KVH Industries, Inc.

Good morning, everyone. 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 third 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 -- excuse me, in our annual report on Form 10-K filed with the SEC on March 8, 2012. The company’s SEC filings are directly available from us, from the SEC, or from the investor information section of our website.

Now, I will turn the call over to Martin for today’s discussion. Martin?

Thanks Pat, and thank you all for joining us today. Overall, Q1 came in about where we expected and we're within the range of our quarterly guidance.

First quarter revenue was $26.7 million, which is up 10% from the first quarter of 2011.

Our VSAT sales were extremely strong with unit shipments up 120% year-over-year. We're also seeing improving momentum in key commercial markets.

Airtime sales were very strong for the quarter and the increase in the service gross margin shows the leverage potential we have in our operating model.

We are also beginning to see recovery in our satellite TV business, which is encouraging. This growth in the satellite business offset a 32% year-over-year quarterly decline in our guidance and stabilization business, part of which was anticipated due to the normal, uneven nature of our military navigation system business.

But for our FOG products, we seem to be caught in a product transition cycle and sales of existing DSP-3000s are not as strong as they had been and sales of our new product the DSP-1750, which are being designed into products by key OEMs, are not going into production as fast as we had hoped.

So, overall, revenue was a little below the midpoint of our guidance and this was due entirely to the slow FOG sales.

Pat will go over the numbers in detail. So let me go over the progress in each of our major business areas.

Starting off with our Satellite business, as we discussed in our last conference call, providing broadband connectivity to offshore vessels is one of the major opportunities that will fuel KVH's growth. We're very excited about how well we're doing in this market.

Our first quarter revenue for mini-VSAT overall grew 61% compared to the first quarter of 2011, and our unit sales, as I mentioned, increased 120% year-over-year.

When we started building out our mini-VAST network four years ago, we were one of about 70 companies competing in the VSAT space. Now, we're not only the fastest growing, but we have the number one marketshare in maritime VSAT, according to figures just released by the leading market research firm in the satellite sector.

As we have gained market share, we've also gained credibility. Outfitting a fleet of vessels with mission critical communications gear is a major decision, one not taken lightly by users in our industry.

So with each new customer win, we gain further credibility to make it easier for people to try our new service. All indications from our sales pipeline are that our marketshare lead will continue to increase in 2012.

This past quarter, 3 major commercial maritime companies in different segments of the market, conducted extensive head-to-head tests comparing the quality and value of the various maritime satellite services, and all of them selected KVH. These companies included V.Ships, the world's largest independent ship manager serving a fleet of 1,000 vessels, a major engineering and dredging customer in Holland, and just recently, one of the largest Japanese shipping companies selected us for over 100 of their containerships.

With a solid customer list and the number market share position, we're able to position mini-VSAT as a solid alternative, not just for maritime VSAT, but for the larger category of marine communications in which Inmarsat currently has the biggest share.

As we have mentioned in the past, the total addressable market for our VSAT solutions is around 250,000 vessels globally. Although we are pleased with our progress, we have lots of room to grow.

During Q1, we also announced the expansion of our global network, to include 95% of the surface of the Earth. We will be adding a C-band overlay to our KU-band coverage, and introducing the new dual mode TracPhone V11 terminal, enabling us to deliver our mini-VSAT broadband service to vessels no matter where they operate.

100% of the world's shipping, fishing, and major oil and gas regions will soon be covered.

The addition of our C-band coverage overlay requires 3 global beam satellite transponders and 3 new hubs. We have already taken delivery of the new hubs and expect that they will be brought online for testing in the second quarter.

Our new TracPhone V11 should begin revenue shipments in the third quarter. This new product and service will allow our global customers to select from a complete range of communication solutions, everything from the world's smallest and most affordable marine VSAT, our TracPhone V3, to the world's only fully global maritime dual band VSAT, our one meter TracPhone V11.

We designed our mini-VSAT broadband service with a full range of onboard terminal, as well as, both metered and fixed airtime service plan, providing tremendous flexibility to meet the needs of almost every group of maritime customer.

