SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
		The NASDAQ Stock Market LLC
Common Stock, par value $0.01 per share	KVHI	~~The NASDAQ Stock Market LLC~~
		(NASDAQ Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

Form 10-Q

INDEX


		Page No.
PART I. FINANCIAL INFORMATION
ITEM 1.	INTERIM FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of March 31, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	3
	Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4
	Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	5
	Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	7
	Notes to Consolidated ~~Interim~~ Financial Statements (unaudited)	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2728

ITEM 4.	CONTROLS AND PROCEDURES	3733
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	3834
~~ITEM 1A.~~	~~RISK FACTORS~~	38
~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	39
ITEM 6.	EXHIBITS	4035
SIGNATURE			41
~~EXHIBIT INDEX~~			4236

PART I. FINANCIAL INFORMATION

ITEM 1. Interim Financial Statements

KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

March 31,
2020 December 31,
2019
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 18,542 $ 18,365
Marketable securities 22,487 29,907
Accounts receivable, net of allowance for doubtful accounts of $1,722 and $1,589 as of March 31, 2020 and December 31, 2019, respectively 28,968 32,891
Inventories, net 25,555 23,465
Prepaid expenses and other current assets 3,422 3,188
Current contract assets 1,424 1,458
Total current assets 100,398 109,274
Property and equipment, net 54,756 53,584
Intangible assets, net 4,432 4,943
Goodwill 14,730 15,408
Right of use asset operating lease 5,026 6,286
Other non-current assets 6,644 6,443
Non-current contract assets 3,259 3,408
Non-current deferred income tax asset 40 45
Total assets $ 189,285 $ 199,391
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 13,818 $ 15,031
Accrued compensation and employee-related expenses 5,129 5,637
Accrued other 8,551 7,733
Accrued product warranty costs 2,212 2,194
Contract liabilities 4,933 4,443
Current operating lease liability 1,634 2,831
Liability for uncertain tax positions 532 521
Total current liabilities 36,809 38,390
Other long-term liabilities 1,138 1,292
Long-term operating lease liability 3,422 3,482
Long-term contract liabilities 5,221 5,476
Non-current deferred income tax liability 818 762
Total liabilities $ 47,408 $ 49,402
Commitments and contingencies (Notes 2, 10, 12, and 19)
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; NaN issued — —
Common stock, $0.01 par value. Authorized 30,000,000 shares; 19,419,121 and 19,398,699 shares issued at March 31, 2020 and December 31, 2019, respectively; and 17,986,427 and 18,001,261 shares outstanding at March 31, 2020 and December 31, 2019, respectively 194 194
Additional paid-in capital 145,457 144,485
Retained earnings 13,324 19,538
Accumulated other comprehensive loss (5,247) (2,767)
153,728 161,450
Less: treasury stock at cost, common stock, 1,432,694 and 1,397,438 shares as of March 31, 2020 and December 31, 2019, respectively (11,851) (11,461)
Total stockholders’ equity 141,877 149,989
Total liabilities and stockholders’ equity $ 189,285 $ 199,391


	March 31, 2021		December 31, 2020
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	13,969	$	12,578
Marketable securities	25,143		25,141
Accounts receivable, net of allowance for doubtful accounts of $1,673 and $1,596 as of March 31, 2021 and December 31, 2020, respectively	30,033		33,687
Inventories, net	22,773		24,674
Prepaid expenses and other current assets	4,507		3,894
Current contract assets	1,211		1,086
Total current assets	97,636		101,060
Property and equipment, net	57,111		56,273
Intangible assets, net	2,011		2,254
Goodwill	6,611		6,592
Right of use assets	5,346		6,893
Other non-current assets	7,352		7,785
Non-current contract assets	2,153		2,661
Deferred income tax asset	35		73
Total assets	$	178,255	$	183,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,194	$	11,400
Accrued compensation and employee-related expenses	6,859		7,156
Accrued other	8,882		6,597
Accrued product warranty costs	1,634		1,812
Current portion of long-term debt	6,152		4,992
Contract liabilities	4,531		4,445
Current operating lease liability	2,973		3,826
Liability for uncertain tax positions	574		560
Total current liabilities	39,799		40,788
Other long-term liabilities	227		674
Long-term operating lease liability	2,500		3,204
Long-term contract liabilities	4,001		4,688
Long-term debt, excluding current portion	775		1,935
Deferred income tax liability	384		418
Total liabilities	$	47,686	$	51,707
Commitments and contingencies (Notes 2, 10, 12, and 18)	0		0
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; NaN issued	0		0
Common stock, $0.01 par value. Authorized 30,000,000 shares; 20,164,667 and 19,862,534 shares issued at March 31, 2021 and December 31, 2020, respectively; and 18,731,973 and 18,429,840 shares outstanding at March 31, 2021 and December 31, 2020, respectively	202		199
Additional paid-in capital	151,657		149,170
Accumulated deficit	(6,430)		(2,402)
Accumulated other comprehensive loss	(3,009)		(3,232)
	142,420		143,735
Less: treasury stock at cost, common stock, 1,432,694 shares as of March 31, 2021 and December 31, 2020	(11,851)		(11,851)
Total stockholders’ equity	130,569		131,884
Total liabilities and stockholders’ equity	$	178,255	$	183,591

See accompanying Notes to Unaudited Consolidated Interim Financial Statements.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except earnings per share amounts, unaudited)


		Three Months Ended							Three Months Ended
		March 31,							March 31,
		2020		2019			2021		2020
Sales:	Sales:					Sales:
Product	Product	$	13,094	$	13,215	Product	$	18,432	$	13,094
Service	Service	23,474		23,161		Service	23,860		23,474
Net sales	Net sales	36,568		36,376		Net sales	42,292		36,568
Costs and expenses:	Costs and expenses:					Costs and expenses:
Costs of product sales	Costs of product sales	9,636		8,284		Costs of product sales	11,220		9,636
Costs of service sales	Costs of service sales	15,195		15,373		Costs of service sales	15,423		15,195
Research and development	Research and development	4,287		3,868		Research and development	4,567		4,287
Sales, marketing and support	Sales, marketing and support	8,700		8,130		Sales, marketing and support	7,546		8,700
General and administrative	General and administrative	6,398		6,955		General and administrative	7,143		6,398
Total costs and expenses	Total costs and expenses	44,216		42,610		Total costs and expenses	45,899		44,216
Loss from operations	Loss from operations	(7,648)		(6,234)		Loss from operations	(3,607)		(7,648)
Interest income	Interest income	313		175		Interest income	233		313
Interest expense	Interest expense	4		385		Interest expense	18		4
Other income (expense), net		1,502		(97)
Loss from continuing operations before income tax expense (benefit)		(5,837)		(6,541)
Income tax expense (benefit)		377		(44)
Net loss from continuing operations		(6,214)		(6,497)

Income from discontinued operations, net of tax		—		243
Other (expense) income, net						Other (expense) income, net	(789)		1,502
Loss before income tax (benefit) expense						Loss before income tax (benefit) expense	(4,181)		(5,837)
Income tax (benefit) expense						Income tax (benefit) expense	(153)		377
Net loss	Net loss	$	(6,214)	$	(6,254)	Net loss	$	(4,028)	$	(6,214)

Net loss from continuing operations per common share
Basic and diluted ^(a)		$	(0.35)	$	(0.38)
Net loss per common share						Net loss per common share
Basic and diluted						Basic and diluted	$	(0.22)	$	(0.35)

Net income from discontinued operations per common share
Basic and diluted ^(a)		$	0.00	$	0.01
Net loss per common share
Basic and diluted ^(a)		$	(0.35)	$	(0.36)
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:					Weighted average number of common shares outstanding:
Basic and diluted	Basic and diluted	17,529		17,302		Basic and diluted	17,938		17,529

~~(a) Earnings per share components for 2019 do not sum due to rounding.~~

See accompanying Notes to Unaudited Consolidated Interim Financial Statements.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, unaudited)

Three Months Ended
March 31,
2020 2019
Net loss $ (6,214) $ (6,254)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment (2,480) 1,080
Unrealized gain on derivative instruments, net — 8
Other comprehensive (loss) income, net of tax⁽¹⁾
(2,480) 1,088
Total comprehensive loss $ (8,694) $ (5,166)


	Three Months Ended
	March 31,
	2021		2020
Net loss	$	(4,028)	$	(6,214)
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment	223		(2,480)
Other comprehensive income (loss), net of tax(1)	223		(2,480)
Total comprehensive loss	$	(3,805)	$	(8,694)

(1) Tax impact was nominal for all periods.

See accompanying Notes to Unaudited Consolidated Interim Financial Statements.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, unaudited)

Common Stock Additional
Paid-in
Capital Retained Earnings 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 — — — (6,214) — — — (6,214)
Other comprehensive loss — — — — (2,480) — — (2,480)
Stock-based compensation — — 805 — — — — 805
Issuance of common stock under employee stock purchase plan 20 — 156 — — — — 156
Acquisition of treasury stock — — — — — (36) (390) (390)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures — — 11 — — — — 11
Balance at March 31, 2020 19,419 $ 194 $ 145,457 $ 13,324 $ (5,247) (1,433) $ (11,851) $ 141,877


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2020	19,863	$	199	$	149,170	$	(2,402)	$	(3,232)	(1,433)	$	(11,851)	$	131,884
Net loss	—	—		—		(4,028)		—		—	—		(4,028)
Other comprehensive income	—	—		—		—		223		—	—		223
Stock-based compensation	—	—		932		—		—		—	—		932
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	302	3		1,555		—		—		—	—		1,558
Balance at March 31, 2021	20,165	$	202	$	151,657	$	(6,430)	$	(3,009)	(1,433)	$	(11,851)	$	130,569

Common Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive Loss Treasury Stock Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance at December 31, 2018 19,026 $ 190 $ 139,617 $ (15,397) $ (14,731) (1,282) $ (10,164) $ 99,515
Net loss — — — (6,254) — — — (6,254)
Other comprehensive income — — — — 1,088 — — 1,088
ASC 606 correction (FN 16) — — — 1,680 — — — 1,680
Stock-based compensation — — 874 — — — — 874
Issuance of common stock under employee stock purchase plan 23 — 218 — — — — 218
Exercise of stock options and issuance of restricted stock awards, net of forfeitures 85 1 81 — — — — 82
Balance at March 31, 2019 19,134 $ 191 $ 140,790 $ (19,971) $ (13,643) (1,282) $ (10,164) $ 97,203


	Common Stock			Additional Paid-in Capital		Retained Earnings		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	—	—		—		(6,214)		—		—	—		(6,214)
Other comprehensive loss	—	—		—		—		(2,480)		—	—		(2,480)
Stock-based compensation	—	—		805		—		—		—	—		805
Issuance of common stock under employee stock purchase plan	20	—		156		—		—		—	—		156
Acquisition of treasury stock	—	—		—		—		—		(36)	(390)		(390)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures	—	—		11		—		—		—	—		11
Balance at March 31, 2020	19,419	$	194	$	145,457	$	13,324	$	(5,247)	(1,433)	$	(11,851)	$	141,877

