Company: KVHI
Filing Date: 2025-03-10
Form Type: 10-K
Source: 0001007587-25-000003
Chunk: 100

Company: KVH INDUSTRIES INC \DE\
Filing Date: 2025-03-10
Form: 10-K
Item: Item 7
Chunk 100
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 SpaceX Starshield. In the third quarter of 2024, we received and processed the anticipated service downgrade request from the U.S. Coast Guard, which reduces anticipated revenue from this customer for 2025 through 2027 by approximately 95%. As a result, we expect to generate substantially less revenue from the U.S. Coast Guard.

Costs of Sales

Costs of sales consists of costs of product sales and costs of service sales. Costs of sales decreased by $15.9 million, or 17%, in 2024 to $78.6 million from $94.5 million in 2023. The decrease in costs of sales was driven by a $5.4 million decrease in costs of service sales and a $10.5 million decrease in costs of product sales. As a percentage of net sales, costs of sales were 69% and 71% for 2024 and 2023, respectively.

Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our VSAT Broadband network infrastructure, direct network service labor, product installation costs, media distribution costs, and service repair materials. For 2024, costs of service sales decreased by $5.4 million, or 8%, to $60.0 million from $65.4 million in 2023. Costs of service sales decreased primarily due to a $5.5 million decrease in airtime costs of service sales. As a percentage of service sales, costs of service sales were 62% and 57% for 2024 and 2023, respectively. During the second quarter of 2024, we purchased from Starlink access to a large block of data at favorable rates. As a result of this purchase, our gross margin percentage on Starlink airtime services improved. The increase in gross margin on Starlink airtime services was higher than previously anticipated, but we may be unable to maintain this higher gross margin percentage in future periods. Despite this higher gross margin on Starlink airtime services, the overall gross margin on service sales was negatively impacted by fixed costs associated with the VSAT Broadband network.

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Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products. For 2024, costs of product sales decreased by $10.5 million, or 36%, to $18.6 million from $29.1 million in 2023, primarily due to an $8.7 million decrease