KVH Industries, Inc.

Good morning, I am Pat Spratt, Chief Financial Officer of KVH Industries and with me is Martin Kits van Heyningen, Chief Executive Officer.

This call will address the fourth quarter earnings release that we issued earlier today. Copies of the release are available on our website and also from our Investor Relations department.

This call is being simulcast on the Internet and will be archived on our website for future reference.

If you are listening via the web, feel free to submit questions at [email protected] and we will answer them following this call.

This conference call will contain certain forward-looking statements that involve risk and uncertainty. For example, statements regarding financial and product development goals are forward-looking.

The company’s future results may differ materially from the projections described in today’s discussion.

Factors that might cause these differences include, but are not limited to, those mentioned in today’s call and risk factors described in our quarterly report on Form 10-Q filed with the SEC on November 4 , 2011. The company’s SEC filings are available directly from us, from the SEC or from the investor information section of our website.

Now, I will turn the call over to Martin to begin today’s discussion of results, Martin.

Thanks, Pat and good morning, everyone. Thanks for joining us today.

In 2011 KVH made significant progress in advancing our strategic objectives to position the company for future growth. Our maritime VSAT business continue to win a significant share of the market, as we introduce disruptive new products and continue the geographic expansion of our network.

We introduced a new high maritime Satellite TV product the TracVision HD11, which broadens our reach to include Commercial and Megayacht customers. We introduced the DSP-1750, the smaller more accurate fiber optic gyro that will broaden the appeal of our fine product line.

We also received some significant TACNAV orders from foreign military customers that we have been pursuing for several years.

The fourth quarter was in line with our expectations, with revenue of $31.9 million up 18% year-over-year and diluted earnings of $0.11 per share and net income of $1.6 million, that’s up from $0.02 per share during the same period of 2010. Pat will cover the numbers in more detail shortly.

But first, we will take a look at our key business areas, starting off with our satellite business. For the fourth quarter of 2011, our satellite revenues overall were 17.5 that is up 21% year-over-year, with our mini-VSAT revenue up 52% from the fourth quarter of 2010.

Unit sales for the fourth quarter were up 94% year-over-year. For the full year our satellite communications revenue overall grew 12% to 70.1 million, with our strategic mini-VSAT revenues growing by 60%, including growth of 50% in airtime and 73% in onboard equipment.

This growth was partly offset by a 20% decline in non VSAT portion of our satellite business, including our satellite TV and Inmarsat products. One half of this decline related to shipments for aeronautical TV antennas to live TV.

Our leisure satellite TV business has been hurt by the poor economy, but we feel like we are stronger than ever in this segment, with dominant market share and an industry leading product portfolio. Our Inmarsat business is declining as planned, as our customers migrate to the superior value solutions offered in our mini-VSAT portfolio.

This past year KVH made significant progress towards our goal of becoming of the leading companies in the growing maritime satellite communications market. Our mini-VSAT broadband service delivered over a 100 Terabytes of data in 2011, over 2 million VOIP calls and has a network uptime of 99.5%, which is among the best in the industry.

We currently have sold about 2000 TracPhone mini-VSAT units, which give us a good share of the existing maritime VSAT market, which most sources estimate to be between 8000 to 10000 users. The other major competing service, in the maritime broadband market, Inmarsat FleetBroadband at 25,000 users at the end of Q3 last year.

We estimate there are over 250,000 vessels in the shipping, commercial fishing, oil and gas, government (inaudible) markets that are perspective customers for broadband service. Suggesting that the total market penetration of maritime broadband will be less than 15% today.

So, we still have lots of room to grow.

The motivation from maritime company is to link remote offices onboard vessels to shore side networks, is the same as any other business. Connected networks drive profitability through enhanced efficiency of day-to-day operations.

Colleagues collaborating electronically save time and money. Crew members prefer to work onboard vessels where they can overcome the isolation of life at sea, by communicating regularly with their friends and family and keep in touch with their lives ashore through access to news, sporting events, and other entertainment.