Strategically, the V11 gives us independence from having to use competitive systems like Inmarsat for out-of-coverage areas. We now have a solution that works everywhere and doesn't need any L-band backup.

This surprised Inmarsat, who recently announced that they would raise prices dramatically for occasional use customers, thinking that this would make VSAT and L-band combined packages prohibitively expensive. Instead, we anticipated the need for a backup capability, and we now have a stunning solution.

So rather than harm us, they simply annoyed most of their once loyal customers. This move has created a lot of turbulence in the market and has driven many leads our way.

To capitalize on this unrest during the coming quarters, by attracting unhappy Inmarsat customers to our mini-VSAT broadband service.

In addition, to gaining momentum on the sales side, we are also making progress on our VSAT airtime operating margins. As expected, steady subscriber growth is helping increase both our airtime revenue, which grew 59% this quarter, and also to improve our gross margins.

In Q1 a year ago, airtime margins were in the low single-digits. In this year in Q1, they were in the high 20s.

So the good percentage of our network operating costs are relatively fixed. Business from additional subscribers translates the increasing margin, as well as increased revenue.

We are also pleased to see increases in our ARPU's, both for our fixed rate plan TracPhone V7s and our metered plan TracPhone V3s during the quarter.

Another encouraging result in Q1 was that our maritime satellite TV business was up 19% year-over-year, due in part of sales of our new TracVision HD11. As we previously mentioned, the marine leisure market has been hard hit during this multiyear rescission, and if Q1 was an early indication of recovery, that will be a great news for our marine business.

We hope this is the beginning of a bigger trend.

Now, moving on to our guidance and stabilization business. In the first quarter, our guidance and stab revenues were $5.9 million and that's down 32% year-over-year.

Most of our navigation and gyro business is defense-related and program-based. Orders tend to be large and irregular, the variations from quarter-to-quarter are not unusual.

For example, last quarter, the fourth quarter of last year, we shipped a major TACNAV order. And Q4 was one of the strongest quarters we have ever had for our TACNAV product.

In Q1, TACNAV sales were down 44% year-over-year, which was in line with our expectations. Looking ahead in 2012, we are optimistic that additional TACNAV orders are in the pipeline, will be received, and contribute to more stable base of revenue for these products.

We were, however, disappointed in our fiber optic gyro sales, which were down 50% from the same period last year. In addition to lighter than expected sales of our older DSP-3000 model, we are yet to see significant sales from our new 1750.

Customer reaction to this new product has been very good. It's one of the smallest fiber optic gyros in the market and its performance exceeds our original design goals as well as any competing gyro in its class.

It performs even better than our own DSP-3000, which is much larger. However, we appear to have underestimated the amount of time it would take for customers to adopt the DSP-1750 into their new and existing platforms and start placing volume orders.

So even where it's designed in, the end customer systems are not yet in volume production. However, we do expect the DSP-1750 volumes to ramp later this year.

Sales of FOGS for remote weapon station applications continue to be an important source of business and have been in line with our expectations. We believe we are well positioned to be the primary gyro supplier for the U.S.

Army's CROWS III program, which could be a significant amount of business for KVH. Bid for this program were due at the end of March, and we do not expect the program to be in production until later this year at the earliest however.

In addition, in developing new and standalone gyros like the 1750, KVH is also investing to develop a higher level Inertial Measurement Unit module based on the DSP-1750 design. Now IMUs are more easily integrated into customers' applications and individual gyro components, which we anticipate will result in faster sales ramp.

We expect to announce the details on this exciting new product in the coming months.

We are still very comfortable with our strategic position and our product line plans and our guidance and stabilization business. In fact, we are integrating FOGS into a new TACNAV system for a major customer for delivering the first system during Q2.

We also have a stronger backlog going into Q2 than we did in Q1, so we expect to see solid sequential improvement in FOG sales this quarter.

