KVH Industries Inc (KVHI) 2014 Q1 法說會逐字稿

Good day, everyone and welcome to the KVH first-quarter earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Peter Rendall. Please go ahead.

Good morning. I am Peter Rendall and with me is Martin Kits van Heyningen, Chief Executive Officer of KVH Industries. This call will address the first-quarter earnings release that we issued earlier today. Copies of the release are available on our website and are also -- from our Investor Relations department. This call is being simulcast on the Internet and will be archived on our website for future reference. If you are listening via the Web, feel free to submit questions to IR@KVH.com and we will answer them following this call.

This conference call will contain certain forward-looking statements that involve risk and uncertainty. For example, statements regarding financial and product development goals are forward-looking. The Company's future results may differ materially from the projections described in today's discussion. Factors that might cause these differences include, but are not limited to, those mentioned in today's call and risk factors described in our most recent Form 10-K filed with the SEC on March 17, 2014. The Company's SEC filings are directly available from us, from the SEC or from the investor information section of our website. At this point, 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. Well, it has been a very busy quarter and we have got lots of good news to share with you today. Our mobile broadband business continues to grow at a strong rate and our new Media Group is making important contributions to help differentiate us from our maritime VSAT competitors. At the last earnings call, I indicated that we had some major TACNAV opportunities in the pipeline and this quarter, I am encouraged by the traction we have made in bringing some of those opportunities and some new ones close to closure.

In addition, we have some significant new products and service developments coming online that we feel will put the Company in a great competitive position in all our major markets. Starting off with our first-quarter results, overall, we were in line with our guidance. Though revenues of $37 million in the first quarter were down 7% from the same period last year, we'd experienced a sharp decline in TACNAV revenues, which last year had benefited from significant shipments under the Saudi Arabian National Guard contract. Our net loss per share of $0.07 for the quarter was also in line with our expectations and our previous guidance.

Overall, our mobile broadband revenues were $29 million. That is up 27% year over year. The mini-VSAT Broadband portion of the business continues to lead our growth with revenues increasing 27% overall reflecting strong airtime growth of 37% and an 8% increase in hardware sales. In addition to continuing robust sales growth, we are also seeing signs that our competitive position is getting stronger in the important maritime broadband segment. This quarter, one of the satellite industry's major market research reports estimated that our maritime VSAT marketshare was 26%, which they report is double that of our nearest competitor, Inmarsat. An earlier version of this report published two years ago estimated that our marketshare was 16%, so we are making great strides in gaining momentum and reinforcing our leadership position in a market that is projected to grow substantially over the next 10 years.

Moving on to our satellite TV business, although our TracVision revenues were up 9% from the prior quarter, they were down 9% compared to the same period last year. Most of the year-over-year decline was due to component supply issue with one of our vendors for a popular TracVision model that resulted in backlog of unshipped orders at the end of the quarter. In addition, the unusually cold winter and late spring have dampened the marine market activity in the US.

Nevertheless, we recently announced a whole new TracVision satellite TV productline in time for the boating season. I will talk more about this in a minute, but overall we are optimistic about the satellite TV business and we are seeing signs of increased demand for new boat sales in some of our key markets, including the important boatbuilders in Florida, the UK and Italy.

We recently rebranded our Headland Media business to the KVH Media Group and remain pleased with the contribution they have made both to our financial results and our combined service offerings. As we approach our first anniversary since acquiring Headland, we have fully integrated their employees and operations and are very happy to have this talented and dedicated team contributing to our overall success. They have completed a full rebranding effort tying the new sports, movies and TV programming offered by our Media Group into a unified service offering for our new IP-MobileCast content delivery service.

During the quarter, we signed an agreement to provide the FIFA World Cup 2014 to KVH satellite subscribers. This is one of the world's most widely viewed sporting events and it's tremendously popular with seafarers. So it will be a great event for us to offer to our commercial customers in the shipping industry.