Northern Sky Research projects that the market for broadband communications and satellite TV for maritime use could more than double between now and 2017 to $1.6 billion market. Our five year plan is to grow to $250 million to $300 million than as last year, is based in large part on winning a meaningful share of this market, which we believe we are extremely well positioned to achieve.

To enable us to win a larger share of this market KVH continue to invest in new products. In the maritime market, the differentiating advantages of the size and cost of the hardware, the reliability speed and cost of the airtime, and whether or not the services covers the regions where the vessels travel.

Our initial product the TracPhone V7 was very disruptive, allowed KVH to capture significant share of the VSAT market, as we offered the VSAT benefits of fast affordable airtime for a product that was half the cost and 85% smaller than competing VSAT products.

Last spring, we introduced the TracPhone V3, which is the world’s smallest and most affordable maritime VSAT solution. This product is designed to win the broad base of maritime market, being smaller in size, being similar in size and priced Inmarsat’s FleetBroadband hardware products, but offering airtime rates of only $0.99 a megabyte, which are one tenth the cost of competing Inmarsat offering, yet a two megabits per second, have data speeds 5 to 10 times faster.

While the maritime market has migrated towards VSAT for broadband connectivity, the major advantage offered by Inmarsat has been their global coverage. To achieve global coverage, true global coverage with the traditional VSAT requires C-Band service and an antenna, a 11 feet in diameter that weigh 2000 pounds, limiting their use to in most cases to huge cruise ships or oil tankers.

Last week KVH announced our new TracPhone V11 and the global C-Band expansion of our mini-VSAT broadband network. Using our spread spectrum technology, and our ability to design and build multi-band antennas, KVH developed the 1 meter dual mode maritime VSAT system that will be able to deliver our mini-VSAT to vessels almost anywhere on earth, outside of the extreme polar regions.

This is totally unique in the maritime industry.

We have been sharing our global expansion plans with specific customers under NDA, since early last spring, we already got a good backlog for this new product and service. The addition of a C-Band overlay coverage to our mini-VSAT network will require 3 global beam transponders and three new hubs that will be brought online in the coming months.

But, unlike competitive strategies of billion dollar investments, for new satellite constellations, to provide global VSAT services, KVH’s strategy is to release readily available and affordable commercial satellite capacity and leverage the flexibility of our technology in antenna designs, to bring this into a unified network. As a result, we will begin covering the incremental cost of our new C-Band capacity with the gross margin generated by our new TracPhone V11 hardware as soon as the third quarter of this year.

These are incremental revenues coming from a newly addressable market.

Going forward, KVH’s ability to dynamically balance the users on our network between existing and new commercial satellite transponders of different frequencies will be a signification competitive advantage. Now that our global coverage is in place, we will only need to add satellite capacity in the specific regions, where we have a lot of customers, so we can maintain a very high level of quality, well also linking our incremental cost to new revenues.

With new services like Ka-Band come online, KVH will be well positioned to either embrace the services offered companies like our partner ViaSat, the largest Ka-Satellite provider in the world or take advantage of the impact of the new Ka-Band service, will happen reducing the prices of Ku-Band and C-Band services, the satellite companies competing[ph].

Moving on to our guidance in stabilization business, the guidance and stabilization fourth quarter revenues were $14.5 million that is up 15% year-over-year driven by the shipment of a major TACNAV order. For the year our guidance and stabilization business was down 15% to 42.4 million.

Reflecting continual lagging demand from our largest customer for the U.S Army CROWS from our weapon station program. However during Q4, we did receive a $7.6 million from this customer to satisfy demand for the current year.

We believe that we are also well positioned to be the primary gyro supplier for the U.S Army CROWS III program, when it moves into production. The RFQ for this program has been issued and the army has set a date in late march for the submission of proposals from the prime contractors.

