Company: KVHI
Filing Date: 2025-03-10
Form Type: 10-K
Source: 0001007587-25-000003
Chunk: 101

Company: KVH INDUSTRIES INC \DE\
Filing Date: 2025-03-10
Form: 10-K
Item: Item 7
Chunk 101
---
 in various manufacturing and other unabsorbed expenses, a $3.6 million decrease in excess purchase order obligations, a $1.5 million decrease in TracVision cost of product sales, a $0.9 million decrease in VSAT Broadband cost of product sales and a $0.3 million decrease in accessory cost of product sales, partially offset by a $4.5 million increase in LEO cost of product sales and a $0.4 million increase in CommBox Edge cost of product sales. The decrease in manufacturing and other unabsorbed costs was primarily due to additional expenses taken in 2023 as a result of the wind-down of our manufacturing activities, which included a $6.6 million inventory write-down, as well as lower unit volume, resulting in reduced absorption of overhead. The excess purchase order obligations related to unconditional purchase orders outstanding as of December 31, 2023 that we determined would exceed our anticipated needs. Please see Note 14 to our accompanying audited financial statements for further information. As a percentage of product sales, costs of product sales were 107% and 164% for 2024 and 2023, respectively. Cost of product sales decreased as a percentage of product sales primarily due to the decrease in various manufacturing and other unabsorbed expenses. This decrease resulted primarily from the additional expenses incurred in 2023 related to the wind-down of the Company's manufacturing activities, as well as the 2024 reduction in headcount of manufacturing employees.

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 2024 decreased by $1.0 million, or 10%, to $8.4 million from $9.4 million in 2023. The decrease in research and development expense resulted primarily from a $1.6 million decrease in salaries, benefits and taxes, excluding costs related to the previously mentioned reduction in workforce, and a $0.3 million decrease in expensed materials. These decreases were partially offset by $1.4 million in costs incurred related to the reduction in our workforce. As a percentage of net sales, research and development expense was 7% in both 2024 and 2023.

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