KVH Industries Inc (KVHI) 2013 Q4 法說會逐字稿

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

At this time I would like to turn the conference over to Peter Rendall, Chief Financial Officer. Please go ahead, sir.

Good morning. I am Peter Rendall and with me today is Martin Kits van Heyningen, Chief Executive Officer of KVH Industries.

This call will address the fourth-quarter earnings release that we issued earlier today. Copies of this 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 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 most recent Form 10-Q filed with the SEC on November 9, 2013. The Company's SEC filings are directly available from us, from the SEC, or from the Investor Information section of our website.

And at this time, I will turn it over to Martin for today's discussion of results. Martin?

Thank you, Peter. Good morning, everyone and thank you for joining us today.

Although disappointing FOG sales in Q4 caused us to have poor overall results in the quarter, on a full-year basis 2013 was another good year for us, as we continue to grow, improve our profitability, and strengthen our competitive position with a broad range of new products and services. I'm happy to report that both our mobile broadband and guidance and stabilization businesses performed well in 2013, and we have a number of new initiatives underway that will create exciting new growth opportunities in the years ahead.

For the full year 2013 our annual revenues topped $162 million, which is a new record. It was up 18% over 2012. And our earnings per share were $0.30, a year-over-year increase of 26%.

Our annual revenue growth was driven by global broadband sales of $108 million. That's up 22% from 2012. This growth was in turn driven by a strong 36% increase in maritime VSAT airtime sales.

In the marine satellite business, revenues were up marginally to $16 million for the year. The important [leisure] markets for our satellite TV business seem to be rebounding somewhat in the Americas, where we saw a 10% increase year over year, but are still lagging in Europe where marine satellite TV sales were actually down 10%.

Our guidance and stabilization business also grew in 2013 to $54 million, a 12% increase over 2012. We successfully completed hardware deliveries on the largest order in the Company's history for our TACNAV tactical navigation system during the year, and are nearly finished installing over 1,000 systems in vehicles using our new facility in Saudi Arabia. This sale and associated engineering support generated nearly $20 million in revenues during the year.

Our 2013 fiber optic gyro sales grew to $24.5 million, which was up about 5% year over year. The new 1750 IMU is being well received and is being designed into many of the prototype military robots, self-driving cars and stabilized optical devices on drones that you might have read about recently in the news.

During the fourth quarter, our mobile broadband revenues increased 35% year over year to $29 million. This includes $12.5 million of mini-VSAT broadband airtime revenue which, on an annualized basis, now represents more than $50 million in revenues. With contracts that typically range from 1 to 3 years, airtime revenues continue to grow at a fairly predictable rate as we add subscribers to the network. We also had solid unit bookings in the quarter and even carried backlog into 2014, which is unusual.

Our guidance and stabilization revenues were $9.9 million in Q4, down 45% year over and year. A significant part of this decline was anticipated due to the completion of our record TACNAV contract in Saudi Arabia. Our military navigation sales for the fourth quarter were $2.2 million, and that's down 76% from Q4 of 2012.

Our fiber optic gyro sales totaled $4.6 million for the quarter, down 39% from Q4 in 2012. This was far below our internal expectations. As we've reported on previous calls, our fiber optic gyro sales are often used as subsystems in other manufacturers' final products, so we don't always have good visibility of all the factors that drive demand for their products and ultimately for our FOG sales.

This past quarter one of our major OEMs with a long-term contract unexpectedly delayed shipments on their fourth-quarter forecast, reducing their fairly steady quarterly volume more than 85%. This unforeseen delay, combined with the already adverse effect of anticipated demand for military systems that use our fiber optic gyros as components, resulted in significant drop in revenues.

[We've narrowed] the customers responsible for this decline and believe their sales will recover later in 2014. In fact, they've since placed those orders that were deferred.

Pete will cover the numbers in more detail, but let's take a look at some of the exciting developments we believe are going to drive significant growth in each of our key business areas, starting off with our satellite business.

