Accrued other 9,210
8,317
Accrued product warranty costs 2,074
2,280
Deferred revenue 6,919
6,661
Current portion of long-term debt 2,482
7,900
Liability for uncertain tax positions 1,570
1,283
Total current liabilities 43,349
39,643
Other long-term liabilities 19
326
Long-term debt, excluding current portion 44,572
50,153
Non-current deferred income tax liability 2,634
3,133
Total liabilities $ 90,574
$ 93,255
Commitments and contingencies (Notes 1, 5, 6, 15 and 16)

Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued —
—
Common stock, $0.01 par value. Authorized 30,000,000 shares, 18,787,816 and
18,420,914 shares issued at December 31, 2017 and December 31, 2016, respectively; and 17,128,825 and 16,761,923 shares outstanding at
December 31, 2017 and December 31, 2016, respectively
188
184
Additional paid-in capital 134,361
129,660
(Accumulated deficit) retained earnings (4,417 ) 6,617
Accumulated other comprehensive loss (11,317 ) (16,809 )
118,815
119,652
Less: treasury stock at cost, common stock, 1,658,991 shares as of December 31, 2017 and December 31, 2016, respectively (13,150 ) (13,150 )
Total stockholders’ equity 105,665
106,502
Total liabilities and stockholders’ equity $ 196,239
$ 199,757

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)


	Year Ended December 31,
	2021		2020
Sales:
Product	$	66,870	$	64,619
Service	104,897		94,114
Net sales	171,767		158,733
Costs and expenses:
Costs of product sales	46,810		41,608
Costs of service sales	65,162		59,517
Research and development	17,766		15,799
Sales, marketing and support	31,181		29,811
General and administrative	28,794		24,445
Goodwill impairment charge	—		8,732
Intangible asset impairment charge	—		1,758
Total costs and expenses	189,713		181,670
Loss from operations	(17,946)		(22,937)
Interest income	886		996
Interest expense	56		18
Other income, net	7,245		193
Loss before income tax (benefit) expense	(9,871)		(21,766)
Income tax (benefit) expense	(108)		174


Net loss	$	(9,763)	$	(21,940)







Net loss per common share
Basic and diluted	$	(0.54)	$	(1.24)


Weighted average number of shares outstanding:
Basic and diluted	18,217		17,669

See accompanying Notes to Consolidated Financial Statements.

Year Ended December 31,
2017 2016 2015
Sales:
Product $ 56,968
$ 73,075
$ 76,213
Service 103,120
103,047
108,421
Net sales 160,088
176,122
184,634
Costs and expenses:
Costs of product sales 37,474
46,334
47,404
Costs of service sales 52,692
52,966
54,816
Research and development 15,858
16,030
14,039
Sales, marketing and support 33,896
33,942
35,714
General and administrative 28,932
28,172
29,453
Total costs and expenses 168,852
177,444
181,426
(Loss) income from operations (8,764 ) (1,322 ) 3,208
Interest income 659
513
546
Interest expense 1,467
1,436
1,460
Other (expense) income, net (366 ) 275
372
(Loss) income before income tax expense (9,938 ) (1,970 ) 2,666
Income tax expense 1,096
5,547
413
Net (loss) income $ (11,034 ) $ (7,517 ) $ 2,253

Per share information:
Net (loss) income per share, basic $ (0.67 ) $ (0.47 ) $ 0.14
Net (loss) income per share, diluted $ (0.67 ) $ (0.47 ) $ 0.14
Number of shares used in per share calculation:
Basic 16,419
15,834
15,625
Diluted 16,419
15,834
15,834

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)


	Year Ended December 31,
	2021		2020
Net loss	$	(9,763)	$	(21,940)
Other comprehensive loss, net of tax:

Foreign currency translation adjustment	(177)		(465)

Other comprehensive loss, net of tax (1)	(177)		(465)
Total comprehensive loss	$	(9,940)	$	(22,405)

Year Ended December 31,
2017 2016 2015
Net (loss) income $ (11,034 ) $ (7,517 ) $ 2,253
Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities (1 ) (1 ) (3 )
Foreign currency translation adjustment 5,404
(9,288 ) (4,207 )
Unrealized gain on derivative instruments, net 89
80
57
Other comprehensive income (loss), net of tax ⁽¹⁾
5,492
(9,209 ) (4,153 )
Total comprehensive loss $ (5,542 ) $ (16,726 ) $ (1,900 )

(1) Tax impact was nominal for all periods.

See accompanying Notes to Consolidated Financial Statements.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2019	19,399	$	194	$	144,485	$	19,538	$	(2,767)	(1,397)	$	(11,461)	$	149,989
Net loss	—	—		—		(21,940)		—		—	—		(21,940)
Other comprehensive loss	—	—		—		—		(465)		—	—		(465)

Stock-based compensation	—	—		3,462		—		—		—	—		3,462
Issuance of common stock under employee stock purchase plan	44	—		336		—		—		—	—		336
Acquisition of treasury stock	—	—		—		—		—		(36)	(390)		(390)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	420	5		887		—		—		—	—		892
Balance at December 31, 2020	19,863	$	199	$	149,170	$	(2,402)	$	(3,232)	(1,433)	$	(11,851)	$	131,884
Net loss	—	—		—		(9,763)		—		—	—		(9,763)
Other comprehensive loss	—	—		—		—		(177)		—	—		(177)

Stock-based compensation	—	—		4,109		—		—		—	—		4,109
Issuance of common stock under employee stock purchase plan	26	—		215		—		—		—	—		215



Exercise of stock options and issuance of restricted stock awards, net of forfeitures	454	4		2,705		—		—		—	—		2,709
Balance at December 31, 2021	20,343	$	203	$	156,199	$	(12,165)	$	(3,409)	(1,433)	$	(11,851)	$	128,977

See accompanying Notes to Consolidated Financial Statements.

Common Stock
Additional
Paid-in
Capital
Accumulated Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury Stock
Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance at December 31, 2014 17,153
$ 172
$ 121,084
$ 11,881
$ (3,447 ) (1,659 ) $ (13,150 ) $ 116,540
Net income —
—
—
2,253
—
—
—
2,253
Other comprehensive loss —
—
—
—
(4,153 ) —
—
(4,153 )
Stock-based compensation —
—
3,734
—
—
—
—
3,734
Issuance of common stock under employee stock purchase plan 28
—
291
—
—
—
—
291
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements (27 ) —
(578 ) —
—
—
—
(578 )
Exercise of stock options and issuance of restricted stock awards, net of forfeitures 182
1
88
—
—
—
—
89
Balance at December 31, 2015 17,336
$ 173
$ 124,619
$ 14,134
$ (7,600 ) (1,659 ) $ (13,150 ) $ 118,176
Net loss —
—
—
(7,517 ) —
—
—
(7,517 )
Other comprehensive loss —
—
—
—
(9,209 ) —
—
(9,209 )
Stock-based compensation —
—
3,651
—
—
—
—
3,651
Issuance of common stock under employee stock purchase plan 18
—
146
—
—
—
—
146
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements (32 ) —
(313 ) —
—
—
—
(313 )
Excess tax shortfall on share-based awards —
—
(869 ) —
—
—
—
(869 )
Exercise of stock options and issuance of restricted stock awards, net of forfeitures 1,099
11
2,426
—
—
—
—
2,437
Balance at December 31, 2016 18,421
$ 184
$ 129,660
$ 6,617
$ (16,809 ) (1,659 ) $ (13,150 ) $ 106,502
Net loss —
—
—
(11,034 ) —
—
—
(11,034 )
Other comprehensive income —
—
—
—
5,492
—
—
5,492
Stock-based compensation —
—
3,518
—
—
—
—
3,518
Issuance of common stock under employee stock purchase plan 47
—
358
—
—
—
—
358
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements (43 ) —
(392 ) —
—
—
—
(392 )
Exercise of stock options and issuance of restricted stock awards, net of forfeitures 363
4
1,217
—
—
—
—
1,221
Balance at December 31, 2017 18,788
$ 188
$ 134,361
$ (4,417 ) $ (11,317 ) (1,659 ) $ (13,150 ) $ 105,665

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(9,763)	$	(21,940)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for doubtful accounts	530		333
Depreciation and amortization	14,601		11,663
Impairment charge to goodwill and intangibles	—		10,490
Deferred income taxes	(186)		(283)
Loss on disposals of fixed assets	494		713

Compensation expense related to stock-based awards and employee stock purchase plan	4,109		3,462
Unrealized currency translation (gain) loss	(112)		151
PPP loan forgiveness	(6,979)		—
Changes in operating assets and liabilities:
Accounts receivable	(506)		(1,123)
Inventories	33		(1,205)
Prepaid expenses, other current assets, and current contract assets	147		(314)
Other non-current assets and non-current contract assets	509		(484)
Accounts payable	(251)		(3,274)
Contract liabilities and long-term contract liabilities	(665)		(817)
Accrued compensation, product warranty and other	945		(458)
Other long-term liabilities	3		7
Net cash provided by (used in) operating activities	$	2,909	$	(3,079)
Cash flows from investing activities:
Capital expenditures	(18,740)		(14,066)
Cash paid for acquisition of intangible assets	(62)		(75)
Proceeds from sale of fixed assets	100		80

Purchases of marketable securities	(6)		(8,734)
Maturities and sales of marketable securities	12,000		13,500
Net cash used in investing activities	$	(6,708)	$	(9,295)
Cash flows from financing activities:

Proceeds from PPP loan	—		6,927



Proceeds from stock options exercised and employee stock purchase plan	2,939		1,216
Repurchase of common stock	—		(390)
Payment of finance lease	(294)		(624)
Net cash provided by financing activities	$	2,645	$	7,129
Effect of exchange rate changes on cash and cash equivalents	(48)		(542)
Net decrease in cash and cash equivalents	(1,202)		(5,787)
Cash and cash equivalents at beginning of period	12,578		18,365
Cash and cash equivalents at end of period	$	11,376	$	12,578
Supplemental disclosure of cash flow information:

Cash paid for income taxes, net of refunds	$	419	$	1,051
Changes in accrued other and accounts payable related to property and equipment additions	$	384	$	165

Right of use assets (ROU) assets arising from entering into new operating lease obligations	$	407	$	3,032

See accompanying Notes to Consolidated Financial Statements.

Year Ended December 31,
2017 2016 2015
Cash flows from operating activities:
Net (loss) income $ (11,034 ) $ (7,517 ) $ 2,253
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts 674
872
1,337
Depreciation and amortization 11,037
12,564
12,719
Deferred income taxes (756 ) 2,406
(411 )
Loss (gain) on disposals of fixed assets 27
907
(4 )
Loss on derivatives instruments —
—
57
Compensation expense related to stock-based awards and employee stock purchase plan 3,518
3,651
3,734
Unrealized currency translation (gain) loss (86 ) 881
391
Changes in operating assets and liabilities:
Accounts receivable 2,701
10,709
(5,803 )
Inventories (1,978 ) 806
(3,755 )
Prepaid expenses and other current assets 1,045
(332 ) (1,576 )
Other non-current assets (712 ) (2,378 ) 1,539
Accounts payable 6,711
(790 ) (3,390 )
Deferred revenue (138 ) 1,474
(1,643 )
Accrued expenses 834
(3,687 ) 3,023
Other long-term liabilities (316 ) (867 ) (74 )
Net cash provided by operating activities $ 11,527
$ 18,699
$ 8,397
Cash flows from investing activities:
Capital expenditures (12,788 ) (5,631 ) (5,694 )
Cash paid for acquisition of intangible assets (83 ) —
—
Purchases of marketable securities (11,115 ) (13,173 ) (11,323 )
Maturities and sales of marketable securities 28,508
10,080
13,217
Net cash provided by (used in) investing activities $ 4,522
$ (8,724 ) $ (3,800 )
Cash flows from financing activities:
Repayments of long-term debt (1,649 ) (1,358 ) (1,307 )
Repayments of term note borrowings (9,350 ) (5,281 ) (4,876 )
Proceeds from stock options exercised and employee stock purchase plan 1,644
2,583
432
Payment of employee restricted stock withholdings (392 ) (313 ) (578 )
Other —
(4 ) —
Net cash used in financing activities $ (9,747 ) $ (4,373 ) $ (6,329 )
Effect of exchange rate changes on cash and cash equivalents 1,872
(1,899 ) (838 )
Net increase (decrease) in cash and cash equivalents 8,174
3,703
(2,570 )
Cash and cash equivalents at beginning of period 26,422
22,719
25,289
Cash and cash equivalents at end of period $ 34,596
$ 26,422
$ 22,719
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,449
$ 1,433
$ 1,467
Cash paid for income taxes, net of refunds $ 972
$ 3,647
$ 2,182
Changes in accrued liabilities and accounts payable related to fixed asset additions $ 501
$ 345
$ —
Deferred purchase price consideration related to asset acquisition included
in accrued expenses

$ 50
$ —
�� $ —

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2017~~, ~~2016~~2021 and ~~2015~~2020

(in thousands, except per share amounts)


~~(1)~~	~~Summary of Significant Accounting Policies~~


~~(a)~~	~~Description of Business~~

(1)Summary of Significant Accounting Policies

(a)Description of Business

KVH Industries, Inc. (together with its subsidiaries, the Company or KVH) designs, develops, manufactures and markets mobile connectivity products and services for the marine and land markets, and inertial navigation products for both the commercial and defense markets. KVH's reporting segments are as follows:

•the mobile connectivity segment and

•the inertial navigation segment

KVH’s 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. ~~KVH’s CommBox offers a range of tools designed to increase communication efficiency, reduce costs, and manage network operations.~~ KVH sells and leases its mobile connectivity products through an extensive international network of dealers and distributors. KVH also sells and leases products directly to end users. ~~In the second quarter of 2017, the Company launched~~

KVH’s mobile connectivity service sales represent primarily sales earned from satellite voice and Internet airtime services. KVH provides, for monthly fixed and usage fees, satellite connectivity services, including broadband Internet, data and VoIP services, to its TracPhone V-series customers. AgilePlans, a ~~new~~ mini-VSAT Broadband service offering, ~~AgilePlans, which~~ is a monthly subscription model providing global connectivity to commercial maritime customers, including hardware, installation, broadband Internet, Voice over Internet Protocol (VoIP), entertainment and training content and global support for a monthly fee with no minimum commitment. KVH offers AgilePlans customers a variety of airtime data plans with varying data speeds and fixed data usage levels with overage charges per megabyte, which is similar to the plans that the Company offers to its other customers. The Company recognizes the monthly subscription fee as service revenue over the service delivery period. The Company retains ownership of the hardware that it provides to AgilePlans customers, who must return the hardware to KVH if they decide to terminate the service. Because KVH does not sell the hardware under AgilePlans, the Company does not recognize any product revenue when the hardware is deployed to an AgilePlans customer. KVH records the cost of the hardware used by AgilePlans customers as revenue-generating assets and depreciates the cost over an estimated useful life of five years. Since the Company is retaining ownership of the hardware, it does not accrue any warranty costs for AgilePlans hardware; however, any maintenance costs on the hardware is expensed in the period these costs are incurred.

Mobile connectivity service sales also include the distribution of commercially licensed entertainment, including news, sports, music, and movies to commercial and leisure customers in the maritime, hotel, and retail markets through the KVH Media Group, and the distribution of training films and eLearning computer-based training courses to commercial customers in the maritime market through Super Dragon Limited and Videotel Marine Asia Limited (together referred to as Videotel).Group. KVH also earns monthly usage fees from third-party satellite connectivity services, including voice, data and Internet services, provided to its Inmarsat and Iridium customers who choose to activate their subscriptions with KVH. Mobile connectivity service sales also include engineering services provided under development contracts, sales from product repairs, and extended warranty sales.

KVH's inertial navigation products offer precision fiber optic gyro (FOG)-based systems that enable platform and optical stabilization, navigation, pointing and guidance. KVH’s 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. KVH’s 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, KVH's inertial navigation technology is used in numerous commercial products, such as navigation and positioning systems for various applications including autonomous platforms, precision mapping, dynamic surveying, ~~autonomous vehicles,~~ train location control and track geometry measurement systems, industrial robotics and optical stabilization.

KVH’s inertial navigation service sales include product repairs, engineering services provided under development contracts and extended warranty sales.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)


~~(b)~~	~~Principles of Consolidation~~

(b)Principles of Consolidation

The accompanying consolidated financial statements of KVH Industries, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America. All of the operating expenses of the subsidiaries that serve as the Company’s European, Singaporean, Japanese, and Brazilian international distributors are reflected within sales, marketing, and support within the accompanying consolidated statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. ~~The Company's adoption of Accounting Standards Codification (ASC) Update No. 2015-02,~~ ~~Consolidation (Topic 810) - Amendments to the Consolidation Analysis,~~ ~~on January 1, 2016 did not have an impact on the entities that the Company consolidates, which represent its wholly-owned subsidiaries,~~

(c)Significant Estimates and ~~had no impact on the Company’s consolidated results of operations or financial position.~~ Assumptions and Other Significant Non-Recurring Transactions


~~(c)~~	~~Significant Estimates and Assumptions and Other Significant Non-Recurring Transactions~~

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. The 2021 consolidated financial statements reflect a $6,979 gain in other income related to the U.S. Small Business Administration’s forgiveness of the PPP loan during the third quarter of 2021. See Note 5. The 2020 consolidated financial statements reflect a $10,490 goodwill and intangible impairment charge on the KVH Media Group reporting unit within the mobile connectivity segment. See Note 1(k) and Note 9. On an on-going basis, the Company evaluates its significant estimates, including those related to ~~revenue recognition, valuation of accounts receivable, value of inventory, expected future cash flows including growth rates, discount rates,~~ terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill and estimated fair values of long-lived assets, including goodwill, amortization methods and periods, certain accrued expenses and other related charges, stock-based compensation, contingent liabilities, forfeitures and key valuation assumptions for its share-based awards, estimated fulfillment costs for warranty obligations, tax reserves and recoverability of the Company’s net deferred tax assets and related valuation allowance. There have been no material changes to the Company's significant accounting policies, except for ASC Update No. 2016-09, ~~Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which~~periods.

Although the Company ~~adopted as required on January 1, 2017 and which resulted primarily~~regularly assesses these estimates, actual results could differ materially from these estimates. Changes in ~~a change~~estimates are recorded in the ~~Company’s accounting prospectively for share-based payment forfeitures~~period in which they become known. The Company bases its estimates on historical experience and ~~accounting for excess tax benefits or deficiencies related~~various other assumptions that it believes to ~~share-based payments as a component~~be reasonable under the circumstances.