We do not expect CROWS III to be into production any earlier than the end of 2012. This also impacted us in 2011 and as a result our overall fiber optic gyro business was off by 44% for the year.

KVH has just completed a very significant product development effort using a new technology to draw thinner polarized fiber used in our gyros. Since we make our own fiber our research team was able to develop a new process and a thinner coding that allows us double the amount of fiber that will fit on a given sized gyro.

The length of the fiber in the gyro directly influences accuracy. So, with the new thin fiber and smaller gyros, we end up with better performance than any other gyro in the market in this size.

The first product using this new thin fiber technology, the DSP-1750 was introduced early last summer. It is exciting new product, it is less than 1.75 inches in diameter, just over a half inch high, enabling us to go after new applications that need smaller and lighter gyros, including directional drilling, stabilization of optics, night vision devices and cameras, system padrones[ph] and other autonomous platforms and end-u[ph] Augmented Reality Systems for overlaying data on real world imaging.

So even though the 1750 is the world’s smallest precision fiber optic gyro, we are already producing it in quantity and have good production yields. It has been selling well in small unit orders as customers test the products with their specific applications.

Due to the lengthy design cycles, common with the types of sophisticated products that use these gyros, we have yet to see meaningful contribution of the 1750 to our sales. I don’t foresee this ramp beginning until late in the second quarter.

We also plan to use this technology to develop a full range of higher level modules including inertial measurement units and our inertial NAV systems.

In summary, our overall financial results for the year understate the encouraging progress we have made in positioning KVH to achieve our ambitious growth objectives. On the satellite side, we will accomplish this by continuing to grow our maritime VSAT market share as the market shifts away from legacy Inmarsat services towards the new class of global VSAT service.

On guidance and stabilization side of the business, we will continue to win long pending orders from our TACNAV systems, maintain our favorite vendor relationship with important FOG customers and broaden the base of our business with our new small high performance 1750 product line, which will help reduce dependence on single large programs like CROWS.

KVH continues to be financially strong, we have invested in product development and infrastructure needed to support the important growth opportunities in the maritime broadband and in guidance and stabilization markets. Well also supporting our core satellite TV and TACNAV products.

And I’ll turn the call back over to Pat to go over the numbers, Pat.

Thank you Martin, I will start with the summary of Q4 revenue by business. The total VSAT business was approximately $11 million of which airtime services was about $6.1 million.

RPU for by the megabyte[ph] plans increased a bit into the range of $500 to $700 per month. While fixed rate plan RPU was stable at about $1800 to $1900 per month.

The (inaudible) units sales for VSAT systems for the quarter was roughly 35% V3 and 65% V7. Other marine SATCOM revenue, including TV systems and Inmarsat systems in airtime was $4.5 million.

VSAT revenue increased 52% year-over-year, while other marine SATCOM declined 12%. Land SATCOM was $1.9 million down 11% year-over-year.

TACNAV revenue was $8.4 million up about 350%. FOG was $5.2 million down 49% year-over-year.

Other guidance and stabilization products and services was $0.9 million up 70%. Gross margin was 42.2% and 160 basis points better than Q3.

This was in line with our expectations and reflects the strong TACNAV product shipments and continuing improvements in production efficiency across the company. Total services gross margin improved sequentially 150 basis points.

The gross margin for VSAT airtime was only slightly higher than in Q3, but this was as expected. Due to the fact that the fourth quarter brings relatively high level of seasonal suspensions.

The VSAT airtime revenue and cost were about equal to the third quarter.

We expect to see the revenue and gross margin for VSAT to move upward again in this first quarter. The gross margin for other services including NRE, that’s Non-Recurring Engineering, repairs in MARSAT airtime was about equal to the Q3 level while revenue from these services increase sequentially about $0.3 million.

Operating expenses were up 24% year-over-year and 15% sequentially. The increase was driven primarily by variable sales cost associated with the large TACNAV shipments in the quarter.