Last year we shipped more than 1,000 mini-VSAT broadband terminals, growing our total shipments to over 4,000 systems. According to all three of the leading industry research reports and sales results reported by our competitors, this makes us the most widely used maritime VSAT service by a significant margin.

Winning the leadership position in the maritime VSAT space in terms of the number of customers is a gratifying accomplishment, but we really see this achievement as a milestone on the path toward our goal of winning a much larger opportunity. Our mission is to change the basis of competition in the maritime broadband market from simply trying to provide the lowest-cost satellite-based data connection to inventing new fundamentally more efficient ways for our customers to send and receive the content they want aboard their vessels.

Our approach of designing our own hardware and creating our own satellite services gives us a significant advantage over most of our competitors, who are limited to a building-block approach using common and highly modularized equipment from a number of third-party manufacturers to deliver increasingly commoditized services.

Over the past year we've made significant advancements in each major part of our end-to-end solution, moving each element ahead of our competition with significant differentiating advantages and creating the foundation for significant long-term growth. Those elements are hardware, network, content delivery, and content.

So, from a hardware perspective, in 2013 we introduced the new TracPhone VIP series product line, which features antennas that are 85% smaller than similar products, and a new single 2U box below decks that include the antenna controller, advanced network manager, router and the ability to receive our new IP MobileCast content right out of the box.

The advantage of this product line is that it's significantly smaller, simpler, making it faster, less costly, and easier to install than our competitors' products. And it provides every one of our customers the ability to access all of our major new services.

On the network side, in addition to adding geographic coverage to the mini-VSAT broadband network, we also made two major upgrades that quadrupled our transmission capacity over the past 18 months. This increased network efficiency was delivered to our entire customer base through over-the-air updates, enabling us to provide all of our customers with abundant high-quality, high-speed capacity.

With our network now fully deployed future capacity increases can be brought online exactly where we have concentrations of customers and will only involve incremental investments. We're also actively balancing traffic between satellites in many regions where we have overlapping covering, assuring the best return on our transponder leases, which helps improve our airtime margins.

Looking ahead to the future, we have access to plenty of new capacity from our existing satellite providers, including high throughput satellite, or HTS Ku-band capacity that can be accessed using all of our antennas from the field. And we're also investigating Ka-band opportunities with our network partner ViaSat.

Having great onboard terminals and a fully fielded global network with the ability to profitably scale to meet future demand puts us ahead of any competitive service. But it doesn't change the fundamental economics of sending large files over satellite link. And this is where we believe our new IP-MobileCast content delivery service is a real game changer.

Within the next few months we'll be able to affordably deliver entertainment and operational content seafarers have always wanted by broadcasting large files to large numbers of ships using a single transmission. This is exponentially more efficient than our competitors' practice of sending the same file individually to each customer.

While the concept behind multicasting sounds simple, there's a lot of proprietary technology behind IP-MobileCast. Our multicasting technology itself uses sophisticated encapsulation software that assures files are delivered correctly to large groups of users even if part of the transmission is blocked or garbled. IP-MobileCast also includes digital rights management capabilities that are essential for networks delivering copyright-protected content, like Hollywood movies and major sporting events, to customers.

In addition, this technology enables us to allow seafarers to access rights-protected content on their smartphones, tablets, and TVs using slick new state-of-the-art user interface. Over the past few weeks we've previewed the service at commercial shipping events in Europe and the yachting market at the Miami Boat Show, where we received great feedback from customers and channel partners trying it for the first time.

And the final major area of our extended end-to-end solution involves access to commercially licensed content. As most of you know, last May we acquired Headland Media, the maritime industry's leading supplier of licensed movies, news, sports and TV shows. We've just completed a rebranding project whereby Headland Media is now known as the KBH Media Group and movies, sports, TV, music, and news are the core entertainment content for our new IP-MobileCast service.