Moving on to our guidance and stabilization business, our TACNAV revenues were $1.6 million in the first quarter, down 80% year over year. Now this decline was anticipated due to the shipping of all of the TACNAV product revenues under the SANG contract in 2013. We expect to complete the installation program and management services in the first quarter, but there is still a small amount of work left and that will be completed in the coming months.

In the last earnings call, I noted that there were some significant opportunities in the TACNAV sales pipeline that we hope to see materialize within the next few months. I'm encouraged with the progress we have made in bringing some of these opportunities nearer to closure. One in particular for a Middle East customer appears to be on track and currently is in the subcontracting department of a major defense contractor.

During the first quarter, revenues for fiber optic gyros were $5 million. That is down 16% compared to the same period in 2013. Although sales of fiber products have been a bit lumpy in recent quarters, the fundamentals of the business remain strong and our customers continue to design us into their new products. One of our top customers, NovAtel, has just launched a new version of their integrated GPS INS system using our new 1750 IMU. Two other GPS manufacturers have integrated the 1750 IMU into their productlines, Advanced Navigation and Geodetics, and we are in discussions with several other GPS manufacturers. It is also being adopted by developers in a number of new applications and emerging markets like robotics, self-driving cars and for stabilized equipment and navigation on drones.

Moving on to the many new products and services that we are launching in 2014, we have got a lot of exciting news. I mentioned earlier our new satellite TV productline, which we just launched. The new TracVision TV series productline will replace many of our M series products that have been on the market for several years. The new TracVision TV series offers a number of improvements over our older models. These include technical features that assure the compatibility of the new products with the next generation of [DBBS 2] satellites that are coming online, innovations like single cable designs that make them faster and easier to install, WiFi user interfaces that enable our customers to control them using their smartphones or tablets and we expect all of these new products to begin shipping within the next few weeks. Our team has done a great job of running down the inventory on the legacy products and launching a new productline all at once.

Our new IP-MobileCast content delivery service has been beta-tested by a number of customers on commercial vessels and yachts around the world and the service is now live. This is a major accomplishment for us. While the service is conceptually straightforward, there's a lot of technology involved to capture content, move it to different hubs and then multicast it on a global basis over our mini-VSAT Broadband network. We have worked to upgrade our network to add the multicasting capability in each of the teleports and hubs, work with security firms to develop digital rights management capabilities and develop new iPad and Android applications and user interfaces for set-top boxes to assure that our customers have a great experience accessing the new sports, TV and movie content we will be delivering. The response we have received at tradeshows and events where we have had an opportunity to demonstrate this service has been terrific. For those who spend long periods of time at sea with no movies, TV shows, news or sports, experiencing the rich content we deliver to tablets, computers, smartphones and set-top boxes has been incredibly well-received.

At sales events around the world, prospective customers have been very enthusiastic about our new service. No shortage wanting to sign up for trials. They see the new service as an exciting and affordable solution to meeting the new international labor requirements to provide their crews with better access to current world events and entertainment services.

A major initiative for our Media Group in the UK this quarter was the launch of a new employment service as part of our Crewtoo social media site. This is the first part of our strategy to build increased utility of the site for our members and start generating revenues. During the first quarter, we announced that Crewtoo has over 100,000 seafarer members making it the largest site of its kind in the commercial maritime industry. Crewtoo offers an exciting growth possibility and a natural tie-in with our IP-MobileCast service.

Our mini-VSAT Broadband service provides Internet cafe and communication like phone service for seafarers and we entertain them with our IP-MobileCast services and Crewtoo enables us to help them manage their careers, keep track of their training, access useful content and stay in touch with their friends and families. It's part of our two-part strategy to address operations for the fleet owner and entertainment for the crew.