See accompanying Notes to Unaudited Consolidated Interim Financial Statements.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

Three Months Ended
March 31,
2020 2019
Cash flows from operating activities:
Net loss $ (6,214) $ (6,254)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts 238 (65)
Depreciation and amortization 2,650 3,527
Deferred income taxes — 71
Loss on disposals of fixed assets 54 56
Compensation expense related to stock-based awards and employee stock purchase plan 805 874
Unrealized currency translation (gain) loss (1,065) 1,082
Changes in operating assets and liabilities:
Accounts receivable 3,577 944
Inventories (2,094) (3,117)
Prepaid expenses, other current assets and current contract assets (243) 952
Other non-current assets and non-current contract assets (47) 1,236
Accounts payable (1,174) 2,627
Contract liabilities and long-term contract liabilities 317 (1,254)
Accrued compensation, product warranty and other 246 (1,738)
Other long-term liabilities 2 (15)
Net cash used in operating activities $ (2,948) $ (1,074)
Cash flows from investing activities:
Capital expenditures (3,277) (3,027)
Cash paid for acquisition of intangible asset (22) (25)
Purchases of marketable securities (79) —
Maturities and sales of marketable securities 7,500 —
Net cash provided by (used in) investing activities $ 4,122 $ (3,052)
Cash flows from financing activities:
Repayments of long-term debt — (31)
Proceeds from stock options exercised and employee stock purchase plan 156 314
Repurchase of common stock (390) —
Payment of finance lease (156) (152)
Net cash (used in) provided by financing activities $ (390) $ 131
Effect of exchange rate changes on cash and cash equivalents (607) 204
Net increase (decrease) in cash and cash equivalents 177 (3,791)
Cash and cash equivalents at beginning of period 18,365 18,050
Cash and cash equivalents at end of period $ 18,542 $ 14,259
Supplemental disclosure of non-cash investing activities:
Changes in accrued other and accounts payable related to property and equipment additions $ 423 $ 161


	Three Months Ended
	March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(4,028)	$	(6,214)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for doubtful accounts	130		238
Depreciation and amortization	3,350		2,650

Loss on disposals of fixed assets	452		54
Compensation expense related to stock-based awards and employee stock purchase plan	932		805
Unrealized currency translation loss (gain)	195		(1,065)
Changes in operating assets and liabilities:
Accounts receivable	3,537		3,577
Inventories	1,901		(2,094)
Prepaid expenses, other current assets, and current contract assets	(739)		(243)
Other non-current assets and non-current contract assets	930		(47)
Accounts payable	(3,219)		(1,174)
Contract liabilities and long-term contract liabilities	(613)		317
Accrued compensation, product warranty and other	2,169		246
Other long-term liabilities	1		2
Net cash provided by (used in) operating activities	$	4,998	$	(2,948)
Cash flows from investing activities:
Capital expenditures	(5,164)		(3,277)
Cash paid for acquisition of intangible asset	(16)		(22)
Proceeds from sale of fixed assets	100		0
Purchases of marketable securities	(2)		(79)
Maturities and sales of marketable securities	0		7,500
Net cash (used in) provided by investing activities	$	(5,082)	$	4,122
Cash flows from financing activities:
Proceeds from stock options exercised and employee stock purchase plan	1,566		156
Repurchase of common stock	0		(390)
Payment of finance lease	(96)		(156)
Net cash provided by (used in) financing activities	$	1,470	$	(390)
Effect of exchange rate changes on cash and cash equivalents	5		(607)
Net increase in cash and cash equivalents	1,391		177
Cash and cash equivalents at beginning of period	12,578		18,365
Cash and cash equivalents at end of period	$	13,969	$	18,542
Supplemental disclosure of non-cash investing activities:
Changes in accrued other and accounts payable related to property and equipment additions	$	175	$	423

See accompanying Notes to Unaudited Consolidated Interim Financial Statements.

KVH INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements

(Unaudited, all amounts in thousands except per share amounts)

(1) 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~~defense and ~~defense~~commercial 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 sells ~~and leases~~ its mobile connectivity products through an extensive international network of dealers and distributors. KVH also sells and leases products to service providers and directly to end users.

KVH’s mobile connectivity service sales represent primarily sales earned from satellite voice and Internet airtime services. KVH provides, for monthly fixed and ~~usage~~usage-based fees, satellite connectivity services, including broadband Internet, data and ~~VoIP~~Voice over Internet Protocol (VoIP) services, to its ~~TracPhone V-series~~mini-VSAT Broadband customers. Our AgilePlans program, a mini-VSAT Broadband service offering, is a monthly subscription model providing global connectivity to commercial maritime ~~customers, including~~customers. AgilePlans include hardware, installation, broadband Internet, ~~Voice over Internet Protocol (VoIP),~~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 mini-VSAT Broadband 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 are 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 KVH Media 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.

On May 13, 2019, the Company and its wholly owned subsidiary, KVH Media Group Limited (KMG), entered into a Share Purchase Agreement (the Purchase Agreement) with Pelican Holdco Limited, an affiliate of Oakley Capital IV Master SCSp, a UK company (together, Oakley), pursuant to which KMG sold all of the issued share capital of Super Dragon Limited and Videotel Marine Asia Limited (together referred to as Videotel) to Oakley for $89,387 in cash, on a cash-free, debt-free basis, subject to a working capital adjustment. Videotel comprised the Company’s maritime training business, which offered video, animation, eLearning computer-based training and interactive distance learning services to the maritime industry. The sale was completed immediately upon execution of definitive agreements. The Company received payment of the initial purchase price pursuant to a loan agreement (the Bridge Loan) on June 21, 2019. The Bridge Loan was secured by a charge (a type of foreign security interest) over the shares of Super Dragon Limited and Videotel Marine Asia Limited and was further backed by an equity commitment letter from Oakley Capital IV Master SCSp. The Bridge Loan’s interest rate was 5% per year during the period from closing until and including the 15th business day after the closing and increased to 12% per year during the period after the 15th business day until the maturity date. In December 2019, the Company finalized the working capital adjustment, which reduced the proceeds from the sale of Videotel to $88,447. The Company does not have any continuing involvement in these operations other than to provide short-term transition services, which are being recorded in other income in continuing operations. The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20. Please see Note 20 for the discontinued operations disclosures.

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 governments, both 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 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.

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated interim 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. The Company

has evaluated all subsequent events through the date of this filing. All significant intercompany accounts and transactions have been eliminated in consolidation.

~~The 2019 consolidated interim financial statements reflect the sale of Videotel as discontinued operations. See Notes 1 and 20 for further information on the sale of Videotel.~~

The consolidated interim financial statements have not been audited by the Company’s independent registered public accounting firm and include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations, and cash flows for the periods presented. These consolidated interim financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019~~2020 filed on ~~February 28, 2020~~March 03, 2021 with the Securities and Exchange Commission. The results for the three months ended March 31, ~~2020~~2021 are not necessarily indicative of operating results for the remainder of the year.

Significant Estimates and Assumptions and Other Significant Non-Recurring Transactions

The preparation of interim 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 interim financial statements and the reported amounts of sales and expenses during the reporting periods. As described in the Company’s annual report on Form 10-K, the most significant estimates and assumptions by management affect the Company’s revenue recognition, valuation of accounts receivable, valuation 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, 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, and the valuation of right-of-use assets and lease liabilities. The Company has reviewed these estimates and determined that these remain the most significant estimates for the three months ended March 31, ~~2020.~~2021.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

~~During the second quarter of 2019, the Company sold Videotel. Please see Notes 1 and 20 for further discussion.~~

During the third quarter of 2019, the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases, which impacted our March 31, 2019 consolidated interim financial statements. Please see Note 16 for further discussion.

(3) Accounting Standards Issued and Not Yet Adopted

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.~~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.~~Instruments. 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:~~Improvements to Topic 326, Financial ~~Instruments –~~ Instruments—Credit Losses ~~(Topic 326)~~. This update introduced an expected credit loss methodology for the impairment of financial assets measured at amortized ~~cost basis.~~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:~~Improvements to Topic 326, Financial ~~Instruments –~~ Instruments—Credit Losses, ~~(Topic 326),~~Topic 815, Derivatives and Hedging, ~~(Topic 815)~~ and Topic 825, Financial ~~Instruments (Topic 825).~~ 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 –~~ Instruments—Credit Losses (~~Topic 326~~) (Topic 326): Targeted Transition Relief. The amendments in the update ease the transition for entities adopting ASC Update 2016-13 and increase the 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 -~~ Instruments—Credit ~~Losses -~~ Losses—Measured at Amortized Cost.

In November 2019, the FASB issued ASC Update No. 2019-10, Financial ~~Instruments –~~ Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ~~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. The update amends ASC 326 and ASC 350's effective date for all SEC filers other than smaller reporting companies to be the fiscal years beginning after December 15, 2019, and interim periods therein. The effective date for all other entities, including smaller reporting companies, will be the fiscal years beginning after December 15, 2022, and interim periods therein. The update does not change the effective date of ASC 815 and ASC 842 for public business entities (PBEs), but amends the effective date for all other entities to be the fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

In November 2019, the FASB issued ASC Update No. 2019-11, Codification ~~Improvements:~~Improvements to Topic 326, Financial ~~Instruments –~~ Instruments—Credit Losses (Topic 326).(~~Topic 326~~). The update is effective for entities that have adopted ASU 2016-13, and the amendments in ASU 2019-11 are effective for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted in any interim period after issuance of this update as long as an entity has adopted the amendments in Update 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 ~~amend SEC paragraphs in~~clarify the ~~ASC that describe SEC guidance or SEC staff views that~~scope and interpretation of the ~~Financial Accounting Standards Board (FASB) includes as a convenience to Codification users.~~standard.

As a ~~current~~ smaller reporting entity for Topic 326, the effective date will be the fiscal ~~years~~year beginning after December 15, 2022. The adoption of Update Nos. 2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and ~~2020-02 are~~2020-20 is not expected to have a material impact on the Company's financial position or results of operations.

~~ASC Update No. 2019-12~~

~~In December 2019, the FASB issued ASC Update No. 2019-12,~~ ~~Income Taxes (Topic 740)~~. The update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period, for public business entities for periods for which financial statements have not yet been issued. The purpose of Update No. 2019-12 is to remove certain exceptions for recognizing deferred taxes for investments and simplify the accounting for income taxes in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. It amends the requirements relating to the accounting for "hybrid" tax regimes. Update No. 2019-12 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 ~~are expected to~~the Company expects would have a material impact on the Company's financial statements.