Together with them, we've been working to create customized content packages and acquiring new rights targeted specifically at the maritime market and seafarers. We also just secured the exclusive rights to provide satellite coverage of the FIFA World Cup Finals to our commercial maritime customers. As soccer fans know, the World Cup is one of the world's most popular sporting events and it's extremely popular amongst the seafarer community. We plan to use the World Cup coverage as a major part of our marketing campaign launching the new IP-MobileCast service as the only way to watch the finals live anywhere at sea.

So the mini-VSAT story is very exciting. The combination of our hardware, our fielded network, our content delivery service, and our wide variety of premium content, like movies and sports and FIFA World Cup creates a strong platform for driving new sales of our mini-VSAT hardware and service and increasing our ARPUs for each new and existing mini-VSAT customer. We're very confident of our competitive position and anticipate that this unique combination of features will accelerate our growth rates from both mini-VSAT subscribers and service revenues.

In addition to all the exciting new developments with our satellite business, we've made significant advancements in our guidance and stab business as well. In our military land navigation business we're wrapping up our largest-ever TACNAV contract, which will be completed this quarter.

With the successful completion of this contract, we've established ourselves as a credible prime contractor with important customers in the Middle East and supporting activities in the US Army. We now have stronger relationships within Saudi Arabia, as well as a purpose-built facility for installing and supporting our TACNAV products. This quarter we'll finish upgrading over 1,000 Saudi Arabian National Guard vehicles with our TACNAV systems a full six months ahead of schedule. We're pursuing several other major programs that could keep our TACNAV production lines busy for several years to come. We now have visibility into potential projects in pipeline that are far better than any time in our history.

Our TACNAV product line will also be strengthened with the introduction of a new high-end system that will be introduced later this year called TACNAV 3D. This new system will be significantly more accurate than our existing products, especially in hilly terrain, thanks to its embedded 1750 IMU. TACNAV 3D will provide new sales opportunities on platforms with more demanding navigation requirements than can be met by our existing products.

Our fiber optic gyro technology was also significantly improved in 2013. The new 1750 IMU is doing well in customer trials and is being designed into prototypes for many emerging commercial and military applications. We've had considerable success thus far selling fiber optic gyros to companies working on self-driving cars and other autonomous platforms using commercial and industrial applications. And the KVH 1750 IMU is used by five of the eight finalists in the recent DARPA Robotics Challenge.

So, in conclusion, our short-term sales results have not been as consistency as we would like, due to the dependency on large customers in our guidance and stabilization business. While defense contracts are notoriously lumpy, we don't feel that we see this as getting any worse. We're optimistic about the future of our new guidance and stab products, which seem to be gaining traction in their respective markets.

And, with its recurring revenue stream, our service business is becoming more predictable over time. The future of our mini-VSAT service is very exciting, as we believe we have the extremely strong competitive position and unique services that will create strong demand from our maritime customers.

At this point I'll turn the call back over to Peter for the numbers. Peter?

Thank you, Martin.

Now I'd like to turn our attention to our fourth-quarter results. This morning we reported revenue of $38.9 million, which was 2% lower than the revenue reported in the prior-year quarter. As Martin stated earlier, our mobile communication revenues of $29 million represented a 35% year-over-year increase, while our guidance and stabilization revenues were 45% lower at $9.9 million.

Revenues from our VSAT business were $18.6 million in the quarter, an increase of 28% year over year. Of this amount, airtime services represented $12.5 million, an increase of 35% over the fourth quarter of 2012. Our VSAT airtime ARPUs in the quarter were consistent with what we reported throughout 2013, namely $700 per month for the variable by-the-megabyte plan and approximately $1,900 a month for the fixed-rate plans.

All other sat com revenue, including TV systems, KVH Media, which was formerly known as Headland Media, in our sat systems and airtime was $10.4 million. Within that amount, satellite TV product sales were flat year over year at $3.5 million, while land-based systems declined 6% to $1.1 million, as we'd previously anticipated.