Another new product we are working on is for our guidance and stabilization group, making a major addition to the TACNAV productline with the introduction of a new product called TACNAV 3D, which incorporates our own 1750 fiber optic gyro-based GPS inertial navigation system and a built-in iridium satellite-based messaging capability for basic communications and position reporting and there is an optional mini-VSAT Broadband connection for higher bandwidths. This product will enable us to compete for higher-end sales opportunities that require accuracy beyond the capabilities of our earlier TACNAV products. With heading accuracies of 0.05 degrees and the ability to navigate without GPS for hours at a time and still be accurate within a few meters, it really takes us to the next level of precision. We will be launching TACNAV 3D at the international military tradeshow called Eurosatory, which is held in Paris in June. And we already have customer trials scheduled in Asia and the Middle East this fall.

So in summary, we have got a lot of new products underway that will strengthen our position in each of our major markets. We are now recognized as the leader in mobile broadband in the maritime space and we are successfully winning marketshare from our larger and more entrenched competition by executing our strategy of offering innovative solutions to deliver better value to our customers.

Our mobile broadband productlines are all being updated and revitalized and we have some exciting new sales opportunities coming online leveraging our Crewtoo social media site. We are seeing good short-term sales opportunities for our TACNAV products and fiber optic gyros and while long term we are bringing out new versions of our military products that will help us compete for larger sales opportunities on higher-end vehicles. We are very excited to be going live with our IP-MobileCast service, which is bringing entertainment on board to the next level and we will continue to refine our operational offerings for IP-MobileCast by adding partners in the WEATHERlink and TRAININGlink areas. And now I'd like to turn the call back over to Peter for our detailed financial results. Peter?

Thank you, Martin. Now I'd like to turn our attention to our first-quarter results. This morning, we reported revenue of $37 million, which was 7% lower than revenue reported in the prior-year quarter. As Martin stated earlier, our mobile communication revenues of $29 million represented a 27% year-over-year increase while our guidance and stabilization revenues were 53% lower at $8 million. Revenues from our VSAT business were $18.8 million in the quarter, an increase of 27% year over year. Of this amount, airtime services represented $13.4 million, an increase of 37% over the first quarter of 2013.

Our VSAT airtime ARPUs in the quarter were consistent with what we reported throughout 2013, namely $600 to $700 for the variable by the megabyte plan and approximately $1900 per month for the fixed rate plans. All other satcom revenue, including TV systems, KVH Media Group, Inmarsat systems and airtime, was $10.1 million, up 28% from a year ago. Within that amount, maritime satellite TV products sales of $3.8 million were down 9% year over year while land-based systems declined 11% to $1.1 million as we had anticipated.

As Martin had mentioned earlier, the year-over-year decline in TV product sales was attributed to a combination of an unseasonably cold spring in North America that impacted our leisure marine business and a component shortage by one vendor that caused us to carry a higher-than-normal backlog at the end of the quarter. We expect that backlog to be cleared during the second quarter. The decline in satellite TV product sales was offset by a $3.3 million revenue contribution by KVH Media, which was acquired in May of last year.

TACNAV product revenues of $1.6 million came in as expected, but were 80% lower year over year as product shipments related to the Saudi Arabian National Guard program had amounted to $6.2 million in the first quarter of last year and none this quarter. Under that program though, we did record approximately $1 million in low-margin service revenues in the first quarter related to equipment installations and program management services.

Now turning to our FOG business, FOG sales in the first quarter of $5 million were 16% lower than the same period last year, but were up 7% sequentially. As it relates to the year-over-year decrease, a significant contributor was the sharp slowdown in spending under the CROWS program that we have noted previously. For the first quarter, 78% of our FOG revenues related to commercial applications, continuing the trend we saw throughout 2013 where sales into commercial applications were higher than those related to defense applications.

As it relates to the split of our products and service revenues, 51% of our revenues in the first quarter were service-related. The vast majority of which was subscription-based. In the first quarter last year, only 37% of our total revenues related to services. In the current quarter, 75% of service revenue related to airtime and 17% related to KVH Media Group.