(d)Concentration of ~~earnings (see Note 7 for further discussion)~~Credit Risk and ~~ASC Update No. 2015-11,~~ ~~Simplifying the Measurement of Inventory~~, which the Company adopted as of January 1, 2017 and which simplified the subsequent measurement of inventory by replacing the lower of cost a market test with a lower of cost and net realizable value test (see Note 3 for further discussion).Single Source Suppliers

During the fourth quarter of 2016, the Company entered into arrangements with certain third parties who had previously co-produced certain content that the Company distributes where the Company had certain ongoing royalty payments to these third parties. The agreements entered into during the fourth quarter of 2016 settled all outstanding liabilities owed by the Company to these third parties and resulted in the Company obtaining sole ownership and rights to the applicable content. Based on the final amounts paid under these agreements, the Company recognized a gain in the fourth quarter of 2016 of approximately $855. This amount was recorded as a reduction to sales, marketing and support expense in the Company's consolidated statement of operations for the year ended December 31, 2016.


~~(d)~~	~~Concentration of Credit Risk and Single Source Suppliers~~

Cash, cash equivalents and marketable securities. The Company is potentially subject to financial instrument concentration of credit risk through its cash, cash equivalent and marketable securities investments. To mitigate these risks the Company maintains cash, cash equivalents and marketable securities with reputable and nationally recognized financial institutions. As of December 31, ~~2017, $8,319~~2021, $13,147 classified as marketable securities was held by Wells Fargo and substantially all of the cash and cash equivalents were held by Bank of America, N.A. See Note 2 for a description of marketable securities.

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~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

Trade accounts receivable. Concentrations of risk (see Note 11) with respect to trade accounts receivable are generally limited due to the large number of customers and their dispersion across several geographic areas. Although the Company does not foresee that credit risk associated with these receivables will deviate from historical experience, repayment is dependent upon the financial stability of those individual customers. The Company establishes allowances for potential bad debts and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and its expectations for future collectability concerns. The Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral. Activity within the Company’s allowance for doubtful accounts for the periods presented is as follows:


	2021		2020
Beginning balance	$	1,596	$	1,589
Additions (subtractions)	530		333
Deductions (write-offs/recoveries) from reserve	(490)		(326)
Ending balance	$	1,636	$	1,596

2017 2016 2015
Beginning balance $ 3,477
$ 3,534
$ 2,723
Additions 674
872
1,342
Deductions (write-offs/recoveries) from reserve (1,299 ) (929 ) (531 )
Ending balance $ 2,852
$ 3,477
$ 3,534

Revenue and operations. Certain components from third parties used in the Company’s products are procured from single sources of supply. The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the Company’s delivery of products and thereby materially adversely affect the Company’s revenues and operating results.


~~(e)~~	~~Revenue Recognition~~

~~Product sales.~~ ~~Product sales are~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(e)Revenue Recognition

In accordance with Accounting Standards Codification (ASC) 606, revenue is recognized when ~~persuasive evidence~~a customer obtains control of promised products and services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these products and services. To achieve this core principle, the Company applies the following five steps:

1) Identify the contract with a customer

A contract with a customer exists when (i) the Company enters into an ~~arrangement exists,~~enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors, including the customer’s historical payment pattern or, in the case of a new customer, published credit and financial information pertaining to the customer.

2) Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products and services, the Company must apply judgment to determine whether promised products and services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised products and services are accounted for as a combined performance obligation.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

4) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct products or services that are substantially the same qualify as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct product or service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5) Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

Product sales

Revenue from product sales is recognized when control of the goods ~~are shipped, title has passed and collectability~~ is ~~reasonably assured. The Company’s standard sales terms require that:~~

~~All sales are final;~~

~~Terms are~~transferred to the customer, which generally ~~Net 30;~~

~~Shipments are tendered and shipped FOB (or as may be applicable, FCA, or EXW)~~occurs at the Company’s plant or ~~warehouse; and~~

~~Title and risk of loss or damage passes~~warehouse upon delivery to the ~~dealer or distributor at~~carrier for shipment. Revenue related to shipping and handling is recognized when the ~~point of shipment when delivery is made~~products are shipped and the associated costs are accrued for based on the Company’s election to ~~the possession~~account for shipping and handling activities as a fulfillment of the ~~carrier.~~promise to transfer the products and not as a combined promise.

For certain inertial navigation product sales, customer acceptance or inspection may be required before ~~title and risk~~control of ~~loss transfers.~~the goods is transferred to the customer. For those sales, revenue is recognized after ~~transfer of title~~ ~~and risk of loss and after~~ notification of customer ~~acceptance.~~acceptance and the goods have been delivered to the carrier for shipment. In certain circumstances customers may request a ~~bill and hold~~bill-and-hold arrangement. Under these ~~bill and hold~~bill-and-hold arrangements, revenue is recognized when the Company has fulfilled all of its performance obligations, the units are segregated for the specific customer only, and ~~available~~the goods are ready for ~~shipment~~physical transfer to the customer in accordance with ~~the~~their defined contract delivery ~~schedule, and the Company has received notification of customer acceptance which transfers title and risk of loss to the customer.~~schedule.

The Company’s standard payment terms for product sales are generally Net 30. Under certain limited conditions, the Company, at its sole discretion, provides for the return of goods. No product is accepted for return and no credit is allowed on any returned product unless the Company has granted and confirmed prior written permission by means of appropriate authorization. The Company establishes reserves for potential sales returns, credits, and allowances, and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and expectations for the future.

~~Multiple-element revenue arrangements.~~ ~~Some of our sales involve multiple-element~~

Contracts with multiple performance obligations

The Company sells products and services through arrangements that ~~include both hardware-related products and contracted service, or~~in certain instances bundle VSAT equipment, satellite connectivity and other services. For these arrangements, the Company has determined that the performance obligations are ~~accounted~~not distinct in the context of the contracts with certain customers. The Company recognizes product revenue under ~~ASC 605-25,~~ ~~Multiple-Element Arrangements~~.

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~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~The consideration~~these arrangements over the estimated satellite connectivity customer life, which is ~~allocated~~estimated to ~~each element~~be five years based on the relative selling prices of all of the elements in the arrangement using the fair value hierarchy. ASC 605-25 requires that the Company establish vendor-specific objective evidence (VSOE) of fair value based upon the price charged when the same element is sold separately or established by management having the relevant pricing authority. When VSOE exists it is used to determine the selling price of a deliverable. When VSOE is not established, the Company attempts to establish the selling price of each element based on third-party evidence (TPE). When the Company is unable to establish selling price using VSOE or TPE, the Company uses best estimated selling price (BESP) in the allocation of arrangement consideration for the relevant deliverables. The objective of BESP is to determine the price at which the Company would transact a sale if a product or service was sold on a stand-alone basis. The Company determines BESP for our products and certain services by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional-specific market factors and profit objectives for such deliverables.historical evidence.

Each deliverable within the Company's multiple-deliverable revenue arrangements is accounted for as a separate unit of accounting under the guidance of ASC 605-25 if both of the following criteria are met: the delivered item or items have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. The Company considers a deliverable to have standalone value if the item is sold separately by the Company or another vendor or if the item could be resold by the customer. Further, the Company's revenue arrangements generally do not include a general right of return relative to delivered products.

Deliverables not meeting the criteria for being a separate unit of accounting are combined with a deliverable that does meet that criterion. The appropriate allocation of arrangement consideration and recognition of revenue is then determined for the combined unit of accounting.

Satellite connectivity and media content service sales.

Directly sold and re-sold satellite connectivity service for voice, data and Internet is recognized monthly based ~~upon~~primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic ~~processed or contracted fixed fee schedules. Typically, all subscribers enter into a contracted one-year minimum service agreement.~~processed. The Company has evaluated whether it obtains control of the ~~factors within ASC 605 regarding~~services that are being transferred to the customer in assessing gross ~~versus~~revenue reporting as principal verse net revenue reporting as agent for its satellite connectivity service sales and its payments to the applicable service providers. Based on the ~~evaluation~~Company's assessment of the ~~factors within ASC 605,~~indicators, the Company has determined that ~~the applicable indicators of~~ gross revenue reporting ~~were met.~~as a principal is appropriate. The applicable indicators of gross revenue reporting ~~included,~~include, but ~~were~~are not limited to, the following:

•The Company is the primary obligor in its arrangements with its subscribers. The Company manages all interactions with the subscribers, while satellite connectivity service providers do not interact with the subscribers. In addition, the Company assumes the entire performance risk under its arrangements with the subscribers and in the event of a performance issue, the Company may incur ~~reduction~~reductions in fees without regard for any recourse that the Company may have with the applicable satellite connective service providers.

•The Company has ~~latitude~~discretion in establishing pricing, as the pricing under its arrangements with the subscribers is negotiated through a contracting ~~process and has discretion on establishing pricing.~~process. The Company then separately negotiates the fees with the applicable satellite service providers.

•The Company has complete discretion in determining which satellite service providers it will contract with.

As a result, the Company has determined that ~~we earn~~it earns revenue (as a principal) from the delivery of satellite connectivity services to its subscribers and records all satellite connectivity service sales to subscribers as gross sales. All associated regulatory service fees and costs are recorded net in the consolidated financial statements.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

The Company sells prepaid airtime services in the form of prepaid cards. A liability is established upon purchase equal to the cash paid for the prepaid card. The Company recognizes revenue from the prepaid services upon the use of the prepaid card by the customer. The Company does not offer refunds for unused prepaid services. Prepaid airtime services have not been a significant portion of the Company’s total sales.

Media content sales include the Company's distribution of commercially licensed news, sports, movies and music content for commercial and leisure customers in the maritime, hotel, and retail ~~markets as well as training videos to the merchant marine market that are typically based on a contracted fixed fee schedule.~~markets. The Company typically recognizes revenue from media content sales ratably over the period of the service contract.

The accounting estimates related to the recognition of satellite connectivity and media content service sales ~~in results of operations requires~~require the Company to make assumptions about future billing adjustments for disputes with subscribers as well as unauthorized usage. The Company recognizes the monthly subscription fee as service revenue over the service delivery period. ~~The~~Under AgilePlans, the Company retains ownership of the hardware that it provides to ~~AgilePlans~~these customers, who must return the hardware to KVH if they decide to terminate the service. Because KVH does not sell the hardware under AgilePlans, the Company does not recognize any product revenue when the hardware is deployed to an AgilePlans customer.

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~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~Inertial navigation service sales

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~Lease financing.~~ Lease financing consists of sales-type leases primarily of the TracPhone V-IP Series. The Company records the leases at a price typically equivalent to normal selling price and in excess of the cost or carrying amount. Upon delivery, the Company records the present value of all payments under these leases as revenues, and the related costs of the product are charged to cost of sales. Interest income is recognized throughout the lease term (typically three to five years) using an implicit interest rate. Through December 31, 2017, lease sales have not been a significant portion of the Company’s total sales.

~~Contracted service sales.~~ The Company engages in contracts for development, production, and services activities related to standard product modification or ~~enhancement, which it accounts for using the proportional performance method of revenue recognition.~~enhancement. The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. Customer and government-agency contracted engineering service and ~~grant~~ sales under development contracts are recognized primarily ~~under the proportional performance method~~ during the ~~period~~periods in which the Company performs the service or development efforts in accordance with the agreement. Services performed under these types of contracts include engineering studies, surveys, building construction, prototype development, and program management. Performance is determined principally by comparing the accumulated ~~costs~~labor hours incurred to date with management’s estimate of the total ~~cost~~labor hours to complete the contracted work. Incurred labor hours represent work performed, which corresponds with and best depicts the transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. The Company establishes billing terms at the time project deliverables and milestones are agreed. Unbilled revenue recognized in excess of the amounts invoiced to clients are classified within the accompanying consolidated balance sheets inas “accounts receivable” as the ~~caption “prepaid expenses and other assets.”~~Company's right to consideration is unconditional.

The use of contract accounting requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, and prices for subcontractor services and materials. The risk to the Company on a fixed-price contract is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period. The Company's estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract's schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. Any advance payments arising from such extended-term development contracts are recorded as deposits. If, in any period, estimated total costs under a contract indicate an expected loss, then such loss is provided for in that period. Through ~~December 31, 2017, contracted service revenue has not been a significant portion of the Company’s total sales.~~

Product service ~~sales.~~sales

Product service sales other than under development contracts are recognized when completed services are ~~provided~~delivered to the ~~customer and collectability is reasonably assured.~~customer. The Company establishes reserves for potential sales returns, credit and allowances, and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and its expectations for the future. Through December 31, 2017, product service sales have not been a significant portion of the Company’s total sales.

~~Extended warranty sales. The Company~~also sells extended warranty contracts on mobile connectivity and inertial navigation products. Sales under these contracts are recognized ratably over the contract term. ~~Through December 31, 2017, warranty~~Product service sales ~~have~~including extended warranties are not ~~been~~ a significant portion of the Company’s total sales.


~~(f)~~	~~Fair Value of Financial Instruments~~

Sales-type leases

Revenue is recognized on sales-type leases primarily from the TracPhone mini-VSAT products. In accordance with ASC 842, the Company records the leases at a price typically equivalent to normal selling price and in excess of the cost or carrying amount. Upon delivery, the Company records the net present value of all payments under these leases as product revenue, and the related costs of the product are charged to cost of sales. See Note 16.

(f)Leases

In accordance with ASC 842, the Company recognizes all leases greater than one year in duration on the balance sheet as right-of-use assets and lease liabilities. In ASC 842, a lease is defined as follows: “[a] contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

Many of our lease agreements contain renewal options which are recognized if it is determined that the Company is reasonably certain to renew the lease at inception or when a triggering event occurs. Some of our lease agreements contain rent escalation clauses, rent holidays, capital improvement funding or other lease concessions. The Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement and amortize such expense over the term of the lease beginning with the commencement date. Variable lease components that are not fixed at the beginning of the lease are recognized as incurred.

Under certain third-party service agreements, the Company controls a specific space or underlying asset used in providing the service by the third-party service provider. These arrangements meet the definition under ASC 842 and therefore are accounted for under ASC 842. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when reasonably certain to be exercised. The present value of lease payments is determined using the incremental borrowing rate based on the information available at the lease commencement date.

(g) Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short maturity of these instruments. ~~The carrying amount of the Company’s mortgage loan approximates fair value based on currently available quoted rates of similarly structured mortgage facilities.~~ See Note 2 for more information on the fair value of the Company’s marketable securities. The carrying amount of the Company’s debt, and capital lease approximates fair value based on currently available quoted rates of similarly structured debt facilities. See Note 5 for more information on the fair value of the Company’s debt and line of credit and Note 16 for the Company's finance lease.

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~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~(h)Cash, Cash Equivalents, and Marketable Securities

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~


~~(g)~~	~~Cash, Cash Equivalents, and Marketable Securities~~

In accordance with the Company’s investment policy, cash in excess of operational needs is invested in money market mutual funds, government agency bonds, United States treasuries, municipal bonds, corporate notes, ~~and~~or certificates of deposit. All highly liquid investments with a maturity date of three months or less at the date of purchase are classified as cash equivalents. The Company determines the appropriate classification of marketable securities at each balance sheet date. As of December 31, ~~2017~~2021 and ~~2016~~,2020, all of the Company’s marketable securities have been designated as available-for-sale and are carried at their fair value with unrealized gains and losses included in accumulated other comprehensive ~~(loss) income~~loss in the accompanying consolidated balance sheets.

The Company reviews investments in debt securities for other than temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers whether it intends to sell the security, whether it expects to recover the credit loss, and if it is more likely than not that the Company will be required to sell the security prior to recovery. Evidence considered in this assessment includes the reasons for the impairment, compliance with the Company’s investment policy, the severity and duration of the impairment, changes in value subsequent to year-end and forecasted performance of the investee. The Company has reviewed its securities with unrealized losses as of December 31, ~~2017~~2021 and ~~2016~~2020 and has concluded that no other-than-temporary impairments exist.


~~(h)~~	~~Inventories~~

(i)Inventories

Inventories are stated at the lower of cost and net realizable value using the first-in first-out costing method. The Company adjusts the carrying value of its inventory based on the consideration of excess and obsolete components based on future estimate demand. The Company records inventory charges to costs of product sales.


~~(i)~~	~~Property and Equipment~~

(j)Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the respective assets. The principal lives used in determining the depreciation rates of various assets are: buildings and improvements, 5~~-40~~5-40 years; leasehold improvements, shorter of original lease term or useful life; machinery, satellite hubs and equipment, ~~and video-on-demand (VOD) units,~~ 4~~-10~~4-10 years; office and computer equipment, 3-73-7 years; and motor vehicles, 5 ~~years~~.years.


~~(j)~~	~~Goodwill, Intangible Assets and other Long-Lived Assets~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(k)Goodwill, Intangible Assets and other Long-Lived Assets

The Company’s goodwill and intangible assets are associated with the purchase of Virtek Communication (now known as KVH Industries Norway AS) in September 2010 and Headland Media Limited (now known as the KVH Media Group) in May ~~2013, and Videotel in July 2014.~~2013.

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~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

In accordance with ASC ~~Topic 350,~~ ~~Intangibles—Goodwill~~Update No. 2017-04, Intangibles-Goodwill and Other ~~(ASC~~(Topic 350) ~~requires~~: Simplifying the ~~completion~~Test of Goodwill Impairment. (ASC 350), the Company performs a goodwill impairment test at least ~~annually. Historically, this goodwill impairment test was comprised of a two-step process. In January 2017, the FASB issued ASC Update No. 2017-04,~~ ~~Intangibles—Goodwill and Other(Topic 350): Simplifying the Test of Goodwill Impairment. This ASC simplified the accounting for goodwill impairment for all entities by requiring impairment charges to be~~annually based on either an optional qualitative assessment or a quantitative analysis comparing the ~~first step of the goodwill impairment test under ASC 350. Under previous guidance, if the~~estimated fair value of a reporting unit ~~was lower than~~to its carrying amount (Step 1), an entity would calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill was calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities would estimate the fair value of any unrecognized intangible assets (including in-process research and development) and any corporate level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step1. Under this new guidance, if a reporting unit's carrying value exceeds its fair value, an entity will record an impairment charge based on that difference, with such impairment charge limited to the amount of goodwill in the reporting unit. This ASC does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform the existing optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This ASC will be applied prospectively and is effective for annual and interim impairment test performed in periods beginning after December 15, 2019 for public business enterprises. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company has elected to early adopt this ASC as of January 1, 2017. The adoption of this ASC had no impact on the Company's consolidated statements of operations, financial condition or cash flows.

