KVH Industries Inc (KVHI) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the KVH Industries quarter's -- second-quarter 2012 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Patrick Spratt, Chief Financial Officer. Please go ahead.

Hello and 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 second-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 at KVH.com and we will answer them following the call.

This conference call will contain certain forward-looking statements that involve risks 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 may cause these differences include but are not limited to those mentioned in today's call and risk factors described 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 of results. Martin?

Thanks, Pat. Thank you all for joining us today. I am happy to report record quarterly revenues of $32 million. That is up 5% from the same period in 2011. That is up 20% sequentially from the first quarter of this year. Quarterly earnings of $0.03 per share were in line with our guidance.

We received several large orders during the quarter from both from customers of both our mini-VSAT systems and our TACNAV products. In fact, we now have our largest backlog ever for guidance and stabilization products and services of approximately $57 million. Revenue growth was driven by continued success in the mobile VSAT market where our many VSAT broadband airtime revenues were up 68% year-over-year and we shipped approximately 300 new terminals during the quarter.

In addition to these strong results, the rest of our maritime satellite business other than mini-VSAT also showed signs of recovery, growing 21% year over year. Growth in the satellite business was offset by a 31% year-over-year decline in our guidance and stabilization business. This drop is a bit deceptive, however, and last year we had a very large TACNAV shipment in the second quarter. Sequentially our second-quarter guidance and state revenues were up 35% from the first quarter and with the large backlog that we now have for TACNAV products and services, we have a solid base of business for the next several quarters.

FOG sales -- or fiber optic gyro sales -- were down 8% year over year but they were up 84% sequentially from the first quarter. And we are beginning to see some encouraging signs that our new small gyro designs are gaining traction in the market. Reaction to the launch of our new inertial measurement unit, the Series 1750 IMU, has been very encouraging. And OEM customers are beginning to adopt the standalone DSP-1750 gyro into their product designs.

So overall we are getting better visibility into a pipeline of future sales for our guidance and stabilization business. Pat is going to cover the numbers in detail so I will cover progress we are making in each of the major business areas starting off with our satellite group.

As we approach the five-year anniversary of the launch of our mini-VSAT Broadband network, we have now fielded approximately 2,500 TracPhone VSAT systems, making KVH the number one maritime VSAT provider in the world by a wide margin in terms of the number of customers using our service. We are very pleased with the continued growth of our VSAT systems sales and we expect the trendline to continue upward.

New system sales are naturally leading to more active accounts using our network. And during the first half of 2012, we delivered over 100 terabytes of data to our customers and carried well over 1 million phone calls. In fact the airtime services financial model is developing just as we had expected. You might recall that a year ago during the Q2 2011 conference call, we said that when the number of active subscribers doubled, we expected to see a 2,000 basis point improvement in gross margin and a five times increase in total gross profit.

I am pleased to report that our Q2 gross margin at just over 32% for mini-VSAT is more than 2,000 basis point higher than it was this time last year. And our gross profit is up five times, even before fully doubling the number of subscribers.

We also strengthened our global distribution network in the second quarter as we signed up leading Inmarsat fleet broadband distributor partner the MVS Group and leading Inmarsat Latin America service provider Tesacom, to all for our mini-VSAT broadband service to their large customer bases.

In a major competitive win we announced a large contract award from one of the worlds leading shipping companies NYK to provide a broadband solution that they will use to connect their innovative new voyage management system that will help reduce their fuel cost. So there is very tough competition in a high-profile new application where many leading maritime medication service providers fought for the business. And we are very proud to have been selected.

Having well established relationships in Japan was key to our success with NYK. Our Japanese hardware distributor, Furano, will handle the installations while our Japanese sunlight service partner SKY Perfect JSAT will provide our mini-VSAT broadband service.

Our maritime satellite TV sales rebounded somewhat during the quarter with a 13% increase in revenues year-over-year, thanks in large part to our new TracVision HD11 which has been well received by customers of high-end yachts and commercial vessels traveling globally.

So in summary our satellite business is growing nicely and we have a solid leadership position in a large and growing market. Our global network is in place, our distribution channel continues to expand, our users are very satisfied with the service we offer and in major head-to-head competitions our service is been selected by leading knowledgeable customer -- commercial customers.