(4) Marketable Securities

Marketable securities as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following:


March 31, 2020		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021										March 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market mutual funds	Money market mutual funds	$	22,487	$	—	$	—	$	22,487	Money market mutual funds	$	25,143	$	0	$	0	$	25,143

Total marketable securities designated as available-for-sale	Total marketable securities designated as available-for-sale	$	22,487	$	—	$	—	$	22,487	Total marketable securities designated as available-for-sale	$	25,143	$	0	$	0	$	25,143

The effective maturity date of the United States treasuries is less than one year.

Interest income from marketable securities was ~~$113~~$2 and ~~less than $1~~$113 during the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

(5) Stockholder's Equity

(a) Stock Equity and Incentive Plan

The Company recognizes stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation. Stock-based compensation expense was $924 and $789, excluding the $8 and $16 compensation charges related to our ~~employee stock purchase plan,~~Amended and Restated 1996 Employee Stock Purchase Plan, or the ESPP, ~~was $789 and $860~~ for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. As of March 31, ~~2020,~~2021, there was ~~$2,724~~$5,300 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of ~~2.41~~2.96 years. As of March 31, ~~2020,~~2021, there was ~~$2,869~~$5,198 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of ~~2.29~~2.88 years.

During the three months ended March 31, 2021, the Company issued 154 shares of common stock upon the exercise of stock options and received$1,566 as payment for the exercise price. NaN shares were surrendered to the Company to satisfy minimum tax withholding obligations Additionally, during the three months ended March 31, 2021,496 stock options were granted and 21 stock options expired, were canceled or were forfeited. During the three months ended March 31, 2020 0 stock options were exercised for common stock, and no shares of common stock were delivered to the Company as payment for the exercise price or related minimum tax withholding obligations for the exercise of such options. During the three months ended March 31, 2020, 0 stock options were granted and 95 stock options expired, were canceled or were forfeited.granted. The Company ~~estimates~~has estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions utilized to determine the fair value of options granted during the three months ended March 31, 2021 and 2020 are as follows:



	Three Months Ended March 31,
	2021		2020
Risk-free interest rate	0.92	%	0	%
Expected volatility	44.98	%	0	%
Expected life (in years)	4.28		0.00
Dividend yield	0	%	0	%

As of March 31, ~~2020,~~2021, there were ~~1,529~~2,357 options outstanding with a weighted average exercise price of ~~$9.68~~$9.89 per share and ~~370~~578 options exercisable with a weighted average exercise price of ~~$9.60~~$9.40 per share.

During the three months ended March 31, ~~2020, 0~~2021, 149 shares of restricted stock were granted with a weighted average grant date fair value of$12.66 per share and 01 shares of restricted stock were forfeited. Additionally, during the three months ended March 31, ~~2020, 102~~2021, 67 shares of restricted stock vested, ~~NaN~~ of which 0 shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations ~~for~~in connection with the vesting of ~~such shares.~~restricted stock.

As of March 31, 2021, there were637 shares of restricted stock outstanding that were still subject to service-based vesting conditions.

As of March 31, ~~2020, there were 397 shares of restricted stock outstanding that were subject to service-based vesting conditions.~~

~~As of March 31, 2020,~~2021, the Company had no0 unvested outstanding options and no0 outstanding shares of restricted stock that were subject to performance-based or market-based vesting conditions.

(b) Employee Stock Purchase Plan

The Company's ~~Amended and Restated 1996 Employee Stock Purchase Plan (ESPP)~~ESPP affords eligible employees the right to purchase common stock, via payroll deductions, through various offering periods at a purchase price equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. During the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020,0 and 20 ~~and 23~~ shares were issued under the ESPP plan, respectively. The Company recorded compensation charges related to the ESPP of ~~$16~~$8 and ~~$14~~$16 for the three months ended March 31, 2021 and 2020, ~~and 2019, respectively, related to the ESPP.~~respectively.

The following table presents stock-based compensation expense, including under the ESPP, in the Company's consolidated statements of operations for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended
March 31,
2020 2019
Cost of product sales $ 40 $ 41
Cost of service sales — —
Research and development 153 172
Sales, marketing and support 154 182
General and administrative 458 479
$ 805 $ 874


	Three Months Ended March 31,
	2021		2020
Cost of product sales	$	46	$	40
Cost of service sales	2		0
Research and development	156		153
Sales, marketing and support	190		154
General and administrative	538		458
	$	932	$	805

(d) Accumulated Other Comprehensive Loss (AOCI)

Comprehensive income (loss) includes net income (loss), 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.~~securities. The components of the Company’s comprehensive income (loss) and the effect on earnings for the periods presented are detailed in the accompanying consolidated statements of comprehensive ~~income (loss).~~loss.

The balances for the three months ended March 31, 2021 and 2020 are as follows:


	Foreign Currency Translation		Total Accumulated Other Comprehensive Loss
Balance, December 31, 2020	$	(3,232)	$	(3,232)
Other comprehensive income	223		223
Net other comprehensive income	223		223
Balance, March 31, 2021	$	(3,009)	$	(3,009)


	Foreign Currency Translation		Total Accumulated Other Comprehensive Loss
Balance, December 31, 2019	$	(2,767)	$	(2,767)
Other comprehensive loss	(2,480)		(2,480)

Net other comprehensive loss	(2,480)		(2,480)
Balance, March 31, 2020	$	(5,247)	$	(5,247)

Foreign Currency Translation Interest Rate Swaps Total Accumulated Other Comprehensive Loss
Balance, December 31, 2018 $ (14,720) $ (11) $ (14,731)
Other comprehensive income before reclassifications 1,080 — 1,080
Amounts reclassified from AOCI — 8 8
Net other comprehensive income 1,080 8 1,088
Balance, March 31, 2019 $ (13,640) $ (3) $ (13,643)

For additional information, see Note 4, "Marketable ~~Securities," and Note 17, "Derivative Instruments and Hedging Activities.~~Securities."

(6) Net Loss per Common Share

Basic net loss per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net loss per share incorporates the dilutive effect of common stock equivalent options, warrants and other convertible securities, if any, as determined with the treasury stock accounting method. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, since there was a net loss, ~~from continuing operations,~~ the Company excluded ~~1,341~~all 520 and ~~1,042,~~1,341, respectively, 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:


		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2020	2019		2021	2020
Weighted average common shares outstanding—basic	Weighted average common shares outstanding—basic	17,529	17,302	Weighted average common shares outstanding—basic	17,938	17,529
Dilutive common shares issuable in connection with stock plans	Dilutive common shares issuable in connection with stock plans	—	—	Dilutive common shares issuable in connection with stock plans	0	0
Weighted average common shares outstanding—diluted	Weighted average common shares outstanding—diluted	17,529	17,302	Weighted average common shares outstanding—diluted	17,938	17,529

Inventories, net are stated at the lower of cost and net realizable value using the first-in first-out costing method. Inventories as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 include the costs of material, labor, and factory overhead. Components of inventories consist of the following:

(8) Property and Equipment

Property and equipment, net, as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 consist of the following:

Depreciation expense was ~~$2,402~~$3,074 and ~~$2,093~~$2,402 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Certain revenue-generating hardware assets are utilized by the Company in the delivery of the Company's airtime services, media and other content.

(9) 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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had accrued product warranty costs of ~~$2,212~~$1,634 and ~~$2,194,~~$1,812, respectively.

The following table summarizes product warranty activity during ~~2020~~2021 and ~~2019:~~2020:


	March 31, 2021		December 31, 2020
PPP loan	$	6,927	$	6,927
Total long-term debt	6,927		6,927
Less amounts classified as current	6,152		4,992
Long-term debt, excluding current portion	$	775	$	1,935

Paycheck Protection Program Loan

In May 2020, the Company received a $6,927 loan (the PPP Loan) from Bank of America, N.A., under the Paycheck Protection Program, 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 Company believes it has used the proceeds from the PPP Loan in accordance with the requirements of the CARES Act, primarily for payroll costs and to retain workers.

The term of the PPP Loan is two years from the funding date of the PPP Loan. The interest rate on the PPP Loan is 1.00%. Under the terms of the PPP Loan, interest accrues from the funding date of the PPP Loan but is deferred until the lender determines the amount of loan forgiveness, but the deferral period will end if the Company fails to apply for loan forgiveness within ten months after the loan forgiveness covered period. Principal and interest on the PPP Loan will be payable in monthly installments, except that the Company will not be obligated to repay amounts that are forgiven, if any. The promissory note evidencing the PPP Loan contains various events of default relating to, among other things, insolvency, bankruptcy or the like, payment defaults under the PPP Loan or other loans by the lender, certain defaults under other indebtedness, breach of representations and warranties, the occurrence of a material adverse event, changes in ownership, or breach of other provisions of the promissory note. Upon an event of default, all principal and accrued interest on the PPP Loan and any and all other loans made by the lender to the Company would at the lender’s option become immediately due and payable. The Company agreed that it will not receive any other loan under the Paycheck Protection Program.

Pursuant to the terms of the CARES Act, the Company can apply for and may be granted forgiveness for all or a portion of the PPP Loan, if and to the extent that the Company satisfies all of the requirements applicable to forgiveness of the PPP Loan. Such forgiveness will be determined in part based on the use of PPP Loan proceeds in accordance with the terms of the CARES Act during the 24-week period after loan origination and the maintenance or achievement of certain employee and compensation levels. The Company has not decided whether to apply for forgiveness and can provide no assurance that any portion of the PPP Loan will be forgiven should it seek forgiveness.

Term Note and Line of Credit

Effective October 30, 2018, the Company entered into an amended and restated ~~three-year~~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 $42,500, including a term loan (2018 Term Loan) of $22,500 and a reducing revolving credit facility (the 2018 Revolver) of up to $20,000 initially and reducing to $15,000 on December 31, 2019, each to be used for general corporate purposes, including the refinancing of indebtedness under the Company’s then-outstanding senior credit facility agreement. The Company's obligations under the 2018 Credit Agreement are secured by substantially all of our assets and the pledge of equity interests in certain of our subsidiaries.

~~On May 13, 2019, the Company entered into a consent with Bank of America, N.A., as Administrative Agent, authorizing the Purchase Agreement and Bridge Loan, as discussed in Note 1.~~ On June 27, 2019, the Company used the proceeds of the sale of its former Videotel business unit to repay in full the then-outstanding balance of $21,375 under the 2018 Term Loan and to repay $13,000 of the then-outstanding balance under the 2018 Revolver. ~~Under the terms of the consent, the~~The 2018 Revolver ~~will remain~~remained at $20,000 through December 31, 2019 and then reduced to $15,000 for the remaining term of the 2018 Credit Agreement. On October 30, 2021, the entire principal balance of any outstanding loans under the 2018 Revolver will be due and payable, together with all accrued and unpaid interest, fees and any other amounts due and payable under the 2018 Credit Agreement. As of March 31, ~~2020,~~2021, 0 amounts were outstanding under the 2018 Revolver.