Looking further ahead, we are optimistic that further TACNAV orders this year could actually make up for the FOG shortfall we experienced in Q1.

So in summary, we are very pleased with the progress we made in the first quarter. Our marine TV business is showing signs of growth, our VSAT business is growing very rapidly, and our airtime business is not only growing quickly but increasing its profitability, as we're able to leverage the infrastructure.

This quarter, we really find evidence that we are winning the maritime VSAT competition, gaining credibility, and that our business model is working.

I'm particularly pleased that some of our recent big VSAT wins were open competitions where the customer looked at all the alternatives on the market and, after careful evaluation by sophisticated users, selected us.

Looking ahead, we expect continued strong performance in VSAT and expect solid sequential improvement for our FOG products. The second quarter fiber optic gyro backlog looks relatively healthier, although we still need to book a number of new orders for Q2 and the rest of the year.

And although we have not factored major TACNAV orders in the guidance, we do continue to have some upside potential with foreign customers.

I'll now turn the call back over to Pat to review the numbers in more detail. Pat?

Thank you, Martin. The following summarizes our Q1 revenue by business.

The total VSAT business was approximately $12.7 million, of which airtime services was about $6.8 million and increased 59%. Total VSAT revenue increased 61% year-over-year.

ARPU for by-the-megabyte plans increased a bit to the high-end of the $500 to $700 per month range, and fixed rate plan ARPU also increased to the high-end of the $1,800 to $1,900 per month range. The mix of unit sales for the quarter was roughly 40% V3 and 60% V7.

All other marine satcom revenue, including, TV systems and Inmarsat systems and airtime was $6.3 million. Within that amount marine satellite TV sales increased 19%, while sales of Inmarsat L-band satellite systems declined close to 50%.

Land, satcom, and aviation system maintenance services combined was $1.8 million, down 11% year-over-year. TACNAV revenue was $1.1 million, down 44% year-over-year.

FOG was $3.1 million, down 50%. Other guidance and stabilization products and services was $1.7 million, up over 200%.

Gross margin was 37.2%. This was a little below our expectation due to the shortfall in FOG revenue, and the absolute level reflects the relatively low level of overall TACNAV and FOG product sales.

The variable margin impact for FOG production, especially, is relatively greater than what we experienced with our other products.

The gross margin for VSAT airtime increased to approximately 28% for the quarter, up from only 4% one year ago. In fact, the marginal gross profit that was earned on the incremental year-over-year quarterly revenue exceeded 65%.

This is indicative of the beneficial leverage effect within our mini-VSAT business model. As expected, we also saw a meaningful sequential increase in airtime revenue, which led to a sequential gross margin improvement of about 900 basis points.

Although we should see another sequential margin increase in Q2 for VSAT airtime, the increase will be much more modest, as we will begin to deploy the C-band global network infrastructure later in the quarter.

Revenue and gross margin for other services, including non-recurring engineering services, repairs, and Inmarsat airtime, were about $2.9 million and 68%, respectively. These were much higher than normal.

We expect that Q2 will reflect more typical levels of revenue and gross margin for these other services.

Operating expenses were up 3% year-over-year but down 8% sequentially, about in line with our expectations. By function, engineering expenses increased 6%, sales and marketing increased 3%, and administration spending increased 1%, all on a year-over-year basis.

We have begun to prepare for the launch of our new TracPhone V11 system and global C-band satellite network coverage. Although this will require new spending in each operating function, we still expect to hold near-term overall operating expenses about flat with the Q1 level.

We reported a small tax benefit for the quarter. This included a $0.4 million tax expense relating to discrete tax shortfalls associated with equity grants that almost completely offset the tax benefit relating to the pre-tax loss.

On the balance sheet, cash and marketable securities were $31.3 million. Cash flow from operations was approximately $5.1 million.

During the quarter, we reduced our overall loan balance by $2 million.

EBITDA, adjusted for equity compensation expense, was $0.7 million and EBITDA margin was 2.6%.