The Company has historically performed its annual goodwill impairment test as of August 31st. During the three months ended December 31, 2017, the Company changed its annual impairment assessment date from August 31st to October 1st to better align the timing of the test ~~date~~date. Any impairment charges would be based on the quantitative analysis. As a result of the 2020 annual impairment test, the Company recorded goodwill impairment charges of $8,732 and intangible asset impairment charges of $1,758 related to its KVH Media Group reporting unit. Prior to 2020, the Company had not recorded or incurred goodwill impairment charges.

For the October 1, 2020 test, due to the uncertainty that the global pandemic presented during 2020, the Company determined that it should perform a quantitative analysis of goodwill impairment. The Company performed this full quantitative analysis in the fourth quarter of 2020 in conjunction with its annual budgeting and long-term planning cycle. The ~~Company does not consider~~revenues and cash flows of KVH Media Group have been significantly impacted by the ~~change~~global reduction in travel since the ~~annual goodwill impairment testing date to be a material change to its method~~start of ~~applying an accounting principle. In connection with~~ the ~~change in~~pandemic. With the ~~date~~assistance of its annual goodwill impairment test, the Company performed a goodwill impairment test as of both August 31, 2017 and October 1, 2017, and concluded that the fair value of its reporting units exceeded their carrying value. To date, the Company has not had accumulated goodwill impairment losses. For the August 31, 2017 test,valuation specialists, the Company utilized an income approach and market ~~approaches to estimate the fair value of the Company’s reporting units. The Company believes that the assumptions it used~~approach to estimate the fair value of its reporting units, ~~were~~based on assumptions the Company believed to be reasonable. As an additional corroborative test of the reasonableness of those assumptions, the Company completed a reconciliation of its market capitalization and overall enterprise value to the fair value of all of its reporting units as of ~~August 31, 2017.~~October 1, 2020. The Company ~~notes~~estimated that, as of ~~August 31, 2017,~~October 1, 2020, the fair value of ~~all~~the mobile broadband reporting unit exceeded its carrying value by 18%; however, the carrying value of the ~~Company’s~~KVH Media Group reporting ~~units~~unit exceeded its fair value by $10,156, which signified that an impairment had occurred and identified a triggering event to review the 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 its long-lived assets, the Company performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable. Accordingly, the Company then performed an analysis to estimate the fair value of the other long-lived assets and recognized an impairment charge of $1,758, 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 $334. As a result, the Company recognized an impairment charge to KVH Media Group’s goodwill in the amount of $8,732, the remaining amount by which the carrying ~~values~~value exceeded its fair value.

For the October 1, 2021 test, the Company performed a qualitative assessment of goodwill impairment (Step 0) and concluded that for the 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, the Company determined that it was necessary to perform the Step 1 quantitative analysis due to the ongoing global pandemic and its impacts. The Company utilized an income approach to estimate the fair value of the reporting unit. The Company believes that the assumptions used to estimate the fair value of its KVH Media Group reporting unit were reasonable. The Company estimated that, as of October 1, 2021, the fair value of its KVH Media Group exceeded its carrying value by more than ~~10%~~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 a future goodwill impairment ~~charge,~~charges, which could be material. ~~For the October 1, 2017 test, the~~The Company ~~performed a qualitative assessment over~~did not identify any impairment indicators that required an interim goodwill impairment concluding it was more-likely-than-not that its reporting units fair value exceeded their carrying value. Accordingly, it was not necessary for the Company to perform the full Step 1 quantitative analysis. test as of December 31, 2021.

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, the Company 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 ~~2017,~~2021, there were no events or changes in circumstances that indicated any of the carrying amounts of the Company’s intangible assets or other long-lived assets may not be recoverable. See Note 9 for further discussion of goodwill and intangible assets.


~~(k)~~	~~Other Non-Current Assets~~

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(l)Other Non-Current Assets

Other non-current assets are primarily comprised of long-term lease receivables, prepaid expenses, and deposits.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~(m)Product Warranty

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~


~~(l)~~	~~Product Warranty~~

The Company’s products carry standard limited warranties that range from one to two years and vary by product. The warranty period begins on the date of retail purchase or lease by the original purchaser. The Company accrues estimated product warranty costs at the time of sale and any additional amounts are recorded when such costs are probable and can be reasonably estimated. Factors that affect the Company’s warranty liability include the number of units sold or leased, historical and anticipated rates of warranty repairs and the cost per repair. Warranty and related costs are reflected within sales, marketing and support in the accompanying consolidated statements of operations. As of December 31, ~~2017~~2021 and ~~2016~~,2020, the Company had accrued product warranty costs of ~~$2,074~~$1,179 and ~~$2,280~~,$1,812, respectively. The following table summarizes product warranty activity during ~~2017~~2021 and ~~2016~~:2020:


	2021		2020
Beginning balance	$	1,812	$	2,194
Charges to expense	457		1,091
Costs incurred	(1,090)		(1,473)
Ending balance	$	1,179	$	1,812

2017 2016
Beginning balance $ 2,280
$ 1,880
Charges to expense 1,042
1,723
Costs incurred (1,248 ) (1,323 )
Ending balance $ 2,074
$ 2,280


~~(m)~~	~~Shipping and Handling Costs~~

(n)Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and included in cost of sales. Billings for shipping and handling are reflected within net sales in the accompanying consolidated statements of operations.


~~(n)~~	~~Research and Development~~

(o)Research and Development

Expenditures for research and development, including customer-funded research and development, are expensed as incurred. Revenue and related development costs from customer-funded research and development are as follows:


	Year Ended December 31,
	2021		2020
Customer-funded service sales	$	363	$	2,043
Customer-funded costs included in costs of service sales	$	803	$	2,935

Year Ended December 31,
2017 2016 2015
Customer-funded service sales $ 2,621
$ 1,400
$ 3,002
Customer-funded costs included in costs of service sales 1,510
498
1,546


~~(o)~~	~~Advertising Costs~~

(p)Advertising Costs

Costs related to advertising are expensed as incurred. Advertising expense was ~~$2,739, $2,761,~~$1,259 and ~~$2,712~~$1,285 for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively, and is included in sales, marketing, and support expense in the accompanying consolidated statements of operations.


~~(p)~~	~~Foreign Currency Translation~~

(q)Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries located in Denmark and Singapore are maintained using the United States dollar as the functional currency. Exchange rates in effect on the date of the transaction are used to record monetary assets and liabilities. Revenue and other expense elements are recorded at rates that approximate the rates in effect on the transaction dates. Foreign currency exchange gains and losses are recognized within ~~“other (expense) income”~~“Other income, net” in the ~~accompanying~~accompanying consolidated statements of ~~operations~~.operations. For the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, the Company recorded a total of net foreign currency exchange losses ~~(gains)~~ in its accompanying consolidated statements of operations of ~~$554, $(53),~~$3 and ~~$59,~~$48, respectively, which is comprised of both realized and unrealized foreign currency exchange gains and losses.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

The financial statements of the Company’s foreign subsidiaries located in the United Kingdom, Brazil, Norway, Cyprus, ~~Belgium, the Netherlands~~India and Japan use the foreign subsidiaries’ respective local currencies as the functional currency. The Company translates the assets and liabilities of these foreign subsidiaries at the exchange rates in effect at year-end. Net sales, costs and expenses are translated using average exchange rates in effect during the year. Gains and losses from foreign currency translation are credited or charged to accumulated other comprehensive loss included in stockholders' equity in the accompanying consolidated balance sheets.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~(r)Income Taxes

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~


~~(q)~~	~~Income Taxes~~

~~We are~~The Company is subject to income taxes in the U.S. and in numerous foreign jurisdictions. The Company accounts for income taxes following ASC Topic 740, Accounting for Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of a deferred tax asset will not be realized. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, no amount of the benefit attributable to the position is recognized. The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes interest and penalties within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. See Note 8 for further discussion of income taxes.


~~(r)~~	~~Net (Loss) Income per Common Share~~

(s)Net Loss per Common Share

Basic net ~~(loss) income~~loss per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net income per share incorporates the dilutive effect of common stock equivalent options, warrants and other convertible securities, if any, as determined in accordance with the treasury stock accounting method. Common stock equivalents related to options and restricted stock awards for 766 shares of common stock for the year ended December 31, 2015 have been excluded from the fully diluted calculation of net income per share, as inclusion would be anti-dilutive. For the years ended December 31, ~~2017~~2021 and ~~2016~~2020 since there was a net loss, the Company excluded ~~228~~all 747 and ~~162~~1,566 shares, respectively, ~~subject to~~in outstanding stock options and non-vested restricted shares from its diluted loss per share calculation, as inclusion of these securities would have reduced the net loss per share.

A reconciliation of the basic and diluted weighted average common shares outstanding is as follows:


	December 31,
	2021	2020
Weighted average common shares outstanding—basic	18,217	17,669
Dilutive common shares issuable in connection with stock plans	—	—
Weighted average common shares outstanding—diluted	18,217	17,669

2017 2016 2015
Weighted average common shares outstanding—basic 16,419
15,834
15,625
Dilutive common shares issuable in connection with stock plans —
—
209
Weighted average common shares outstanding—diluted 16,419
15,834
15,834


~~(s)~~	~~Contingent Liabilities~~

(t)Contingent Liabilities

The Company estimates the amount of potential exposure it may have with respect to claims, assessments and litigation in accordance with ASC 450, Contingencies. As of December 31, ~~2017~~2021 and ~~2016,~~2020, the Company was not party to any lawsuit or proceeding that, in management's opinion, was likely to materially harm the Company's business, results of operations, financial condition or cash ~~flows, as described in Note 16.~~flows. It is not always possible to predict the outcome of litigation, as it is subject to many uncertainties. Additionally, it is not always possible for management to make meaningful ~~estimate~~estimates of the potential loss or range of loss associated with such litigation.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(u)Operating Segments


~~(t)~~	~~Operating Segments~~

The Company operates in ~~two~~2 segments, the mobile connectivity and inertial navigation segments. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision maker is its President, Chief Executive Officer and Chairman of the Board.

~~The Company's reportable segments are: mobile connectivity and inertial navigation (see Note 12, "Segment Reporting").~~

The Company operates in a number of major geographic areas, including internationally. Revenues are generated from international locations, primarily consisting of Canada, European countries, both inside and outside the European Union, as well as Africa, Asia/Pacific, the Middle East, and South ~~America.~~America (see Note 12, "Segment Reporting").

~~(u) Film Production Costs~~

The Company capitalizes direct costs incurred in the production of its training videos, such as writing, directing, narrating, casting, location rental, and editing. These film costs are classified as a non-current asset on its consolidated balance sheet and are placed into service upon the film title being released and available for customers' use. The Company’s sales model associated with training is subscription-based, in which fees from third parties are not directly attributable to the exhibition of a particular film but relate instead to access to the entire film library. Accordingly, management estimates that the straight line method is the most representative method for the amortization of film costs. Consistent with the period over which revenues are assessed (i.e. the subscription period), the film costs are amortized over four years. In the event that the film title is replaced or removed from the film library before the amortization period has expired, all unamortized costs are expensed immediately.

(v)Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption on our consolidated financial statements.

~~Standards~~Standard Implemented

ASC Update No. ~~2015-11~~2019-12

In ~~April 2015,~~December 2019, the FASB issued ASC Update No. ~~2015-11,~~ ~~Simplifying the Measurement of Inventory~~ regarding ASC Topic 330 - Inventory. Update No. 2015-11 require entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. Update No. 2015-112019-12, Income Taxes (Topic 740). The update is effective ~~on a prospective basis~~for public business entities for fiscal years, and ~~for~~ interim periods within those fiscal years, beginning after December 15, 2016, with earlier application permitted. The Company adopted Update No. 2015-11 on January 1, 2017 and the adoption did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~ASC Update No. 2016-09~~

~~In March 2016, the FASB issued ASC Update No. 2016-09,~~ ~~Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. This update is effective for annual reporting periods after December 15, 2016, including interim periods within those fiscal periods. Early adoption is permitted. The purpose of the update is to simplify several areas of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this ASC update on January 1, 2017. Although this ASC update does not impact the Company’s results of operations, financial position or cash flows for any periods prior to the adoption, the adoption of this ASC update had the following impact on the date of adoption:

The adoption of Update No. 2016-09 requires all income tax adjustments to be recorded in the consolidated statements of operations. The cumulative adjustment upon adoption to accumulated earnings was zero since the increase in net deferred tax assets was fully offset by a corresponding increase in the deferred tax asset valuation allowance. The amount of deferred tax assets that had not been previously recognized due to the recognition of excess tax benefits was

~~$1,571.~~

The Company has elected to account for forfeitures on share-based payments as these forfeitures occur, which represents a change from the accounting previously required under ASC Topic 718. As a result, the Company notes that future forfeitures could result in a significant reversal of stock-based compensation expense recognized in the period in which such forfeitures occur.

~~ASC Update No. 2017-04~~

~~In January 2017, the FASB issued ASC Update No. 2017-04,~~ ~~Intangibles--Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment.~~ This ASC simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step of the goodwill impairment test under ASC 350. Under previous guidance, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets (including in-process research and development) and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this new guidance, if a reporting unit's carrying value exceeds its fair value, an entity will record an impairment charge based on that difference, with such impairment charge limited to the amount of goodwill in the reporting unit. This ASC does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform the existing optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This ASC will be applied prospectively and is effective for annual and interim impairment test performed in periods beginning after December 15, 2019 for public business enterprises. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company elected to early adopt this ASC as of January 1, 2017. The adoption of this ASC had no impact on the Company's consolidated statements of operations, financial condition or cash flows. The Company expects that adoption of this ASC will simplify the evaluation and recording of goodwill impairment charges, if any.

~~Standards to be Implemented~~

~~ASC Updates No. 2014-09, No. 2016-08, No. 2016-10, No. 2016-11, No. 2016-12 and No. 2016-20~~

~~In May 2014, the FASB issued ASC Update No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ Update No. 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using International Financial Reporting Standards and U.S. GAAP. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to approve a one-year deferral, making the standard effective for public entities for annual and interim periods beginning after December 15, 2017.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~In March 2016, the FASB issued ASC Update No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~.2020. The purpose of Update No. ~~2016-08~~2019-12 is to ~~clarify~~remove certain exceptions for recognizing deferred taxes for investments and simplify the ~~guidance on principal versus agent considerations.~~accounting for income taxes in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. It ~~includes indicators that help to determine whether an entity controls~~amends the ~~specified good or service before it is transferred~~requirements relating to the customer and to assist in determining when the entity satisfied the performance obligation and as such, whether to recognize a gross or a net amount of consideration in their consolidated statement of operations.

~~In April 2016, the FASB issued ASC~~accounting for "hybrid" tax regimes. Update No. ~~2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.~~ ~~Update No. 2016-10 clarifies that entities are~~2019-12 did not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract. Update No. 2016-10 also addresses how to determine whether promised goods or services are separately identifiable and permits entities to make a policy election to treat shipping and handling costs as fulfillment activities. In addition, it clarifies key provisions in Topic 606 related to licensing.

~~In May 2016, the FASB issued ASC Update No. 2016-11,~~ ~~Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815).~~ Update No. 2016-11 rescinds previous SEC comments that were codified in Topic 605, Topic 932 and Topic 815. Upon adoption of Topic 606, certain SEC comments including guidance on accounting for shipping and handling fees and costs and consideration given by a vendor to a customer should not be relied upon.

~~In May 2016, the FASB also issued ASC Update No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients~~. Update No. 2016-12 provides clarity around collectability, presentation of sales taxes, non-cash consideration, contract modifications at transition and completed contracts at transition. Update No. 2016-12 also includes a technical correction within Topic 606 related to required disclosures if the guidance is applied retrospectively upon adoption.

~~In December 2016, the FASB issued ASC Update No. 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~. Update No. 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the optional exemptions to expand their qualitative disclosures. Update No. 2016-20 also clarifies other areas of the new revenue standard, including disclosure requirements for prior period performance obligations, impairment guidance for contract costs and the interaction of impairment guidance in ASC 340-40 with other guidance elsewhere in the Codification.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

The Company adopted Topic 606 effective January 1, 2018. The Company adopted Topic 606 under the modified retrospective method and is only applying this method to contracts that were not completed as of the date of adoption. The modified retrospective method resulted in a cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at the date of initial application for any open contracts as of the adoption date. The Company established an implementation team to assist with its assessment of the impact of the new revenue guidance on its operations, consolidated financial statements and related disclosures. To date, this assessment has included (1) utilizing questionnaires to assist with the identification of revenue streams, (2) performing sample contract analyses for each revenue stream identified, (3) assessing the noted differences in recognition and measurement that may result from adopting this new standard, (4) performing detailed analyses of contracts with larger customers, and (5) developing plans to test transactions for consistency with contract provisions that affect revenue recognition. The adoption of Topic 606 will have a material effect on the Company's consolidated financial statements with the most significant impact related to our mobile connectivity segment. Based on the preliminary results of the evaluation, which is still in process, the Company currently believes that the most significant potential changes relate to promised services under certain contracts that were previously determined to be separate units of accounting under Topic 605 will not be separate performance obligations under Topic 606 due to the fact that they are not distinct in the context of the contract, which will impact the timing of revenue recognition. The Company anticipates that the most significant impact of the new standard will relate to the timing of revenue recognition for certain mini-VSAT Broadband hardware contracts. The Company also anticipates changes to the consolidated balance sheet related to accounts receivable, contract assets, and contract liabilities, as well as enhanced footnote disclosures related to customer contracts. The Company is still evaluating the impact that Topic 606 is expected to have on its accounting for costs to obtain and fulfill a contract. The Company anticipates that the adoption of Topic 606 associated with VSAT contracts as of January 1, 2018 will result in an increase to its accumulated deficit of $3.0 million to $4.0 million. This anticipated adjustment represents the gross margin on approximately $12 million to $14 million of previously recognized revenue under current guidance. Gross margin reflects revenue less cost of revenue. These ranges represent management’s best estimates of the effects of adopting Topic 606 at the time of the preparation of this Annual Report on Form 10-K. The actual impact of Topic 606 is subject to change from these estimates and such change may be significant, pending the completion of the Company’s assessment in the first quarter of 2018.