Engineering expenses increased 8% year-over-year while sales and marketing spending increased 38%, administration spending increased 15% year-over-year due to staff additions and cost per country-specific regulatory approvals for network operations. Through the year, we continued to aggressively invest in new products and sales channel support for each of our strategic growth businesses.

We reported a significant tax benefit for the quarter. This was primarily the result of investment tax credits for facility and equipment investments that we completed before year end.

On the balance sheet, cash and marketable securities were $30.6 million, cash flow from operations was approximately $2.6 million. EBITDA adjusted per equity compensation expense was $3.1 million and EBITDA margin was 9.7%.

During the fourth quarter, we repurchased 175,000 shares of stock using $1.4 million of cash. For the year, we repurchased approximately 458,000 shares using $3.7 million of cash.

Accounts receivable increased sequentially to $28 million. Day’s sales are outstanding with 73.

This receivables balance was significantly affected by the late quarter timing of the large TACNAV shipments. These shipments accounted for more than 15 days of receivables.

We have now received full payment for those shipments.

Inventory decreased sequentially to $18.6 million, this is attributable to the strong product shipment level during Q4 and to continuing adjustments with the inflow of vendor materials. Capital expenditures were $6 million for the quarter and just over $14 million for the full year.

We completed the construction of our new integrated manufacturing and warehouse facility in Rhode Island. This facility will provide the opportunity to drive production efficiencies higher and improve inventory returns.

As of the end of December, we had drawn $9 million on our line of credit to support the construction project. Before the end of this quarter we expect to finalize mortgage financing for this property.

Backlog for guidance and stabilization products and services at the end of December even after shipping the large TACNAV orders was $20.3 million up almost $8 million compared to the September level.

Turning to our outlook for 2012 in the first quarter, many factors are contributing to the fact that future visibility is no better than it has been for a long time. Global economies continue to be uncertain, governments are dealing with large budget deficits and customers in all markets continue to be very cautious with purchase decisions, yet this will not deter us from our commitment to be aggressive in the execution of our strategic plan to drive long-term revenue and profit growth.

For the year, we expect the VSAT business will continue to show strong year-over-year growth because the base of business is getting much bigger. The percentage growth rate is expected to be a bit more moderate than what we saw in 2011.

However; the absolute dollar growth is expected to exceed what we saw in 2011.

The FOG business is expected to return to solid growth by the second half, driven by many new customer applications and should be entering production over the next couple of quarters. TACNAV revenue is expected to be down year-over-year primarily due to the unusually large shipments that were made in Q4 2011.

Since defense business demand for TACNAV products can be very lumpy and timings uncertain we are being cautious in our planning. We are also continuing to be cautious with respect to our outlook for satellite TV systems demands from the leisure markets.

On this basis we expect that revenue growth for the year will be in the range of 10 to 15%. The expected full year operating margin will be approximately 5% with the second half being stronger than first half.

During the first half of the year we will invest in the launch of our new TracPhone V11 dual band satellite antenna system and in the infrastructure for the C-band network capacity. Although, this would put pressure on margins during Q1 and Q2, we expect to see a rapid recovery in Q3 as the gross profit from the B11 product sales rapidly offsets the cost of the new network infrastructure.

Total company gross margin for the year should show modest year-over-year improvement and we are striving to hold the absolute level of operating expenses about flat with the 2011 level. We are projecting a significant change in our effective tax rate and expected could be 38% or higher.

EBITDA margin adjusted for equity expenses is expected to be approximately 12% for the year. First quarter revenue was expected to be in the range of $25.5 million to $28.5 million, a rough about 5 to 17%.

The VSAT business should continue to show strong year-over-year growth including the solid sequential increase in airtime revenue. However, we expected falling in TACNAV sales could experience year-over-year decline of about 25% and 50% respectively.

Although, operating margin in Q1 should be much improved compared to Q1 2011. We expect to report a net loss in the range of $0.3 to $0.9.