Depreciation and amortization expense was $1.1 million and equity expense was $1 million.

Accounts receivable was $18.4 million and days sales outstanding decreased to 62. Inventory decreased to $1.1 million, sequentially, to $17.5 million.

Much of this improvement is attributable to the consolidation of our satcom manufacturing and warehousing in our new Rhode Island facility.

Capital expenditures were $2.2 million for the quarter. We expect that CapEx for the year will be in the range of $7 million to $9 million, including 3 new hubs for our C-band network.

Backlog for guidance and stabilization products and services at the end of March was $21.4 million, up about $1 million compared to the December level.

Turning to our outlook for the second quarter and the year, external factors such as the economy that contributes the future visibility have not changed materially in recent months. However, we have growing confidence in the strategic and operating progress that we're making and in the new products and services that we are bringing to market and in the strength of our competitive position.

Second quarter revenue is expected to be in the range of $28.5 million to $32 million. The VSAT business should continue to show solid year-over-year growth, although at a lower percentage rate than in recent quarters due to the fact that during Q2 2011, we shipped a sizable backlog of our then-newly introduced TracPhone V3 System.

That boosted the Q2 2011 system sales somewhat. We expect that year-over-year mini-VSAT airtime revenue growth will continue to be strong.

Satellite TV sales to leisure marine markets should show a seasonal increase when compared to Q1.

FOG sales should rebound from the low Q1 level, but could still show a year-over-year decline of $1 million or more.

TACNAV sales should be up modestly compared to Q1, but down substantially compared to Q2 2011, when we shipped a single $3.5 million TACNAV order.

We expect gross margin to approach 40% and operating expenses to be about in line with the first quarter level. We expect that tax rate to be 38% or higher and potentially still subject to the effect of unforeseen discrete events.

Based on these assumptions, we expect Q2 EPS to be in the range of $0 to $0.06 per share. Our guidance for the full year is unchanged.

We expect overall top-line year-over-year revenue growth to be in the range of 10% to 15%, operating margin to be approximately 5% for the year and EBITDA margin adjusted for equity expenses to be about 12%. We will continue to focus our energy on executing our strategy to drive long-term top and bottom line growth.

Now, operator, we would like to open the call to questions please. Thank you.

Martin, as far as responding to Inmarsat's raising of fleet broadband prices, obviously not everyone is going to out and buy a new V11, though that's an elegant solution, if you already have a V7 or a V3, I presume you probably don't want to do that. So I'm wondering what you're thinking about for those customers, if you looked at using other backup solutions, like maybe an Iridium or potentially actually subsidizing the V11 to make that more attractive to them?

Yes, that's a great question. So, in fact, a couple of months ago we did enter into a partnership with Iridium.

So we actually have a very affordable backup solution for V3 and V7 customers who want occasional use coverage. In fact, some of our bigger customers like Varun and this new Dutch company that we just signed up elected to use Iridium rather than Inmarsat.

So that is a very nice solution. And, as you know, they have true global coverage even at the pole, so if you want occasional use backup system, it's a great alternative and we're offering that.

How about this sort of perhaps subsidizing V11s upgrade?

Since the product is brand new, we're not looking at subsidizing it just yet, but we do offer currently with our V3 and V7 leasing programs and -- in effect, what we end up doing is bundling the airtime and the hardware so it's somewhat fungible which is airtime and which is hardware. So we try to get to the monthly expense number that the customer is trying to get to, and we have more flexibility since we're a one-stop shop with hardware and airtime.

We're able to sort of tailor the monthly payment to what the guy can afford.

Great. And last call you referenced which sounded like a pretty sizable initial and the of course it's one order, but demand level for the V11 you had some the first, pick a number it sounded like 25, 30 units spoken for, for the V11 as it starts shipping in the third quarter.

Can you talk about if there has been any pipeline development since then, have you either secured any additional sales or just how that pipeline has developed for the V11?

Yeah, we haven't really made any significant progress in terms of building firm backlog, which is not surprising. So what we're doing is, we have the initial customers lined up and we plan on starting testing next month and delivering units in Q3.

