KVH Industries Inc (KVHI) 2013 Q3 法說會逐字稿

Good day, everyone, and welcome to the KVH third-quarter 2013 earnings conference call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Peter Rendall. Please go ahead.

Good morning. I am Peter Rendall, the Chief Financial Officer of KVH Industries. And with me today is Martin Kits van Heyningen, the Chief Executive Officer of KVH. 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're 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 discussions. Factors that might cause these differences include, but are not limited to, those mentioned in today's call, and risk factors described in our most recent Form 10-Q filed with the SEC on August 9, 2013. The Company's SEC filings are directly available from us, from the SEC, or from the Investor Information section of our website.

Now, I would like to turn it over to Martin for today's discussion of results. Martin?

Thanks, Peter. And thank you all for joining us today. I'm pleased to report our third-quarter revenues and EPS were right in line with our guidance, coming in at $40.2 million and $0.09. The overall revenue growth, which was attributable to continued success in our mobile broadband business, was partially offset by the decline in our TACNAV sales, having shipped all of the product related to our record order last year to Saudi Arabia, and the lower-than-expected fiber-optic Gyro sales.

Our maritime VSAT revenues were up 34% from the same period last year, and we're pleased to see a 5% improvement in our maritime satellite TV business as well. As we'd anticipated, our guidance on stabilization revenues were down about 33% year-over-year. Looking at each segment in greater detail, our overall mobile broadband revenues, not including Headland Media, were $25.7 million, that's up 16% year-over-year. Headland Media's contribution to revenues in the third quarter totaled $3.3 million.

The mini-VSAT broadband portion of the business was up 25% overall year-over-year, reflecting strong airtime growth of 34% versus the third quarter of 2012, and a growth of 11% sequentially from the second quarter of this year. In the third quarter, monthly airtime revenues from our new dual-mode TracPhone V11, reached a level where they now cover the monthly cost of the three global C-band transponders released to provide the global service. It's pretty remarkable that we're able to enhance our network with global C-band coverage, providing a major competitive advantage to the marketplace, and then win enough customers to pay for this new service in less than a year.

During the third quarter, we also began rolling out another upgrade to the transmission technology of the mini-VSAT broadband network called ACSM, or adaptive coding, spreading and modulation, which will increase the forward link capacity of our network by between 50% and 100% without adding any additional satellite capacity. This improvement is on top of the significant gains we received from deploying the VCSM modulation at the beginning of the year. Now, this increase in forward link capability will be utilized for our IP-MobileCast services.

Our mini-VSAT broadband hardware sales grew 14% this year, year-over-year. This growth came from higher sales in the Americas -- North and South America -- and the Asia-Pacific region. We continue to see soft sales in Europe, where we believe the continuing poor economic conditions in EU are causing shipping companies to delay equipment upgrades.

Our new TracPhone VIP products, which were introduced at the end of the second quarter, are performing well in the field. At the top of our mini-VSAT broadband product line, the new TracPhone V11 is representing about 10% to 15% of unit sales, but 25% of hardware revenues. And ARPUs for the V11 are running more than double the V7s. We're not sure if this trend is going to continue, or whether it's a bit of self-selection by early adopters, who also tend to be higher ARPU customers, but it's good news and it's better than we had anticipated. Already being rolled out on some medium-sized fleets with the V11, and customer feedback so far has been excellent.

Our smallest product, the TracPhone V3, is also selling very well, and was selected by members of the influential National Marine Electronics Association as the Best Communications Product for 2013 at their annual convention last month. This is the second year in a row that a variant of the TracPhone V3 has won this award.

Moving on to our satellite TV business, TracVision revenues were up 5% year-over-year in the marine market. As we reported in past calls, we believe our competitive position in the maritime satellite TV market continues to be strong, but the overall leisure marine market has been soft, due to poor economic conditions in the key US and European markets. As the global economy recovers and the maritime market rebounds, we believe that our sales will also grow. We have a number of new TracVision products in the pipeline, and we're confident that we'll maintain our leadership position in the global maritime satellite TV market.