TACNAV product revenues of $2.2 million came in as expected and were 76% lower year over year as product shipments related to the Saudi Arabian National Guard program ended in the second quarter of 2013. Under that program we did, though, record $2.6 million in lower-margin service revenues related to equipment installations and program management services.

Turning to our FOG business, FOG sales in the fourth quarter of $4.6 million were disappointing at 39% lower than the same period last year. As it relates to the year-over-year decrease, a significant contributor was a sharp slowdown in spending under the CROWS program. For 2013, almost 50% of our FOG revenues related to commercial applications and we anticipate that trend will continue into 2014 as our 1750 IMU continues to do well in customer trials for a variety of emerging commercial applications.

In the third quarter we reported for the first time that almost 50% of our revenues were from services. As we expected, in the fourth quarter that trend continued and, of $38.9 million of revenues we reported in Q4, $20 million related to service revenues, representing 52% of the total. Of that amount, 66% related to airtime, 13% related to services performed under the Saudi Arabian National Guard program, and 18% related to KVH Media. In the fourth quarter last year service revenues of $11.5 million represented 29% of total revenues. Of that amount, 90% related to airtime.

The gross profit margin in the fourth quarter of 40% was in line with our expectations. Although the prior-year fourth-quarter gross profit margin was higher by 370 basis points, most of that was attributable to the additional $7.1 million of TACNAV product that we shipped.

We were pleased to report in the fourth quarter that the gross profit margin for VSAT airtime continued to climb. The 37% margin compares favorably to the 30% margin we reported in the 2012 fourth quarter and is up sequentially from 36% in the third quarter.

As we have discussed in recent earnings calls, the gross profit margin associated with the installation and program management services of the Saudi Arabian National Guard program are less than 10%, and during the fourth quarter we recorded $2.6 million of revenue related to these activities. As Martin mentioned, the final installment of these services under the contract are expected to be completed in the first quarter of 2014.

As it relates to operating expenses, we expected higher costs in the fourth quarter compared to the third quarter, particularly around spending associated with the IP-MobileCast initiative and elevated trade show expenses. Even so, operating expenses of $16.1 million were slightly elevated from our previous expectations as we incurred some one-time restructuring costs in Europe and additional costs associated with developing the IP-MobileCast service. Compared to the fourth quarter last year, operating expenses were up 23%, the majority of which relate to the addition of KVH Media's operating expenses, as well as the IP-MobileCast.

Our effective tax rate for all of 2013 was 32%. As we have discussed before, taxes are always difficult to forecast since there are so many variables and unanticipated discrete items.

We recorded a net loss in the fourth quarter of approximately $400,000, or $0.02. This compared to the $2.8 million in net profit, or $0.18 of EPS we reported in the same period last year. As I already noted, the prior-year quarter included a significantly higher amount of TACNAV revenue, which historically carries a higher gross profit margin than our other product lines.

For the fourth quarter, the EBITDA adjusted for equity compensation expense was $2.7 million. Depreciation and amortization for the quarter was $1.7 million, and equity expense was approximately $1 million.

For all of 2013 the EBITDA adjusted for equity compensation expense and acquisition-related costs was $17.7 million, and the adjusted EBITDA margin was 12%. Depreciation and amortization for all of 2013 was $6 million and equity expense was approximately $4 million.

Now moving on the balance sheet, at December 31 we had cash and marketable securities of $55.7 million, a decrease of $1.5 million from the end of the prior quarter. Our quarter-end accounts receivable balance of $27.5 million was slightly elevated from September 30, while our accounts payable was lower, which represents the majority of the changing cash on hand at the end of the year. Our quarter-end inventory balance stood at $18.3 million, which was flat with that on hand at September 30.

Capital expenditures during the fourth quarter were approximately $2 million, bringing our total for 2013 to about $5 million.

Backlog for our guidance and stabilization products and services at the end of December was $18 million, down by $3.6 million from September.