Borrowings of up to ~~$20,000~~$15,000 under the 2018 Revolver are subject to the satisfaction of 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 March 31, ~~2020,~~2021, the ~~Company is not able to draw on these funds due to covenant restrictions.~~full balance of the $15,000 facility was available for borrowing.

The 2018 Credit Agreement contains 2 financial covenants, a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the 2018 Credit Agreement. The Consolidated Leverage Ratio could not exceed 2.50:1.00 through December 31, 2020 and may not ~~be greater than 2.50:1.00 on December 31, 2019 and declines to~~exceed 2.00:1.00 onafter December 31, 2020. The 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 are 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.

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

The Company previously had a mortgage loan (Mortgage Loan) related to its headquarters facility in Middletown, Rhode Island. On April 1, 2019, on the Mortgage Loan’s original termination date, the Company repaid in full the outstanding balance of $2,551. As discussed in Note 17 to the consolidated interim financial statements, in April 2010 the Company entered into 2 interest rate swap agreements that were 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. Both interest rate swap agreements were also settled upon repayment of the Mortgage Loan.

(11) Segment Reporting

The financial results of each segment are based on revenues from external customers, cost 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 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 chief operating decision-maker for purposes of assessing segment performance and allocating resources. There are no inter-segment sales or transactions. As discussed in Note 1, the Company’s Videotel business, which had previously been included in the mobile connectivity segment, has been classified as discontinued operations and therefore excluded from the segment information below.

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 ~~18%~~16% and ~~20%~~18% of the Company's consolidated net sales for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~Sales~~Service sales of mini-VSAT Broadband airtime service accounted for ~~53%~~51% and ~~50%~~53% of the Company's consolidated net sales for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

The inertial navigation segment manufactures and distributes a portfolio of digital compass and ~~fiber optic gyro (FOG)-based~~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 inertial measurement units (IMUs) for precision guidance, FOGs for tactical navigation (TACNAV) 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 14% of the Company's consolidated net sales for both the three months ended March 31, 2021 and ~~13%~~2020. TACNAV product sales accounted for 12% and 3% of the Company's consolidated net sales for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

No other single product class accounts for 10% or more of the Company's consolidated net sales.

The Company operates in a number of major geographic areas across the globe. The Company generates 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. ~~International revenues~~Revenues are based upon customer location and internationally represented 62% and 58% of the Company's consolidated net sales for ~~each of~~ the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively. Sales to Singapore customers represented 10% and 11% of the Company's consolidated net sales for the three months ended March 31, ~~2020.~~2021 and 2020, respectively. No other individual foreign country represented 10% or more of the Company's consolidated net sales for the three months ended March 31, 2021 and 2020. ~~No individual foreign country represented 10% or more of the Company's consolidated net sales for the three months ended March 31, 2019.~~

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~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.~~assets.

Net sales and operating income (loss) ~~income~~ for the Company's reporting segments and the Company's loss before income tax (benefit) expense for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
March 31,
2020 2019
Net sales:
Mobile connectivity $ 28,896 $ 28,914
Inertial navigation 7,672 7,462
     Consolidated net sales $ 36,568 $ 36,376
Operating (loss) income:
Mobile connectivity $ (2,299) $ (1,444)
Inertial navigation (821) 443
     Subtotal (3,120) (1,001)
Unallocated, net (4,528) (5,233)
     Loss from operations (7,648) (6,234)
Net interest and other income (expense) 1,811 (307)
     Loss from continuing operations before income tax expense (benefit) $ (5,837) $ (6,541)

Depreciation expense and amortization expense for the Company's reporting segments for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
March 31,
2020 2019
Depreciation expense:
Mobile connectivity $ 1,958 $ 1,670
Inertial navigation 293 286
Unallocated 151 137
Total consolidated depreciation expense $ 2,402 $ 2,093
Amortization expense:
Mobile connectivity $ 248 $ 248
Inertial navigation — —
Unallocated — —
Total consolidated amortization expense $ 248 $ 248


	Three Months Ended
	March 31,
	2021		2020
Depreciation expense:
Mobile connectivity	$	2,521	$	1,958
Inertial navigation	384		293
Unallocated	169		151
Total consolidated depreciation expense	$	3,074	$	2,402

Amortization expense:
Mobile connectivity	$	276	$	248
Inertial navigation	0		0
Unallocated	0		0
Total consolidated amortization expense	$	276	$	248

~~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.

(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. The program ~~was superseded~~expired on October 4, 2019. On October 4, 2019, the Company's Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to 1,000 shares of the Company’s common stock. The repurchase program is expected to be funded using the Company’s existing cash, cash equivalents, marketable securities and future cash flows.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 a duration of one year. Under the Company's 2018 Credit Agreement, the Company may not repurchase more than $5,000 of shares before October 31, 2021 without appropriate consent.

~~During the three months ended March 31,~~In January 2020, the Company repurchased 36 shares of common stock in open market transactions at a cost of approximately $390. The total amount the Company repurchased onunder the ~~open market~~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. ~~Except as noted above, there~~There were no ~~other~~ repurchase programs ~~outstanding.~~outstanding during the three months ended March 31, 2021.

(14) Fair Value Measurements

ASC Topic 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.~~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 on the valuation techniques identified in the table below.

The following tables present financial assets and liabilities at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:

March 31, 2020 Total Level 1 Level 2 Level 3 Valuation
Technique
Assets
Money market mutual funds $ 22,487 $ 22,487 $ — $ — (a)


December 31, 2020	Total		Level 1		Level 2		Level 3		Valuation Technique
Assets
Money market mutual funds	$	20,142	$	20,142	$	0	$	0	(a)
United States treasuries	4,999		4,999		0		0		(a)

(a)Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.

~~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 no impairments~~was 0 additional impairment of the ~~Company’s~~Company's non-financial assets noted as of March 31, ~~2020.~~2021. The Company does not have any liabilities that are recorded at fair value on a non-recurring basis.

(15) Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill for the three months ended March 31, ~~2020:~~2021:


	Amounts
Balance at December 31, ~~2019~~2020	$	~~15,408~~6,592

Foreign currency translation adjustment	~~(678)~~19
Balance at March 31, ~~2020~~2021	$	~~14,730~~6,611

The changes in the carrying amount of intangible assets during the three months ended March 31, ~~2020~~2021 are as follows:

Intangible assets arose from an acquisition made prior to 2013 and the acquisition of KVH Media Group (acquired as Headland Media Limited) in May 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 during the Company's 2020 annual impairment test, the estimated useful life of distribution rights was reduced from 15 years to 1 year. The intangibles arising from the KVH Media Group 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 March 31, ~~2020,~~2021, the carrying value of the intangible assets acquired in the asset acquisition was ~~$293.~~$362. 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 three months ended March 31, 2020,~~An additional $16 and $22 ~~additional~~of consideration was earned under the contingent consideration ~~arrangement.~~arrangement during the three months ended March 31, 2021 and 2020, respectively.

Acquired intangible assets are subject to amortization. The following table summarizes acquired intangible assets at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:

Amortization expense related to intangible assets was $276 and $248 for the three months ended March 31, 2021 and 2020, ~~and 2019 and~~respectively. Amortization expense was categorized as general and administrative expense.

As of March 31, ~~2020,~~2021, the total weighted average remaining useful lives of the definite-lived intangible assets was ~~4.3~~2.2 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			~~3.2~~2.3
Distribution rights			~~8.1~~0.5

Years ending December 31, Amortization Expense
Remainder of 2020 720
2021 959
2022 959
2023 534
2024 300
Thereafter 960
Total future amortization expense $ 4,432
Years ending December 31,


Remainder of 2021	$	747
2022	785
2023	312
2024	52
2025	52
Thereafter	63
Total future amortization expense	$	2,011

For ~~definite lived~~definite-lived intangible assets, the Company assesses the carrying value of these assets whenever events or circumstances indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset, or asset group, to the future undiscounted cash flows expected to be generated by the asset, or asset group. ~~Like most companies, the~~The COVID-19 ~~global~~ pandemic has impacted ~~many areas~~various aspects of ~~our~~the Company's operations, and the Company ishave been monitoring the impact of this global crisis carefully. The Company has particularly monitored the operations of ~~our~~KVH Media Group, which depends heavily on travel and travel-related industries. The revenues and cash flows of KVH Media Group have been ~~particularly~~significantly impacted ~~due in part to~~by the global reduction in travel ~~resulting from~~since the start of the pandemic. ~~Consequently,~~Prior to the Company's 2020 annual impairment test in the fourth quarter of 2020, based on the Company's quarterly review of the impact of this global crisis on the Company's forecasted revenues and cash flows, there were no indication of impairment to the carrying value of goodwill or other intangible assets. However, in the fourth quarter of 2020, there were increases in the number of reported COVID-19 cases, and substantial shutdowns were reinstated in the United States, UK and Europe, which caused continued disruptions to our KVH Media Group business as the global travel and related industries remained at historically depressed levels. In response to the impact of the pandemic, particularly with respect to the Company's KVH Media Group business, during the Company's 2020 annual budgeting and long-term planning process, the Company conducted detailed discussions with many of the Company's largest customers in the KVH Media Group to validate the Company's assumptions, which indicated further expected delays in recovery, and certain areas of the KVH Media Group business that may not recover completely or at all. Accordingly, the Company updated its long-term revenue and cash flow forecast to reflect these most recent observations. Based on the Company's other long-lived asset impairment analysis and annual goodwill impairment test, the Company recognized an intangible asset impairment charge of $1,758 and a goodwill impairment charge of $8,732 for the year ended December 31, 2020 related to KVH Media Group.

As of March 31, 2021, the Company has reviewed, and will continue to review, the forecasted revenues and cash flows of our content business for possible indications that the goodwill or other intangible assets associated with this component of our business might be impaired. ~~At this point, our review indicates that 0 impairment to the carrying value of these assets has occurred.~~ However, it is uncertain how long the global pandemic will continue to disrupt global businesses, particularly travel, and therefore it is possible that the value of these assets may become impaired in the future ~~as a result of~~if the COVID-19 ~~pandemic. As~~pandemic worsens or continues for a prolonged period. Our review indicates that, as of March 31, ~~2020, the carrying value~~2021, there are no indications of ~~goodwill and other intangible assets associated with the KVH Media Group was $10,329 and $4,432, respectively.~~impairment.

(16) Revenue from Contracts with Customers ~~(ASC 606)~~

The adoption of ASC 606 represents a change in accounting principle that was intended to more closely align revenue recognition with the delivery of the Company's products and services and provide enhanced disclosures. 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.

During the three months ended September 30, 2019, the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases. During the implementation of ASC 606 effective January 1, 2018, the Company treated the leased products and services for these contracts as single performance obligations as if they were not distinct in the context of the contract; however, the leased product portion should have continued to have been accounted for under ASC 840 (now ASC 842). In general, the error was to defer recognition of product revenue and associated expenses for sales-type leases rather than to recognize those items upon shipment. The following table reflects these financial statement line items for the three months ended March 31, 2019, as reported and as adjusted (in thousands):

~~The Company has evaluated this error and does not believe the amounts are material for the three months ended March 31, 2019.~~

Disaggregation of Revenue

The following table summarizes net sales from contracts with customers for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Revenue recognized du~~ring~~during the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 from amounts included in contract liabilities at the beginning of the period was $773 and $606, ~~and $473,~~ respectively.