Our new flagship TV product, the TracVision HD11, won the 2013 NMEA Product Award for the Best Marine Entertainment Product in 2013. Now this is the 16th year in a row that one of our TracVision products has won a prestigious NMEA product award, which we feel is quite an accomplishment for a product line about to celebrate its 20th anniversary.

On the development front, we've been very busy over the past few months working on our new IP-MobileCast content delivery service. We believe this is going to really enhance the appeal of our mini-VSAT broadband service, while also providing us with great opportunities to increase our revenues per subscriber. As you recall, the IP-MobileCast service will allow us to deliver large files like movies, TV shows, chart databases, weather forecasts, and training videos, to take advantage of our end-use capacity in the mini-VSAT broadband network. For sports and news and movies, the content will come from our own Headland Media Group.

Since acquiring Headland Media, we've negotiated the right to distribute several new daily foreign news programs to our IP-MobileCast customers, which will also be available upon the launch of the service. For applications like electronic charting, weather, and voyage optimization and training, the content will come from industry-leading partners interested in taking their services to the next level by delivering them over our network. Our business development efforts in recruiting new application provider partners has gone well. We announced our collaboration with electronic charting industry leader Jefferson, which is Boeing Company, in June, and we further expect announcements of additional partners during the fourth quarter.

Supporting the IP-MobileCast capabilities on the mini-VSAT network involves enhancing the forward link capacity of our network, which we are accomplishing through the modulation technologies I just described, as well as adding the onboard network management capabilities to our onboard terminals, which is largely accomplished with our TracPhone VIP series product line, which we launched in June. And the final mini-VSAT network enhancement to support the IP-MobileCast, which we expect to be completed by the end of the fourth quarter, involves connecting our hubs via points of presence in each region, connected with a fiber-optic backbone. This will allow us to officially move large amounts of content to our hubs around the world to support the MobileCast service.

Now to create the actual IP-MobileCast content delivery service, we've assembled a team of industry leaders in the fields of efficient and secure multicasting of very large multimedia files, digital rights management, optimized user interfaces, and content display, and onboard content distribution and devices like iPads, iPhones, and smart TVs. The team's been working continuously to build and test prototypes of the new service. And so far, we've designed and successfully test the MultiCasting technology over -- live over the mini-VSAT satellite network. We've integrated a digital rights management solution for premium content, and we visited and won initial approval of many key studios and news organizations around the world for our new service.

This is a crucial requirement needed to legally distribute digital content to ships, and then once onboard, to individual devices. We're also prototyping the onboard content distribution platform, which is an application, which will run on the TracPhone IP Series Integrated CommBox modem, and also as an option on a new media server, which we'll be rolling out with the new service.

Overall, we believe the IP-MobileCast represents a very exciting opportunity to help us differentiate our mini-VSAT broadband service, to make it more sticky with our customers to protect against future churn. Teaming with leading application providers will give us the opportunity to network with their customer bases, help with our future sales efforts. And finally, we see the revenue opportunities of both selling our own content and facilitating our partners' efforts to sell their content to mini-VSAT customers. In fact, we're optimistic that some of this content will be compelling enough that customers will buy mini-VSAT just to get it, then also create demand for our Internet service as well.

Moving on to our guidance and stabilization business, our TACNAV product revenues were $2.6 million for the quarter, and that's down nearly 60% year-over-year. But this was expected, as we approached the completion of our record $39 million contract with the Saudi Arabian National Guard. We also had $2.2 million in our resales, a 27% decline from the third quarter of 2012, which were associated with the low-margin facility and installation support contract that was part of the larger Saudi order.

Now despite the lumpy nature of this business, we're still very optimistic about the future of TACNAV, TACNAV sales, and there is continuing to be a large number of programs we're pursuing internationally. Now some of these could begin as early as the first half of 2014.

Turning to our fiber-optic Gyro business, our revenues were $5.8 million in the third quarter. That was down 17% year-over-year. This decline was caused almost entirely by a decrease in orders from Kongsberg, who uses our Gyros and remote weapon stations, most of which are sold to the U.S. Army. The sequestration and the confusion over the US federal government budget were adversely impacting the Army's ability to upgrade their vehicles.