So, turning to our outlook for the first quarter of 2014 and the full year, as Martin said, we expect our VSAT business will continue to grow at a strong year-over-year pace, driven by the adoption of broadband services, as well as the introduction of our IP-MobileCast content delivery solution. We are encouraged by the pipeline of opportunities for TACNAV, but remain cautious as to the timing of any of these programs to close. Although our FOG business experienced an unexpected decline in the fourth quarter we do expect to see a modest increase for 2014.

Operating expenses are expected to be a bit higher in the first quarter, as we launch our IP-MobileCast service. And we expect our effective tax rate for the first quarter to be approximately 25%. For the full year we expect the effective tax rate to be about 40%, subject to the effect of unforeseen discrete items.

Considering all of these factors, our guidance for the first quarter is as follows. We expect revenue will be in the range of $36 million to $40 million and we will record a net loss per share of between $0.04 and $0.07.

Revenues for the full year are expected to be in the range of $165 million to $185 million and the EPS will be in the range of $0.30 to $0.40 per share.

So, in conclusion, we remain confident in our strategic growth businesses and the operating fundamentals remain strong.

And now, we'd like to take your questions. Operator?

Thank you. (Operator Instructions) Chris Quilty; Raymond James.

Gentlemen -- I guess, Martin, can you confirm -- it looks like from your statements that the shipments, the TracPhone shipments in the quarter were still within that sort of 250 to 300 unit range?

They were. Increase over the prior quarter. And we also carried a not insignificant backlog into Q1, which almost never happens. So we had increased demand in Q4, which was very encouraging. So we're seeing an uptick in sales.

And can you give us the standard breakdown you typically do between the three platforms?

Yes, I think Peter's got that handy.

Sure. Chris, the mix of TracPhone hardware sales during the fourth quarter was 37% for V3, 54% for the V7, and 9% for the V11.

Okay. And what do you see as the necessary precondition to break out of that sort of channel you've been stuck in, 250 to 300 vessels a quarter? Is it the launch of the multicast service? Has there been any hold back as clients wait for that? Or is it just simply winning more big deals?

I think it should happen this year. We see generally sort of in that 10% to 25% increase in unit shipments this year compared to last year. So we're seeing signs of acceleration. I think the IP-MobileCast is going to be a real game changer. So I think that's going to be a big driver. And the difference between having it and not having it is really going to be strong, in my opinion. So we're very optimistic.

And how about specifically on the sort of pipeline as you look out, customers that you've had in trial? Does it look larger than it was going into 2013, and significantly so or modestly?

It's different. What we're seeing now is that we're getting a lot of sort of -- I don't want to say onesie sales, but small sales that just recur, people buying five units and then coming back a month later and buying five more. So the big RFPs is less than it has been in the past. And I think that that in general is probably because the early adopters have adopted and it's kind of now a mass market product where people just go out and buy it as opposed to do a big dog and pony show and trial everybody's product.

So I think what we're seeing now is -- for us it seems like more of a (inaudible) type as opposed to a proposal sale, which I think benefits us because of our broader distribution and our ease of installation.

Speaking of distribution, I think you said you signed a half dozen reseller partners, gee, it was a year and a half ago now. Have you seen those partnerships begin to take hold?

Yes, actually they have. Again, that's one of those things where I was expecting big orders from them and it never materialized. But I was just looking at the percentage of our airtime customers that are actually tagged to those types of SPs, or resellers as you call them, and it's fairly significant now. So they actually are doing quite a good job.

And is that only replacing the existing base or adding new vessels?

Oh, they're adding vessels, but I think our goal there is to help them churn their customers that might still be on fleet systems, or (inaudible) said, B systems.

Got you. And, Peter, you didn't comment on the incremental margins or the mini-VSAT service. Is that still around 60%?

Yes, between 55% and 60%, depending on the mix.

Okay. And have you secured all of the media rights you need for the legacy Headwind relationships? Or you're still working through the list?