We expect a return to profitability in the second quarter. Our future is bright and we are confident in our strategy.

As we saw in the quarter just ended there is tremendous operating leverage with our business model and as the business continues to grow we expect to see substantial future benefit on the bottom line. Now, we will take your questions.

Jeremy, will you open the call for questions?

Good morning gentleman.

Hey Chris.

Congratulations on the new V11 service, I heard some pretty good feedback from the channel. In the near term; however, can you give us an idea path of what we should be modeling in terms of incremental operating expenses for that system and when you expect to turn on the C-band transponders and start picking up all the costs.

Yeah. I am giving you a general sense Chris.

Obviously, there is a fair amount of development effort that is going into the products, which is part of our R&D expenses on a regular basis, but that is going to be a meaningful piece of our engineering effort for the first and second quarters.

In addition to that, we are going to be investing in a good deal of marketing and sales channel development to make sure that everyone in the channel is prepared for the product and the service as it is coming to market. We will have advertising in various supporting collateral through all of that and so you can expect that those types of things are going to be ongoing now either in, we are doing some of them now and we will be doing more and more over the next couple of quarters, prior to the launch.

The actual shipments of the products which should occur right around midyear and you will see those kinds of expenses in our operating expenses, engineering and sales and marketing primarily. There will be some cost certainly associated with license approvals for the C-band capability on a worldwide basis.

And in addition to that we are also going to be putting the satellite capacity in place during the course of the second quarter. Our expectation is that this capacity will probably cost roughly, two thirds the cost of an equivalent.

Our Ku-band region and so if you recall back to some of the information we talked about in the past, the Ku region costs us about $1.5 million per year in terms of satellite capacity cost as well as depreciation of hubs and also teleport costs and then the support that goes with it. And those costs all appear in our cost of service.

Those types of parts for the C-band network I mentioned will be about two thirds that level, will be three regions around the world that make up the entire network and those will begin to kick-in in the second quarter. And so I will be building cost into the model on the operating expense level, starting now on the cost of service level beginning in the second quarter and then as Martin said, in his comments, we expected by the second half of the year, the product sales alone will be roughly offsetting the incremental cost associated with this effort.

But that during the course of this year, the C-band and the V11, they won’t be having a negative impact on the bottom line but they probably won’t contribute a lot until early 2013.

Okay. So you think 6 months to get the breakeven on the network cost and that’s based presumably on the backlog that you have in place?

Well we will probably be in. If you think of breakeven is at the gross margin level we will probably be there by the back half of this year.

In terms of contributing strongly to the bottom line of the company is what I am talking about and that is probably during the first part of 2013.

Okay. Did you give a CapEx forecast for the year?

For this coming year?

Yeah.

I did not give one but I will. I would expect that it is going to be probably in the range of 7 to $9 million.

They are not significant costs to roll out hubs for the C-band?

No. There would be 3 hubs so that will be a good portion of that $7 to $9 million.

But we expected the CapEx for the year will be much closer to more normal levels of operation as we go forward.

And you give a lot of numbers on the call, I didn’t quite wasn’t able to ask ascertain, was the leisure business actually up this year or was it down?

The leisure business was down. When you think of leisure business we think of it primarily as satellite TV, but also again as Martin mentioned in MARSAT systems that we resell, we are down dramatically.

I would say that our sales in MARSAT systems were probably down more than 50% on a year-over-year basis.

TV system sales were down in the 10 to 15% range for the year and that was pretty consistent beginning in the first quarter. And as you recall that was a bit of a surprise to us back then, because last year sales had increased, 2010 sales had increased a little bit.

We thought might continue and in fact things turned. But they haven’t gotten any worse.

They have been in that 10 to 15% decline range now for the last three or four quarters.

And a final one, I will be back in the queue. Can you give us a sense of the breakdown this year on the commercial versus defense, or really the CROWS FOG sales?