On the positive side, the third-quarter sales of our new 1750 IMU increased 37% sequentially over the second quarter, and the products are being tested by OEMs, and are designed into prototypes of a number of autonomous platforms to augment their navigation systems. We're also receiving good interest in this product from a number of GPS manufacturers, and from independent system integrators. Both groups are combining the KVH IMU with GPS receivers to create hybrid GPS inertial NAV systems.

On the product development front, we just introduced a new multiaccess variant of our DSP 1750 Gyro called the 1760. The earlier product has sold well with over 1000 gyros shipped so far. And we're excited about the opportunities for the 1760, which will be well-suited for use in emerging markets like robotics, directional drilling, stabilized radar, and optical devices. In addition to the new Gyro, we've also made good progress integrating the 1760's technology into new higher-end systems combining Gyros with accelerometers, and in some cases, digital compasses and GPS for applications like three-dimensional orientation, navigation and North finding.

We'll introduce a number of these higher-end systems in 2014, including an enhanced version of our TACNAV product. These higher-end systems sell for considerably more than standalone Gyros, so we're anticipating a good opportunity to use them to grow our FOG business.

So, looking forward to the remainder of the year, we are very excited about the opportunities, and comfortable with our prospects for continued success in each of our strategic areas of business. For the mobile broadband business, we feel positive momentum in both our maritime VSAT and our satellite TV business. We believe the new IP-MobileCast service is going to be a real asset to help us win an even larger share of the maritime VSAT market. Our new colleagues from Headland Media have been successfully integrated into our overall operations, and has contributed a lot of enthusiasm and good sales contacts.

This quarter, we'll begin a series of events held in major shipping centers around the world, where we bring together mini-VSAT customers and prospects, and Headland Media customers and prospects, to introduce them to our new IP-MobileCast service, and take advantage of cross-selling opportunities. We're really excited about the new MultiCasting content business, and we'll be making incremental investments this quarter in order to bring this new technology to our customers. For our guidance and stabilization business, our new FOG products, like the DSP 1760 and the higher-end systems we plan to introduce, to help overcome headwinds due to sequestration, while we still see significant international sales opportunities on the horizon for our TACNAV products.

Now I'll turn the call back over to Peter for the detailed financial results. Peter?

Thank you, Martin. As Martin has already said, we've reported revenues of $40.2 million for the third quarter, which included $3.3 million from Headland Media, the acquisition we completed in the second quarter. Our mobile communication revenues, which include Headland Media, were $29 million, representing a 31% increase year-over-year, while our guidance and stabilization business reported $11.2 million in revenues, which was a 33% lower than the same period from last year.

Our VSAT business recorded $18.1 million in quarterly revenues, of which airtime services represented $12.6 million, which was 34% higher than the third quarter last year. Total VSAT products and service revenues increased 25% year-over-year, while ARPU's by the megabyte plans continue to be in the $600 to $700 per month range. And ARPU's for our fixed rate plans continue to be around the $1900 per month level.

As Martin mentioned earlier, our TracPhone V3 has been selling very well. And as a result, in the current quarter, V3 sales represented 48% of the total unit sales, while V7 sales were 40%, and V11 were 12%. All other satcom revenue, including TV systems and Inmarsat systems and air time, were $7.5 million. Within that amount, we saw a 5% increase in satellite TV product sales year-over-year to $3.7 million, while land-based systems declined 24% to $1.2 million, as we had previously anticipated.

TACNAV product revenues of $2.6 million saw almost a 60% decline year-over-year, as product shipments related to the Saudi Arabian National Guard program ended in the second quarter. Under that program, we did record $2.2 million in service revenues, mainly related to equipment installations and program management services. FOG sales of $5.8 million were at the low-end of our expectations, and 17% lower than the same period last year. Almost all of the decrease can be attributed to a sharp slowdown in spending under the CROWS program.

Revenues of our FOG products were split evenly between those used in commercial application versus defense applications, a trend we've seen in recent quarters. In terms of the split between products and services, our current quarter revenues of $40.2 million included service revenues of almost $20 million. Of that amount, 68% related to airtime, 11% related to services performed under the Saudi National Guard program, and 17% related to Headland Media.