Our major competitor, Inmarsat, has raised prices to their large established legacy service user base which is helping KVH's sales effort as their customers evaluate alternative solutions. We have exciting new products in the pipeline that will be introduced early this fall and will further differentiate KVH's connectivity solutions.

Moving on to the guidance and stabilization business, our overall revenues were approximately $8 million in the second quarter. That is up sequentially by 35% but they were down 31% year over year. However as I mentioned earlier, last year we had a single large TACNAV order that boosted sales substantially in that quarter. In fact, that shipment was for the same program that we just won the large follow-on contract for. In June, we won the largest TACNAV order in our history, worth $35.6 million.

This contract, also from the Saudi Arabia National Guard, makes KVH the prime contractor supporting in-country vehicle surveys, facility construction, installation and training, in addition to providing hardware for the vehicles. This is one of a series of large international orders for complete TACNAV systems that we have been pursuing for several years. We are finding new interest among many military customers worldwide who want to augment their current navigation capabilities that are dependent on GPS with our TACNAV system.

Thanks to TACNAV's modular design, customers are also able to use portions of the system as components for their larger solutions. In June we won a $1.3 million order for TACNAV displaced for the US Army's M119 howitzers.

As I have indicated in the past, we are seeing a resurgence in our tactical navigation business and we are optimistic that we will have additional program wins that we will be able to announce in the coming quarters.

Our fiber optic gyro revenues were $5.6 million for the second quarter, reflecting a nice rebound from a very weak first quarter. Sales of gyros for remote weapon stations have continued at a steady pace and have been in line with expectations although well below the levels of last year.

In the short term, we believe we will see steady demand for our DSP 3100 for the CROWS II system which continues to be ordered by the US Army. The new CROWS III program award is expected to be made by the US Army this fall. This award could result in an uptick in our FOG sales if it is won by one of the remote weapon station manufacturers that is using KVH gyros currently. However this program is not expected to be in production earlier than 2013.

Revenue from FOG customers with applications other than remote weapon stations was up 17% year over year in the second quarter. Our collaboration with NovAtel selling the CNS-5000 inertial navigation system continues to go well especially for dynamic surveying applications. And our new small DSP-1750 gyro is also beginning to gain traction in the market. Major manufacturer of thermal imaging systems has recently completed a testing of the 1750 and selected us to provide gyros for their product line. We anticipate finalizing the supply agreement in the coming weeks.

Although these orders have taken longer to win than we originally anticipated, we believe the 1750 will ultimately become our best-selling gyro.

In June, we launched the new Series 1750 IMU at trade shows in the US and Europe. This inertial measurement unit uses three 1750 fiber optic gyros and three [acceleramators] all in an extremely compact package. This is part of our strategy to build higher and inertial products and systems which command significantly higher prices than standalone gyros.

Its performance is outstanding yet it is small enough to replace the two most popular competing IMUs in the tactical IMU category. Thus far we have had very good initial response from potential customers. We are happy to have an alternative vendor for retrofit applications for refined KVH's IMU performance price and availability very attractive compared to competitive solutions. Several important customers will begin testing this new system when we begin first shipments later this quarter.

So, in conclusion, with record backlog in TACNAV, strong new fiber optic gyro products, continuing growth in our mini-VSAT broadband business and hopeful signs for satellite TV, we feel quite good about our progress and our future. We are launching our groundbreaking TracPhone V11 this quarter and have more new products on the way.

So, now I will turn the call back over to Pat to review the numbers. Pat?

Thank you, Martin. The following summarizes our Q2 revenue by business.

The total VSAT business was approximately $14.8 million of which airtime services was about $8.4 million and increased 68% for the airtime. Total VSAT revenue increased 35% year-over-year. ARPU or by the megabyte plans was again in the $600 to $700 per month range. And fixed-rate plan ARPU was in the $1,800 to $1,900 per month range.

The mix of unit sales for the quarter was consistent with prior periods, about 40% TracPhone V3s and 60% V7s. All other marine satcom revenue including satellite TV systems and Inmarsat systems in airtime was about $7.3 million. Within that amount, marine satellite TV sales increased 13% while sales of Inmarsat L-Band satellite systems declined close to 24% on a shrinking base.