We've secured everything we need to launch. There's always more that we want. So a lot of what we're doing is acquiring new content that our media never had rights to, so things like Filipino news channels. You know, that's not something that they ever had. We've gone out and acquired those rights so that we can do the nightly news from Manila every day.

So we've done a great job in putting that in place. And it's going to be an ongoing effort. We've added some staff there, including some new people out in California that will be focusing on this full time. So we see this as an ongoing effort. Like, we just did the deal with IMG for the FIFA World Cup. So we'll be acquiring rights continuously. But we have everything we need to launch.

And what has been the primary reason for the delay? I think you're probably a quarter behind your original schedule.

Yes. It's, like any new product, it's always a million things. But this is probably the most complicated thing we've ever done, and that includes launching the mini-VSAT further. So the acquisition of content, digitizing it, packaging it in ways that can be transmitted, the IP-MobileCast itself, encapsulation of technology, pushing content out to 22 hubs, multicasting it, making sure it arrives. And then the playback method -- we've developed two really slick solutions, both of which are going to be available this quarter.

So it's a really, really complex project and we've executed it I think to a higher level than we thought we were going to when we started. We were thinking we'd just have some simple playback or watch it on your PC type of thing. But what we've come up with is very slick, in terms of iPads, set-top boxes, 100 simultaneous users. It's really a unique product. I think people are going to be blown away when they see it.

Okay. And final question, just for Peter -- can you give us some handles on where you expect the service margins to reach? And this is meaning VSAT service margins by the end of the year, sort of the incremental expansion.

And second question would be on the OpEx, you indicated higher than average in Q1, but can you give us a ballpark of what you expect, either on a full-year basis or kind of working through the quarterly progression?

So, Chris, just in terms of the margin as relates to the percentage that's going to be service, obviously part of the margin in Q4 and Q3 related to the Saudi contract, which effectively goes away in Q1. So we will still continue to see, we believe, our service margins increase, but certainly not at the same pace that they did in 2013. So I suspect that by the end of the year we'll be a few percentage points higher than we were at the end of Q4.

And then as it relates to the operating expenditures, clearly we incurred more around the IP-MobileCast in Q4, which will continue through Q1. And we also had some higher trade show expenses in Q4. And I think with the launch of the new IP-MobileCast service, we're not pulling back on the advertising and marketing around that service. So certainly elevated from what we saw on a quarterly basis in 2013, but not out of control. And certainly we keep a close eye on our expenses.

So, would the Q4 OpEx be a high-water mark that you wouldn't expect to see during 2014?

So, for each of the first three quarters in 2014 you're probably going to be slightly elevated by a modest few hundred thousand. And then, by the end of the fourth quarter, probably $1.25 million higher than where we are in Q4 last year.

Okay. Great. Thank you, gentlemen.

Operator: (Operator Instructions) Rich Valera; Needham & Company.

Peter, I was hoping you could give us some color on your revenue expectation beyond Q1. If you look at the average at the midpoints of your Q1 in 2014 guidance you're looking at kind of $45 million, $46 million a quarter, which is a pretty big jump. And I'm not sure if you're expecting that to be sort of level-loaded through those three quarters, or if you're expecting that to sort of ramp into the back half. And in any case, we'd just love to get a little granularity on other pieces of the business, sort of what drives that kind of ramp. I know you mentioned that FOG is expected to be up slightly. If you could give us some color on what your expectations are for TACNAV in the year, as well as Headland, that would also be quite helpful. Thank you.

Certainly. So just in terms of the TACNAV business, as is consistent with previous years, we're very conservative in how we forecast that, based on existing backlog that we have coming into the year or very high probability programs. So, today we're expecting to see a modest decline in that business year over year, which is offset by a modest increase in our FOG year over year business.

But overall, because we're losing $10 million of [SANG] rev, that nonrecurring services revenue, we expect to see overall our defense business to come down slightly. However, that doesn't take into account the opportunities that Martin mentioned that we have good visibility into that we would hope to close throughout some point in the year. But, again, timing of delivery under those contracts is not something that we can forecast with a high degree of accuracy at this stage.