In the third quarter last year, we reported service revenues of $14.2 million, 73% of which related to airtime and 20% related to the Saudi contract. The gross profit margin we recorded of 41% was in line with our expectations, and 120 basis points higher than that we reported in the third quarter last year. The gross profit margin reported for VSAT airtime in the third quarter was 36%, which compares favorably to the 31% recorded in the 2012 third quarter, and is up sequentially from 35% in the second quarter of this year.

As we've discussed previously, construction, installation and program management services associated with the Saudi National Guard Program recorded a gross margin of less than 10%. As I noted earlier, $2.2 million of this quarter's revenue related to such services. Total operating expenses in the third quarter of $14.4 million were in line with our expectations. Compared to the third quarter last year, operating expenses were up 17%, the majority of which related to the addition of Headland Media's operating expenses.

The reported tax expense for the quarter was 40% of pretax income. We expect our effective tax rate for the full year to be close to 35%. As we've discussed before, taxes are always difficult to forecast, since there can be so many variables and unanticipated discrete items.

Our diluted EPS for the quarter was $0.09 on net income of $1.4 million compared to the $1.7 million net profit and EPS of $0.12 we reported in the same period last year. Relative to this quarter, in the third quarter of last year, we reported higher revenues of our TACNAV products, which historically carry higher gross profit margins than our other product lines. The EBITDA adjusted for equity compensation expense was $4.6 million and the adjusted EBITDA margin was 11%. Depreciation and amortization was $1.5 million, and the equity expense was approximately $1 million.

Now moving on to the balance sheet, at September 30, we had cash and marketable securities of $57.6 million, an increase of $3.3 million from the end of the prior quarter. Our debt as of September 30 was $37.4 million, which was $300,000 less than what we were carrying at June 30. Our quarter-end accounts receivable balance was $25.7 million, and days sales outstanding were 57, which was consistent with what we reported at June 30. At quarter-end, our inventory balance stood at $18.1 million, which was up by approximately $800,000 from that on-hand at June 30.

Our capital expenditures were approximately $1.6 million for the quarter, bringing our total year-to-date at almost $4 million. We should expect our capital expenditures for the year to be in the range of $5 million to $6 million. Backlog for our guidance and stabilization products and services at the end of September was $22 million, down by almost $8 million from June 30.

Now turning to our outlook for the fourth quarter and the rest of the year, we expect our VSAT business will continue to grow at a strong year-over-year pace, driven by a combination of product sales as well as new airtime subscribers being added to our network. We do, though, continue to remain cautious as it relates to the leisure markets for our mobile communications business, particularly after experiencing ongoing softness in Europe this quarter.

With uncertainty surrounding defense budgets, we are not projecting any new TACNAV wins in 2013 that will ship in 2013. We do, though, expect bulk product sales to show solid year-over-year growth. Operating expenses are expected to be a bit higher in the fourth quarter, as we roll out our new IP-MobileCast service. And we expect our effective tax rate for the fourth quarter to be approximately 40%.

So, considering all of these factors, our guidance for the fourth quarter is as follows. We expect revenue will be in the range of $38 million to $42 million, with an EPS in the range of $0.05 to $0.09 per share, which means that revenues for the full year will be in the range of $161 million to $165 million, and that, on a GAAP basis, our EPS will be in the range of $0.37 to $0.41. Excluding the Headland Media acquisition-related costs, non-GAAP EPS is expected to be in the range of $0.42 to $0.46 per share.

So, in conclusion, our confidence in our strategic growth businesses and operating fundamentals remains strong. And now, we will take your questions. Operator?

(Operator Instructions). Rich Valera, Needham and Company.

It sounds like you had a solid quarter on the mini-VSATs. So, I was just wondering, Martin, if you can confirm that the additions were within that kind of 250, 300 unit window? And if you could give any color maybe on where they fell within that range, if so?