Land, satcom, and aviation system maintenance services combined was $1.9 million down 3% year over year. TACNAV revenue was $1.5 million down 69% year over year. FOG was $5.6 million down 8% year over year. Other guidance and stabilization products and services was $0.8 million, up 91%.

Gross margin was 38.9%. This was below our expectation, especially in light of the strong revenue level. This was due to the fact that the mix of FOG sales was weighted toward relatively lower gross margin products. Because the variable margin impact for FOG production is relatively greater than what we experienced with other products, increasing levels of the production should support improving FOG margins over the coming quarters. Gross margin for VSAT airtime increased to approximately 32% for the quarter, up from 11% one year ago.

The marginal gross profit that was earned on the incremental year over year quarterly revenue was approximately 63%. And that includes the impact of the initial cost for the new C band network. Sequentially, VSAT airtime gross margin improved about 400 basis points.

For the next few quarters, we will absorb the full run rate cost impact of the C band network. So VSAT airtime gross margin will likely move about sideways for a couple of quarters before resuming an upward trend.

Revenue and gross margin from all other services including nonrecurring engineering, repairs, and Inmarsat airtime were about $2.6 million of the total service revenues and 55% gross margin. We expect that gross margin for these types of services will decline to about 20% to 25% range for the next several quarters since the facility and program management services portion of the Saudi Arabia order will begin during this period and the margins for this work are relatively low.

Operating expenses were up 1% year over year and sequentially, about in line with our expectations. By function, engineering expenses increased [to] 6%. Sales and marketing decreased to 7% and administration spending increased [to] 14% all on a year-over-year basis.

The reported tax expenses was about 54% of pretax income and included a year-to-date true up. Taxes are always difficult to forecast since there can be so many variables and unanticipated discrete events. Based on current visibility, we expect the full year rate to be approximately 45%.

On the balance sheet, cash and marketable securities were $31 million, cash flow from operations was approximately $1.7 million. EBITDA adjusted for equity compensation expense was $2.9 million and EBITDA margin was 9.1%. Depreciation and amortization expense was $1.1 million and equity expense was about $850,000. Accounts receivable was $22.3 million and days sales outstanding was 63. Inventory decreased close to $400,000 sequentially to $17.2 million.

Capital expenditures were $2.3 million for the quarter and $4.5 million year-to-date. We expect the CAPEX for the year will be in the range of $7 million to $8 million including the three hubs for our C band network.

Backlog for guidance and stabilization products and services at the end of June was $56.9 million, up about $36 million compared to the March level. This backlog level is unprecedented and is about three times the historical level for this business unit.

Now turning to our outlook for the full year and the third quarter. Although the general condition of global economies has shown minimal improvement in recent quarters we continue to have strong confidence in the potential of our strategic businesses and it is reinforced by a record high backlog level for our guidance to stabilization products and services. Because of this backlog we are confident that we will ship a substantial quantity of TACNAV products before year-end. And we will initiate the facility and program management services for this program.

We also expect the VSAT business to continue to grow at a strong pace. Although the rate of growth could moderate somewhat, in part due to the fact that the airtime services based also continues to grow.

We will continue to be relatively cautious with respect to the leisure markets. We believe that FOG product sales will show quarterly sequential improvement through the second half although we now expect full-year sales will be about comparable to the 2011 level.

We expect to make a limited number of shipments to customers of our new dual Ku and C band TracPhone V11 system by the end of September. Once the product is released for sale, the timing of discrete segments will also be dependent on vessel availability. We expect to be in full production during the fourth quarter.

Based on these factors, we are raising our full-year guidance for both revenue and profit. We believe that revenue will be in the range of $130 million to $137 million and that EPS will be in the range of $0.22 to $0.32 per share. Gross margin for the year should exceed 40%, even though two factors will dampen the second-half improvement somewhat, relatively low gross margin for our FOG products due to mix and volume and a relatively low gross margin for the first couple of quarters of TracPhone V11 delivery deliveries. The V11 impact is the result of relatively high startup material costs that we expect to mitigate over time with alternative materials and increasing volumes.