For mobile connectivity product sales, the delivery of the Company’s performance obligations ~~and associated revenue,~~ are generally transferred to the customer at a point in time,, therefore associated revenue is recognized at a point in time, with the exception of certain mini-VSAT Broadband contracts which are transferred to customers over time. For mobile connectivity service sales, the delivery of the Company’s performance obligations ~~and associated revenue~~ are transferred to the customer over time, therefore associated revenue is recognized over time. For inertial navigation product sales, the delivery of the Company’s performance obligations ~~and associated revenue,~~ are generally transferred to the customer at a point in time, therefore associated revenue is recognized at a point in time. For inertial navigation service sales, the Company's performance obligations ~~and associated revenue,~~ are generally transferred to customers over time, therefore 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 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.

~~No single~~The Company had no customer that accounted for 10% or more of consolidated net sales for the ~~first quarter of~~three months ended March 31, 2021 or 2020 ~~or 2019~~ or accounts receivable at March 31, ~~2020~~2021 or December 31, ~~2019.~~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 thereby materially adversely affect the Company’s revenues and operating results.

~~(17) 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 2 interest rate swap agreements. These interest rate swap agreements were 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 expired on April 1, 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) income (AOCI) to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. As the Company made the required principal and interest payments under the mortgage loan and the related interest rate swaps were settled, the Company reclassified the amounts recorded in AOCI related to the changes in the fair value of the settled interest rate swaps to earnings. To the extent there was any hedge ineffectiveness, changes in fair value relating to the ineffective portion were immediately recognized in earnings in other income (expense) in the consolidated statements of operations. The interest rate swap was 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 ended on April 1, 2019. On April 1, 2019, the two interest rate swaps matured and the Company made its final payment for its mortgage loan thereafter.~~

~~(18)~~(17) Income Taxes

The Company’s effective tax rate for the three months ended March 31, ~~2020~~2021 was ~~(6.5)%~~3.7% compared with ~~0.7%~~(6.5)% for the corresponding period in the prior year. The effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable periods, including retroactive changes in tax legislation, settlements of tax audits or assessments, and the resolution or identification of tax position uncertainties.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the effective tax rates were lower than the statutory tax rate primarily due to the Company maintaining a valuation allowance reserve on its US deferred tax assets and to the composition of income from foreign jurisdictions taxed at lower rates.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had reserves for uncertain tax positions of ~~$532~~$574 and ~~$521,~~$560, respectively. There were no material changes during the three months ended March 31, ~~2020~~2021 to the Company’s reserve for uncertain tax positions. The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of March 31, ~~2020~~2021 may decrease ~~$32~~$25 in the next twelve months as a result of a lapse of statutes of limitations 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, ~~India~~Japan and ~~Japan.~~India. In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to ~~2016,~~2017, 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.

The Company has operating leases for office facilities, equipment, and certain satellite service capacity and related equipment. Lease expense was $977 and $1,262 for the three months ended March 31, ~~2020~~2021 and ~~2019 was $1,262 and $1,265,~~2020, respectively. Short-term operating lease costs were $57 and $61 for the three months ended March 31, ~~2020~~2021 and ~~2019 was $61 and $48,~~2020, respectively. Sublease income was $34 for both the three months ended March 31, ~~2020~~2021 and ~~2019 was $34. The future minimum~~2020. Maturities of lease ~~payments under our operating leases~~liabilities as of March 31, ~~2020 are:~~2021 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:

During the first quarter of 2018, the Company entered into a ~~five-year~~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 disposed of 2 satellite hubs in exchange for additional satellite service capacity. As of March 31, ~~2020,~~2021, the gross ~~costs~~cost and accumulated amortization associated with this lease ~~are~~for the remaining satellite hub is included in revenue generating assets and amounted to ~~$3,068~~$1,268 and ~~$955,~~$574, respectively. ~~Property and equipment~~The obligation under capital 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~~seven-year estimated useful life of the asset, since the lease meets the bargain purchase option ~~criteria~~. criteria. Amortization of assets held under financing leases is included within depreciation expense. Depreciation expense for ~~these~~the remaining capital ~~assets~~asset was ~~$110~~$45 for both the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

The future minimum lease payments under this financing lease as of March 31, ~~2020~~2021 are:


Remainder of 2020		$	468
2021		624
Remainder of 2021					Remainder of 2021	$	198
2022	2022	624			2022	264
2023	2023	45			2023	22

Total minimum lease payments	Total minimum lease payments	$	1,761		Total minimum lease payments	$	484

Less amount representing interest	Less amount representing interest	$	(16)		Less amount representing interest	$	(7)
Present value of net minimum financing lease payments	Present value of net minimum financing lease payments	$	1,745		Present value of net minimum financing lease payments	$	477
Less current installments of obligation under accrued other	Less current installments of obligation under accrued other	$	615		Less current installments of obligation under accrued other	$	259
Obligations under other long-term liabilities, excluding current installments	Obligations under other long-term liabilities, excluding current installments	$	1,130		Obligations under other long-term liabilities, excluding current installments	$	218

Weighted-average remaining lease term - finance leases (years)	Weighted-average remaining lease term - finance leases (years)	2.92			Weighted-average remaining lease term - finance leases (years)	1.92
Weighted-average discount rate - finance leases	Weighted-average discount rate - finance leases	1.53		%	Weighted-average discount rate - finance leases	1.53		%

The Company enters into leases with certain customers primarily offor the TracPhone mini-VSAT Broadband 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 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 implicit interest rate. The sales-type leases do not have unguaranteed residual assets.

The current portion of the net investment in these leases was ~~$4,238~~$4,354 as of March 31, ~~2020~~2021 and the non-current portion of the net investment in these leases was ~~$6,597~~$7,351 as of March 31, ~~2020.~~2021. The current portion of the net investment in the leases is included in accounts receivable, net of allowance for doubtful accounts on 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 ~~$197~~$231 and ~~$168~~$197 during the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

The future undiscounted cash flows from these leases as of March 31, ~~2020~~2021 are:

Remainder of 2020 $ 3,657
2021 3,407
2022 2,452
2023 1,776
2024 1,007
2025 53
Total undiscounted cash flows $ 12,352
Present value of lease payments $ 10,835
Difference between undiscounted cash flows and discounted cash flows $ 1,517


Remainder of 2021	$	4,153
2022	3,531
2023	2,926
2024	2,028
2025	693
2026	16
Total undiscounted cash flows	$	13,347

Present value of lease payments	$	11,705
Difference between undiscounted cash flows and discounted cash flows	$	1,642

~~(20) Discontinued Operations~~

During the second quarter of 2019, the Company sold its Videotel business. The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20. Please see Note 1 for further discussion.

The following table presents a reconciliation of the major financial line items constituting the results for discontinued operations to the net income from discontinued operations, net of tax, presented separately in the Company's consolidated statements of operations and comprehensive income (loss):

~~The following table presents supplemental cash flow information of the discontinued operations:~~

~~(21) Subsequent Events~~

As a result of the COVID-19 pandemic, which has disrupted businesses around the world and led to the start of a global economic recession, we have developed and are implementing a plan to reduce costs and conserve cash balances in the event that the COVID-19 health crisis continues unabated through the remainder of this year or beyond. These plans include, among other things, a reduction in global salaries and benefits at most levels, implementation of a shortened work week in many areas, elimination of most non-essential or discretionary spending, and the indefinite delay of all capital outlays (except in connection with our AgilePlans program and Photonic Integrated Chip initiative). We have also developed contingent action plans that we may implement based on the duration of the health crisis and its continued negative global economic impact which includes furloughing some amount of our workforce or increasing the salary reduction at some or all levels of the Company. We are continuing to monitor global developments and are prepared to implement these and other actions should we consider it necessary.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements included in this quarterly report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding our future financial results, operating results, business strategies, projected costs, products and services, competitive positions and plans, customer preferences, consumer trends, anticipated product development, and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the section entitled “Risk Factors” in Item 1A of Part ~~II of this quarterly report on Form 10-Q and in Item 1A of Part~~ I of our annual report on Form 10-K for the year ended December 31, ~~2019.~~2020. These and many other factors could affect our future financial and operating results, and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf. For example, our expectations regarding certain items as a percentage of sales assume that we will achieve our anticipated sales goals. The following discussion and analysis should be read in conjunction with our consolidated interim financial statements and related notes appearing elsewhere in this report.

We design, develop, manufacture and market mobile connectivity products and services for the marine and land mobile markets, and inertial navigation products for the ~~commercial~~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.

Mobile Connectivity Segment

Our mobile connectivity segment offers satellite communications products and services. Our mobile connectivity products enable customers to receive voice and Internet services and live digital television via satellite services in marine vessels, recreational vehicles, buses and automobiles. We sell ~~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. 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. As a percentage of our consolidated net sales, our service sales were 56% and 64% for the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively.

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

~~Sale of Videotel - Discontinued Operations~~

Impairment Charge – KVH Media Group

~~In May 2019,~~The COVID-19 pandemic has impacted various aspects of our operations, and we ~~sold~~have been monitoring the impact of this global crisis carefully. We have particularly monitored the operations of KVH Media Group, which depends heavily on travel and travel-related industries. The revenues and cash flows of KVH Media Group have been significantly impacted by the global reduction in travel since the start of the pandemic. Prior to our ~~Videotel business, which provided eLearning computer-based training, to an affiliate~~2020 annual impairment test in the fourth quarter of ~~Oakley Capital, a UK company, for $89.4 million in cash, on a cash-free, debt-free basis, subject to a working capital adjustment. We made a bridge loan~~2020, there was no indication of impairment to the ~~purchaser and received payment~~carrying value of goodwill or other intangible assets. This conclusion was based on our quarterly review of the ~~initial purchase price~~impact of this global crisis on ~~June 21, 2019. We determined~~our forecasted revenues and cash flows. However, in the fourth quarter of 2020, there were increases in the number of reported COVID-19 cases, and substantial shutdowns were reinstated in the United States, UK and Europe, which caused continued disruptions to our KVH Media Group business as the global travel and related industries remained at historically depressed levels. In response to the impact of the pandemic, particularly with respect to our KVH Media Group business, during our 2020 annual budgeting and long-term planning process, we conducted detailed discussions with many of our largest customers in the KVH Media Group to validate our assumptions, which indicated further expected delays in recovery, and certain areas of the KVH Media Group business that ~~the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20.~~may not recover completely or at all. Accordingly, we ~~have classified the results~~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 ~~the Videotel business as discontinued operations for all periods presented. In December 2019, we finalized the working capital adjustment which reduced the proceeds from the sale~~$1.8 million and a goodwill impairment charge of ~~Videotel to $88.4 million. Please see Notes 1 and 20 for further discussion.~~

~~Out-of-Period Error~~

~~Each of mobile connectivity product sales, costs of product sales, sales, marketing and support expense, income tax benefit and net loss from continuing operations~~$8.7 million for the ~~three months~~year ended ~~March~~December 31, ~~2019 includes an adjustment to correct an immaterial prior period accounting error~~2020 related to ~~the implementation and application of ASC 606. See Note 16 of our consolidated interim financial statements for more information.~~KVH Media Group.

