KVH Industries Inc (KVHI) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the KVH Industries' fourth-quarter year-end 2011 earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Patrick Spratt, Chief Financial Officer. Please go ahead.

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 to ir@KVH.com 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 continued to win a significant share of the market, as we introduced disruptive new products and continued the geographic expansion of our network. We introduced a new high-end maritime satellite TV product, the TracVision HD11, which broadens our reach to include commercial and mega-yacht customers.

We introduced the DSP 1750, a smaller, more accurate Fiber Optic Gyro, that will broaden the appeal of our product line. We also received some significant TACNAV orders from foreign military customers that we had been pursuing for several years.

The fourth quarter was in line with our expectations, with revenues of $31.9 million, up 18% year-over-year, and diluted earnings of $0.11 per share on 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, let's 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 million. That's 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 revenues 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 LiveTV. Our Leisure satellite TV business has been hurt by the poor economy, but we feel like we're 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 one of the leading companies in the growing maritime satellite communications market. Our mini-VSAT broadband service delivered over 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 2,000 TracPhone mini-VSAT units, which gives us a good share of the existing maritime VSAT market, which most sources estimate to be between 8,000 and 10,000 users. The other major competing service in the maritime broadband market, Inmarsat fleet broadband, 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 and yachting markets, that are prospective customers for broadband service, suggesting that the total market penetration of maritime broadband would be less than [15%] today. So we still have lots of room to grow.

The motivation for a maritime company to link remote offices onboard vessels to shoreside 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 from maritime use to more than double between now and 2017 to a $1.6 billion market. Our five-year plan is to grow to $250 million to $300 million, and as last year, is based in large part on winning a meaningful share of this market, which we believe we're 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 are the size and cost of the hardware; the reliability, speed, and cost of the airtime; and whether or not the service covers the regions where the vessels travel. Our initial product, the TracPhone V7, was very disruptive, and allowed KVH to capture a 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 price to Inmarsat's fleet broadband hardware products, but offering airtime rates of only $0.99 a megabyte, which are 1/10 the cost of competing Inmarsat offerings, yet at 2 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 a traditional VSAT required C Band service, and an antenna 11 feet in diameter that weighed 2,000 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 a 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've been sharing our global expansion plans with specific customers under MBA since early last spring, and we've 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 three 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 and antenna designs to bring this into a unified network.

As a result, we'll be -- we will beginning covering the incremental costs of our new C Band capacity with a 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 significant competitive advantage. Now that our global coverage is in place, we'll 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 while also linking our incremental costs to new levels.

When new services like Ka band come online, KVH will be well-positioned to either embrace the services offered by 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 have on reducing the prices of Ku and C Band services, the satellite companies compete with.

Moving on to our guidance and stabilization business, the guidance and stabilization fourth-quarter revenues were $14.5 million. That's up 15% year-over-year, driven by the shipment of a TACNAV order. For the year, our guidance in stabe business was down 15% to $42.4 million, reflecting continual lagging demand from our largest customer for the US Army CROWS Remote Weapon Stations program. However, during Q4, we did receive a $7.6 million order from this customer to satisfy demand for the current year.

We believe that we're also well-positioned to be the primary gyros supplier for the US 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 in 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 coating that allows us to double the amount of fiber that will fit on a given size gyro. The length of the fiber in a gyro directly influences accuracy. So with the new ThinFiber 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 ThinFiber technology, the DSP-1750, was introduced early last summer. This exciting new product is less than 1.75 inches in diameter, just over 0.5 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, systems for drones and other autonomous platforms, and new augmented reality systems for overlaying data on real-world imagery.

So even though the 1750 is the world's smallest precision Fiber Optic Gyro, we're already producing it in quantity and have good production yields. It's been selling well in small unit orders, as customers test the product for their specific applications. But due to the lengthy design cycles common with the types of sophisticated products that use these gyros, we have yet to see meaningful contribution to the 1750 to our sales, and 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 inertial nav systems.

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

On the guidance and stabilization side of the business, we'll continue to win long-pending orders from our TACNAV systems, maintain our favored vendor relationship with important FOG customers, and broaden the base of our new business -- 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, and we've invested in product development and infrastructure needed to support the important growth opportunities in the maritime broadband and guidance and stabilization markets, while also supporting our core satellite TV and TACNAV products.

I'll now turn the call back over to Pat to go over the numbers. Pat?