The gross profit margin in the first quarter of 39% was in line with our expectations and approximately the same as reported in the first quarter last year. We were pleased to report in the first quarter that the gross profit margin for VSAT airtime was 37%, which compares favorably to the 33% reported in the first quarter last year and is up sequentially by almost 400 basis points.

As it relates to operating expenses, the $16.3 million we recorded were in line with expectations and compared to the first quarter last year, operating expenses were up 23%. The majority of which related to the addition of KVH Media Group's operating expenses and the IP-MobileCast development costs. With our effective tax rate for the quarter being 28%, we recorded a net loss in the first quarter of $1.1 million, or $0.07. This compares to the $2 million net profit and $0.13 of EPS we reported in the same period last year.

As we have already noted, the prior-year quarter included a significantly higher amount of TACNAV product revenue, which historically carries higher gross profit margins than our other productlines. For the first quarter, our EBITDA adjusted for equity compensation expense was $1 million. Depreciation and amortization for the quarter was $1.6 million and equity expense was approximately $1 million.

Now moving on to the balance sheet, at March 31, we had cash and marketable securities of almost $54 million, a decrease of $2 million from the end of the prior quarter. The majority of this decrease can be attributed to a slightly elevated accounts receivable balance of $28.2 million compared to the prior quarter while our accounts payable and accrued expenses were lower. At quarter-end, our inventory balance stood at $18.7 million, which was relatively flat with that on hand at December 31. Capital expenditures during the first quarter were a little less than $1 million. Backlog for our guidance and stabilization products and services at the end of March was $17 million, down by approximately $1 million from December 31.

Turning to our outlook for the second quarter of 2014 and the full year, we expect our VSAT business will continue to grow at a strong year-over-year pace driven by the adoption of broadband services. We also expect our TACNAV product sales to increase in the second quarter compared to the first quarter and as Martin has already mentioned, we are encouraged by the visibility of TACNAV opportunities we have in our pipeline, but we always remain cautious as to the timing for any of these programs to close.

Operating expenses are expected to be a little higher in the second quarter, particularly as it relates to sales commissions on the higher level of TACNAV sales we anticipate. We also expect our effective tax rate for the remainder of the year to be approximately 40% subject to the effect of any unforeseen discrete items. Considering all of these factors, our guidance for the second quarter is as follows. We expect revenue to be in the range of $41 million to $45 million and a net profit per share of between $0.03 and $0.08. Revenue and EPS guidance for the full year remains unchanged from what we previously said with revenue expected to be in the range of $165 million to $185 million and EPS in the range of $0.30 to $0.40 per share.

So in conclusion, our confidence in our strategic growth businesses and operating fundamentals remains strong. And at this point, we would like to take your questions. Operator?

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

Thank you, good morning. Nice to see you got the multicast service up and running. I wonder if you can give us any sense of how you are looking at that from a revenue standpoint and if you are going to give us any color on that in terms of subscribers you have added to it or revenue as it begins to roll out. Thank you.

Yes, I think what we will do is -- when we first start, we probably won't talk about specific subscribers because it won't be material. But as we grow, we will probably break it out as it starts to become significant. So we don't expect a material revenue impact in the second quarter. So we are starting revenue service; May 1 will be the billing cycle. We are very excited about it, but we don't have specific financial results to talk about probably until we put a couple quarters behind us.

Fair enough. And then on the mini-VSAT service, I wonder if you could give us a sense in the quarter of how the net adds, if they were kind of in the range of what we have been seeing, which I think has been kind of in the 250 to 300 range and what we would expect for net adds for the balance of the year kind of on that quarterly run rate basis?

Yes, we are still in that range and as I've said, we are hoping that with the IP-MobileCast service will help us break out of that range. Although having said that, I think some of the early customers for IP-MobileCast will come from existing subscribers because they already have the equipment on board. And as I think I've mentioned in the past, everything we've shipped in the last 18 months is backwards-compatible, so that would be probably the quickest customers to bring on board with that. But, nevertheless, we feel this can make our mini-VSAT service more attractive, so we do expect to see that increase hopefully starting in the current quarter.