The Company is in the process of evaluating and designing the necessary changes to its business processes, systems and controls to support recognition and disclosure under the new standard. Further, the Company is continuing to assess what incremental disaggregated revenue disclosures will be required in its consolidated financial statements.

~~ASC Update No. 2016-01~~

~~In January 2016, the FASB issued ASC Update No. 2016-01,~~ ~~Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.~~ It is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application of certain provisions is permitted. Update No. 2016-01 requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. It also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Update No. 2016-01 also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and liability. The adoption of Update No. 2016-01 is not expected to have a material impact on the Company's financial position or results of operations.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~ASC Update No. 2016-02~~

~~In February 2016, the FASB issued ASC Update No. 2016-02,~~ ~~Leases (Topic 842).~~ It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. Update No. 2016-02 creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard isStandards to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. Based on its preliminary assessment, upon adoption the Company expects to recognize significant right-to-use assets and corresponding lease liabilities on its balance sheet related to leased facilities and equipment.Implemented

ASC Update No. 2016-13, ASC Update No. 2018-19, ASC Update No. 2019-04, ASC Update No. 2019-05, ASC Update No. 2019-10, ASC Update No. 2019-11 and ASC Update No. 2020-02

In June 2016, the FASB issued ASC Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments. ~~The update is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018.~~ The purpose of Update No. 2016-13 is to replace the ~~current~~ incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates.

In November 2018, the FASB issued ASC Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. This update introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost. The amendment also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.

In May 2019, the FASB issued ASC Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update introduced clarifications of the Board’s intent with respect to accrued interest, the transfer between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projects of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures, and extension and renewal options.

In May 2019, the FASB issued ASC Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. The amendments in the update ease the transition for entities adopting ASC Update 2016-13 and increase the

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

comparability of financial statement information. With the exception of held-to-maturity debt securities, the amendments allow entities to irrevocably elect to apply the fair value option to financial instruments that were previously recorded at amortized cost basis within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

In November 2019, the FASB issued ASC Update No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. The amendments in this update change some effective dates for certain new accounting standards including those pertaining to Topic 326 discussed above, for certain types of entities.

In November 2019, the FASB issued ASC Update No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (Topic 326). The update is effective for entities that have adopted ASU 2016-13. The purpose of Update No. 2019-11 is to clarify the scope of the recovery guidance to purchased financial assets with credit deterioration.

In February 2020, the FASB issued ASC Update No. 2020-02, Financial Instruments – Credit Losses (Topic 326) and

Leases (Topic 842). The purpose of Update No. 2020-02 is to clarify the scope and interpretation of the standard.

As a smaller reporting entity, the effective date for Topic 326 will be the fiscal year beginning after December 15, 2022. The adoption of Update ~~No.~~Nos. 2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-02 is not expected to have a material impact on the Company's financial position or results of operations.

~~ASC Update No. 2016-15~~

~~In August 2016, the FASB issued ASC Update No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.~~ The update is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The purpose of Update No. 2016-15 is to reduce the diversity in practice in presentation and classification of the following items within the statement of cash flows: debt prepayments, settlement of zero coupon debt instruments, contingent consideration payments, insurance proceeds, securitization transactions and distributions from equity method investees. The update also addresses classification of transactions that have characteristics of more than one class of cash flows. The adoption of Update No. 2016-15 is not expected to have a material impact on the Company's financial position or results of operations.

~~ASC Update No. 2016-16~~

~~In October 2016, the FASB issued ASU Update No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~. The update is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The purpose of Update No. 2016-16 is to allow an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to waiting until the asset is sold to an outside party. The adoption of Update No. 2016-16 is not expected to have a material impact on the Company's financial position or results of operations.

~~ASC Update No. 2017-09~~

~~In May 2017, the FASB issued ASC Update No. 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.~~ The update is effective for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The purpose of Update No. 2017-09 is to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification under Topic 718, ~~Compensation - Stock Compensation~~. Under this new guidance, modification accounting is only required if the fair value, the vesting conditions, or the equity or liability classification of the award changes as a result of the change in terms or conditions. The Company expects that the adoption of this standard will only affect, on a prospective basis, the manner in which the Company evaluates any changes to the terms or conditions of its share-based payment awards.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~ASC Update No. 2017-12~~

~~In August 2017, the FASB issued ASC Update No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. The update is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. The purpose of Update No. 2017-12 is to improve the presentation and disclosure requirements for, and simplify the application and increase transparency of hedge accounting. The adoption of Update No. 2017-12 is not expected to have a material impact on the Company's financial position or results of operations.

There are no other recent accounting pronouncements issued by the FASB that the Company expects would have a material impact on the Company's financial statements.


~~(2)~~	~~Marketable Securities~~

(2)Marketable Securities

Marketable securities as of December 31, 2021 and 2020 consisted of the ~~following as of~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~:following:


December 31, 2021										December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market mutual funds										Money market mutual funds	$	13,147	$	—	$	—	$	13,147

December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market mutual funds	$	7,318	$	—	$	—		$	7,318
United States treasuries	1,002		—		(1		)	1,001
Total marketable securities designated as available-for-sale	$	8,320	$	—	$	(1	)	$	8,319	Total marketable securities designated as available-for-sale	$	13,147	$	—	$	—	$	13,147


December 31, 2020									December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market mutual funds									Money market mutual funds	$	20,142	$	—	$	—	$	20,142

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market mutual funds	$	21,848	$	—	$	—	$	21,848
Certificates of deposit	3,864		—		—		3,864
United States treasuries									United States treasuries	4,999		—		—		4,999
Total marketable securities designated as available-for-sale	$	25,712	$	—	$	—	$	25,712	Total marketable securities designated as available-for-sale	$	25,141	$	—	$	—	$	25,141

The ~~amortized costs and fair value of debt securities as of~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~are shown below by~~ effective ~~maturity. Effective maturities may differ from contractual maturities because the issuers~~maturity date of the ~~securities may have the right to prepay obligations without prepayment penalties.~~

December 31, 2017
Amortized
Cost

Fair
Value
Due in less than one year $ 1,002
$ 1,001
Due after one year and within two years —
—
$ 1,002
$ 1,001
December 31, 2016
Amortized
Cost

Fair
Value
Due in less than one year $ 3,864
$ 3,864
Due after one year and within two years —
—
$ 3,864
$ 3,864
United States treasuries is less than one year.

Interest income from ~~cash equivalents and~~ marketable securities was ~~$107~~$6 and ~~$94~~$135 for the years ended December 31, ~~2017~~2021 and ~~2016,~~2020, respectively.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(3)Inventories


~~(3)~~	~~Inventories~~

~~The Company adopted ASC 2015-11,~~ ~~Simplifying the Measurement of Inventory~~ as of January 1, 2017. ASC 2015-11 simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost and net realizable value test. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

Inventories are stated at the lower of cost and net realizable value using the first-in first-out costing method. Inventories as of December 31, ~~2017~~2021 and ~~2016~~2020 include the costs of material, labor, and factory overhead. Components of inventories consist of the following:


	December 31,
	2021		2020
Raw materials	$	15,772	$	13,957
Work in process	4,035		3,996
Finished goods	4,833		6,721
	$	24,640	$	24,674

(4)Property and Equipment

December 31,
2017 2016
Raw materials $ 13,347
$ 10,606
Work in process 2,137
2,185
Finished goods 7,248
7,954
$ 22,732
$ 20,745


~~(4)~~	~~Property and Equipment~~

Property and equipment, net, as of December 31, ~~2017~~2021 and ~~2016~~2020 consist of the following:


	December 31,
	2021		2020
Land	$	3,828	$	3,828
Building and improvements	24,271		24,197
Leasehold improvements	472		482
Revenue-generating assets	63,587		56,336
Machinery and equipment	16,790		15,536
Office and computer equipment	15,395		13,855
Motor vehicles	31		31
	124,374		114,265
Less accumulated depreciation	(64,260)		(57,992)
	$	60,114	$	56,273

December 31,
2017 2016
Land $ 3,828
$ 3,828
Building and improvements 24,038
21,717
Leasehold improvements 429
155
Machinery and equipment 53,217
41,777
Office and computer equipment 13,057
14,824
Motor vehicles 51
51
94,620
82,352
Less accumulated depreciation (51,099 ) (45,766 )
$ 43,521
$ 36,586

Depreciation expense for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 amounted to ~~$6,725, $7,608,~~$13,574 and ~~$7,193,~~$10,659, respectively.

~~Included within machinery and equipment~~

Certain revenue-generating hardware assets are ~~certain hardware revenue generating assets that had a net book value of $11,300 and $7,734 as of December 31, 2017 and 2016, respectively, that are~~ utilized by the Company in the delivery of the Company's airtime services, media, and other content.


~~(5)~~	~~Debt and Line of Credit~~

(5)Debt and Line of Credit

Long-term debt consists of the following:


	December 31,
	2021		2020
PPP loan	$	—	$	6,927




Total long-term debt	—		6,927


Less amounts classified as current	—		4,992
Long-term debt, excluding current portion	$	—	$	1,935

December 31,
2017 2016
Term notes $ 44,275
$ 53,625
Mortgage loan 2,779
2,951
Equipment loans —
1,477
Total 47,054
58,053
Less amounts classified as current 2,482
7,900
Long-term debt, excluding current portion $ 44,572
$ 50,153

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

Paycheck Protection Program Loan

~~Term Note~~

In May 2020, the Company received a $6,927 loan (the PPP Loan) from Bank of America, N.A., (the Lender) under the Paycheck Protection Program (PPP), which was established under the Coronavirus Aid, Relief, and Economic Security Act (as modified by the Paycheck Protection Flexibility Act of 2020, the CARES Act) and is administered by the U.S. Small Business Administration (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, the Company applied for forgiveness of the full amount of the PPP Loan. On September 24, 2021, the Company 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 including all interest accrued of $6,979 is recognized in Other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

Line of Credit

~~On July 1, 2014,~~

Effective October 30, 2018, the Company entered into ~~(i) a five-year~~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), ~~for an aggregate amount of up to $80,000, including~~which included a reducing revolving credit facility (the 2018 Revolver) of up to $20,000 initially and reducing to $15,000 ~~and a term loan (Term Loan) of $65,000~~on December 31, 2019, to be used for general corporate ~~purposes, including both (A)~~purposes. The Company's obligations under the ~~refinancing of the Company’s $30,000 then-outstanding indebtedness under its previous credit facility and (B) permitted acquisitions, (ii) revolving credit notes (together, the Revolving~~2018 Credit ~~Note) to evidence the Revolver, (iii) term notes (together, the Term Note, and together with the Revolving Credit Note, the Notes) to evidence the Term Loan, (iv) a Security~~ Agreement ~~(the Security Agreement) required~~are secured by ~~the Lenders with respect to the grant by the Company of a security interest in~~ substantially all of ~~the~~its assets ~~of the Company in order to secure the obligations of the Company under the Credit Agreement~~ and the ~~Notes, and (v) Pledge Agreements (the Pledge Agreements) required by the Lenders with respect to the grant by the Company~~pledge of ~~a security interest~~equity interests in ~~65%~~certain of ~~the capital stock~~its subsidiaries. As of ~~each of KVH Industries A/S and KVH Industries U.K. Limited held by the Company in order to secure the obligations of the Company under the Credit Agreement and the Notes.~~

The Credit Agreement was most recently amended in March 2017 to modify the Maximum Consolidated Leverage Ratio, the Applicable Rate, the Consolidated Fixed Charge Coverage Ratio and the amortization schedule of the Term Loan, as well as to make certain other changes. The amendment was accounted for as a debt modification as it did not result in a significant modification to the Credit Agreement.

In connection with the March 2017 amendment, the Company made an additional principal repayment of $6,000 on the Term Note and amended the repayment terms. Under the amended terms, the Company must make principal repayments of $575 every three months starting on April 1, 2017 until the Term Note maturity on July 1, 2019. On the maturity date, the entire remaining principal balance of the loan, including any future loans under the Revolver, is due and payable, together with all accrued and unpaid interest, penalties, and any otherDecember 31, 2021, no amounts ~~due and payable under the Credit Agreement. The Credit Agreement contains provisions requiring the mandatory prepayment of amounts~~were outstanding under the Term Loan and the Revolver under specified circumstances, including (i) 100% of the net cash proceeds from certain dispositions to the extent not reinvested in the Company’s business within a stated period, (ii) 50% of the net cash proceeds from stated equity issuances and (iii) 100% of the net cash proceeds from certain receipts of more than $250 outside the ordinary course of business. The prepayments are first applied to the Term Loan, in inverse order of maturity, and then to the Revolver. In the discretion of the Administrative Agent, certain mandatory prepayments made on the Revolver can permanently reduce the amount of credit available under the2018 Revolver.

Loans under the Credit Agreement bear interest at varying rates determined in accordance with the Credit Agreement. Each LIBOR Rate Loan, as defined in the Credit Agreement, bears interest on the outstanding principal amount thereof for each interest period from the applicable borrowing date at a rate per annum equal to the LIBOR Daily Floating Rate or LIBOR Monthly Floating Rate, each as defined in the Credit Agreement, as applicable, plus the Applicable Rate, as defined in the Credit Agreement, and each Base Rate Loan, as defined in the Credit Agreement, bears interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate, as defined in the Credit Agreement, plus the Applicable Rate. The Applicable Rate ranges from 1.75% to 2.25%, depending on the Company’s Consolidated Leverage Ratio, as defined in the Credit Agreement. The highest Applicable Rate applies when the Consolidated Leverage Ratio exceeds 1.50:1.00. Upon certain defaults, including failure to make payments when due, interest becomes payable at a higher default rate.

Borrowings under the 2018 Revolver are subject to the satisfaction of ~~numerous~~various conditions precedent at the time of each borrowing, including the continued accuracy of the Company’s representations and warranties and the absence of any default under the 2018 Credit Agreement. As of December 31, ~~2017, there were no borrowings outstanding under~~2021, the ~~Revolver and~~Company was only able to draw on $10,900 of the ~~full balance of~~ $15,000 ~~was available for borrowing.~~facility due to covenant restrictions.

The 2018 Credit Agreement ~~contains two~~contained 2 financial covenants, a ~~Maximum~~maximum Consolidated Leverage Ratio and a ~~Minimum~~minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the 2018 Credit Agreement. The ~~Maximum~~ Consolidated Leverage Ratio could not exceed 2.50:1.00 through December 31, 2020 and may not ~~be greater than 1.50:1.00.~~exceed 2.00:1.00 after December 31, 2020. The ~~Minimum~~ Consolidated Fixed Charge Coverage Ratio may not be less than 1.25:1.00.

On July 30, 2020, the Company 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 ~~March 2017 amendment,~~PPP Loan was forgiven in full.

On October 29, 2021, the ~~definition~~Company amended the 2018 Credit Agreement to maintain the $15,000 2018 Revolver, extend the maturity date of the 2018 Revolver to October 28, 2022, eliminate the Consolidated Fixed Charge Coverage Ratio ~~was amended~~financial covenant, add a minimum trailing four-quarter Consolidated Adjusted EBITDA financial covenant of $3,000, 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 ~~include only maintenance capital expenditures, as defined. The Company was in compliance with these financial ratio debt covenants as~~the Bloomberg Short Term Bank Yield Index. In addition, Bank of ~~December 31, 2017.~~America became the sole lender under the 2018 Credit Agreement.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

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, ~~entry into~~performance of material contracts, creation of liens, incurrence of indebtedness, investments, dispositions, fundamental changes, restricted payments, changes in the nature of the Company’s business, transactions with affiliates, corporate and accounting changes, and sale and leaseback arrangements.

The Company’s obligation to repay loans under the Credit Agreement could be accelerated upon a default or event of default under the terms of the Credit Agreement, including certain failures to pay principal or interest when due, certain breaches of representations and warranties, the failure to comply with the Company’s affirmative and negative covenants under the Credit Agreement, a change of control of the Company, certain defaults in payment relating to other indebtedness, the acceleration of payment of certain other indebtedness, certain events relating to the liquidation, dissolution, bankruptcy, insolvency or receivership of the Company, the entry of certain judgments against the Company, certain events relating to the impairment of collateral or the Lenders' security interest therein, and any other material adverse change with respect to the Company.

~~Mortgage Loan~~

~~The Company has a mortgage loan (as amended, the Mortgage Loan) in the amount of~~ ~~$4,000~~ ~~related to its headquarters facility in Middletown, Rhode Island. The loan term is~~ ~~ten years, with a principal amortization of~~ ~~20 years. The interest rate is based on the BBA LIBOR Rate plus 2.00 percentage points. The Mortgage Loan is secured by the underlying property and improvements. The monthly mortgage payment is approximately~~ ~~$14~~ ~~plus interest and increases in increments of approximately~~ $1 ~~each year throughout the life of the mortgage. Due to the difference in the term of the loan and amortization of the principal, a balloon payment of~~ ~~$2,551~~ ~~is due on April 1, 2019. The loan contains~~ ~~one~~ ~~financial covenant, a Fixed Charge Coverage Ratio, which applies in the event that the Company’s consolidated cash, cash equivalents, and marketable securities balance falls below~~ ~~$25,000~~ ~~at any time. As the Company’s consolidated cash, cash equivalents, and marketable securities balance was above the minimum threshold throughout the year ended~~ ~~December 31, 2017, the Fixed Charge Coverage Ratio did not apply.~~

Under the Mortgage Loan, the Company may prepay its outstanding loan balance subject to certain early termination charges. If the Company were to default on the Mortgage Loan, the underlying property and improvements would be used as collateral. As discussed in Note 15 to the consolidated financial statements, the Company entered into ~~two~~ ~~interest rate swap agreements that are intended to hedge its mortgage interest obligations over the term of the Mortgage Loan by fixing the interest rates specified in the mortgage loan to~~ ~~5.91%~~ ~~for half of the principal amount outstanding as of April 1, 2010 and~~ ~~6.07%~~ ~~for the remaining half.~~

~~Equipment Loan~~

On January 30, 2013, the Company borrowed $4,700 from a bank and pledged as collateral six satellite hubs and related equipment. This equipment loan had a term of five years and carried a fixed rate of interest of 2.76% per annum. In December 2013, the Company borrowed $1,200 from a bank and pledged as collateral one satellite hub and related equipment. This equipment loan had a term of five years and carried a fixed rate of interest of 3.08% per annum. In March 2017, the Company repaid in full the remaining outstanding balances of both loans before their 2018 maturity dates.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(6)Commitments and Contingencies


~~(6)~~	~~Commitments and Contingencies~~

The Company has certain operating leases and other commitments for satellite capacity, various equipment, and facilities. The following reflects future minimum payments under operating leases and other commitments that have initial or remaining non-cancelable ~~lease~~ terms at December 31, ~~2017:~~2021:


Years ending December 31,	Commitments (a)
2022	$	29,679
2023	28,190
2024	5,041
2025	44
2026	2

Total minimum payments	$	62,956

Years ending December 31,
Operating
Leases
2018 $ 13,682
2019 7,109
2020 2,970
2021 1,326
2022 1,189
Thereafter 489
Total minimum lease payments $ 26,765
(a) Includes the future minimum lease payments for the Company's operating leases as seen in Note 16.