Thank you, Martin. I'll start with a summary of Q4 revenue by business. The total VSAT business was approximately [$11 million], of which airtime services was about $6.1 million. ARPU for by-the-megabyte plans increased a bit into the range of $500 to $700 per month, while fixed rate plan ARPU was stable at about $1,800 to $1,900 per month.

The mix of unit 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 efficiencies 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 a relatively high level of seasonal suspensions, the VSAT airtime revenue and costs 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 nonrecurring engineering -- repairs, and Inmarsat airtime, was about equal to the Q3 level, while revenue from these services increased sequentially about $0.3 million.

Operating expenses were up 24% year-over-year and 15% sequentially. The increase was driven primarily by variable sales costs 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 for 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 for 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 $26 million. Days sales outstanding was 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 too continuing adjustments for 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 turns.

As of the end of December, we had drawn $9 million on our line of credit to support the construction progress -- project, excuse me. 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 that 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 timing uncertain, we are being cautious in our planning. We are also continuing to be cautious with respect to our outlook for satellite TV systems demand from the leisure markets. On this basis, we expect that revenue growth for the year will be in the range of 10% to 15%. We expect that full-year operating margin will be approximately 5%, with the second-half being stronger than the 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 will put pressure on margins during Q1 and Q2, we expect to see a rapid recovery in Q3, as the gross profit from the V11 product sales rapidly offset the cost of the new network infrastructure.

Total Company gross margin for the year should show modest year-over-year improvement. 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 expect it could be 38% or higher. EBITDA margin, adjusted for equity expenses, is expected to be approximately 12% for the year. First-quarter revenue is expected to be in the range of $25.5 million to $28.5 million, or up about 5% to 17%.

The VSAT business should continue to show strong year-over-year growth, including a solid sequential increase in airtime revenue. However, we expect that FOG and TACNAV sales could experience year-over-year declines 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 $0.03 to $0.09. We expect to 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?

(Operator Instructions). Chris Quilty, Raymond James & Associates.

Congratulations on the new V11 service. I've heard some pretty good feedback from the channel. In the near-term, however, can you give us an idea, Pat, 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?

Yes, I can give you a general sense, Chris. Obviously, there's 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's going to be a meaningful piece of our engineering effort for the first and second quarters.

In addition to that, we're 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's coming to market. We'll have advertising and various supporting collateral for all of that. And so you can expect that those types of things are going to be ongoing now. They're in -- we're doing some of them now, and we'll be doing more and more over the next couple of quarters, prior to the launch, the actual shipments of the product, which should occur right around mid-year.

And you'll see those kinds of expenses in our operating expenses, engineering and sales and marketing, primarily. There will be some costs certainly associated with license approvals for the C Band capability on a worldwide basis. And in addition to that, we're 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 Ku band region.

And so if you recall back to some of the information we've talked about in the past, the Ku region costs us about $1.5 million per year, in terms of satellite capacity costs 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 costs for the C Band network I mentioned will be about two-thirds that level. There will be three regions around the world that make up the entire network. Those will begin to kick in in the second quarter.

And so we'll be building costs into the model on the operating expense levels starting now; on the cost of service level beginning in the second quarter. And then as Martin said in his comments, we expect that by the second-half of the year, the product sales alone will be roughly offsetting the incremental costs associated with this effort. But that, during the course of this year, the C Band and the V-11, 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 six months to get to breakeven on the network costs? And that's based presumably on the backlog that you have in place?

Well, we'll probably be -- if you think of breakeven as at the gross margin level, we'll 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'm 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?

Yes.

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

So not significant costs to roll out hubs for the C Band?

No. There will be three hubs, so that will be a good portion of that $7 million to $9 million. But we expect that the CapEx for the year will be much closer to more normal levels of operation as we go forward.

Okay. And you gave a lot of numbers on the call. I didn't quite -- wasn't able to 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, Inmarsat Group systems that we resell were down dramatically. I would say that our sales of Inmarsat systems were probably down more than 50% on a year-over-year basis. TV sales -- TV systems 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 that might continue. And in fact, things turned. But they haven't gotten any worse. They've been in that 10% to 15% decline range now for the last three or four quarters.

And a final one and I'll back into 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 million to $7 million of our total fiber optic gyro revenue of $22 million -- about $22.5 million for the year. So about one-third. And the rest of it is other -- a combination of commercial as well as other defense programs.