So, we're pretty comfortable with what we have in our forecast for V11. But typically, the way this goes, and we went through with the V7 and then we went through with the V3, the process is you have to get a unit on one vessel for a trial.

And there is just no shortcutting that in this industry. So, we didn't expect to go out and get an order for a couple hundred units, but what we have done is gotten of lot of interest in people who want immediately to start trials, so -- and that's exactly what's happening.

Okay. That's helpful.

And then, with respect to the guidance and stabilization business, you can correct me if I'm wrong, but it seems like to get your annual target for revenue growth, you're going to need to see that business moves towards the $10 million per quarter level in the back half of the year. And you indicated in your prepared remarks that you -- a lot of orders you need to secure to sort of meet not just Q2 but the sort of the balance of the year it sounds like for that business.

So, just wondering what kind of visibility you have to that kind of ramp in the back half, if in fact that's what you're taking into your, your overall revenue guidance for the year? Thanks.

Right. Yes, so I think you're correct.

But we do, we're anticipating significant ramp in the back half of the year. But if you look at the guidance and stab business overall, we have a TACNAV business, we have the engineering business, and we have the FOG.

So, between the three of those components, we're pretty comfortable with the full year picture, although the mix might change a bit. So, we think that we -- potential softness in the FOG might be offset by potential upside in the TACNAV.

So, right now as a blend, we don't see any change from our original guidance for the year. And also we think that Q1 was a pretty big anomaly from the historical sales pattern for FOG over the last 5 years.

So we don't expect that to continue in, even in Q2. So it was just a very low quarter in, in Q1.

You've referenced on the last 2 calls, I think, the prospects for some large TACNAV orders that are out there. Any updates on any of those in terms of potential timing of those awards?

No, I don't have any specific updates. But as time marches on, you get closer to the -- when you expect these orders to actually happen.

We still expect them this year, how much of that would be this year revenue. There were a couple of large programs that we're working with existing customers in order of selling vehicles and we're part of those programs.

So -- and in addition, some of this business is international, which is even further difficult to predict time wise. So right now those contracts are not in our guidance, but they're sort of risk mitigation elements and upside for the full year.

Great understood. And then sure one final one if I could, Pat, could you give the -- you may have given the cash flow from ops and CapEx numbers and D&A numbers for the quarter?

Yes, the cash flow from operations was $5.1 million. Depreciation and amortization, $1.1 million.

And I also gave the equity expense number for the quarter, which was $1 million.

Okay. And what was CapEx?

Well, CapEx, I'm sorry, $2.2 million.

Just to confirm on the year-over-year unit shipments, am in the ballpark if I'm looking at about 350 antennas shipped in the quarter?

The run rate that we've been getting to you last year was approaching, sort of, 250 a quarter, I think. We're now moving above that.

But I don't think that you should assume 350 as a run rate, I think that's a little bit on the high side, so...

1 or something.

So it's still, the majority of our sales are still V7, which is really a strong positive because it was some concern outside the company that the V3 might cannibalize V7 and we'd end up with lower ARPUs and things like that. So it's actually working out quite well.

Okay. Did I understand correctly that you think shipments will be up sequentially, unit shipments partially driven by seasonal demand?

Yes. Yes, absolutely.

Okay. And do you also have any sense that you can give us of where those units are getting installed in terms of types of vessels, either leisure versus commercial or type of commercial?

Yes. I mean, the nice thing about our business model is we know exactly where they are going.

We know the owner of the vessel, we know everything. So, the majority of the units are commercial, probably 10% to 15% of our business is leisure, something like that now.

So the commercial accounts range from large fleet shipping companies to oil and gas, workboats, tugboats, really the full spectrum of maritime vessels.

Okay. And the strength you experienced in the quarter, I know Inmarsat made the announcement earlier this year of the price increase, but I don’t think it goes into effect until next month.

Right.