Yes, they're -- we're still in that range. We're at the, I'd say, at the low-end of that range, which is kind of where we've been running. So, it's been very steady. And Q3 is typically not a big quarter for the marine market, so it's -- we do expect to see sequential and year-over-year growth in that number in Q4.

Got you. And then, just wondering what you're seeing competitively out there, if you've seen any change in the competitive landscape, as global express -- obviously, still far from operational but maybe getting closer, are there any tactics trying to presell that or anything that's changing your competitive outlook?

I'd say during the quarter, we haven't seen any change in the competitive landscape. So the competitors have been out there doing what they've been doing, and that's been fairly consistent. So we don't feel that we've lost any big deals to competitors. So I think that the general -- our real, I'd say, concern is that this is a market, overall, continues to not improve. So the market has been soft, and our target customers, they've been in a challenging economic environment for years.

So, it's really more of an economic issue for them to invest more money into their fleets. And I'd say that's a bigger challenge than competitors. So when we go and talk to target customers, it's all about economics and saving them money, and do they have the budgets to do it and the horsepower to get it done. (multiple speakers) It's really not so much of competitors' prices or new satellites or something like that.

But I think we've got a really compelling product line right now. We've got great features, and people are excited about the new content we're going to be providing. So, I think -- that also, I think, will help, because one of the strategies with the IP-MobileCast product is that we're selling to HR departments and improved staffing departments, as opposed to selling to the IP Department. The IT Department is a cost, and this is really a benefit to increasing their ability to retain people and to attract people to work on these vessels.

Got it. And I was wondering if you could give us -- and I didn't really hear an update on kind of the timing of the rollout of the MultiCast service. Can you give us -- I mean, it sounds like you're making progress there, but is that going to be live in the fourth quarter? Or is that really a first-quarter next year event for really going live?

We still anticipate that during this quarter, we'll be going live with transmissions to customers. What we're thinking is that, initially, we'll probably do a free trial where you push it out to customers, give them 30-day trial, you know, that type of thing. So -- but the full service will go live in Q1 in terms of revenue service.

Is that consistent with what you expected previously?

Yes, we expect it to launch in the fourth quarter and we still expect to launch, so.

Got you. Let's see, if we could -- just wanted to change topics to the guidance and stabilization, just trying to understand maybe the outlook here. You know, you've talked about for a while that you had pretty low expectations for CROWS. You just had a fairly small amount in backlog this year, and I thought that was kind of all you expected.

Clearly, it doesn't sound like things have gotten better there. But just wondering about the outlook for FOG. You've obviously got the new products, commercial products, growing while you've got challenges on the defense side. So I'm just wondering, can we think about that business as kind of stable at Q3 levels? Do we think there could be any growth from Q3 levels, given the current spending environment? And any help on that would be great.

Sure. Yes, so just to be clear, the year-over-year decline was due to CROWS, but as you point out, we kind of already knew that that was going to be low. So, in addition to that -- yes, so that was kind of baked in, in that still, so we don't anticipate any impact from CROWS in Q4, because, as you said, we had low expectations there.

So -- but we did see -- we were disappointed with sales for FOG in Q3, so we've get baked into our guidance kind of this level or slightly better for Q4, which is about $1 million less than we would've expected. So, and that's really just based on what happened in Q3. Now year-to-date, our FOG sales are actually on plan because we were ahead in both Q1 and Q2. So we are being a little conservative with our Q4 forecast, but we think that's prudent.

We don't see any fundamental shift. We've got really good products. We've got more new products coming, and parallel system products coming. So, we feel pretty good about where we are. And so, we're still optimistic overall in the FOG business.

Okay, that's helpful. Kind of a bookkeeping one, just cash flow from operations for the quarter?

Represented roughly $4 million to $4.5 million, which is similar to our EBITDA for the quarter.

Okay. Well, that's it for me. I'll get back in the queue. Thanks, guys.

Jim McIlree, Chardan.

Peter, you talked about an increase in expenses in Q4 to roll out the MultiCast product. Are you talking along the lines of like a $0.5 million to $1 million extra in Q4 versus Q3?

Probably at the lower end, I would suggest.