Inertial Navigation Segment

Our inertial navigation segment offers precision ~~fiber optic gyro (FOG)-based~~FOG-based systems that enable platform and optical stabilization, navigation, pointing, and guidance. Our inertial navigation products also include ~~tactical navigation~~TACNAV 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 governments, both 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 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.

We generate sales primarily from the sale of our mobile connectivity ~~systems~~products and services and our inertial navigation products and services. The following table provides, for the periods indicated, our sales by segment:

Product sales within the mobile connectivity segment accounted for ~~18%~~16% and ~~20%~~18% of our consolidated net sales for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Sales of mini-VSAT Broadband airtime ~~services~~service accounted for ~~53%~~51% and ~~50%~~53% of our consolidated net sales for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Within our inertial navigation segment, net sales of FOG-based guidance and navigation systems accounted for 14% of our consolidated net sales for both the three months ended March 31, 2021 and ~~13%~~2020. TACNAV product sales accounted for 12% and 3% of our consolidated net sales for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

No other single product class accounted for 10% or more of our consolidated net sales for the three months ended March 31, ~~2020~~2021 or ~~2019.~~2020. No individual customer accounted for 10% or more of our consolidated net sales for the three months ended March 31, ~~2020~~2021 or ~~2019.~~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~~Revenues are based upon customer location and internationally represented 62% and 58%of our consolidated net sales for the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively. Sales to Singapore customers represented 10% and 11% of our consolidated net sales for the three months ended March 31, ~~2020.~~2021 and 2020, respectively. No other individual foreign country represented 10% or more of our consolidated net sales for the three months ended March 31, 2021 and 2020. ~~No individual foreign country represented 10% or more of our consolidated net sales for the three months ended March 31, 2019.~~ See Note 11 to our consolidated interim financial statements for more information on our segments.

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 and development costs included in 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.

COVID-19 Global Pandemic

The COVID-19 pandemic ~~has disrupted~~continues to disrupt businesses around the world and ~~led to the start of~~has resulted in a global economic ~~recession. We began to observe the~~downturn. The impact of the pandemic on our operating results began in ~~our~~the first quarter of 2020 and continued throughout the year, particularly in areas of our business impacted by global commerce (for example, maritime ~~shipping),~~shipping, travel and ~~leisure. It is~~leisure). We do not ~~possible to~~ know how long the pandemic will continue or what the ongoing economic impact will be on our ~~business or the global economy.~~business. The areas of our business most at risk ~~to be~~of being negatively impacted by the prolonged continuation of this crisis include our mobile connectivity product ~~sales,~~ and ~~related airtime,~~service sales, as commercial customers ~~may~~continue to delay acquiring ~~VSAT~~mini-VSAT systems due to the global reduction in maritime shipping, and our media business, due to the severe restrictions on ~~global~~domestic and international travel. ~~Likewise~~Similarly, our inertial navigation product sales have been and may continue to be negatively impacted as domestic and foreign customers ~~find it necessary~~decide to conserve cash in their own businesses in the face of athe prolonged ~~duration~~continuation of the crisis. In response to these significant uncertainties, in the second quarter of 2020 we ~~have taken~~undertook multiple steps to mitigate the impact of the pandemic on our business, including a comprehensive reduction in salaries and wages and the elimination of most discretionary expenditures, including capital ~~expenditures,~~expenditures. As part of our mitigation efforts, we applied for, and received, assistance made available by the United States government through the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). At the beginning of the fourth quarter of 2020, we restored salaries for all of our employees to 100% of the pre-reduction levels, although we continue to ~~consider further actions which may include furloughing some level~~limit discretionary spending. We have deferred annual salary increases for the first half of ~~our global workforce.~~2021.

As of March 31, ~~2020,~~2021, our cash, ~~and~~ cash equivalents and marketable securities (“cash position”) approximated ~~$41.0~~$39.1 million, ~~and~~which reflects the impact of a $6.9 million loan (the PPP Loan) we ~~had no outstanding short term or long term debt, other than normal levels~~received from Bank of ~~accounts payable and accrued expenses.~~America, N.A., under the Paycheck Protection Program. While there can be no ~~assurances~~assurance that our ~~strong~~current cash position will sustain us through the duration of the pandemic, we believe that, on the basis of our current expectations, our current cash position, ~~along with~~and the mitigation actions we have taken or ~~are contemplating position~~could take may enable us ~~reasonably well~~ to withstand the impact of this global health crisis. We are continuing to monitor global developments and are prepared to implement further actions that we determine to ~~ensure the sufficiency of~~be necessary to sustain our ~~cash position should we consider it necessary.~~business.

Critical Accounting Policies and Significant Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, sales and expenses, and related disclosure at the date of our interim financial statements. Our significant accounting policies are summarized in Note 1 to the consolidated ~~interim~~ financial statements in our annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

As described in our annual report on Form 10-K for the year ended December 31, ~~2019,~~2020, our most critical accounting policies and estimates upon which our consolidated financial statements were prepared were those relating to ~~revenue recognition, valuation of accounts receivable, valuation of inventory, expected future cash flows including growth rates, discount rates, terminal values~~goodwill, intangible assets, and other ~~assumptions and estimates used to evaluate the recoverability of~~ long-lived assets and goodwill, 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 our net deferred tax assets and related valuation allowance, and the valuation of right-of-use assets and lease liabilities.assets. We have reviewed our policies and estimates and determined that these remain our most critical accounting policies and estimates for the three months ended March 31, ~~2020.~~2021.

Readers should refer to our annual report on Form 10-K for the year ended December 31, ~~2019~~2020 under “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies and Significant Estimates” for descriptions of these policies and estimates, as well as the notes to the consolidated interim financial statements included elsewhere within this report.

Results of Operations

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

Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

As discussed further under the heading "Segment Discussion" below, product sales ~~decreased $0.1~~increased $5.3 million, or 1%41%, to $18.4 million for the three months ended March 31, 2021 from $13.1 million for the three months ended March 31, 2020, ~~from $13.2 million for the three months ended March 31, 2019,~~ primarily due to ~~a decrease in mobile connectivity product sales~~an increase of ~~$0.8~~$5.0 million ~~partially offset by an increase~~ in inertial navigation product sales and an increase of ~~$0.7 million.~~$0.3 million in mobile connectivity product sales. Service sales for the three months ended March 31, ~~2020~~2021 increased ~~$0.3~~$0.4 million, or 1%2%, to $23.9 million from $23.5 million ~~from $23.2 million~~ for the three months ended March 31, ~~2019~~2020, primarily due to an increase in mobile connectivity service sales of ~~$0.8~~$1.3 million, ~~partially~~ offset by a decrease in inertial navigation service sales of ~~$0.5~~$0.9 million.

Costs of sales consists of costs of product sales and costs of service sales. Costs of sales increased ~~$1.2~~by $1.8 million, or 5%7%, in the three months ended March 31, ~~2020~~2021 to ~~$24.8~~$26.6 million from ~~$23.7~~$24.8 million in the three months ended March 31, ~~2019.~~2020. The increase in costs of sales was driven by ana $1.6 million increase ~~of $1.4 million, or 16%,~~ in costs of product sales ~~partially offset by~~and a $0.2 million ~~or 1%, decrease~~increase in costs of service sales. As a percentage of net sales, costs of sales were 63% and 68% for the three months ended March 31, 2021 and 2020, ~~and 65% for the three months ended March 31, 2019.~~respectively.

Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products. For the three months ended March 31, ~~2020,~~2021, costs of product sales increased ~~$1.4~~by $1.6 million, or 16%, to ~~$9.6~~$11.2 million from ~~$8.3~~$9.6 million in the three months ended March 31, ~~2019.~~2020. As a percentage of product sales, costs of product sales were ~~74%~~61% and ~~63%~~74% for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Mobile connectivity costs of product sales remained flat period over ~~period.~~period at $5.1 million for the three months ended March 31, 2021 and 2020 and improved as a percentage of product sales as a result of changes in product mix. Mobile connectivity costs of product sales as a percentage of mobile connectivity product sales ~~was~~were 74% and 77% ~~and 69%~~ for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Inertial navigation costs of product sales increased by ~~$1.4~~$1.6 million, or ~~44%~~35%, primarily due toa ~~$1.0~~$1.2 million increase in our TACNAV costs of product sales and a $0.4 million increase in FOG costs of product sales, in both cases as a result of increases in sales volume. As a percentage of inertial navigation product sales, costs of inertial navigation product sales were 53% and 70% for the three months ended March 31, 2021 and 2020, respectively. The decrease in ~~absorption~~costs of ~~factory overhead due to a decrease in the volume of production and an increase in scrap and other manufacturing period costs. Inertial~~inertial navigation ~~costs of~~ product sales as a percentage of inertial navigation product sales was ~~70% and 53% for~~due to the ~~three months ended March 31, 2020 and 2019, respectively.~~

increase in TACNAV product sales, which have greater profitability.

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 the three months ended March 31, ~~2020,~~2021, costs of service sales ~~decreased~~increased by $0.2 million, or 1%2%, to ~~$15.2~~$15.4 million from ~~$15.4~~$15.2 million for the three months ended March 31, ~~2019.~~2020. As a percentage of service sales, costs of service sales were 65% ~~and 66%~~ for both the three months ended March 31, ~~2020~~2021 and ~~2019, respectively.~~2020. Mobile connectivity costs of service sales increased by ~~$0.1~~$0.6 million, or 1%4%, primarily due to a ~~$0.1~~$1.1 million increase in ~~content costs of service sales. Mobile connectivity~~mini-VSAT airtime costs of service sales, aspartially offset by a $0.3 million decrease in other mobile connectivity service costs and a $0.3 million decrease in content costs, in each case resulting primarily from changes in the volume of sales. As a percentage of mobile connectivity service sales, ~~was~~costs of mobile connectivity service sales were 63% and 64% ~~and 66%~~ for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Inertial navigation costs of service sales decreased by ~~$0.3~~$0.4 million, or ~~24%~~45%, primarily due to a decrease in contract engineering services ~~revenues. Inertial~~due to the conclusion of a project for a major U.S. defense customer. As a percentage of inertial navigation service sales, costs of inertial navigation service sales were 192% and 73% for the three months ended March 31, 2021 and 2020, respectively. The increase in costs of inertial navigation service sales as a percentage of inertial navigation service sales was ~~73%~~due to an increase in costs relating to an engineering and ~~65% for the three months ended March 31, 2020 and 2019, respectively.~~services development contract from a major U.S. defense contractor without a corresponding increase in revenue.