So, is it fair to assume that you probably haven’t yet seen an impact of customers making the shift?

That’s true. So, it wasn’t outlaid in the quarter and these things take time to ripple through.

But the reaction has been swift and immediate. There has been a lot of negative press in the marine industry, including magazines like Digital Ship, where there is -- and there have been industry writing letters of concern, because partly Inmarsat has services that are mandated so people have to use some of their services by regulation.

So people are not happy. So, a little bit of a Netflix moment for Inmarsat, for they have managed to annoy a lot of people all at once.

Okay, and I was actually going to ask about the GMDSS requirement. Is that something that you could in some way eventually get certified, which would really unhinge the sort of monopolistic position they have for those types of units.

Right. I think with the V11, we have a good shot at getting GMDSS.

I think that that’s something that we're looking into applying for GMDSS certification, because it has same or better coverage than Inmarsat and it has dual mode capabilities, so that you have redundancy, both spatial redundancy with different satellite in view, you're not single-threaded in any area, so it’s probably something that we are going to take a hard look at.

Okay. And what about with the Iridium solution, have they applied for GMDSS?

I believe they have.

And if I remember correct, this is a bit of the multi-year process?

Right.

Inter governmental organization.

Yes.

You also announced recently a new customer in Boatracs. Can you talk to us about that relationship?

It's part of our strategy, is to expand our distribution network, so we are looking at ISPs who are selling competitive products. And one of the things we are looking at, for example with this price increase from Inmarsat, is to look at their resellers, their ISPs, because we have a nice value proposition in the V3, most of their business is metered, meaning they're paying by the megabyte.

So, we have an opportunity to wholesale megabytes to these resellers where they can make a lot of margin and still be very competitive on price.

Boatracs is another example of a company that has a nice installed base; they have been in the marine business for long time. So, they are a reseller going back at their customers who had low speed tracking and reporting capability and now looking to upgrade to broadband and all these services.

So I think there are lot of customers out -- a lot of companies out there that fit that model, so it's an opportunity for us to expand our distribution and to go almost a wholesale model with some of these ISPs.

Got you. And two clarifications from Pat, the ARPU you mentioned or ARPU trend or the fixed plans set for the higher end of the range of 18 to 19?

Yes. I just -- what I was trying to do, Chris, was be consistent with the ranges we had given last time on the call.

We set forth the by the megabyte plans, the range that we saw for the ARPU was $500 to $700 a month. And what I am saying is that, in Q1 of this year, we were near the top end of that range in the terms of the ARPU for the quarter but still within the range.

And for the fixed priced plans, the range, as we had given in the past, was $1,800 and $1,900 per month, and we were near the top end of that range in the first quarter.

Got you. And the other clarification here, on the service margins for the VSAT business is it -- did I understand you to say that they should still increase but only marginally on a go forward basis because of the added C-band coverage?

Yes, it will be more modest for the next several quarters as the C-band covered just put in place and we start to build new accounts for the V11 and then the airtime associated with it. So, I do expect to continue to increase on a sequential basis, but it will be at much more modest rate for the next few quarters.

I have got a just a bunch random ones here. Did you do any share buybacks in the quarter?

We did not in the first quarter.

Okay. And on this, Martin, on the Japanese win you referenced here, that's not the same on from September, is it?

No, this is the new company. So, it’s a -- we'll probably putting out a press release talking about the name of the customer in a couple of weeks from a marketing point of view.

So, it’s a nice win. Japanese market is a very closed market, very difficult to do business there without the right partners.

We spent the last 3 years developing relationships in Japan with SKY Perfect JSAT, who is our satellite service provider there. We have a license in Japan, which almost nobody does for VSAT, which is critical, and we have sales partners in both Verono [ph] and JRC.

So, we have got really have the best partners on the ground that’s selling the product as well.

And I know you referenced this but you cut out [indiscernible], is that guy taking the C-band or is that he's using some thing else?

Which guy, the Japanese?

Yes.

Japanese are using the V7.

Right, okay that the V7 only.