Total rent expense incurred under facility operating leases for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 amounted to ~~$905, $601,~~$868 and ~~$630,~~$875, respectively. Total expense incurred under satellite capacity and equipment operating leases and other commitments for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 amounted to ~~$31,774, $31,606,~~$39,216 and ~~$32,793,~~$34,990, respectively, which also includes payments for usage charges in excess of the minimum contractual requirements.

In the normal course of business, the Company enters into unconditional purchase order obligations with its suppliers for inventory and other operational purchases. Outstanding and unconditional purchase order obligations were ~~$13,583~~$26,371 as of December 31, ~~2017,~~2021, which the Company expects to fulfill in ~~2018.~~2022.

~~Other than the interest rate swaps (see Note 15), the~~

The Company did not have any off-balance sheet commitments, guarantees, or standby repurchase obligations as of December 31, ~~2017~~.2021.


~~(7)~~	~~Stockholders’ Equity~~

(7)Stockholders’ Equity

The Company recognizes stock-based compensation in accordance with the provisions of ASC Topic 718, ~~Compensation--Stock Compensation. The Company adopted ASC Update No. 2016-09,~~ Compensation-Stock Compensation ~~(ASC Topic 718): Improvements to Employee Share-Based Payment Accounting~~ on January 1, 2017. Although this ASC update did not impact the Company’s results of operations, financial position or cash flows for any periods prior to the adoption, the adoption of this ASC update had the following impact on the date of adoption:

The adoption of ASC Update No. 2016-09 requires all income tax adjustments to be recorded in the consolidated statements of operations. The cumulative adjustment upon adoption to accumulated earnings was zero since the increase in net deferred tax assets was fully offset by a corresponding increase in the deferred tax asset valuation allowance. The amount of deferred tax assets that had not been previously recognized due to the recognition of excess tax benefits was $1,571.

The tax benefit or expense is required to be classified as a cash flow provided by (used in) operating activities. It was previously required to be presented as a cash flow provided by (used in) financing activities in the Consolidated Statements of Cash Flows, with a corresponding adjustment to operating cash flows.

In the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefit. This provision, which is only applicable on a prospective basis, did not have an impact on the Company's diluted net earnings per share calculation for the year ended December 31, 2017.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

The Company has elected to account for forfeitures on share-based payments as these forfeitures occur instead of a 5% forfeiture rate, which represents a change from the accounting previously required under ASC Topic 718. As a result, future forfeitures could result in a significant reversal of stock-based compensation expense recognized in the period in which such forfeitures occur. During the year ended December 31, 2017, as a result of share-based award forfeitures, the Company recorded a reversal of previously recognized stock-based compensation expense of $215. In addition, had the Company continued to account for stock-based compensation expense related to forfeitures of share-based payments based on estimating the number of awards expected to be forfeited and recognizing only stock-based compensation expense on awards expected to vest, the Company would have recognized $3,449 of stock-based compensation expense, or $19 less than what was actually recorded, during the year ended December 31, 2017.

. Stock-based compensation expense, excluding compensation charges related to our employee stock purchase plan, or the ESPP, was ~~$3,468~~$4,053 and ~~$3,640~~$3,414 for the ~~year~~years ended December 31, ~~2017~~2021 and ~~2016,~~2020, respectively.


~~(a)~~	~~Employee Stock Options~~

The Company is authorized to grant stock options, restricted stock awards and other stock-based awards under its Amended and Restated 2016 Equity and Incentive Plan (the 2016 Plan) with respect to up to ~~3,000~~4,800 shares of common stock, ~~(plus up to~~ an ~~additional 1,690~~increase of 1,800 shares ~~in respect of certain awards~~reserved for issuance under ~~earlier equity compensation plans that may be forfeited, cancelled, reacquired~~the previous 2016 Plan as approved by ~~the Company or terminated after adoption of the 2016 Plan).~~our shareholders on June 10, 2020. Options ~~are~~have generally been granted with an exercise price equal to the fair market value of the common stock on the date of grant and have generally ~~vest~~provided for vesting in equal annual amounts over four years beginning on the first anniversary of the date of the grant. No options are exercisable for periods of more than five years after date of grant. Under the 2016 Plan, each share issued under awards other than options and stock appreciation rights will reduce the number of shares reserved for issuance by ~~two~~2 shares. Shares issued under options or stock appreciation rights will reduce the shares reserved for issuance on a share-for-share basis. The 2016 Plan and earlier equity compensation plans, pursuant to which an aggregate of ~~12,415~~14,215 shares of the Company’s common stock were reserved for issuance, were all approved by the Company's shareholders. As of December 31, ~~2017, 1,715~~2021, 458 shares were available for future grants. The Compensation Committee of the Board of Directors administers the equity compensation plans, approves the individuals to whom awards will be granted and determines the number of shares and other terms of each award. Outstanding options under the Company's equity compensation plans at December 31, ~~2017~~2021 expire from ~~February 2018~~March 2022 through ~~November 2022.~~March 2026. None of the Company’s outstanding options includes performance-based or market-based vesting conditions as of December 31, ~~2017~~.2021.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(a)Employee Stock Options

The Company has estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. The expected volatility assumption is based on the historical daily price data of the Company’s common stock over a period equivalent to the weighted average expected life of the Company’s options. The expected term of options granted is derived using assumed exercise rates based on historical exercise patterns and represents the period of time the options granted are expected to be outstanding. The risk-free interest rate is based on the actual U.S. Treasury zero-coupon rates for bonds matching the expected term of the option as of the option grant date. The dividend yield of zero is based upon the fact that the Company has not historically declared or paid cash dividends, and does not expect to declare or pay dividends in the foreseeable future.

The per share weighted-average fair values of stock options granted during ~~2017, 2016,~~2021 and ~~2015~~2020 were ~~$2.74,~~ ~~$2.77~~,$4.70 and ~~$4.39~~,$2.88, respectively. The weighted-average assumptions used to value options as of their grant date were as follows:

Year Ended
December 31,
2017 2016 2015
Risk-free interest rate 1.98 % 1.43 % 1.55 %
Expected volatility 35.7 % 38.2 % 43.3 %
Expected life (in years) 4.22
4.18
4.17
Dividend yield 0 % 0 % 0 %

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~


	Year Ended December 31,
	2021		2020
Risk-free interest rate	0.92	%	0.21	%
Expected volatility	44.98	%	44.03	%
Expected life (in years)	4.28		4.29

Dividend yield	0	%	0	%

The changes in outstanding stock options for the year ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 are as follows:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2020	2,034	$	9.25
Granted	497	$	12.68
Exercised	(274)	$	9.86
Expired, canceled or forfeited	(130)	$	9.96
Outstanding at December 31, 2021	2,127	$	9.93	2.68	$	931
Exercisable at December 31, 2021	858	$	9.41	1.65	$	453
Options vested or expected to vest at December 31, 2021	2,127	$	9.93	2.68	$	931

Number of Options
Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Life
(in Years)

Aggregate Intrinsic
Value
Outstanding at December 31, 2016 686
$ 11.41

Granted 682
$ 8.65

Exercised (134 ) $ 9.24

Expired, canceled or forfeited (170 ) $ 10.46

Outstanding at December 31, 2017 1,064
$ 10.06
3.27 $ 1,268
Exercisable at December 31, 2017 307
$ 12.37
1.37 $ 9
Options vested or expected to vest at December 31, 2017 1,064
$ 10.06
3.27 $ 1,268


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	1,624	$	9.86
Granted	654	$	8.12
Exercised	(110)	$	8.02
Expired, canceled or forfeited	(134)	$	12.14
Outstanding at December 31, 2020	2,034	$	9.25	3.21	$	4,288
Exercisable at December 31, 2020	611	$	9.83	2.19	$	939
Options vested or expected to vest at December 31, 2020	2,034	$	9.25	3.21	$	4,288

Number of Options
Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Life
(in Years)

Aggregate Intrinsic
Value
Outstanding at December 31, 2015 1,177
$ 11.60

Granted 75
$ 8.90

Exercised (269 ) $ 9.06

Expired, canceled or forfeited (297 ) $ 13.68

Outstanding at December 31, 2016 686
$ 11.41
2.23 $ 681
Exercisable at December 31, 2016 379
$ 11.39
1.50 $ 382
Options vested or expected to vest at December 31, 2016 674
$ 11.42
2.04 $ 662

Number of Options Weighted Average
Exercise Price Weighted Average
Remaining
Contractual Life
(in Years) Aggregate Intrinsic
Value
Outstanding at December 31, 2014 1,205
$ 11.65

Granted 120
$ 12.04

Exercised (10 ) $ 8.64

Expired, canceled or forfeited (138 ) $ 12.59

Outstanding at December 31, 2015 1,177
$ 11.60
2.04 $ 123
Exercisable at December 31, 2015 687
$ 11.60
2.00 $ 122
Options vested or expected to vest at December 31, 2015 1,154
$ 11.58
1.25 $ 111

The total aggregate intrinsic value of options exercised was ~~$149,~~ ~~$484~~,$914 and ~~$50~~$269 in ~~2017, 2016,~~2021 and ~~2015~~,2020, respectively.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

As of December 31, ~~2017~~,2021, there was ~~$1,789~~$3,599 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of ~~2.99~~2.42 years. In ~~2017, 2016,~~2021 and ~~2015~~,2020, the Company recorded compensation charges of ~~$707,~~ ~~$702~~,$1,740 and ~~$1,229~~,$1,401, respectively, related to stock options. Compensation costs for options subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award. During ~~2017, 2016,~~2021 and ~~2015~~,2020, cash received under stock option plans for exercises was ~~$1,236, $2,438~~$2,709 and ~~$90~~,$880, respectively.


~~(b)~~	~~Restricted Stock~~

(b)Restricted Stock

The Company granted ~~271, 424,~~217 and ~~203~~317 restricted stock awards to employees under the terms of the 2016 Plan or the Amended and Restated 2006 Stock Incentive Plan (2006 Plan) for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively. The restricted stock awards have generally ~~vest~~provided for vesting annually over four years from the date of grant subject to the recipient remaining an employee through the applicable vesting dates. Compensation expense for restricted stock awards is measured at fair value on the date of grant based on the number of shares granted and the quoted market closing price of the Company’s common stock. Such value is recognized as expense over the vesting period of the award, net of forfeitures. The weighted-average grant-date fair value of restricted stock granted during ~~2017, 2016,~~2021 and ~~2015~~2020 was ~~$8.83, $8.68,~~$12.23 and ~~$12.43~~$8.19 per share, respectively.

As of December 31, ~~2017~~,2021, there was ~~$3,863~~$3,838 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of ~~2.15~~2.21 years. Compensation costs for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for awards initially subject to certain performance conditions are recognized on a ratable basis over the requisite service period for the entire award. In ~~2017, 2016,~~2021 and ~~2015,~~2020, the Company recorded compensation charges of ~~$2,760, $2,938,~~$2,313 and ~~$2,422~~,$2,013, respectively, related to restricted stock awards.

Restricted stock activity under the 2006 Plan and the 2016 Plan for ~~2017~~2021 is as follows:


						Number of Shares	Weighted- average grant date fair value
	Number of Shares		Weighted- average grant date fair value
Outstanding at December 31, 2016, unvested	644		$	10.58
Outstanding at December 31, 2020, unvested					Outstanding at December 31, 2020, unvested	556	$	8.90
Granted	271		8.83		Granted	217	12.23
Vested	(269	)	11.20		Vested	(247)	9.18
Forfeited	(42	)	9.57		Forfeited	(37)	9.46
Outstanding at December 31, 2017, unvested	604		$	9.59
Outstanding at December 31, 2021, unvested					Outstanding at December 31, 2021, unvested	489	$	10.19


~~(c)~~	~~Employee Stock Purchase Plan~~

(c)Employee Stock Purchase Plan

Under the Company's Amended and Restated 1996 Employee Stock Purchase Plan (ESPP), an aggregate of 1,650 shares of common stock have been reserved for issuance, of which ~~954~~821 shares remain available as of December 31, ~~2017~~.2021.

The ESPP covers all of the Company’s employees. Under the terms of the ESPP, eligible employees can elect to have up to ~~six~~6 percent of their pre-tax compensation withheld to purchase shares of the Company’s ~~common stock on a semi-annual basis. Before the amendment to the plan, the ESPP allowed eligible employees the right to purchase the Company’s common stock on a semi-annual basis at~~ ~~85%~~ ~~of the market price at the end of each purchase period. Under the amendment, the ESPP now allows eligible employees the right to purchase the Company's~~ common stock on a semi-annual basis at 85% of the market price on the first or last day of each purchase period, whichever is lower. During ~~2017, 2016,~~2021 and ~~2015~~,2020, shares issued under this plan were ~~46,~~ 18,26 and 2844 shares, respectively. The Company utilizes the Black-Scholes option-pricing model to calculate the fair value of these discounted purchases. The fair value of the 15% discount is recognized as compensation expense over the purchase period. The Company applies a graded vesting approach because the ESPP provides for multiple purchase periods and is, in substance, a series of linked awards. In ~~2017, 2016,~~2021 and ~~2015,~~2020, the Company recorded compensation charges of ~~$50, $11,~~$56 and ~~$58,~~$48, respectively, related to the ESPP. During ~~2017, 2016,~~2021 and ~~2015,~~2020, cash received under the ESPP was ~~$358, $146,~~$230 and ~~$291,~~$336, respectively.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(d)Stock-Based Compensation Expense


~~(d)~~	~~Stock- Based Compensation Expense~~

The following presents stock-based compensation expense, including expense for the ESPP, in the Company's consolidated statements of operations for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015.~~2020.


	2017		2016		2015			2021		2020
Cost of product sales	$	298	$	321	$	317	Cost of product sales	$	271	$	165
Cost of service sales	18		1		—		Cost of service sales	10		—
Research and development	696		690		619		Research and development	644		593
Sales, marketing and support	780		1,027		927		Sales, marketing and support	898		682
General and administrative	1,726		1,612		1,871		General and administrative	2,286		2,022
	$	3,518	$	3,651	$	3,734		$	4,109	$	3,462

(e) Accumulated Other Comprehensive Loss (AOCI)

Comprehensive ~~income (loss)~~loss includes net income (loss), and unrealized gains and losses from foreign currency ~~translation, and unrealized gains and losses from available for sale marketable securities and changes in fair value related to interest rate swap~~

~~derivative instruments, net of tax attributes, which were not material.~~translation. The components of the Company’s comprehensive ~~income (loss)~~loss and the effect on earnings for the periods presented are detailed in the accompanying consolidated statements of comprehensive ~~income (loss).~~loss.


	Foreign Currency Translation		Total Accumulated Other Comprehensive Loss
Balance, December 31, 2019	$	(2,767)	$	(2,767)
Other comprehensive loss	(465)		(465)

Net other comprehensive loss	(465)		(465)
Balance, December 31, 2020	(3,232)		(3,232)
Other comprehensive loss	(177)		(177)
Net other comprehensive loss	(177)		(177)
Balance, December 31, 2021	$	(3,409)	$	(3,409)

Foreign Currency Translation Unrealized Gain (Loss) on Available for Sale Marketable Securities Interest Rate Swaps Total Accumulated Other Comprehensive Loss
Balance, December 31, 2014 $ (3,156 ) $ 4
$ (295 ) $ (3,447 )
Other comprehensive loss before reclassifications (4,207 ) (3 ) (58 ) (4,268 )
Amounts reclassified from AOCI to Other income, net —
—
115
115
Net other comprehensive (loss) income, December 31, 2015 (4,207 ) (3 ) 57
(4,153 )
Balance, December 31, 2015 (7,363 ) 1
(238 ) (7,600 )
Other comprehensive loss before reclassifications (9,288 ) (1 ) (20 ) (9,309 )
Amounts reclassified from AOCI to Other income, net —
—
100
100
Net other comprehensive (loss) income, December 31, 2016 (9,288 ) (1 ) 80
(9,209 )
Balance, December 31, 2016 (16,651 ) —
(158 ) (16,809 )
Other comprehensive income (loss) before reclassifications 5,404
(1 ) 12
5,415
Amounts reclassified from AOCI to Other income, net —
—
77
77
Net other comprehensive income (loss), December 31, 2017 5,404
(1 ) 89
5,492
Balance, December 31, 2017 $ (11,247 ) $ (1 ) $ (69 ) $ (11,317 )

~~For additional information, see Note 2, "Marketable Securities", and see Note 15, "Derivative Instruments and Hedging Activities"~~

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(8) Income Taxes


~~(8)~~	~~Income Taxes~~

Income tax (benefit) expense ~~(benefit)~~ for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 attributable to ~~(loss) income~~loss from operations is presented below.