Operating expenses will grow in absolute terms through the rest of the year but should decline as a percent of revenue. This is driven largely by costs including contracted commissions for the execution of the Saudi Arabia TACNAV order.

Compared to our original fiscal year guidance, our current tax rate projection for the full year lowered our EPS projection by about $0.02. For Q3, we actually have a little less clarity about the revenue in EPS ranges than we do for the full year because the exact delivery schedule for the Saudi Arabia TACNAV order is not yet final. There is also some risk with respect to the timing of the initial flow of materials from our vendors.

We currently expect to begin deliveries during September, however. Any systems that do not ship in Q3 should be edited to Q4. Expectations for the third quarter are that revenue will be in the range of $32 million to $37 million and EPS in the range of $0.07 to $0.16.

Now, operator, we would like to take questions.

(Operator instruction). Chris Quilty, Raymond James.

Good morning. Just wanted to confirm 300 units shipped in the second quarter would represent a record for the Company?

Yes. That is definitely a record.

Okay and this is also traditionally your seasonally strongest quarter. Would it be fair to assume unit shipments declined on average over the next two quarters?

Yes. In general, we still have a seasonality pattern. So what we would expect to see is strong year-over-year growth, but still seasonal decline from Q2.

And can you characterize whether the nature of your new customers has changed in any way or does it still reflect the same type of leisure commercial mix?

Well, I think the mix has continued to evolve more towards commercial. So on the one hand, you would think that commercial would be less seasonal. On the other hand there are seasonal factors within fishing fleets. And there's also we do a lot of business in Europe in the commercial shipping market and July and August in Europe are traditionally heavy vacation periods. So, that also impacts bookings. So, over the last couple of years we have seen that the seasonal pattern still exist even though we move in a commercial market more and more.

And have you seen any distinct weakness coming out of Europe in any of your product lines?

No, we haven't. We have been concerned about it. We have also been concerned about the exchange rate fluctuation which has gone against US exporters over the last couple of months. So we are watching that, as well. But so far sales in Europe have been on or above target.

And can you discuss with regard to the new V11 antenna and the service, is it -- has the product been certified and fully tested or are there other legal regulatory issues you'd need to pop through before the product can actually ship?

Yes. The biggest -- one of the biggest things that has to happen is we need the SEC license. We have been told that that is coming very shortly, possibly as soon as next week. So we are very happy about that. But that is the major sort of licensing hurdle. In the meantime, the product is continuing to undergo testing and it is entering what we call pre-production right now, which is units being built by manufacturing that are built to prints; and there's additional testing and certification that has to happen, but we expect all of that to be done in the next month and start production in September.

And in terms of the ground infrastructure. Hubs, leases, capacity, network --?

All that is in place and we are live. So the entire -- all three global transponders are up and running. The teleports are in place. The hubs are installed. So it is all, that is all finished.

Okay, and for Pat, I think this was probably the largest sequential increase in cost of service about $1 million that we have seen. Is it fair to assume that the bulk of the step up associated with the C band service was reflected there and we should probably see a flatter cost of service on the go -- increase on a go forward basis?

Well, we didn't have a full quarter of C band coverage that we had to pay for in the second quarter. So we are just -- in the third quarter you'll see the full impact of that. But the sequential step up, we had a sequential increase of about $1.5 million to close to $1.6 million in -- $1.5 million in VSAT airtime. But that increase in cost isn't necessarily related to the VSAT airtime.

In terms of other services, we also had an increase in cost of goods there even though the revenue for those other services -- and when I talk about other services, I'm talking about repair services, nonrecurring engineering, things of that nature -- the revenue sequentially actually declined. However the cost of the services increased. You know, which would -- (multiple speakers)

-- price increase.

Well, that is not even including Inmarsat. Inmarsat margins declined as well sequentially. But the VSAT -- in terms of VSAT, we actually saw an improvement sequentially in gross margin. So the increase in the cost of service that, as you pointed out, was pretty large sequentially really was primarily related to nonrecurring engineering repair services and things of that nature. Where, if you recall, back in the first quarter we did say that we had an unusually strong gross margin for those types of services and didn't expect that to continue going forward.