Yes.

So, part of the thought was that with this channel development that some of these larger fleet operators are waiting for the combo solution?

Yeah, I think that what we expect to happen is that the bigger fleets will use all of our products, so, if you look at a Verune [ph] or a V ship we expect them to use V7, V11s, than V3s, depending on the type of vessel and the route. So that if you are -- I mean, if you're out we've got Ku band coverage, so if you are operating in area doesn’t go in the C-band region, you don’t need it.

So, we are hoping that may be 20% of our unit sales will be V11s, maybe 30% will be V3s and the rest will be V7s, something like that.

Okay, great. And on the C-band, how is it going on the permit front?

We have licenses applied for and so far so good. Nothing to report there.

And the timeframe you think for getting that wrapped up, the license?

It's difficult to forecast because it's the government. So -- right now our schedule is that we still should licenses this quarter.

Okay. In terms of your Inmarsat customer base that you resold years ago, how many folks on that plan that are buying time from you still?

We have between 1,000 and 2,000, I think. I don’t know the exact number off the top of my head.

So, a lot of those are these occasional use customers who are using on sailboats and things, where they have it on board but they are not really generating a lot of minutes. They're using it more for emergency use, that type of thing.

So, we had to push through this price increase to our own customers as well. And obviously we have an alternative for them, so...

Right, okay. So in terms of converting them to say V3, you haven’t seen much of that activity yet?

No.

Okay. And on your DSP-3000 you referenced, you think there's any issues there with current customers holding off and say I'll wait for this 1750 or you don’t know?

No, I don’t think so. And I think it is a pretty sudden drop off this quarter.

So, it'd be hard to attribute it to macro trends or products. So, I think it was just a bit of confluence between a number of big customers in their product ordering cycle.

But, to put it in perspective, we're not talking about a huge -- even though as a big miss percentage-wise, we're talking about between $1 million and $2 million in FOG sales. So that’s the difference between what we expected and where we ended up.

Great. And I guess in terms of things that maybe helped still in that hole, you mentioned about these TACNAV orders that are kind of out there.

How many different deals are there? I know there was like one large number.

Are there half a dozen or so that you are hoping to land that aren't baked in at this point?

Yeah, there are probably three significant ones that aren’t in the plan, and some of those are multi-year programs. So, we would book them this year and start work this year but they would carry out through many years so.

But that is -- and is very consistent with the TACNAV. That is the way that business has gone for 10 years, so there is no -- there is nothing different in that.

Got it. And just last thing, hopping back to the mini-VSAT here, can you give us some of the new antennas you activated this past quarter here?

Roughly how many of those would you say came through channel versus direct and kind of how is that, how many partners would you say are really actively selling for you now?

That is kind of hard to say, I do not know that figure off the top of my head. I mean typically the way our sales process works is that we get involved in the larger deals where we present directly to the customers and then the 1V business is handled by our distribution partner or somebody's who has got probably 200 people around the world selling our product.

So, the 1V business happened through that channel and the bigger deal, like the V.Ships, we get involved directly.

All right. Okay.

And in terms of the distribution channel, obviously as you referenced before Inmarsat came to be upsetting their channel as well. Any color there in terms of, maybe some significant resellers for them that or bars whatever you call them, come back to you now and say we are looking for a new friend here?

Absolutely. I think that that's, we anticipated that; we have been actively soliciting.

And we've also been approached by people who are looking for something else, because not only is the pricing going up and their margins getting squeezed there, the long-term business model is that Inmarsat is buying resellers and selling direct, bypassing their channel. So these companies that have been in the business for 10 or 20 years selling Inmarsat services are now looking at the future and saying what's in it for me.

It looks like my business model is disappearing. So, we are offering them a way out where they can improve their gross margins, sell a new product that has higher speeds and more capability.

And we are willing to partner with them and continue to support them.

Okay. Great.

If anyone thinks of a question and want to call us directly, please do so, or shoot us an email.

Thank you very much.

Thanks.