	Current		Deferred		Total
Year ended December 31, 2021
Federal	$	27	$	—	$	27
State	—		—		—
Foreign	44		(179)		(135)
	$	71	$	(179)	$	(108)
Year ended December 31, 2020
Federal	$	240	$	—	$	240
State	—		—		—
Foreign	321		(387)		(66)
	$	561	$	(387)	$	174

Current Deferred Total
Year ended December 31, 2017
Federal $ (41 ) $ 6
$ (35 )
State 36
—
36
Foreign 1,857
(762 ) 1,095
$ 1,852
$ (756 ) $ 1,096
Year ended December 31, 2016
Federal $ 227
$ 3,197
$ 3,424
State 144
457
601
Foreign 2,770
(1,248 ) 1,522
$ 3,141
$ 2,406
$ 5,547
Year ended December 31, 2015
Federal $ (555 ) $ (94 ) $ (649 )
State 120
765
885
Foreign 295
(118 ) 177
$ (140 ) $ 553
$ 413

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

Actual income tax(benefit) expense differs from the “expected” income tax (benefit) expense computed by applying the United States Federal statutory income tax rate of ~~34%~~21% for both 2021 and 2020 to ~~(loss) income~~loss before tax (benefit) expense, as follows:


	Year Ended December 31,
	2021		2020
Income tax benefit at Federal statutory income tax rate	$	(2,073)	$	(4,571)
Increase (decrease) in income taxes resulting from:
State income tax benefit, net of federal benefit	(342)		(600)
State research and development, investment credits	(137)		(213)
Non-deductible meals & entertainment	1		22
Non-deductible stock compensation expense	(194)		19
Non-deductible compensation under 162(m)	35		—

Foreign tax rate differential	58		235
Federal research and development credits	(607)		(707)
Uncertain tax positions	32		39
Provision to tax return adjustments	33		144
Change in valuation allowance	4,648		3,980
PPP loan forgiveness	(1,455)		—

Impairment of goodwill and intangibles	—		1,834

Prior period adjustments	(117)		—
Other	10		(8)
Income tax (benefit) expense	$	(108)	$	174

Year Ended December 31,
2017 2016 2015
Income tax (benefit) expense at Federal statutory income tax rate $ (3,379 ) $ (670 ) $ 906
Increase (decrease) in income taxes resulting from:
State income tax expense, net of federal benefit 56
(156 ) (37 )
State research and development, investment credits (435 ) (363 ) (317 )
Non-deductible meals & entertainment 47
49
33
Non-deductible stock compensation expense 338
216
181
Non-deductible deferred compensation expense —
116
260
Subpart F income, net of foreign tax credits 1,171
523
61
Foreign branch income —
52
—
Manufacturing deduction —
—
(102 )
Nontaxable interest income —
(162 ) (106 )
Foreign tax rate differential (902 ) (1,258 ) (792 )
Federal research and development credits (427 ) (395 ) (348 )
Uncertain tax positions 189
283
(413 )
Provision to tax return adjustments 8
(95 ) 80
Change in tax rates 926
14
(313 )
Change in valuation allowance 3,330
7,425
1,392
Foreign research and development incentives (22 ) (45 ) (59 )
Other 196
13
(13 )
Income tax expense $ 1,096
$ 5,547
$ 413

~~(Loss) income before income tax expense determined by tax jurisdiction, are as follows:~~

Year Ended December 31,
2017 2016 2015
United States $ (13,271 ) $ (7,775 ) $ (570 )
Foreign 3,333
5,805
3,236
Total $ (9,938 ) $ (1,970 ) $ 2,666

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

Loss before income tax (benefit) expense determined by tax jurisdiction, are as follows:


	Year Ended December 31,
	2021		2020
United States	$	(10,040)	$	(11,862)
Foreign	169		(9,904)
Total	$	(9,871)	$	(21,766)

Deferred tax assets and liabilities for the periods presented consisted of the following:


	December 31,
	2021		2020
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	373	$	221
Inventories	1,211		1,209
Operating loss carry-forwards	5,784		2,744
Stock-based compensation expense	1,106		874
Property and equipment, due to difference in depreciation	1,978		841
Research and development tax credit carry-forwards	6,247		5,640
Foreign tax credit carry-forwards	2,345		2,345
State tax credit carry-forwards	3,975		3,838
Capitalized research and development	2,690		3,154
Warranty reserve	277		429
Accrued expenses	1,174		1,216
Lease liability	700		1,574
Gross deferred tax assets	27,860		24,085
Less valuation allowance	(27,080)		(22,432)
Total deferred tax assets	780		1,653
Deferred tax liabilities:
Purchased intangible assets	(199)		(384)
Property and equipment, due to differences in depreciation	(52)		(50)
Right of use asset	(688)		(1,564)

Total deferred tax liabilities	(939)		(1,998)
Net deferred tax liability	$	(159)	$	(345)
Deferred income tax asset	$	56	$	73
Deferred income tax liability	$	(215)	$	(418)

December 31,
2017 2016
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 540
$ 1,104
Inventories 581
792
Operating loss carry-forwards 4,725
3,078
Stock-based compensation expense 696
1,231
Property and equipment, due to difference in depreciation 190
148
Research and development, alternative minimum tax credit carry-forwards 4,338
3,031
Foreign tax credit carry-forwards 2,958
754
State tax credit carry-forwards 2,958
2,277
Warranty reserve 495
822
Accrued expenses 334
432
Gross deferred tax assets 17,815
13,669
Less valuation allowance (16,014 ) (11,567 )
Total deferred tax assets 1,801
2,102
Deferred tax liabilities:
Purchased intangible assets (2,705 ) (3,197 )
Property and equipment, due to differences in depreciation (1,681 ) (2,003 )
Other (29 ) (11 )
Total deferred tax liabilities (4,415 ) (5,211 )
Net deferred tax liability $ (2,614 ) $ (3,109 )
Net deferred tax asset- non-current $ 20
$ 24
Net deferred tax liability- non-current $ (2,634 ) $ (3,133 )

As of December 31, ~~2017,~~2021 the Company has federal and state tax loss carryforwards of approximately $22,103 and $16,878, respectively. The federal loss carryforward has no expiration date. The state losses expire through the year 2041. As of December 31, 2021, the Company had federal research and development tax credit carry-forwards in the amount of ~~$4,329~~$6,238 and other general business credits of $9 that expire in years ~~2026~~2028 through ~~2037.~~2041. As of December 31, ~~2017,~~2021, the Company had foreign tax credit carry-forwards in the amount of ~~$2,958~~$2,345 that expire in years 2026 through 2027. As of December 31, ~~2017,~~2021, the Company had state research and development tax credit carry-forwards in the amount of ~~$3,501~~$4,918 that expire in years ~~2018~~2022 through ~~2024.~~2028. The Company also had other state tax credit carry-forwards of ~~$243~~$114 available to reduce future state tax expense that expire in years ~~2018~~2022 through ~~2024.~~2028.

The Company’s ability to utilize these net operating loss carry-forwards and tax credit carry-forwards may be limited in the future if the Company experiences an ownership change pursuant to Internal Revenue Code Section 382. An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

Table of Contents

As of January 1, 2017, the Company adopted Update No. 2016-09. In accordance with Update No. 2016-09, previously unrecognized excess tax benefits are recognized on a modified retrospective basis. On January 1, 2017, the Company recorded a $1,117 deferred tax asset related to unrecognized excess tax benefits with an offsetting adjustment to retained earnings. As the Company had previously recorded a full valuation allowance on its U.S. deferred tax assets, a corresponding increase to the valuation allowance was recorded with an offsetting adjustment to retained earnings.KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

In assessing the realizability of its net deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, ~~2017,~~2021, the Company concluded that a net increase of ~~$4,447~~$4,648 of the valuation allowance was appropriate. The change was the result of an increase in domestic tax credits, net operating loss balances, and property and equipment differences due to depreciation. As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating ~~taxable income~~tax losses and its near-term forecasts of future taxable income. The net increase in valuation allowance of $4,447 is composed of expense of $3,330 and an increase of $1,117 related to recording deferred tax assets as a result of the adoption of ASU 2016-09.income or losses.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

As of December 31, ~~2017,~~2021, unremitted foreign earnings, which were not significant, have been retained by the ~~Company has not provided for U.S. deferred income taxes on undistributed earnings of its~~Company's foreign subsidiaries ~~of approximately $18,328 since these earnings are expected to be indefinitely reinvested.~~for indefinite reinvestment. Upon ~~distribution~~repatriation of those earnings, in the form of dividends or otherwise, the Company ~~will~~could be subject to ~~additional~~ state ~~income taxes as well as~~tax and withholding taxes ~~in certain~~payable to various foreign ~~jurisdictions. The amount of taxes attributable to the undistributed earnings is not practicably determinable.~~countries.

The Company establishes reserves for uncertain tax positions based on management’s assessment of exposure associated with tax deductions, permanent tax differences, and tax credits. The tax reserves are analyzed periodically and adjustments are made as events occur that warrant adjustment to the reserve. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The aggregate changes in the total gross amount of unrecognized tax benefits are as follows:


	Year Ended December 31,
	2021		2020
Unrecognized tax benefits as of January 1	$	1,771	$	1,897
Gross decrease in unrecognized tax benefits - prior year tax positions	(104)		(105)

Lapse of statute of limitations	(14)		(21)
Unrecognized tax benefits as of December 31	$	1,653	$	1,771

Year Ended December 31,
2017 2016 2015
Unrecognized tax benefits as of January 1 $ 815
$ 983
$ 2,487
Gross increase in unrecognized tax benefits - prior year tax positions 52
—
168
Gross increase (decrease) in unrecognized tax benefits due to currency fluctuations - prior year tax positions 43
(131 ) (116 )
Gross increase in unrecognized tax benefits - current year tax positions 111
293
13
Settlements with taxing authorities —
(330 ) (1,569 )
Lapse of statute of limitations (15 ) —
—
Unrecognized tax benefits as of December 31
$ 1,006
$ 815
$ 983

All unrecognized tax benefits as of December 31, ~~2017, 2016~~2021 and ~~2015,~~2020, if recognized, would result in a reduction of the Company's effective tax rate.

The Company recorded interest and penalties of ~~$67, $40,~~$46 and ~~$78~~$61 in its consolidated statement of operations for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively. Total accrued interest and penalties related to tax positions taken on our tax returns and included in non-current income taxes payable was approximately ~~$564, $545,~~$255 and ~~$468~~$208 as of December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively.

The timing of any resolution of income tax examinations is highly uncertain, as are the amounts and timing of any settlement payment. These events could cause fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, ~~2017~~2021 may decrease approximately ~~$235~~$19 in the next twelve months as a result of a lapse of statutes of limitation and settlements with taxing authorities.

The Company’s tax jurisdictions include the United States, the United Kingdom, Denmark, Cyprus, Norway, Brazil, Singapore, ~~Belgium, the Netherlands, Hong Kong,~~ Japan, and India. In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to ~~2014,~~2018, and the relevant state and foreign statutes vary. However, preceding years remain open to examination by United States federal and state and foreign taxing authorities to the extent of future utilization of net operating losses and research and development tax credits generated in each preceding year.

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KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

~~Tax Reform~~

The 2017 Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income (GILTI). These changes are effective beginning in 2018.

~~The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the “Transition Toll Tax”).~~

Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year ended December 31, 2017, the Company recorded a reduction in our deferred tax assets and corresponding valuation allowance of $1,780 and a net tax benefit of $54 related to the Company's current estimate of the provisions of the 2017 Tax Act.

The Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 118 to provide guidance to companies on how to implement the accounting and disclosure changes as a result of the Tax Act. The SEC staff guidance has recognized that, due to the complexity and timing of the release of the Tax Act, the accounting for this change in the law may be incomplete upon issuance of a company's financial statements for the reporting period in which the Tax Act was enacted. SAB No. 118 states that if a company can determine a reasonable estimate for the effects of the Tax Act then this estimate can be included in the financial statements. The Company has made a preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities as of December 31, 2017. The preliminary estimate is subject to change as we finalize our analysis and as interpretations of the provisions of the 2017 Tax Act continue to develop. The final determination of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates, which could have a material adverse effect on our business, results of operations, financial position and cash flows.

~~Transition Toll Tax~~

The 2017 Tax Act eliminates the deferral of U.S. income tax on historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%.

As of December 31, 2017, the Company has included $7,818 of foreign earnings and profits in U.S. taxable income and included an additional $1,935 of foreign tax credits in deferred assets under the Transition Toll Tax. The Company's valuation allowance on deferred tax assets was reduced by $802 as a result of the Transition Toll Tax.

~~At December 31, 2017, we considered all of our foreign earnings to be permanently reinvested outside the U.S. as we continue to evaluate the implications of the 2017 Tax Act on the Company.~~

~~Effect on Deferred Tax Assets and Liabilities and other Adjustments~~

~~Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled.~~

As the Company's U.S. deferred tax assets exceed the balance of its deferred tax liabilities at the date of enactment, the Company has recorded a reduction in deferred tax assets of $926 and a corresponding decrease in the related valuation allowance to reflect the decrease in the U.S. corporate income tax rate and other changes to U.S. tax law.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

~~Status of Assessment~~

The preliminary estimate of the Transition Toll Tax and remeasurement of deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates.

The final determination of the Transition Toll Tax and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act.

(9) Goodwill and Intangible Assets

~~The Company’s goodwill~~Intangible assets arose from an acquisition made prior to 2013 and ~~intangible assets are associated with~~ the ~~purchase~~acquisition of ~~Virtek Communication (now~~ KVH ~~Industries Norway AS) in September 2010,~~Media Group (acquired as Headland Media ~~Limited (now known as the KVH Media Group)~~Limited) in May ~~2013, and Videotel in July 2014.~~2013. Intangibles arising from the acquisition made prior to 2013 were amortized on a straight-line basis over an estimated useful life of 7 years. Intangibles arising from the acquisition of KVH Media Group are being amortized on a straight-line basis over the estimated useful life of: (i) 10 years for acquired subscriber relationships and (ii) 15 years for distribution rights. Due to the impairment of distribution rights ~~(iii) 3 years for internally developed software and (iv) 2 years for proprietary content. Intangibles arising from~~during the ~~acquisition of Videotel are being amortized on a straight-line basis over~~Company's 2020 annual impairment test, the estimated useful life ~~of: (i) 8~~of distribution rights was reduced from 15 years ~~for acquired subscriber relationships, (ii) 5 years for favorable leases, (iii) 4 years for internally developed software and (iv) 5 years for proprietary content.~~to 1 year. The intangibles arising from the KVH Media Group ~~and Videotel acquisitions~~acquisition were recorded in pounds sterling and fluctuations in exchange rates ~~could~~ cause these amounts to increase or decrease from time to time.

In January 2017, the Company completed the acquisition of certain subscriber relationships from a third party. This acquisition did not meet the definition of a business under ASC 2017-01, Business Combinations (Topic 805)-Clarifying the Definition of a Business, which the Company adopted on October 1, 2016. The Company ascribed $100 of the initial purchase price to the acquired subscriber relationships definite-lived intangible assets with an initial estimated useful life of 10 years. Under the asset purchase agreement, the purchase price includes a component of contingent consideration under which the Company is required to pay a percentage of recurring revenues received from the acquired subscriber relationships through 2026 up to a maximum annual payment of $114. As of December 31, 2021, the carrying value of the intangible assets acquired in the asset acquisition was $408. As the acquisition did not represent a business combination, the contingent consideration arrangement is recognized only when the contingency is resolved and the consideration is paid or becomes payable. The amounts payable under the contingent consideration arrangement, if any, will be included in the measurement of the cost of the acquired subscriber relationships. ~~During the year ended December 31, 2017, $33 in~~An additional $62 and $75 of consideration was earned under the contingent consideration ~~arrangement.~~

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

arrangement during the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020, respectively.

~~(in thousands except per share amounts)~~

~~Intangible~~Acquired intangible assets are subject to amortization. The following table summarizes ~~other~~acquired intangible assets ~~as of~~at December 31, ~~2017~~2021 and ~~2016,~~2020, respectively:


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
December 31, 2021
Subscriber relationships	$	8,033	$	6,746	$	1,287
Distribution rights	315		315		—
Internally developed software	446		446		—
Proprietary content	153		153		—
Intellectual property	2,284		2,284		—
	$	11,231	$	9,944	$	1,287
December 31, 2020
Subscriber relationships	$	7,977	$	5,958	$	2,019
Distribution rights	311		76		235
Internally developed software	446		446		—
Proprietary content	153		153		—
Intellectual property	2,284		2,284		—
	$	11,171	$	8,917	$	2,254

Gross Carrying Amount Accumulated Amortization Net Carrying Value
December 31, 2017
Subscriber relationships $ 17,912
$ 8,347
$ 9,565
Distribution rights 4,385
1,450
2,935
Internally developed software 2,324
2,206
118
Proprietary content 8,223
5,908
2,315
Intellectual property 2,284
2,284
—
Favorable lease 648
461
187
$ 35,776
$ 20,656
$ 15,120
December 31, 2016
Subscriber relationships $ 16,888
$ 6,431
$ 10,457
Distribution rights 4,122
1,180
2,942
Internally developed software 2,301
1,904
397
Proprietary content 7,960
4,431
3,529
Intellectual property 2,284
2,056
228
Favorable lease 627
342
285
$ 34,182
$ 16,344
$ 17,838

Amortization expense related to intangible assets was ~~$4,312, $4,956,~~$1,027 and ~~$5,526~~$1,004 for years ended December 31, ~~2017, 2016,~~2021 and ~~2015, respectively.~~2020, respectively, and was categorized as general and administrative expense.