Got you. Another question. In the past four or five months here you have signed up half a dozen new distributors. Two questions. Number one how does that impact your service margins with any kind of revenue-sharing agreement? And number two, what kind of a material impact should they or could they have, relative to what your historic growth rate has been?

Most of the distribution and arrangements that we are putting in place are for our metered service. So, as a percentage, the gross margins should be very good. You know, when we are selling by the megabyte. Because the fixed -- the metered service.

As far as the impact goes, we are not really sure how effective these customers are going to be. And it really comes down to their ability to churn their own customers off of competitive services and onto ours. And the economics of that are in their favor, meaning that they can improve their gross margins significantly by doing that. But it is, of course, an effort to take an existing customer and get them to switch antennas and switch services.

So the jury is still out as to how effective these distribution partners will be in churning their own customer base.

Have you seen some impact of it today? Some -- any impact?

Yes. Yes, we are definitely seeing some progress.

Okay and one final generic question. You talk about some new products coming in the fall. Was that speaking to the mini-VSAT service or guidance and stabilization FOG products?

Well, it was specifically talking about mini-VSAT products.

And any hints?

Will we wouldn't be announcing it. We would be preannouncing it.

Fair enough. I will swing back in the queue.

Thank you. Operator, next question please.

(Operator Instructions). It appears there are no further questions at this time.

Okay. Well, with that, unless anybody wants to jump in right now, we will call that the end of the conference call.

We do have two more questions that just queued up. Rich Valera, Needham & Company.

With respect to the mini-VSAT products, Martin, that you have coming out. Can you say if they are we should expect any significant decrement costs associated with them on IE? With the V11 obviously we had significant incremental transponder gateway cost, et cetera. Is this the type of thing where they are going to be running on your existing network and we shouldn't expect any significant step-up in fixed cost?

No, that is correct. This is -- these are products that we use the existing infrastructure. So we don't envision anything impacting our fixed cost infrastructure going forward.

Great. Hoping you could give us a little color on the NYK deal. I'm not sure how representative that is of your typical deal from a competitive standpoint, but you did point out that it was quite competitive and would love for any color you could give us on what was the differentiator for you there with respect to the competition.

I didn't want to talk to much specifically about that deal, but in general I think the key differentiators are the fact that we've got very high-speed service. So competitive solutions typically don't offer the upper end of the bandwidth that we do for the VSAT market, whether it is Ku band only or obviously the new CKu. We have the best coverage for whichever service you want.

Also products are easy to install, so they don't require dry docking the way the competitive products do. So that's so if you want to deploy a system quickly, and I think that also we have good partners. So whether it's this particular case in Japan, we have got local Japanese companies that are very well respected that have licenses in Japan, things like that. So it's really kind of the whole package.

And typically for these big projects, you have a very complex evaluation criteria where they ask 50 or 100 questions that you have to answer based on different features that they're looking for. So it's really a combination. So it's not one thing that I can say, this is why we win every time.

Great. I don't know if you are willing to give this level of granularity, but relative to ship [equip] which obviously is owned by your much larger competitor now. Any differentiation you can give there? You know how you guys stack up against what I presume they are trying to compete against your product with right now?

What they have migrated towards is a product called [Express Link] which is a Ku band product that is touted to be upgradable to Ka band, but it is sold with a companion fleet broadband 500. So it is a two-antenna solution. The small antenna is a 60 centimeter product which is for the fleet broadband. But then the global Express Link antenna is actually in a 1.7 meter dome. So it is a very large 400 pound antenna.

So the whole combination and then the below deck's equipment is also very large and complex. The size of a small refrigerator. So it's not an elegant solution. And it is expensive.

But it is being positioned as all-inclusive to their bundling in the monthly costs with the hardware but there's significant upfront costs like an $18,000 deposit, high monthly fee and long-term, five years or more. So it's -- they are trying to bridge their way to their new satellite launch but they -- that particular product doesn't seem to be getting a lot of traction in the market right now.

That's great color. Appreciate that.

With respect to the V11, I think when you first talked about that, you had said you had a chunk of units sort of spoken for from one of your existing customers. Can you talk about any other developments you've had in the V11 sales funnel at this point?