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 the three months ended March 31, ~~2020~~2021 increased by ~~$0.4~~$0.3 million, or ~~11%~~7%, to ~~$4.3~~$4.6 million from ~~$3.9~~$4.3 million for the three months ended March 31, ~~2019.~~2020. The primary reason for the increase in research and development expense was a ~~$0.3 million increase in salaries and employee benefits and a $0.2~~$0.4 million decrease in funded engineering expenses (which are reflected in costs of service sales rather than research and development expense)., partially offset by a $0.2 million decrease in expensed materials. As a percentage of net sales, research and development expense was 11% and 12% for the three months ended March 31, ~~2020~~2021 and ~~2019 was 12% and 11%,~~2020, 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 the three months ended March 31, ~~2020 increased~~2021 decreased by ~~$0.6~~$1.2 million, or 7%13%, to ~~$8.7~~$7.5 million from ~~$8.1~~$8.7 million for the three months ended March 31, ~~2019.~~2020. The ~~increase~~decrease primarily resultedfrom a $0.4 million decrease in warranty expenses, a $0.3 million ~~increase~~decrease in ~~salaries~~travel and ~~employee benefits~~entertainment expenses and a ~~$0.3~~$0.2 million ~~increase~~decrease in ~~bad debt expense.~~marketing expenses. As a percentage of net sales, sales, marketing and support expense was 18% and 24% for the three months ended March 31, 2021 and 2020, ~~and 2019 was 24% and 22%,~~ respectively.

General and administrative expense consists of costs attributable to management, finance and accounting, legal, information technology, human resources, certain outside professional services, and other administrative costs. General and administrative expense for the three months ended March 31, 2021 and 2020 ~~decreased~~increased by ~~$0.6~~$0.7 million, or 8%12%, to $7.1 million compared to $6.4 million, ~~from $7.0~~respectively. The increase was primarily due to a $0.7 million ~~for the three months ended March 31, 2019. The decrease resulted~~increase in professional fees, primarily ~~from a $0.3 million decrease in salaries and employee benefits and a $0.3 million decrease in computer expenses~~. relating to Board governance matters. As a percentage of net sales, general and administrative expense was 17% for both the three months ended March 31, ~~2020~~2021 and ~~2019 was 17% and 19%, respectively.~~2020.

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

Interest income represents interest earned on our cash and cash equivalents, as well as from ~~investments.~~investments and our sale-type lease receivables. Interest income ~~increased slightly~~decreased $0.1 million for the three months ended March 31, 2021 to $0.2 million from $0.3 million for the three months ended March 31, 2020, ~~from $0.2 million for~~primarily due to the ~~three months ended March 31, 2019.~~interest related to our marketable securities. Interest expense ~~decreased to~~remained flat period over period at less than $0.1 million for the three months ended March 31, ~~2020 from $0.4~~2021 and 2020.Other (expense) income, net decreased to other expense of $0.8 million for the three months ended March 31, ~~2019 as a result of our repayment of all of our debt obligations during 2019. Other~~2021 from other income, net ~~increased to~~of $1.5 ~~million from other expense, net of $0.1~~ million for the three months ended March 31, 2020 ~~and 2019~~ primarily due toan increase in foreign exchange ~~gains~~losses from our UK operations.

Income Tax (Benefit) Expense ~~(Benefit)~~

Income taxbenefitfor the three months ended March 31, 2021 was $0.2 millionand related to losses incurred in foreign jurisdictions. Income tax expense for the three months ended March 31, 2020 was $0.4 million and related to taxes on income earned in foreign jurisdictions. ~~Income tax benefit~~The losses we incurred in the U.S. for the three months ended March 31, ~~2019 was less than $0.1 million~~2021 and ~~related to taxes on income earned in foreign jurisdictions. The losses we incurred in~~ the ~~U.S.~~three months ended March 31, 2020 did not generate any income tax benefit during ~~either~~the quarter due to a full valuation allowance on our related deferred tax assets.

~~Discontinued Operations~~

During the second quarter of 2019, we sold our Videotel business for $89.4 million in cash, on a cash-free, debt-free basis, subject to a working capital adjustment. We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20. Accordingly, we have classified the results of the Videotel business as discontinued operations for all periods presented. In December 2019, we finalized the working capital adjustment, which reduced the proceeds from the sale of Videotel to $88.4 million. Please see Notes 1 and 20 of our consolidated interim financial statements for further information. Results for discontinued operations are as follows:

Three Months Ended
March 31,
2020 2019
(in thousands)
Sales from discontinued operations $ — $ 3,937
Income from discontinued operations, net of tax $ — $ 243

Segment Discussion - Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

Our net sales by segment for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were as follows:

Operating (loss) income ~~(loss)~~ by segment for the three months ended March 31, 2021 and 2020 ~~and 2019 were~~was as follows:


					Change
	For the three months ended March 31,				2021 vs. 2020
	2021		2020		$		%
	(dollars in thousands)
Mobile connectivity	$	(397)	$	(2,299)	$	1,902	83	%
Inertial navigation	2,090		(821)		2,911		355	%
	$	1,693	$	(3,120)	$	4,813	154	%
Unallocated	(5,300)		(4,528)		(772)		(17)	%
Loss from operations	$	(3,607)	$	(7,648)	$	4,041	53	%

Change
For the three months ended March 31, 2020 vs. 2019
2020 2019 $ %
(dollars in thousands)
Mobile connectivity $ (2,299) $ (1,444) $ (855) (59) %
Inertial navigation (821) 443 (1,264) (285) %
$ (3,120) $ (1,001) (2,119) (212) %
Unallocated (4,528) (5,233) 705 13 %
Loss from operations $ (7,648) $ (6,234) $ (1,414) (23) %

Mobile Connectivity Segment

Net sales in the mobile connectivity segment increased by $1.6 million for the three months ended March 31, ~~2020 and 2019 were flat at $28.9 million.~~2021 as compared to the three months ended March 31, 2020. Mobile connectivity product sales ~~decreased~~increased by ~~$0.8~~$0.3 million ~~or 11%,~~ to $6.9 million for the three months ended March 31, 2021 from $6.6 million for the three months ended March 31, ~~2020 from $7.4~~2020. The increase in mobile connectivity product sales was primarily due to a $0.4 million increase in mini-VSAT Broadband product sales. The increase in mini-VSAT product sales was primarily due to an increase in sales volume.

Mobile connectivity service sales increased by $1.3 million, or 6%, to $23.6 million for the three months ended March 31, 2019. The decrease was due to a $0.7 million, or 9%, decrease in marine mobile connectivity product sales, which was driven by a decrease in TracVision product sales. In addition, there was a $0.2 million decrease in land mobile product sales. The decrease in TracVision and land mobile product sales was due to a decline in leisure sales.

~~Mobile connectivity service sales increased by $0.8 million, or 4%, to~~2021 from $22.3 million for the three months ended March 31, ~~2020~~2020. The increase was primarily due to a$2.2 million increase in our mini-VSAT service sales,which resulted in part from ~~$21.5~~a7%increase in subscribers, primarily as a result of AgilePlans.Partially offsetting this increase was a $0.9 million decrease in our content service sales.

Operating loss for the mobile connectivity segment decreased $1.9 million for the three months ended March 31, ~~2019. The increase was primarily due~~2021 to ~~a $0.9~~an operating loss of $0.4 million ~~increase in our mini-VSAT service sales~~as compared to ~~the three months ended March 31, 2019, which resulted in part from a 10% increase in subscribers, primarily as a result of AgilePlans.~~

~~Our~~an operating loss ~~for the mobile connectivity segment increased by $0.9~~of $2.3 million ~~or 59%,~~ for the three months ended March 31, 2020 ~~as compared to the three months ended March 31, 2019. This~~primarily due an increase ~~was primarily the result of a decrease~~ in ~~product~~ sales less associated costs of ~~$0.8~~$1.0 million, a ~~$0.6~~$0.4 million ~~increase~~decrease in ~~salaries~~warranty expenses, a $0.3 million decrease in travel and ~~employee benefits~~entertainment expenses and a $0.3 million ~~increase in bad debt expense, which were partially offset by an increase in service sales less associated costs of $0.7 million and $0.2 million~~ decrease in ~~external commissions.~~salaries, benefits and taxes.

Inertial Navigation Segment

Net sales in the inertial navigation segment increased ~~by $0.2~~$4.1 million, or 3%54%, for the three months ended March 31, ~~2020~~2021 as compared to the three months ended March 31, ~~2019.~~2020. Inertial navigation product sales increased ~~$0.7~~$5.0 million, or ~~12%~~77%, to $11.5 million for the three months ended March 31, 2021 from $6.5 million for the three months ended March 31, 2020, ~~from $5.8~~primarily as a result of a $4.2 million increase in the volume of TACNAV product sales and a $0.9 million increase in our FOG and OEM product sales. We expect that, in coming quarters, the volume of TACNAV product sales will be comparable to the volume of sales in the corresponding quarter of 2020 and will not sustain the rate of increase achieved in the first quarter of 2021.

Inertial navigation service sales decreased $0.9 million, or 79%, to $0.2 million for the three months ended March 31, ~~2019. This increase was due to a $0.4 million increase in TACNAV sales and a $0.3 million increase in sales of our FOG and OEM products.~~

~~Inertial navigation service sales decreased $0.5 million, or 29%, to~~2021 from $1.2 million for the three months ended March 31, ~~2020 from $1.7~~2020. The decrease was due to a $0.9 million decrease in contract engineering service revenues due to the conclusion of a project for a major U.S. defense customer.

Our operating income for the inertial navigation segment increased $2.9 million to an operating gain of $2.1 million for the three months ended March 31, ~~2019. The decrease was due~~2021 as compared to ~~the timing of performance under~~ an ~~engineering and services development contract from a major U.S. defense contractor, which began in the fourth quarter of 2018 and will continue through December 2020.~~

~~Our~~ operating loss ~~for the inertial navigation segment increased $1.3~~of $0.8 million ~~or 285%,~~ for the three months ended March 31, 2020, ~~as compared to the three months ended March 31, 2019. This increase is~~ primarily due to ~~a decrease in sales less associated costs of $0.9 million, a $0.2 million~~the increase in ~~external commissions and a $0.1 million increase in salaries and employee benefits.~~volume of TACNAV product sales.

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 ~~decreased by $0.7~~increased $0.8 million, or ~~13%~~17%, for the three months ended March 31, ~~2020~~2021 as compared to the three months ended March 31, ~~2019. The decrease~~2020, primarily due to a $0.7 million increase in ~~the operating loss was primarily the result of~~professional fees and a ~~$0.5~~$0.2 million ~~decrease~~increase in salaries, ~~and employee~~ benefits and ~~a $0.3 million decrease in computer expenses.~~taxes.