In terms of the mobile broadband business, there's lots of components that affect that. In terms of the airtime services, there ought to be some seasonality. We expect to see revenues increase sequentially each quarter as we add more subscribers to the network. And we expect to actually have a strong growth year year over year there.

On the product side, there's seasonality over our TV product sales throughout the year, which causes some lumpiness in terms of each quarter. But they're predictable based on history.

One thing might help you with, to get that jump after Q1 we are assuming that TACNAV business resumes to a more normalized number, which is in the sort of $3 million to $5 million a quarter kind of range. It's unusually low in Q1 at around $1 million. So that's kind of a big step function that happens. Now, some of that is in backlog. Some of that still is yet to book, but that's kind of what's -- for normal that's what we're expecting.

Just wanted to get your visibility towards obviously needing to book some of that business. You mentioned, I think, you have the best TACNAV pipeline in the Company's history. Any other color you can put in terms of number of large deals and any expectation for when some of them might close?

Well, we expect deals to close in the next few months. So we expect to have some good announcements here, some of which is baked into our guidance and some of which might be longer term, but large awards that we haven't been booking recently. So we also have some projects out there that are as large or significantly larger than the big program we just finished, which is something that recently was unlikely to happen again. So we just have a whole lot of things in the pipeline right now, some of which where were designed into programs and we think that if the customer wins we'll win, and the customer has recently won, so we're very optimistic that some of this stuff is going to happen.

So I think the disconnect here is that we're cautioning that we're going to have sort of shockingly low TACNAV in the first quarter, and that's really driving a problem. But at the same time we're saying we're very optimistic about our TACNAV business. And the difference really is one of timing.

Okay. And then, with respect to the MobileCast business, per the prior discussion, sounds like that has pushed out. Understand it's a really complex and sophisticated service you're rolling out there. But want to get a sense of when you think that will be a full production service and you'll start generating revenue from paying customers on MobileCast.

Well, we're demoing it now at trade shows live. We're doing over-the-air tests with customers this month, in February. So assuming all the testing goes well, we should be starting revenue service within the next 60 days.

Great. And then, with Headwind, you had a decent sequential tick up there in Q4 versus Q3. Any thoughts on how that business should trend in 2014 maybe relative to that fourth-quarter level, if that's a decent benchmark?

Yes. I think that their business is -- I don't want to call it legacy business, but their legacy business, that we see in the 5% to 10% growth range business. It's kind of a stable business. And then on top of that we're jump-starting it with using that content and those rights for IP-MobileCast, and which is -- we really are accounting for it differently, because that's kind of a different business. We're not putting that into the Media Group revenue.

And just one final one from me -- Peter, do you have the guidance and stabilization backlog at the end of the fourth quarter?

It was $20 million I think (inaudible).

I'm sorry?

$18 million. $18 million.

Okay. Thank you very much.

(Operator Instructions) Anya Shelekhin; Sidoti & Company,.

First question about our G&A expenses. How much of the G&A expenses this quarter were related to KVH Media? And do you expect any reductions in those expenses going forward?

The KVH Media expenses on a sequential-quarterly basis are about $2 million and we're not expecting any significant change in it.

Okay. And the one-time restructuring costs in Europe, could you provide a dollar value for those?

They were less than $300,000.

And then, one final one -- what contributed to the increase in sales and marketing? You mentioned it was mostly KVH Media. Is that kind of the main thing or is there anything else there?

Well, year over year, the vast majority was the addition of KVH Media for the first time.

And anything else, because even on a quarter over quarter it was a very big jump?

Right. Sequentially we mentioned that we had, as anticipated, incremental trade show expenses that historically would occur in the fourth quarter.

Okay. Thanks, that's all for me.

And there are no further questions at this time.

Okay. As always, feel free to contact Peter or myself directly if you have any follow-up questions. Thank you.

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