It is a little bit difficult to tell where we are in the process. We seem to have a lot of excitement about the product and I think that we are going to be production constrained early on rather than sales constrained. And by that I mean we will be building the product. Bit we are also placing the products as Pat mentioned. Because this product will require a crane to install. It is lighter than an Inmarsat solution, it is a 200 pound antenna. But it's not the same thing as a V3 or a V7 where you can just handcarry it on board and place it.

So that is going to pace the installations, I think, for the very near term. So overall the reaction has been very positive. There's nothing like it on the market. It's the only product that's dual-mode. It is the only one that has complete global coverage and we are excited about it.

Any other color you can give me? I mean, it is obviously a significantly higher upfront ASP than your V7 product. But, obviously, a lot more functionality. Just trying to get any sense of how you view the relative size of that market versus the V7, V3 market. I mean, I think you had originally maybe talked about it perhaps being 10% of your total sales at some point. Any updated thoughts there?

Yes, I think that as Pat mentioned we have sort of a 60/40 split. And somewhat surprising to many people is that 60% is actually the V7 which (multiple speakers) twice the ASP of the V3. So -- and I think that with this product the V7 will still be our main product but this could be in the maybe 10% to 20%, maybe as much as 25% of the total share, if it goes well.

But at this point we have got a great product line and it is almost we almost don't care which product they buy. It's -- we really have something for every type of vessel now. And most importantly, it gets us in the conversation whereas before some of these large LNG tankers were just adamant that they did not want ever to to be out of coverage and they were not really a target for us.

Now we can sell to these customers. So and sometimes they look at the 11, decide that's what they want. Other times they look at that and say you know what your V7 actually should be fine for most of my vessels. Which is great, too.

And one final one if I could. You mentioned you have some TACNAV -- additional TACNAV opportunities out there. Any color you can give on them in terms of -- I know we don't want to get too far ahead of ourselves, but in terms of the potential size or at our timing?

Yes, really, obviously this was the largest one and we don't have anything that is in the $35 million to $40 million range in our pipeline. But we do have a lot of other programs that are in the $5 million to $10 million range or even maybe a little bit more than that. So I just mention that because I didn't want people to think that this was a one-shot deal. We actually are seeing a number of other programs out there. So we should expect to see continued solid TACNAV bookings going forward.

Great. That simple. That's it for me. Thank you.

Jim McIlree, Dominick & Dominick.

Good morning. Pat and Martin, you have talked in the past about incremental margins on the VSAT service in the 65-ish percent area. Is there any reason to believe that has changed?

It didn't change in the second quarter. It was 63%. But the reason for the even modest decline was because we started to flow in cost for the C band network. So I expect it will change a bit during the third and fourth quarter because of the C band coverage that will be at full run rate. But then I would expect we will return shortly after that. We will probably return to get incremental margins that are back in that -- at that level.

Okay and it seems like the 300 unit shipments during the quarter is a slight -- I shouldn't say slight -- is an uptick from prior quarters. Is that correct? Are you seeing an increase in the number of unit sales per quarter?

Yes. Yes, we see both a sequential and year-over-year increase and you mentioned earlier this particular quarter was a record. But I think that the way you should think about it is that whereas before we were maybe hovering around the 200 to 250 a quarter now we probably are in the 250 to 300 per quarter range. So we are -- the growth is steady, not explosive, but the compounding effect of the airtime and everything is -- should continue.

So we are not expecting every quarter to be over 300. But we are expecting solid year-over-year growth every quarter.

Does the introduction of the V11 goose that to 300, 350 a quarter?

Yes, but don't forget, it would be based on shipments as opposed to -- when we talk about shipping 300 we are not talking about booking. So bookings would be larger and initially we will have more bookings for V11 than we will have shipments.

Right. I understand. Just a couple of others if you don't mind.

Pat, can you give us the depreciation and amortization of stock, for the quarter?

Yes. Depreciation for the second quarter was 1,091,000 -- excuse me. Yes, depreciation and amortization was $1,091,000 for the quarter. And equity expense was $851,000.