Okay. And when you say CROWS, I know you just picked up a couple million dollar order from somebody other than Kongsberg. 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'd expect the FOG business to start growing again in 2012. And we expect the CROWS piece to be relatively flat.

Okay. Very good. Thank you.

Rich Valera, Needham & Company.

Pat, just wanted to clarify what you'd 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. (multiple speakers)

Oh, in the first quarter, I see.

You heard me correctly (multiple speakers) -- 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're 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're hopeful they will, that could change significantly.

Could you give us any color on those? I know you don't -- you haven't baked them into guidance and they're 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's one I mentioned last time. It 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 -- but it would be -- it could have an impact this year in the -- potentially the largest in the $10 million to $20 million range.

Okay. So you're saying -- you said $10 million to $20 million?

Yes.

If you got that program?

Correct. Yes.

So that's (multiple speakers) --

I think you're asking to put a sense of the scale of the program?

Yes.

Right. So --

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 it's -- so we would not be inconsistent with what we saw in 2011. So it would definitely help.

Okay. And then, Pat, just wanted to try to better understand the ARPU. I wonder if you could just give the two ARPU numbers you gave? And then, I guess, as a follow-up, is there any way 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, but let me (multiple speakers) --

Let me just comment on that for a second. The reason that we're breaking it out is just to be clear that the meter plans, as we expected, we're going to have a different ARPU than the fixed monthly plans. 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're reporting both numbers now.

Right.

So the metered plans or the pay-by-the-megabyte, which are the only way we sell airtime services with the V3. However, you can get metered plans with the V7, but it's a fairly small percentage of those units, of those systems that have metered plans. But -- so when we refer to metered 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 also will be sold with the V11 when that comes to market -- the ARPU for those 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 and new systems are approximately one-third, two-thirds V3, V7, that is not the profile of our basic business, because obviously, we've been selling the V7s since -- for the last four years; whereas the V3 has only been in the market for the last three quarters.

Another thing we should point out is that the V11 is expected to have -- we haven't announced pricing for the airtime packages yet, but our expectation is that the ARPUs should be one-third higher than the V7. So there will be an 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 -- at least indication of interest there. I'm not sure if they're firm orders at this point, but can you give us any color on what kind of visibility do you have to the V11 ramp in the back-half, based on current dialogue 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 that fleet would be V11s as opposed to V7. So what we're seeing is to address some of the larger fleets that have mixed -- 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 able to offer all different solutions ranging from the V3, which is a very small product, up to the V11. So now when we talk to the larger fleet managers, it's great to be able to 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.

Jeremy, could you go on to the next question, please?

Chris Quilty, Raymond James & Associates.

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

No, we're still in that -- I think our average is still in the sort of 250 range. Some quarters a little bit below; Q4 was 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, one-third or maybe 40% of that number. And we didn't have V3s the year before. So I think Q1 you should see another big year-over-year jump, because there was no V3. And then you expect the percentage increases to decline over the course of the year, because now you're looking at years -- quarters where you did have the V3s in place. And then the V11, of course, will be incremental starting in Q3.

Okay. And the seasonality in this quarter -- were the percentage of suspensions similar to what they were last year? And (multiple speakers) --

Actually, yes. 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 of a year ago. We're 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.

The net impact of that, if I remember last year, was about a 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 -- of 2010, actually give us some incremental airtime that we knew what the airtime was for; we weren't thinking of it as incremental at 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 an ever-so-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 it went sideways more than anything. 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 didn't, but it's approximately that three to six-month lags. So we have said that we sold approximately 2,000 systems as of now. And with an average of roughly 250 per quarter, you can assume that it's -- the number of active systems is about 200 and -- you know, something approximating 400 to 500 systems less than that total sales quantity. So, you know, around 1,500.

Okay, great. And final question on the CROWS, the $7.6 million contract 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 into a contract?

It's for -- 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's 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 (multiple speakers) --?

There was actually a pretty -- it was a 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 time to -- any chance to thumb through it yet. But if I 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 until '14, anyway, so. Okay, great. Thank you, gentlemen.

Thank you.

All right, thanks.

(Operator Instructions). Gentlemen, we have no further questions in the queue at this time.

Okay. Well, great. If you have any follow-on questions, please call Pat or myself directly, or you can email us at ir@KVH.com. Thanks.

That concludes today's conference. Thank you for your participation.