~~Amortization expense related to intangible assets for the years ended years ended December 31, 2017, 2016, and 2015 was as follows:~~

Expense Category 2017 2016 2015
Cost of service sales $ 1,477
$ 2,068
$ 1,978
General administrative expense 2,835
2,888
3,548
Total amortization expense $ 4,312
$ 4,956
$ 5,526

As of December 31, ~~2017,~~2021, the total weighted average remaining useful lives of the definite-lived intangible assets was ~~4.2~~1.5 years and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:



~~Intangible Asset~~	~~Weighted Average Remaining Useful Life in Years~~
~~Subscriber relationships~~	~~4.9~~
~~Distribution rights~~	~~10.3~~
~~Internally developed software~~	~~0.4~~
~~Proprietary content~~	~~1.5~~
~~Favorable lease~~	~~1.5~~

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)


Intangible Asset			Weighted Average Remaining Useful Life in Years
Subscriber relationships			1.5

Estimated future amortization expense for intangible assets recorded by the Company at December 31, ~~2017~~2021 is as follows:


Years ending December 31,	Amortization Expense
2022	$	782
2023	315
2024	60
2025	60
2026	60
Thereafter	10
Total amortization expense	$	1,287

Years ending December 31,
Amortization
Expense
2018 $ 4,082
2019 3,122
2020 2,292
2021 2,292
2022 1,505
Thereafter 1,827
Total amortization expense $ 15,120

The changes in the carrying amount of intangible assets during the year ended December 31, ~~2017~~2021 is as follows:


	2021
Balance at December 31, 2020	$	2,254
Amortization expense	(1,027)
Intangibles assets acquired in asset acquisition	62

Foreign currency translation adjustment	(2)
Balance at December 31, 2021	$	1,287

2017
Balance at January 1 $ 17,838
Amortization expense (4,312 )
Intangibles assets acquired in asset acquisition 133
Foreign currency translation adjustment 1,461
Balance at December 31 $ 15,120

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. All of the Company's goodwill as of December 31, ~~2017~~2021 relates to its mobile connectivity reportable segment. None of the Company's goodwill is deductible for tax purposes. The changes in the carrying amount of goodwill during the year ended December 31, ~~2017~~2021 is as follows:


	Goodwill
Balance at December 31, 2020	$	6,592

Foreign currency translation adjustment	(22)
Balance at December 31, 2021	$	6,570

Goodwill
Balance at January 1, 2016 $ 36,747
Foreign currency translation adjustment (5,404 )
Balance at December 31, 2016 31,343
Foreign currency translation adjustment 2,529
Balance at December 31, 2017 $ 33,872

(10) 401(k) Plan

The Company has a 401(k) Plan (the Plan) for all eligible employees. Participants may defer a portion of their pre-tax or post-tax earnings subject to limits determined by the Internal Revenue Service. Participants age 50 or older may be eligible to make additional contributions. ~~As of~~ ~~December 31, 2017, the~~The Company matches ~~one half of the first 6%~~ ~~contributed~~contributions by the Plan ~~participants.~~participants up to 6%. The Company’s contributions vest over a ~~five-year~~five-year period from the date of hire. ~~Total~~During a five and half month period in 2020, as a result of the uncertainty caused by the COVID-19 pandemic, the Company paused matching contributions. The Company matching contributions were ~~$683,~~ ~~$671~~,$900 and ~~$608~~$561 for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015,~~2020, respectively. In addition, the Company may make additional contributions to the Plan at the discretion of the Compensation Committee of the Board of Directors. There were no discretionary contributions in ~~2017, 2016, or 2015.~~2021 and 2020.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(11) Revenue from Contracts with Customers (ASC 606)

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products and services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these products and services.

Disaggregation of Revenue

The following table summarizes net sales from contracts with customers for the years ended December 31, 2021 and 2020:


	Year Ended December 31,
	2021		2020
Mobile connectivity product, transferred at point in time	$	27,490	$	25,140
Mobile connectivity product, transferred over time	2,522		2,723
Mobile connectivity service	103,899		91,590
Inertial navigation product	36,858		36,756
Inertial navigation service	998		2,524
Total net sales	$	171,767	$	158,733

Revenue recognized during the years ended December 31, 2021 and 2020 from amounts included in contract liabilities at the beginning of the fiscal year was approximately $2,281 and $2,586, respectively.

For mobile connectivity product sales, the delivery of the Company’s performance obligations are generally transferred to the customer, and associated revenue is recognized, at a point in time, with the exception of certain mini-VSAT contracts which are transferred to customers over time. For mobile connectivity service sales, the delivery of the Company’s performance obligations are transferred to the customer, and associated revenue is recognized, over time. For inertial navigation product sales, the delivery of the Company’s performance obligations are generally transferred to the customer, and associated revenue is recognized, at a point in time. For inertial navigation service sales, the Company's performance obligations are generally transferred to customers, and associated revenue is recognized, over time.

Business and Credit Concentrations

Concentrations of risk with respect to trade accounts receivable are generally limited due to the large number of customers and their dispersion across several geographic areas. Although the Company does not foresee that credit risk associated with these receivables will deviate from historical experience, repayment is dependent upon the financial stability of those individual customers. The Company ~~had no~~establishes allowances for potential bad debts and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and its expectations for future collectability concerns. The Company performs ongoing credit evaluations of the financial condition of its customers ~~that~~and generally does not require collateral.

No single customer accounted for 10% or more of ~~its~~ consolidated net sales for the years ended December 31, ~~2017, 2016, and 2015, respectively. The Company had one customer that accounted for 17% of~~2021 or 2020 or accounts ~~receivable~~receivables as of December 31, ~~2015,~~2021 or 2020.

Certain components from third parties used in the Company’s products are procured from single sources of supply. The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the Company’s delivery of products and ~~all amounts were collected within 2016 in accordance with~~thereby materially adversely affect the ~~contractual payment terms. The Company had no customers who account for 10% or more~~Company’s revenues and operating results.

Table of ~~the Company's consolidated accounts receivable as of~~ Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, ~~2017 or December 31, 2016.~~2021 and 2020

(in thousands, except per share amounts)

(12) Segment Reporting

~~In the fourth quarter of 2016, the Company concluded that it has two operating segments, which are also~~The Company's reportable segments ~~and were organized based on products and services. The Company’s reportable segments are:~~

~~Mobile~~are mobile connectivity and

~~Inertial navigation~~

The Company’s Chief Operating Decision Maker (CODM), whom the Company has identified as its Chief Executive Officer, primarily evaluates the business and assesses performance based on the revenue and operating income of the segments. The Company does not allocate interest, taxes, and certain corporate-level costs to its reportable segments, as discussed further below.

inertial navigation. The financial results of each segment are based on revenues from external customers, ~~cost~~costs of revenue and operating expenses that are directly attributable to the segment and an allocation of costs from shared functions. These shared functions include, but are not limited to, facilities, human resources, information technology, and engineering. Allocations are made based on management’s judgment of the most relevant factors, such as head count, number of customer sites, or other operational data that ~~contributes~~contribute to the shared costs. Certain corporate-level costs have not been allocated as they are not directly attributable to either segment. These costs primarily consist of broad corporate functions, including executive, legal, finance, and costs associated with corporate actions. Segment-level asset information has not been provided as such information is not reviewed by the ~~CODM~~chief operating decision-maker for purposes of assessing segment performance and allocating resources. There are no significant inter-segment sales or transactions.

The Company's performance is impacted by the levels of activity in the marine and land mobile markets and defense sectors, among others. Performance in any particular period could be impacted by the timing of sales to certain large customers.

The mobile connectivity segment primarily manufactures and distributes a comprehensive family of mobile satellite antenna products and services that provide access to television, the Internet and voice services while on the move. Product sales within the mobile connectivity segment accounted for approximately ~~20%, 23%~~17% and ~~23%~~18% of our consolidated net sales for ~~2017, 2016~~2021 and ~~2015,~~2020, respectively. Sales of mini-VSAT Broadband airtime service accounted for approximately ~~41%, 37%,~~54% and ~~35%~~51% of our consolidated net sales for ~~2017, 2016, 2015,~~2021 and 2020, respectively. ~~Sales of content and training sales within the mobile connectivity segment accounted for approximately 20%, 20% and 21% of our consolidated net sales for 2017, 2016 and 2015, respectively.~~

The inertial navigation segment manufactures and distributes a portfolio of digital compass and fiber optic gyro (FOG)-based systems that address the rigorous requirements of military and commercial customers and provide reliable, easy-to-use and continuously available navigation and pointing data. The principal product categories in this segment include the ~~FOG based~~FOG-based inertial measurement units (IMUs) for precision guidance, FOGs for tactical navigation as well as pointing and stabilization systems, and digital compasses that provide accurate heading information for demanding applications, security, automation and access control equipment and systems. Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for approximately ~~13%, 10%, and 10%~~16% of consolidated net sales for ~~2017, 2016,~~both 2021 and ~~2015, respectively.~~2020.

No other single product class accounts for 10% or more of consolidated net sales.

The Company operates in a number of major geographic areas, including internationally. Revenues from international locations primarily ~~consisting of~~include Canada, European Union countries, ~~both inside~~ and ~~outside the~~other European ~~Union,~~countries, as well as countries in Africa, Asia/Pacific, the Middle East, and India. Revenues are based upon customer location and internationally represented ~~62%, 63%,~~60% and ~~67%~~64% of consolidated net sales for ~~2017, 2016~~2021 and ~~2015,~~2020, respectively. Sales to Singapore customers represented 11% of the Company's consolidated net sales for 2021. No other individual foreign country represented 10% or more of the Company's consolidated net sales for 2021. No individual foreign country represented 10% or more of the Company's consolidated net sales for 2017. Sales to Canada represented 11% and 10% of net sales for 2016 and 2015, respectively. No other individual foreign country represented 10% or more of the Company’s consolidated net sales for 2016 or 2015.2020.

~~Table of Contents~~

~~KVH INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~December 31, 2017, 2016, and 2015~~

~~(in thousands except per share amounts)~~

As of December 31, ~~2017~~2021 and ~~2016,~~2020, the long-lived tangible assets related to the Company’s international subsidiaries were less than 10% of the Company’s long-lived tangible assets and were deemed not material.

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

Net sales and operating income (loss) ~~earnings~~ for the Company's reporting segments and the Company's ~~(loss) income~~loss before income tax (benefit) expense for the years ended December 31, ~~2017, 2016,~~2021 and ~~2015~~2020 were as follows:


	For the year ended December 31,
	2021		2020
Net sales:
Mobile connectivity	$	133,911	$	119,453
Inertial navigation	37,856		39,280
Consolidated net sales	$	171,767	$	158,733

Operating income (loss):
Mobile connectivity (1)	$	2,749	$	(10,071)
Inertial navigation	1,649		4,799
Subtotal	4,398		(5,272)
Unallocated, net	(22,344)		(17,665)
Loss from operations	(17,946)		(22,937)
Net interest and other income	8,075		1,171
Loss before income tax (benefit) expense	$	(9,871)	$	(21,766)

For the year ended December 31,
2017 2016 2015
Net sales:
Mobile connectivity $ 132,227
$ 141,507
$ 147,809
Inertial navigation 27,861
34,615
36,825
Consolidated net sales $ 160,088
$ 176,122
$ 184,634

Operating earnings (loss):
Mobile connectivity $ 7,334
$ 10,041
$ 9,459
Inertial navigation 556
5,272
7,934
Subtotal 7,890
15,313
17,393
Unallocated, net (16,654 ) (16,635 ) (14,185 )
Consolidated (loss) operating earnings (8,764 ) (1,322 ) 3,208
Net interest and other expense (1,174 ) (648 ) (542 )
(Loss) income before income tax expense $ (9,938 ) $ (1,970 ) $ 2,666
(1) Includes an impairment charge of $10,490 for the KVH Media Group reporting unit within the mobile connectivity segment for the year ended December 31, 2020.

Depreciation expense and amortization expense for the Company's segments are presented in the table that follows for the periods presented:


	For the year ended December 31,
	2021		2020
Depreciation expense:
Mobile connectivity	$	11,322	$	8,726
Inertial navigation	1,569		1,325
Unallocated	683		608
Total consolidated depreciation expense	$	13,574	$	10,659

Amortization expense:
Mobile connectivity	$	1,027	$	1,004
Inertial navigation	—		—
Unallocated	—		—
Total consolidated amortization expense	$	1,027	$	1,004

For the year ended December 31,
2017 2016 2015
Depreciation expense:
Mobile connectivity $ 5,720
$ 6,084
$ 5,843
Inertial navigation 928
1,063
961
Unallocated 77
461
389
Total consolidated depreciation expense $ 6,725
$ 7,608
$ 7,193

Amortization expense:
Mobile connectivity $ 4,312
$ 4,956
$ 5,526
Inertial navigation —
—
—
Unallocated —
—
—
Total consolidated amortization expense $ 4,312
$ 4,956
$ 5,526

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS - (Continued)

December 31, ~~2017, 2016,~~2021 and ~~2015~~2020

(in thousands, except per share amounts)

(13) Share Buyback Program

On ~~November 26, 2008,~~October 4, 2019, the ~~Company’s~~Company's Board of Directors authorized a share repurchase program pursuant to ~~repurchase~~which the Company was authorized to purchase up to 1,000 shares of the Company’s common stock. ~~As of~~ ~~December 31, 2017~~, ~~341~~ ~~shares of the Company’s common stock remain available for repurchase under the authorized program.~~ The ~~repurchase~~ program ~~is funded using the Company’s existing cash, cash equivalents, marketable securities and future cash flows.~~expired on October 4, 2020. Under the repurchase program, the Company, at management’s discretion, ~~may~~was 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. The timing of such repurchases depends on availability of shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements. The program may be modified, suspended or terminated at any time without prior notice. The repurchase program has no expiration date. There were no ~~other repurchase programs outstanding during the year ended~~ ~~December 31, 2017~~ ~~and~~ no ~~repurchase programs expired during the period.~~

~~During the years ended December 31, 2017, 2016, and 2015,~~

In January 2020, the Company ~~did not repurchase any~~repurchased 36 shares of ~~its~~ common stock in open market ~~transactions.~~transactions at a cost of approximately $390. The total amount the Company repurchased under the repurchase program since the inception of the October 4, 2019 repurchase program was 151 shares of common stock for an approximate cost of $1,690. There were no repurchase programs outstanding during 2021.

(14) Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (ASC 820), provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:


~~Level 1:~~	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company’s Level 1 assets are investments in money market mutual funds, United States treasuries, and certificates of deposit.


~~Level 2:~~	Quoted prices for similar assets or liabilities in active markets; or observable prices that are based on observable market data, based on directly or indirectly market-corroborated inputs. The Company’s Level 2 assets are investments in certain corporate notes and its Level 2 liabilities are interest rate swaps.


~~Level 3:~~	~~Unobservable inputs that are supported by little or no market activity, and are developed based on the best information available given the circumstances. The Company has no Level 3 assets.~~

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company’s Level 1 assets are investments in money market mutual funds and United States treasuries.

Level 2: Quoted prices for similar assets or liabilities in active markets; or observable prices that are based on observable market data, based on directly or indirectly market-corroborated inputs. The Company has no Level 2 assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity, and are developed based on the best information available given the circumstances. The Company has no Level 3 assets.

Assets and liabilities measured at fair value are based the valuation techniques identified in the table below. The valuation techniques are:


~~(a)~~	~~Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.~~

~~(b)~~

The valuations of the interest rate swaps intended to mitigate the Company’s interest rate risk are determined with the assistance of a third-party financial institution using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves and interest rate volatility, and reflects the contractual terms of these instruments, including the period to maturity.

(a)Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.

The following tables present financial assets and liabilities at December 31, ~~2017~~2021 and December 31, ~~2016~~2020 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:


December 31, 2021	Total		Level 1		Level 2		Level 3		Valuation Technique
Assets
Money market mutual funds	$	13,147	$	13,147	$	—	$	—	(a)

December 31, 2020	Total		Level 1		Level 2		Level 3		Valuation Technique
Assets
Money market mutual funds	$	20,142	$	20,142	$	—	$	—	(a)
United States treasuries	$	4,999	$	4,999	$	—	$	—	(a)

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

December 31, 2017 Total Level 1 Level 2 Level 3
Valuation
Technique
Assets
Money market mutual funds $ 7,318
$ 7,318
$ —
$ —
(a)
United States treasuries 1,001
1,001
—
—
(a)
Liabilities
Interest rate swaps $ 69
$ —
$ 69
$ —
(b)
December 31, 2016 Total Level 1 Level 2 Level 3
Valuation
Technique
Assets
Money market mutual funds $ 21,848
$ 21,848
$ —
$ —
(a)
Certificates of deposit 3,864
3,864
—
—
(a)
Liabilities
Interest rate swaps $ 158
$ —
$ 158
$ —
(b)

~~Certain~~The carrying amount of certain financial instruments ~~are carried at cost on the consolidated balance sheets, which~~ approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of the Company's operating and financing lease liabilities approximates fair value based on currently available quoted rates of similarly structured borrowings.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company's non-financial assets, such as goodwill, intangible assets, and other long-lived assets resulting from business combinations, are measured at fair value using income approach valuation methodologies at the date of acquisition and subsequently re-measured if an impairment exists. During 2020, the Company recorded an impairment charge of $10,490 to goodwill and intangible assets. There ~~were~~was no ~~impairments~~additional impairment of the ~~Company’s~~Company's non-financial assets noted as of December 31, ~~2017 or 2016.~~2021. See Note 1(k) and Note 9 for additional details. The Company does not have any liabilities that are recorded at fair value on a non-recurring basis.

(15) ~~Derivative Instruments and Hedging Activities~~

Effective April 1, 2010, in order to reduce the volatility of cash outflows that arise from changes in interest rates, the Company entered into two interest rate swap agreements. These interest rate swap agreements are intended to hedge the Company’s mortgage loan related to its headquarters facility in Middletown, Rhode Island by fixing the interest rates specified in the mortgage loan to 5.9% for half of the principal amount outstanding and 6.1% for the remaining half of the principal amount outstanding as of April 1, 2010 until the mortgage loan expires on ~~April 16, 2019~~. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive loss to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in other income (expense) in the Consolidated Statements of Income. The interest rate swap is recorded within accrued other liabilities on the balance sheet. The critical terms of the interest rate swaps were designed to mirror the terms of the Company’s mortgage loans. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on principal over a nine-year period, which ends on April 1, 2019. As of December 31, 2017, the Company determined that the existence of hedge ineffectiveness, if any, was immaterial and all changes in the fair value of the interest rate caps were recorded in the Consolidated Statements of Comprehensive Loss as a component of accumulated other comprehensive loss.

~~As of~~ ~~December 31, 2017, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:~~

Interest Rate Derivatives
Notional
(in thousands)

Asset
(Liability)
Effective Date Maturity Date Index Strike Rate
Interest rate swap $ 1,389
(33 ) April 1, 2010 April 1, 2019 1-month LIBOR 5.91 %
Interest rate swap $ 1,389
(36 ) April 1, 2010 April 1, 2019 1-month LIBOR 6.07 %

~~(16)~~ Legal Matters

~~From time to time, the Company is involved in litigation incidental to the conduct of its business.~~ In the ordinary course of business, the Company is a party to inquiries, legal proceedings and claims including, from time to time, disagreements with vendors and customers. The Company is not a party to any lawsuit or proceeding that, in management's opinion, is likely to materially harm the Company's business, results of operations, financial condition, or cash flows.