I have that. CROWS for the year was probably $6 to $7 million of our total fiber optic gyro revenue of about $22.5 million for the year, so about a third and the rest of it is other combination of commercial as well as other defense programs.

Okay. When you say CROWS, I know you just picked up a couple million dollar order from somebody other than Canonsburg.

Is that inclusive of all CROWS type programs?

I think Pat was talking about last year, if you’re asking that percentage should decline next year because we expect the FOG business to start growing again in 2012 and we expect the FOG, the CROWS piece to be relatively flat.

Okay. Very good.

Thank you.

Okay.

Thank you. Pat, just wanted to clarify what you have said about FOG growth expectations in 2012.

I think you said TACNAV down 50% but did you say FOG down 25% or did I mishear you?

In the first quarter.

Oh, in the first quarter. I see.

I was only referring to the first quarter.

Got you. But for the year you would expect some FOG growth?

We expect FOG will grow double digit growth. We expect it to return to solid growth.

TACNAV on the other hand, we do expect right now we are looking at down year over year for the full year. However; we do have some opportunities in the TACNAV area that if they materialize, which we hope that they will, that could change significantly.

Could you give us any color on those, I know you haven’t faked them in the guidance and they are tough to predict when they might happen, but can you give us any sense of magnitude or number of opportunities out there on the TACNAV front?

Well, we’ve got - there is one I mentioned last time there was a follow on to an order we had already, so it’s an existing program but it’s a foreign military sale and those are particularly difficult to forecast. So, it could have an impact this year, potentially the largest in the $10 to $20 million range.

Okay. So you said $10 to $20 million?

Yes.

If you got that program.

Correct, yes. So I think you are asking to put a sense of the scale of the program?

Yes.

Right.

So that’s pretty huge in the context of the run rate of that business?

Yes, it is. But last year it was, I think the TACNAV business off the top of my head I want to say around $17 million, something like that.

Just about $17.5 million for the year.

So, we would not be any consistent with what we saw in 2011. So, it would definitely help.

Okay. And then Pat, I wanted to try to better understand the ARPU, I wonder if you can just give the two ARPU numbers you gave?

And then, I guess, as a follow-up, is there anyway to think of that as the blended total ARPU or is that just kind of too tough to look at it that way?

You can look at it that way.

Let me just comment on that for a second. The reason that we are breaking it out is just to be clear that the meter plans as we expected we are going to have a different ARPU than the fixed monthly plan.

And we didn’t want to make it seem like the V7 ARPUs were dropping because we introduced a new product called the V3, that’s all. So we are reporting both numbers now.

Right.

So the meter plans or the pay by the megabyte which are the only way we sell airtime services with the V3. However, you can get meter plans with the V7 but it’s a fairly small percentage of those systems that have meter plans.

So when we refer to meter plans you shouldn’t think of it as exactly equal to V3 but it’s a close approximation. And the range there right now is in the $500 to $700 per month ARPU range.

The fixed price plans which are only sold with the V7 and then will also be sold with the V11 when that comes to market, the ARPU for those is still is running in the range of $1,800 to $1,900 per month. So as the business continues to grow, the blend of the business will be a mixture of those two types of plans.

Right now, even though our current sales in new systems are approximately one-thirds, two-thirds V3/V7, that is not the profile of our base of business because obviously we have been selling the V7s for the last four years whereas the V3 is only been in the market for last three quarters.

Another thing we should point out is that the V7 is expected to have - we haven’t announced pricing for the airtime packages yet, but our expectation is that the ARPU should be a third higher than the V7. So there will be incremental charge for the V11 airtime packages, so that’s going to be helping to drive ARPUs up.

Great, that’s helpful. And then on the V11, you mentioned you had - it sounds like a pretty good.

As we syndication of interest there, I am not sure if they are firm orders at this point, but could you give us any color on what kind of visibility do you have to the V11 ramp in the back half based on current dialog with customers?