And, Martin, you mentioned the CROWS procurement in your script. Is there a realistic chance that that gets pushed again to the right or the numbers get brought down? Has there been any chatter about the commitment to CROWS?

No, there hasn't been. I haven't heard anything that would indicate it would be delayed further. I have heard some speculation that it might actually be pulled to the left a little bit because there may have been fewer bidders, prime contractor bidders than originally anticipated which would potentially shorten the evaluation period that they had originally forecast. So but we will see.

And is it your belief that these units require new trucks being built or this would be a retrofit for the existing [installed base of] (multiple speakers) CROWS?

It's both. So there aren't new vehicles and there's a lot of retrofit. So the whole idea behind CROWS, the C bands were common so that they are trying to use this across platform for everything from M1s to Humvees. So that is the plan.

Okay. Great. Thanks a lot.

All right. Thank you.

Chris Quilty.

Just as a follow up on that do you know how much headroom Kongsberg still has for orders through the period where CROWS III would actually go into production? I mean, basically does it meet your expectations or needs for maintaining a steady run rate for that business?

Right. As far as our own internal visibility goes, what we have basically have in backlog already, what we have in our guidance for the rest of the year for CROWS type production. So we are covered for now. If that's helpful.

Also, the NYK announcement -- pretty significant. Have you seen any uptick in interest from other shipping companies as a result of that that you could specifically tie back to that specific announcement?

Yes, there is another large one in Japan that we are currently working on which is a similar size type of program. But in general, I think what we are finding is that these things tend to build on each other. So as these press releases come out from these consulting groups that we are now the largest VSAT -- largest maritime VSAT provider that helps us get credibility when we get the orders like [V ships] or Vroon or NYK. That further helps credibility and helps us get other business. I think people want to know they are working with a company that is reputable and is going to be around for a while and they are making a smart decision. So it is a very conservative industry and all of these things are critical and they are going in our favor and it is helping and it is compounding, I think, our credibility.

The other also regarding credibility of Ku band versus either L band or KA band, can you comment on the announcement by INTELSAT with their new Epic satellite program and how that impacts you?

Well, INTELSAT is a supplier of ours. So we've received a presentation on the Epic and how we might be able to take advantage of that in some of our bandwidth requirements. So, it looks like it is going to be a nice option for us. So, part of the key benefit of our approach is that we are not building and launching satellites and we have the flexibility to use whatever the best and most economical and highest bandwidth solution is for whatever region we are trying to get, gain coverage.

What we also like is that we can buy more bandwidth where we need capacity as opposed to buying global bandwidth where you have to buy bandwidth in areas where you don't have any customers. So, I think the Epic is a nice solution. It is a high throughput satellite. It is Ku band. INTELSAT is our supplier for the C band coverage and some other satellites as well. So I think it is going to be a great option for us.

Great. And finally, Pat, can you run through the revenue breakdown for land, FOG, and TACNAV? I -- you may have given pieces of that, but I may have missed it.

Sure. Land was $1.7 million. FOG was $5.6 million, just over $5.6 million. Are there any other pieces that you --?

And the TACNAV breakdown.

TACNAV was $1.5 million for product. And then, in the guidance and stabilization area collectively, we have got other stuff like nonrecurring engineering, repairs and so forth. That was about another $800,000 combined. So that should add to about $8 million, which was the guidance and stabilization revenue.

Great, thank you. Doing good work.

You're welcome. Thank you.

Okay, operator, I think we are done unless there are any other questions in the queue.

Rich Valera has a follow-up.

Sorry to stretch this out on you guys. But question on the land business. From the number you just gave I actually punched in before you gave that answer. It sounds like you have not really seen any commensurate rebound in the land as you have in the marine TV. So just wondering what your thoughts are on that. Do we think it stays down here in this sub sub [$2 million] range and just kind of bounces along here?

Yes, we are seeing continued declines in that business and as we said probably two or three years ago that business was no longer strategic for us. So we are not investing in new products or services. So we expect that will continue to decline and we are not spending a lot of management time on it.

Okay. Thank you.

And there are no further questions at this time.

Great. All right, thanks, everyone.

Thank you very much.

That does conclude today's conference. Thank you all for your participation.