Got you. So you said everything -- well, the hardware I guess you have shipped in the last 18 months are backward-compatible. Presumably you have the kind of storage you need to do the multicast on them. So if we kind of assume what your adds have been, call it maybe a 1000 sort of annualized run rate, that is roughly the base out there that you could immediately sell into and upgrade effectively to the multicast service without having to add any hardware. Is that a fair assessment?

That's correct. So we are offering a free over-the-air software upgrade. They will start for people immediately as soon as they sign up. We are also doing some demos so that people who are turning the service on so they can get, if they are interested, they can see it live for 30 days and check it out. And as far as the storage goes, we also have a media server, which has terabytes of storage. So there is going to be a two-tier product offering. One is what is built in and that gets you NEWSlink and SPORTSlink, movie trailers and the newsprint, 70 different languages of newsprint and a TV show of the month. That is the built-in package. But then if you want the full service, the movies and everything else, you need the media server, which is a plug-and-play product that we design that you just plug in to your network.

Got you. And can you remind us what the range of ARPU is you might expect out of a new multicast customer or how much incremental ARPU if they are already a Headland customer?

Right. Well, let's start with the customers that are VSAT customers. The lowest cost package is $200 a month, so that would be just for the news service and sports is another $200. Then we have movie packages that start at $300 a month. So we are guessing, but we think -- we are hoping to have an incremental ARPU in the maybe $500 a month range, something like that.

Got you. That's helpful. And switching gears to the TACNAV part of the business, it sounds like you have got one opportunity specifically that you mentioned. I guess it's actually in sort of processing at a large OEM. Can you give us any sense of the magnitude of that opportunity?

Yes, we have got a couple different opportunities actually and we are not quite sure -- some of them we have baked into -- we are pretty confident that they are coming in and we actually have them in the current quarter guidance. Others are going to be for 2015, so they range from sort of the $3 million to $4 million up to $15 million to $18 million range.

Got it. And then just looking at the full-year guidance, if you take your second-quarter guidance as sort of a given from a bottom-line perspective, roughly breakeven in the first half and to hit the low end of your EPS guidance, you need to do $0.30, so roughly $0.15 a quarter. So just wondering if you can talk through what gets you to that pretty dramatic ramp in second-half profitability. What are some of the main levers that you expect to be pushing? Is it sort of lower expenses, significant contributions from some new product areas or just any kind of help on that would be appreciated. Thanks.

Sure. I will let Peter answer that, but just want to point out that that is -- in quarters where we have all parts of our business working well, historically, we have been in that $0.13 range for EPS not too long ago. So it is not -- I prefer to think of the current quarter that we just finished as the anomaly, but I will let Peter answer in more detail.

Martin is absolutely right. So we guided last quarter as being an anomaly and particularly as it relates to our TACNAV product sales being so low that these were going to come back to a more normalized amount over the course of the year and our expectations are that the second half will be considerably greater than the first half both in terms of TACNAV and also in terms of our VSAT product sales and our VSAT airtime services, which continue to grow at a pretty good clip. So there is a lot of forward momentum, particularly as it relates to subscription-based services and also with the launch of a new TV productline, we have high expectations.

Right. That's another thing I'd like to point out. We mentioned that the airtime revenues were up 37% and the gross margin was up from 33% to 37% year over year. If you put those two things together, gross profit dollars are up over 50%. So you do see that compounding leverage where revenues and gross margin are both going up at the same time. So that helps as well and we do have some startup costs that we have been incurring as part of this IP-MobileCast over the last few quarters, so that should hopefully be starting to be offset by some incoming revenue now.

Right. Okay. That is helpful. I will yield the floor. Thank you.