And is that something that will maintain throughout 2014? Or is that more along the lines of one-time expenses and then it drops back down to previous levels?

So it would definitely tail off, but obviously, as we launch more products and more services under the IP-MobileCast platform, there will be incremental costs. But the main development for launching the service is going on at this time.

Okay. And can you help me understand -- maybe my math is wrong, but can you help me understand the airtime revenues? If my math is right, you did [10.4%] of airtime for the mini-VSAT product in Q2, but [9.3%] in Q3. First of all, is my math right? And secondly, if it is, why the drop?

So we did 11.3% of VSAT airtime in Q2.

Yes, I'm sorry, Peter. I'm excluding Headland in both quarters. So if I looked at (multiple speakers) --

I think that's your math error. You're taking the Headland out of the VSAT. The VSAT airtime was up sequentially 11%, I believe the number was, Q2 to Q3.

So 11.3% to 12.6%.

Okay, I'll fool with that. So, let me ask in a different way. Was the airtime revenue up quarter to quarter?

Yes, correct. It was up 11% sequentially and 34% year-over-year.

Okay, fantastic. And then the -- I'm just -- I'm a little bit surprised about the FOG business. The FOG ex-CROWS was also lower than you expected and lower quarter to quarter? Is that right on both counts?

Yes, that's correct. So, this quarter, really, the only surprise in our -- any part of our business was the FOG. The FOG was below our expectations and below our guidance for Q3. But as I mentioned, year-to-date, it's actually still ahead of internal plan and budget. So, the Q3 (multiple speakers) --

Right, and can you attribute that lower-than-expected amount to a customer or a product, a market? Can you maybe just give us a little bit of detail on (multiple speakers) what's happening?

Yes, the biggest area was in our CNS 5000 product line, which had been growing very rapidly, and I think we probably made some assumptions about run rates that included -- you know, because we're selling this to GPS integrators, and they are selling it to customers. So we don't have a lot of visibility there because it's not a direct customer sale. So, that part of the business was disappointing in Q3.

Okay. And I think, finally -- so obviously, the government market is going to be in turmoil for Q4 as well. Was there any reason to think that 2014 wouldn't have a similar kind of tumultuous outlook for it? You know, the sequester may or may not be lifted; even if it is, the fiscal 2014 budget might be challenging for many vendors. When you're putting together your plans for 2014 in the defense market, are you trying to be -- take a discount from cautiousness?

Yes, we are, but keep in mind that year-to-date, more than half our business is actually not military for FOG, and that a big part of our military business is international. So, for example, our TACNAV business is almost exclusively international. So -- but you're right. For the -- a lot of our onesie military business for FOG does get impacted by that. So we definitely will take that into account.

Right. And I'm sorry, I just have one more. So in Q4, the Saudi contract is expected to deliver how much? And I'm assuming that that's going to be almost all services as well?

It's expected to deliver similar levels to what we saw in Q3, so approximately 2-or-so-million-dollars. And you're correct -- it is all service-related.

Okay, great. Thanks a lot. I appreciate the answers and good luck with everything.

Thank you.

(Operator Instructions). Chris Quilty, Raymond James.

Martin, just a follow-up. With the commercial FOG being really the biggest disappointment or surprise in the quarter, was that the primary or the only issue leading you to lower the top end of your prior guidance?

Yes. Yes, the FOG is the only part of the business that we're being cautious about in Q4.

Okay. And the new 1760 that you announced, should that be meaningful in our expectations?

I think it will not be meaningful in Q4, because these are OEM products that get designed into other people's system. So, there is a time lag for that. But we have, in the pipeline for 1750 IMUs, which is really the IMU and the integrated 1760, we have probably 100 top prospects that are designing into it, everything from stabilized radars to undersea systems products are involved in oil and gas. There's just a ton of opportunity there. So we're more confident in that part of the business than ever. So -- but as far as that particular product in Q4, no, I don't think it will be meaningful in Q4.

Okay. And I know you're not providing guidance for 2014 yet, but based upon the product pipeline and things in the market, is this still the type of business where you think on the commercial side, it should be a double-digit growing business?