Well, I’ll give you one specific example, one of our bigger customers that we announced last year was Vroon, they have a fleet of 125 vessels, they have committed to approximately 25% of their fleet would be V11 as opposed to V7. So, what we are seeing is to address some of the larger fleets that have mix, where they have LNG tankers and car carriers and all kinds of different ships, they need a mix of solutions.

So, it’s really instrumental for us to be offer all different solutions ranging from the V3, which is a very small product then the V11. So now when we talk to the larger fleet managers it is great to be able address all their needs and not force them to go talk to our competitors for some of their requirements.

Right. Okay, that’s helpful.

Thank you.

Yes. Jeremy, could you go on to the next question please.

Gentlemen, I was running the numbers here. Did you break through 300 units shipped in the quarter?

No, we are still in - I think our average is still in the sort of 250 range, some quarter it’s a little bit below, Q4 is a little bit below that, we expect Q1 to be a little bit above that. So I think that’s an ongoing steady ramp.

But you still should think about in that general range. So, unit shipments were up 94% for the quarter but that includes V3, which was I want to say a third or maybe 40% of that number, and we didn’t have V3 a year before.

So in Q1 you should see another big year-over-year job because there was no V3. And then you expect the percentage increases to decline over the course of the year because now you are looking at quarters we did have the V3s in place.

And then the V11 of course will be incremental, stating in Q3.

Okay. And the seasonality in this quarter, where the percentage of suspension is similar to what they were last year?

Actually, yes. We did a very good job this year actually of forecasting the temporary seasonal suspensions which we did not do a very good job a year ago and we are a little bit surprised.

But this year, given that experience, we did have a very good projection, it came in pretty much right where we thought it would, which was in line with what we saw last year. And as we saw last year the number of suspensions began to drop pretty quickly as we got into the month of January.

So, all of that played out pretty much as it had last year and as we had forecast for this last quarter.

And the net impact of that if I remember last year was about 10% sequential drop in the ARPU on a like antenna basis?

Yes, last year we had two factors in play, Chris. One was, if you recall the Gulf oil spill in the third quarter actually gave us - 2010 actually gave us some incremental airtime.

We knew what the airtime was before, we weren’t thinking of it as incremental with the time. And then the other thing was the seasonality.

So we did see a step down in airtime a year ago, 2010 from Q3 to Q4. This year we actually saw, never saw modest increase on a sequential basis Q3 to Q4 in terms of airtime revenue in spite of the fact that the seasonal suspensions were quite high.

So airtime was no lower than it was in Q3 but think of it as if it went side ways more than anything.

Okay.

Now we expect it to step up again in the first quarter.

And did you give the number of units in service at the end of the year?

We did it, but it’s approximately that three to six-month lag. So we have said that we sold approximately 2000 systems as of now with an average of roughly 250 per quarter you can assume that it’s - the number of active systems is about - something approximately 400 to 500 systems less than that total sales quantity.

So around 1,500.

Okay, great. And final question on the CROWS, the $7.6 million you got, was that against CROWS II and has there been a move to increase the size of that contract to cover the stub period here before CROWS III finally gets inked in to a contract?

Yes, it’s partly for CROWS II, but it may also be for other programs, so we don’t have perfect visibility. Obviously, we know who the customer is, but we don’t know their final end use, but it definitely includes CROWS II.

And no, to my knowledge there has been no increase in the CROWS II program recently.

Okay. And do you recall how much is left remaining under CROWS II in terms of dollars?

It was actually a pretty - it was surprisingly large amount, so I think more than enough to cover the rest of this year.

Okay. And the budget is out today I haven’t had a time to any chance to thumb through it yet, but if recall correctly the CROWS program was never really a line item within the budget?

I think that’s true. I don’t know whether CROWS III will be a line item or not.

That won’t be till ’14 anyways. Okay, great.

Thank you, gentlemen.

Thank you.

Alright, thanks.

Okay, great. If you have any follow on questions, please call (inaudible) myself directly or you can email us at [email protected].

Thanks.