~~Advanced Media Networks, L.L.C., or AMN, filed suit in the United States District Court~~

(16) Leases

Lessee

The Company has operating leases for office facilities, equipment, and satellite service capacity and related equipment. Lease expense was $3,963 and $3,413 for the ~~District of Rhode Island against us for allegedly infringing two of its patents, seeking unspecified monetary damages~~year ended December 31, 2021 and ~~other relief. The Company settled this claim in January 2016 with a payment of cash to AMN.~~

~~(17) Quarterly Financial Results (Unaudited)~~

~~The following financial information for interim periods includes transactions which affect comparability of the quarterly results~~2020, respectively. Short-term operating lease costs was $237 and $244 for the years ended December 31, ~~2017~~2021 and ~~2016.~~

~~Financial information~~2020, respectively. Sublease income was $134 for ~~interim periods was~~both the years ended December 31, 2021 and 2020. Maturities of lease liabilities as of December 31, 2021 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:


Years ending December 31,
2022	$	2,033
2023	819
2024	428
2025	38

Total undiscounted lease payments	$	3,318

Less amount representing interest	$	(182)
Present value of operating lease liabilities	$	3,136
Less current installments of obligation under current-operating lease liabilities	$	1,912
Obligations under long-term operating lease liabilities, excluding current installments	$	1,224

Weighted-average remaining lease term - operating leases (years)	1.97
Weighted-average discount rate - operating leases	5.50		%

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
(in thousands, except per share amounts)
2017
Product sales $ 14,863
$ 14,323
$ 14,169
$ 13,613
Service sales 25,348
26,126
26,281
25,365
Cost of product sales 10,539
9,295
9,578
8,062
Cost of service sales 13,268
13,094
13,374
12,956
Operating expenses 20,874
19,428
19,299
19,085
Loss from operations (4,470 ) (1,368 ) (1,801 ) (1,125 )
Net loss $ (4,885 ) $ (2,026 ) $ (2,438 ) $ (1,685 )
Net loss per share (a):
Basic $ (0.30 ) $ (0.12 ) $ (0.15 ) $ (0.10 )
Diluted $ (0.30 ) $ (0.12 ) $ (0.15 ) $ (0.10 )
2016
Product sales $ 15,382
$ 20,062
$ 19,020
$ 18,611
Service sales 24,998
25,904
26,826
25,319
Cost of product sales 10,670
12,989
11,001
11,674
Cost of service sales 12,991
13,259
13,576
13,140
Operating expenses 20,093
20,411
18,256
19,384
(Loss) income from operations (3,374 ) (693 ) 3,013
(268 )
Net (loss) income $ (2,791 ) $ (806 ) $ 2,863
$ (6,783 )
Net (loss) income per share (a):
Basic $ (0.18 ) $ (0.05 ) $ 0.18
$ (0.43 )
Diluted $ (0.18 ) $ (0.05 ) $ 0.18
$ (0.43 )


~~(a)~~	~~Net (loss) income per share is computed independently for each~~During the first quarter of ~~the quarters. Therefore, the net (loss) income per share for the four quarters may not equal the annual net (loss) income per share data.~~

~~(18) Subsequent Event~~

~~On February 27,~~ 2018, wethe Company entered into a ~~stock purchase agreement~~five-year financing lease for 3 satellite hubs for its HTS network. During the first quarter of 2021, the terms of this lease were adjusted and the Company discontinued use of 2 satellite hubs and was released from the related payment obligation in exchange for additional satellite service capacity. As of December 31, 2021, the gross costs and accumulated depreciation associated with ~~SKY Perfect JSAT Corporation, or SJC, pursuant to which we agreed to sell 376,569 shares~~this lease are included in revenue generating

Table of ~~our common stock to SJC for a purchase price of $11.95~~Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

assets and amounted to $1,268 and $710, respectively. The obligations under financing leases are stated at the present value of minimum lease payments.

The property and equipment held under this financing lease are amortized on a straight‑line basis over the seven-year estimated useful life of the asset, since the lease meets the bargain purchase option criteria. Amortization of assets held under financing leases is included within depreciation expense. Depreciation expense for the remaining capital assets was $181 for both the years ended December 31, 2021 and 2020.

The future undiscounted lease payments under this financing lease as of December 31, 2021 are:



2022	$	264
2023	22

Total undiscounted lease payments	$	286

Less amount representing interest	$	(3)
Present value of financing lease liabilities	$	283
Less current installments of obligation under accrued other	$	261
Obligations under other long-term liabilities, excluding current installments	$	22

Weighted-average remaining lease term - finance leases (years)	1.17
Weighted-average discount rate - finance leases	1.53		%

Lessor

The Company enters into leases with certain customers primarily for the TracPhone mini-VSAT systems. These leases are classified as sales-type leases as title of the equipment transfers to the customer at the end of the lease term. The Company records the leases at a price typically equivalent to normal selling price and in excess of the cost or carrying amount. Upon delivery, the Company records the net present value of all payments under these leases as product revenue, and the related costs of the product are charged to cost of sales. Interest income is recognized throughout the lease term (typically three to five years) using an ~~aggregate~~implicit interest rate. The sales-type leases do not have unguaranteed residual assets.

The current portion of ~~$4.5 million,~~the net investment in ~~a private placement.~~these leases was $3,881 as of December 31, 2021 and the non-current portion of the net investment in these leases was $6,777 as of December 31, 2021. The ~~transaction closed~~current portion of the net investment in the leases is included in accounts receivable, net of allowance for doubtful accounts on ~~February 28, 2018.~~the accompanying consolidated balance sheets and the non-current portion of the net investment in these leases is included in other non-current assets on the accompanying consolidated balance sheets. Interest income from sales-type leases was $882 and $859 during the year ended December 31, 2021 and 2020, respectively.

The future undiscounted cash flows from these leases as of December 31, 2021 are:


2022	$	4,589
2023	3,479
2024	2,540
2025	1,160
2026	340
Total undiscounted cash flows	$	12,108

Present value of lease payments	$	10,658
Difference between undiscounted cash flows and discounted cash flows	$	1,450

~~109~~

Table of Contents

KVH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

In 2021, the Company entered into three-year leases for its TracPhone mini-VSAT systems, in which ownership of the hardware does not transfer to the lessee by the end of the lease term. As a result, and in light of other factors indicated in ASC 842, these leases are classified as operating leases.

As of December 31, 2021, the gross costs and accumulated depreciation associated with these operating leases are included in revenue generating assets and amounted to $1,444 and $154, respectively. They are depreciated on a straight-line basis over a five-year estimated useful life. Depreciation expense for these assets was $154 for the year ended December 31, 2021.

For the year ended December 31, 2021, lease revenue of $243 was recognized in service sales in the statements of operations.

As of December 31, 2021, minimum future lease payments to be received on the operating leases are as follows:



2022	445
2023	444
2024	202
Total	$	1,091

(17) Subsequent Events

On March 6, 2022, the Company's President and Chief Executive Officer, Martin Kits van Heyningen retired 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, the Company’s Chief Operating Officer, has been appointed as its interim President and Chief Executive Officer.

In March 2022, the Company also restructured its operations to reduce costs and better reflect a more focused strategy, which resulted in an approximately 10% reduction in its workforce.



Delaware						05-0420589
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	KVHI	(Nasdaq Global Select Market)
		The NASDAQ Stock Market LLC ~~(NASDAQ Global Market)~~


					Page
			PART I

				~~Page~~
Item 1.	~~PART I~~

~~Item 1.~~	Business	3
Item 1A.			Risk Factors		17
Item 1B.			Unresolved Staff Comments		3629
Item 2.			Properties		3729
Item 3.			Legal Proceedings		3730
Item 4.			Mine Safety Disclosures		3730
			PART II

Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		3830
Item 6.			~~Selected Financial Data~~Removed and reserved.		3930
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		4130
Item 7A.			Quantitative and Qualitative Disclosure About Market Risk		6041
Item 8.			Financial Statements and Supplementary Data		6041
Item 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		6041
Item 9A.			Controls and Procedures		6141
Item 9B.			Other Information		6244
Item 9C.			Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		44

			PART III

Item 10.			Directors, Executive Officers and Corporate Governance		6344
Item 11.			Executive Compensation		6344
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		6344
Item 13.			Certain Relationships and Related Transactions and Director Independence		6344
Item 14.			Principal Accountant Fees and Services		6344

			PART IV

Item 15.			Exhibits and Financial Statement Schedules		6445
Item 16.			Form 10-K Summary
Signatures					6748



Segment	Primary Products	Major Brands	2017 Net Sales ⁽¹⁾
Mobile connectivity	Satellite television, phone and internet solutions and media and content delivery solutions	TracVision® TracPhone® CommBox TM Videotel® Mini-VSAT Broadband SM IP-MobileCast TM KVH OneCare TM NEWSLink TM AgilePlans TM	$	132,227
Inertial navigation	Digital compass and fiber optic gyro-based navigation and guidance systems	TACNAV®	27,861
		Total	$	160,088
(1) Amounts in thousands



(Mark One)
x☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


KVH Team Member Headcount
Category			#
Full-time employees			607
Part-time employees			31
Long-term contractors			10
Total			648


KVH Team Member Headcount
Country			#
Brazil			2
Cyprus			3
Denmark			16
Germany			2
Greece			3
Hong Kong			3
India			30
Italy			2
Japan			1
Norway			7
Philippines			55
Poland			1
Singapore			15
South Africa			1
Spain			1
United Arab Emirates			1
United Kingdom			89
United States			416
Total			648



	High		Low
Year Ended December 31, 2017:
First quarter	$	11.90	$	7.70
Second quarter	10.20		7.65
Third quarter	12.22		9.10
Fourth quarter	12.65		9.60
Year Ended December 31, 2016:
First quarter	$	9.88	$	8.00
Second quarter	10.20		7.51
Third quarter	9.24		7.31
Fourth quarter	12.75		7.50




	2012		2013		2014		2015		2016		2017
KVH Industries, Inc.	$	100	$	93	$	90	$	67	$	84	$	74
NASDAQ Composite	100		138		157		166		178		229
NASDAQ Telecommunications	100		124		135		125		144		169



					Change
	For the year ended December 31,				2017 vs. 2016
	2017		2016		$			%
	(dollars in thousands)
Mobile connectivity sales
Product	$	32,175	$	40,904	$	(8,729	)	(21	)%
Service	100,052		100,603		(551		)	(1	)%
Net sales	$	132,227	$	141,507	$	(9,280	)	(7	)%

Inertial navigation sales
Product	$	24,793	$	32,171	$	(7,378	)	(23	)%
Service	3,068		2,444		624			26	%
Net sales	$	27,861	$	34,615	$	(6,754	)	(20	)%



					Change
	For the year ended December 31,				2016 vs. 2015
	2016		2015		$			%
	(dollars in thousands)
Mobile connectivity sales
Product	$	40,904	$	43,169	$	(2,265	)	(5	)%
Service	100,603		104,640		(4,037		)	(4	)%
Net sales	$	141,507	$	147,809	$	(6,302	)	(4	)%

Inertial navigation sales
Product	$	32,171	$	33,044	$	(873	)	(3	)%
Service	2,444		3,781		(1,337		)	(35	)%
Net sales	$	34,615	$	36,825	$	(2,210	)	(6	)%



	Payment Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Term notes payable	$	44,275	$	2,300	$	41,975	$	—	$	—
Satellite service capacity and related equipment lease obligations	24,974		13,008		10,436		1,530		—
Inventory, materials, and fixed asset purchase commitments	13,583		13,583		—		—		—
Mortgage notes payable	2,779		182		2,597		—		—
Facility lease obligations	1,790		674		968		148		—
Total	$	87,401	$	29,747	$	55,976	$	1,678	$	—



~~101.1~~			Page
(a)	1.	Financial Statements

		Report of Independent Registered Public Accounting Fir m (PCAOB ID Number 248)	49

		Consolidated Balance Sheets as of December 31, 202 1 and 20 20	51

		Consolidated Statements of Operations for the years ended December 31, 202 1 and 20 20	52

		Consolidated Statements of Comprehensive Loss for the years ended December 31, 202 1 and 20 20	53

		Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 1 and 20 20	54

		Consolidated Statements of Cash Flows for the years ended December 31, 202 1 and 20 20	55

		Notes to Consolidated Financial Statements	56

(a)	2.	Financial Statement Schedules

		None.

	3.	Exhibits



	Common Stock				Additional Paid-in Capital			Accumulated Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock					Total Stockholders’ Equity
	Shares		Amount		Additional Paid-in Capital			Accumulated Earnings			Accumulated Other Comprehensive (Loss) Income			Shares		Amount			Total Stockholders’ Equity
Balance at December 31, 2014	17,153		$	172	$	121,084		$	11,881		$	(3,447	)	(1,659	)	$	(13,150	)	$	116,540
Net income	—		—		—			2,253			—			—		—			2,253
Other comprehensive loss	—		—		—			—			(4,153		)	—		—			(4,153		)
Stock-based compensation	—		—		3,734			—			—			—		—			3,734
Issuance of common stock under employee stock purchase plan	28		—		291			—			—			—		—			291
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements	(27	)	—		(578		)	—			—			—		—			(578		)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	182		1		88			—			—			—		—			89
Balance at December 31, 2015	17,336		$	173	$	124,619		$	14,134		$	(7,600	)	(1,659	)	$	(13,150	)	$	118,176
Net loss	—		—		—			(7,517		)	—			—		—			(7,517		)
Other comprehensive loss	—		—		—			—			(9,209		)	—		—			(9,209		)
Stock-based compensation	—		—		3,651			—			—			—		—			3,651
Issuance of common stock under employee stock purchase plan	18		—		146			—			—			—		—			146
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements	(32	)	—		(313		)	—			—			—		—			(313		)
Excess tax shortfall on share-based awards	—		—		(869		)	—			—			—		—			(869		)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	1,099		11		2,426			—			—			—		—			2,437
Balance at December 31, 2016	18,421		$	184	$	129,660		$	6,617		$	(16,809	)	(1,659	)	$	(13,150	)	$	106,502
Net loss	—		—		—			(11,034		)	—			—		—			(11,034		)
Other comprehensive income	—		—		—			—			5,492			—		—			5,492
Stock-based compensation	—		—		3,518			—			—			—		—			3,518
Issuance of common stock under employee stock purchase plan	47		—		358			—			—			—		—			358
Shares withheld, repurchased and retired related to minimum statutory tax withholding requirements	(43	)	—		(392		)	—			—			—		—			(392		)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	363		4		1,217			—			—			—		—			1,221
Balance at December 31, 2017	18,788		$	188	$	134,361		$	(4,417	)	$	(11,317	)	(1,659	)	$	(13,150	)	$	105,665



Years ending December 31,	Operating Leases
2018	$	13,682
2019	7,109
2020	2,970
2021	1,326
2022	1,189
Thereafter	489
Total minimum lease payments	$	26,765



	Foreign Currency Translation			Unrealized Gain (Loss) on Available for Sale Marketable Securities			Interest Rate Swaps			Total Accumulated Other Comprehensive Loss
Balance, December 31, 2014	$	(3,156	)	$	4		$	(295	)	$	(3,447	)
Other comprehensive loss before reclassifications	(4,207		)	(3		)	(58		)	(4,268		)
Amounts reclassified from AOCI to Other income, net	—			—			115			115
Net other comprehensive (loss) income, December 31, 2015	(4,207		)	(3		)	57			(4,153		)
Balance, December 31, 2015	(7,363		)	1			(238		)	(7,600		)
Other comprehensive loss before reclassifications	(9,288		)	(1		)	(20		)	(9,309		)
Amounts reclassified from AOCI to Other income, net	—			—			100			100
Net other comprehensive (loss) income, December 31, 2016	(9,288		)	(1		)	80			(9,209		)
Balance, December 31, 2016	(16,651		)	—			(158		)	(16,809		)
Other comprehensive income (loss) before reclassifications	5,404			(1		)	12			5,415
Amounts reclassified from AOCI to Other income, net	—			—			77			77
Net other comprehensive income (loss), December 31, 2017	5,404			(1		)	89			5,492
Balance, December 31, 2017	$	(11,247	)	$	(1	)	$	(69	)	$	(11,317	)



Expense Category	2017		2016		2015
Cost of service sales	$	1,477	$	2,068	$	1,978
General administrative expense	2,835		2,888		3,548
Total amortization expense	$	4,312	$	4,956	$	5,526



	2017
Balance at January 1	$	17,838
Amortization expense	(4,312		)
Intangibles assets acquired in asset acquisition	133
Foreign currency translation adjustment	1,461
Balance at December 31	$	15,120



	Goodwill
Balance at January 1, 2016	$	36,747
Foreign currency translation adjustment	(5,404		)
Balance at December 31, 2016	31,343
Foreign currency translation adjustment	2,529
Balance at December 31, 2017	$	33,872



Interest Rate Derivatives	Notional (in thousands)		Asset (Liability)		Effective Date	Maturity Date	Index	Strike Rate
Interest rate swap	$	1,389	(33	)	April 1, 2010	April 1, 2019	1-month LIBOR	5.91	%
Interest rate swap	$	1,389	(36	)	April 1, 2010	April 1, 2019	1-month LIBOR	6.07	%



	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	(in thousands, except per share amounts)
2017
Product sales	$	14,863		$	14,323		$	14,169		$	13,613
Service sales	25,348			26,126			26,281			25,365
Cost of product sales	10,539			9,295			9,578			8,062
Cost of service sales	13,268			13,094			13,374			12,956
Operating expenses	20,874			19,428			19,299			19,085
Loss from operations	(4,470		)	(1,368		)	(1,801		)	(1,125		)
Net loss	$	(4,885	)	$	(2,026	)	$	(2,438	)	$	(1,685	)
Net loss per share (a):
Basic	$	(0.30	)	$	(0.12	)	$	(0.15	)	$	(0.10	)
Diluted	$	(0.30	)	$	(0.12	)	$	(0.15	)	$	(0.10	)
2016
Product sales	$	15,382		$	20,062		$	19,020		$	18,611
Service sales	24,998			25,904			26,826			25,319
Cost of product sales	10,670			12,989			11,001			11,674
Cost of service sales	12,991			13,259			13,576			13,140
Operating expenses	20,093			20,411			18,256			19,384
(Loss) income from operations	(3,374		)	(693		)	3,013			(268		)
Net (loss) income	$	(2,791	)	$	(806	)	$	2,863		$	(6,783	)
Net (loss) income per share (a):
Basic	$	(0.18	)	$	(0.05	)	$	0.18		$	(0.43	)
Diluted	$	(0.18	)	$	(0.05	)	$	0.18		$	(0.43	)