Yes. I mean like the 1750, even sequentially, was up 37%. And so, it's becoming our best-selling product very quickly. And we've got improvements to that product coming that we expect to launch early in Q1, which will further enhance the overall product line. So -- and, as we mentioned in the script, we're integrating it into our TACNAV business, coming out with a new product there, which we think is going to be really a game-changer for our TACNAV business. So we're using it in our own products now as well.

And margins on the business, are they still relatively the same? Or is there some opportunity for upside as you scale back or get greater leverage on all the R&D you're spending?

Well, the good news on the part of the sales that are soft are the low-margin part of the FOG business, because we're integrating other people's components, for example, with the CNS 5000. And the new 1750 IMU is our highest margin product. So, we are moving towards higher-margin systems and they're commanding premium prices in the market, even though they're less expensive than alternatives. So, it's -- that's very encouraging.

Okay. Peter, a question for you -- with the rollout of the fiber backbone in the fourth quarter, can you give us a sense of what that might add in the cost of service? And I assume that's where it lands?

Correct. So, if will go against our airtime cost of goods and it's going to be less than $100,000 for the quarter.

Okay, not nearly as much as I had thought. And just to (multiple speakers) --

(multiple speakers) Sure, just a -- but as time goes on, it will increase a bit in future quarters. But it's not going to be material like adding an entire new C-band network, for example. But -- so, in Q4, it will be about $100,000.

Got you. And the cost of assembling all these industry experts and visiting tradeshows, all of that is baked into your guidance?

Yes. Yes.

And a clarification on Jim's question. I think the disconnect may be when you provide the Headland revenues, that is a separate line item not part of the mini-VSAT. Is that correct?

Correct. It's included within our mobile communications business. So when we talk about $25.7 million of mobile comms revenue, that includes the $3.3 million from Headland Media, but that is not included within the VSAT.

Okay. And can you give us some help on trending both the type of customer that's signing up for mini-VSAT service, commercial high-end leisure, as well as some of the underlying trends towards the V11 product versus V3 and V7? V3 and V7?

Yes, I think there's two interesting trends going on, and it's a little bit puzzling to us. One is that the low-end product is selling better, and there's more interest in the high-end product. So most of our fleet quotes now are for V11s. So, it's kind of a little bit different from what we expected. But since the sale price on the V11s is higher and the ARPU's are higher, that's fine, but -- so it seems like the low-end of the market is doing well, and the high-end of the market is doing well, and the middle end of the market is not doing as well.

Got you. And any impact from recent Inmarsat price increases? Or are those price increases on the old ENE service just too far removed from the part of the market you play in?

Well, you know, that is an interesting point, because, as soon as you asked that question, I was thinking that that might have some impact on the V3 sales, which we definitely saw a spike in Q3. So, it could be that those customers are finally being pushed over. Because the V3, the nice thing about our V3 product, is it's not going to be impacted by Global Express in any way, because it's a volume product. It competes perfectly with the fleet broadband, and it offers 2 megabits per second instead of 200 kilobits per second. And it's dramatically less expensive to use.

So, I think that that part of the market, thinking about it logically, there's 40,000 fleet broadband units out there that really should be V3 customers. And those customers are not going to buy a V11 and they're not going to buy Global Express.

Got you. Actually shifting back to a prior question about Headland Media. If that is -- and this is just an accounting question in terms of how we model this -- if you're going to segregate that as a separate line item, will it have an impact on ARPU's on a go-forward basis? I mean, will you pull out the portion of that that impacts existing service plans, and pull it into a single line?

So, first of all, just to clarify, Headland Media will not be pulled out as a separate line going forward. However, in the way we report our ARPU's then, there will be some clarification around what is traditional VSAT airtime service revenue versus what is coming from content. It is not just Headland. There are other content services we're delivering, which will have an impact on ARPUs.

Got you. Another fun thing to track. Well, good. Appreciate the details, and good luck going into the end of the year.

Great. Thanks, Chris.

And at this time, we have no further questions in the queue.

Okay. And, as always, if anybody has any follow-up questions, feel free to call or email us directly. Thank you.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.