Backlog is not a meaningful indicator for predicting revenue in future periods. Commercial resellers for our mobile connectivity products and legacy products typically do not carry extensive inventories and rely on us to ship products quickly.Generally, due to ~~the~~ rapid delivery of our commercial products, our backlog for those products is not significant.

Our backlog for all products and services was ~~$22.6~~$17.0 million and ~~$19.5~~$20.4 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As of March 31, ~~2020, $16.9~~2021, $13.8 million of our backlog was scheduled for fulfillment in ~~2020, $5.4 million was scheduled for fulfillment in~~ 2021, ~~and $0.3~~$3.1 million was scheduled for fulfillment in 2022, and $0.1 millionwas scheduled for fulfillment in 2023 through ~~2028.~~2024.

Backlog consists of orders evidenced by written agreements and specified delivery dates for customers who are acceptable credit risks. We do not include satellite connectivity service sales in our backlog even though many of our satellite connectivity customers have signed annual or multi-year service contracts providing for a fixed monthly fee. Military orders included in backlog are generally subject to cancellation for the convenience of the customer. When orders are canceled, we generally recover actual costs incurred through the date of cancellation and the costs resulting from termination. As of March 31, ~~2020,~~2021, our backlog included ~~$2.6~~$2.3 million in orders that are subject to cancellation for convenience by the customer. Individual orders for inertial navigation products are often large and may require procurement of specialized long-lead components and allocation of manufacturing resources. The complexity of planning and executing larger orders generally requires customers to order well in advance of the required delivery date, resulting in backlog.

Liquidity and Capital Resources

Our primary liquidity needs ~~are~~have been to fund general business requirements, including working capital requirements, capital expenditures, and, ~~capital expenditures.~~until recently, interest payments and debt repayments. In recent years, we have funded our operations primarily from cash flows from operations, an asset sale, bank ~~financing, an equity private placement, the~~financings, proceeds received from exercises of stock options and ~~in 2019 by selling our Videotel training business. We believe that~~proceeds from the issuance of stock.

In May 2020, we ~~have sufficient cash to satisfy obligations that will come due over~~received a $6.9 million loan (the PPP Loan) from Bank of America, N.A. under the ~~next twelve months.~~Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act.

As of March 31, ~~2020,~~2021, we had ~~$41.0~~$39.1 million in cash, cash equivalents, and marketable securities, of which ~~$3.0~~$2.2 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries. Our foreign subsidiaries held no marketable securities as of March 31, ~~2020.~~2021. As of March 31, ~~2020,~~2021, we had ~~$63.6~~$57.8 million in working capital. Based upon our current working capital position, current operating plans and expected business conditions, we expect to have sufficient funds, through at least twelve months from the date that the accompanying financial statements are filed, to fund our short-term and long-term working capital requirements, including capital expenditures and contractual obligations, primarily using our existing cash, cash equivalents and marketable securities and our operating cash flow. Our funding plans for our working capital needs and other commitments may be adversely impacted if our underlying assumptions regarding our anticipated revenues and expenses are not realized. If our operating results fail to meet our expectations, we could be required to seek additional funding through public or private financings or other arrangements. In that event, adequate funds may not be available when needed or may be available only on terms which could have a negative impact on our business and results of operations. In addition, if we raise funds by issuing equity securities, our stockholders may experience dilution.


Delaware			05-0420589
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	14,203	$	12,755	Raw materials	$	12,999	$	13,957
Work in process	Work in process	2,793		3,117		Work in process	3,157		3,996
Finished goods	Finished goods	8,559		7,593		Finished goods	6,617		6,721
		$	25,555	$	23,465		$	22,773	$	24,674


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Land	Land	$	3,828	$	3,828	Land	$	3,828	$	3,828
Building and improvements	Building and improvements	24,185		24,172		Building and improvements	24,206		24,197
Leasehold improvements	Leasehold improvements	499		501		Leasehold improvements	481		482
Machinery and equipment	Machinery and equipment	18,381		18,022		Machinery and equipment	15,841		15,536
Revenue-generating assets	Revenue-generating assets	49,810		47,010		Revenue-generating assets	54,392		56,336
Office and computer equipment	Office and computer equipment	14,259		14,054		Office and computer equipment	14,147		13,855
Motor vehicles	Motor vehicles	31		31		Motor vehicles	31		31
		110,993		107,618			112,926		114,265
Less accumulated depreciation	Less accumulated depreciation	(56,237)		(54,034)		Less accumulated depreciation	(55,815)		(57,992)
		$	54,756	$	53,584		$	57,111	$	56,273


		Three Months Ended							Three Months Ended
		March 31,							March 31,
		2020		2019			2021		2020
Beginning balance	Beginning balance	$	2,194	$	1,916	Beginning balance	$	1,812	$	2,194
Charges to expense	Charges to expense	470		453		Charges to expense	61		470
Costs incurred	Costs incurred	(452)		(348)		Costs incurred	(239)		(452)
Ending balance	Ending balance	$	2,212	$	2,021	Ending balance	$	1,634	$	2,212


	Amounts
Balance at December 31, ~~2019~~2020	$	~~4,943~~2,254
Amortization expense	~~(248)~~(276)
Intangible assets acquired in asset acquisition	2216

Foreign currency translation adjustment	~~(285)~~17
Balance at March 31, ~~2020~~2021	$	~~4,432~~2,011


☒			QUARTERLY 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


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐


Date	Class	Outstanding shares
April ~~27, 2020~~26, 2021	Common Stock, par value $0.01 per share	~~17,993,244~~18,760,686


December 31, 2019		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2020										December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market mutual funds	Money market mutual funds	$	29,907	$	—	$	—	$	29,907	Money market mutual funds	$	20,142	$	0	$	0	$	20,142
United States treasuries										United States treasuries	4,999		0		0		4,999
Total marketable securities designated as available-for-sale	Total marketable securities designated as available-for-sale	$	29,907	$	—	$	—	$	29,907	Total marketable securities designated as available-for-sale	$	25,141	$	0	$	0	$	25,141


	Three Months Ended March 31,
	2020		2019
Cost of product sales	$	40	$	41
Cost of service sales	—		—
Research and development	153		172
Sales, marketing and support	154		182
General and administrative	458		479
	$	805	$	874


	Foreign Currency Translation		Interest Rate Swaps		Total Accumulated Other Comprehensive Loss
Balance, December 31, 2018	$	(14,720)	$	(11)	$	(14,731)
Other comprehensive income before reclassifications	1,080		—		1,080
Amounts reclassified from AOCI	—		8		8
Net other comprehensive income	1,080		8		1,088
Balance, March 31, 2019	$	(13,640)	$	(3)	$	(13,643)


		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
March 31, 2020
March 31, 2021								March 31, 2021
Subscriber relationships	Subscriber relationships	$	7,739	$	5,411	$	2,328	Subscriber relationships	$	8,007	$	6,154	$	1,853
Distribution rights	Distribution rights	4,171		2,067		2,104		Distribution rights	314		156		158
Internally developed software	Internally developed software	446		446		—		Internally developed software	446		446		0
Proprietary content	Proprietary content	153		153		—		Proprietary content	153		153		0
Intellectual property	Intellectual property	2,284		2,284		—		Intellectual property	2,284		2,284		0

		$	14,793	$	10,361	$	4,432		$	11,204	$	9,193	$	2,011
December 31, 2019
December 31, 2020								December 31, 2020
Subscriber relationships	Subscriber relationships	$	7,860	$	5,231	$	2,629	Subscriber relationships	$	7,977	$	5,958	$	2,019
Distribution rights	Distribution rights	4,313		1,999		2,314		Distribution rights	311		76		235
Internally developed software	Internally developed software	446		446		—		Internally developed software	446		446		0
Proprietary content	Proprietary content	153		153		—		Proprietary content	153		153		0
Intellectual property	Intellectual property	2,284		2,284		—		Intellectual property	2,284		2,284		0

		$	15,056	$	10,113	$	4,943		$	11,171	$	8,917	$	2,254



Years ending December 31,	Amortization Expense
Remainder of 2020	720
2021	959
2022	959
2023	534
2024	300
Thereafter	960
Total future amortization expense	$	4,432


	Three Months Ended
	March 31, 2019
	As reported		As adjusted
Product sales	$	12,874	$	13,215
Cost of product sales	7,853		8,284


Net loss	(6,179)		(6,254)


Remainder of 2020		$	1,804
2021		1,392
Remainder of 2021					Remainder of 2021	$	2,758
2022	2022	1,298			2022	1,662
2023	2023	463			2023	762
2024 and thereafter		589
2024					2024	421
2025 and thereafter					2025 and thereafter	261
Total minimum lease payments	Total minimum lease payments	$	5,546		Total minimum lease payments	$	5,864

Less amount representing interest	Less amount representing interest	$	(490)		Less amount representing interest	$	(391)
Present value of net minimum operating lease payments	Present value of net minimum operating lease payments	$	5,056		Present value of net minimum operating lease payments	$	5,473
Less current installments of obligation under current-operating lease liabilities	Less current installments of obligation under current-operating lease liabilities	$	1,634		Less current installments of obligation under current-operating lease liabilities	$	2,973
Obligations under long term - operating lease liabilities, excluding current installments		$	3,422
Obligations under long-term operating lease liabilities, excluding current installments					Obligations under long-term operating lease liabilities, excluding current installments	$	2,500

Weighted-average remaining lease term - operating leases (years)	Weighted-average remaining lease term - operating leases (years)	3.24			Weighted-average remaining lease term - operating leases (years)	2.34
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases	5.50		%	Weighted-average discount rate - operating leases	5.50		%


Remainder of 2020	$	3,657
2021	3,407
2022	2,452
2023	1,776
2024	1,007
2025	53
Total undiscounted cash flows	$	12,352

Present value of lease payments	$	10,835
Difference between undiscounted cash flows and discounted cash flows	$	1,517


					Change
	For the three months ended March 31,						2020 vs. 2019
	2020		2019		$		%
	(dollars in thousands)
Mobile connectivity	$	(2,299)	$	(1,444)	$	(855)	(59)	%
Inertial navigation	(821)		443		(1,264)		(285)	%
	$	(3,120)	$	(1,001)	(2,119)		(212)	%
Unallocated	(4,528)		(5,233)		705		13	%
Loss from operations	$	(7,648)	$	(6,234)	$	(1,414)	(23)	%


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1-January 31	35,256	$	11.03	35,256	849,728
February 1-February 29	—	$	—	—	849,728
March 1-March 31	—	$	—	—	849,728
Total	35,256	$	11.03	35,256


Date: May ~~1, 2020~~5, 2021

KVH Industries, Inc.

By:			/s/ DROGER A. KUEBEL~~ONALD~~ W. R~~EILLY~~
			~~Donald W. Reilly~~Roger A. Kuebel
			(Duly Authorized Officer and Chief Financial Officer)