Jim McIlree, Chardan Capital.

Thanks and good morning. I just wanted to clarify, the TACNAV revenues in the quarter, the total TACNAV products and services was 1.6 million or it was 1.6 products and 1 million services?

1.6 million products, 1 million services.

Great. And just to clarify on the guidance for the year, I know you haven't changed the numbers, but have you changed how you are thinking about how you get to those numbers? Is TACNAV a little bit more now than it was last quarter? It sounds like it might be a little bit more and is that offset by something that is a little bit weaker than what you were previously thinking?

Yes, I think our business is a little bit more complicated than we'd like it to be, so we have a fair number of moving parts. So whenever we try to predict the future, we make assumptions for each component and you are right, it is different now, but not materially different. So for example, the guidance and stabilization business in our guidance is the same as it was, but the mix between FOG and TACNAV is changing. So we are seeing a little bit more TACNAV, a little bit less FOG for example. But not materially. Maybe -- we are talking about 10% changes within that mix.

However, in terms of the gross profit dollars that are earned on those two components, the TACNAV, which we believe will be higher, generates a higher gross profit margin.

Right. And I recognize that the TACNAV gross margins have historically been very good for you. Will the TACNAV 3D margins be slightly less because you are incorporating a number of other items in there?

No, I don't think so. Our new 1750 IMU is a high-margin product for us, so we expect this to be a premium priced product, so I expect similar margins.

Okay. And Martin, you said that you are going to have a slot or you are going to have the capability to do a mini-VSAT link into the TACNAV. How do you contemplate the real estate to accommodate a mini-VSAT communication system on the different platforms that you serve?

Yes, it is normally for a percentage of the vehicles. So command and control vehicles would be the ones that would get a V3 for example, but all the products have a built-in iridium modem so you have got two-way messaging and position reporting built into the system.

Okay. And can you share which particular iridium modem you are using?

I would be happy to share it, but I have forgotten the part number. They are integrated boards that has the wide temperature range and the number escapes me. (inaudible)

That would be great, thank you. And just one final one. Can you refresh my memory on what you're thinking for full-year guidance and stabilization revenues or a range if you don't have a point estimate?

So as we've mentioned before, the mix between TACNAV and FOG is changing slightly, but we would anticipate that it's in the range of approximately 25% to 35% for the year.

25% to 35% of total revenue you expect to be guidance and stabilization?

Correct.

Okay, great. Thanks much.

Chris Quilty, Raymond James.

Thanks. I wanted to follow up on the mini-VSAT. Peter, can you give us a sense of where we should expect the mini-VSAT margins to go from this level?

You are not going to see the same sequential growth that we had through 2013, but we expect that for Q2 and for Q3 that the margins would increase by single digits and then typically it flattens out in Q4 for the airtime service.

Due to seasonality.

Yes.

Correct. And that is vessels going into --?

Seasonal suspensions.

Seasonal suspensions, correct. And as you look out to next year, I mean what might be a target -- if you continue to add 1,000 vessels per year, what sort of operating leverage should we expect out towards the end of 2015?

So we have been adding roundabout 1,000 to 1,100 vessels per year. That has been generating approximately $12 million to $13 million of incremental VSAT airtime per year. So obviously that is compounding. The more hardware we sell, the higher the airtime becomes in the future, but hard to predict it from a public disclosure perspective because of the range.

Yes, so -- but you are thinking about it the right way, Chris. We still are adding incrementally more users, the individual gross margin contribution is still on the order of 60% plus of the adds, but you are adding to a larger and larger installed base. So when you look at the sequential quarter or the year-over-year quarter growth in gross margin as a percentage, that will -- that rate of growth will flatten I think is Peter's point.

Correct.

Okay. And does the -- just from your accounting perspective, the KVH Media revenues and margins do not impact the mini-VSAT?

Correct.

That's correct, but they are included with our mobile broadband group.

But they are not included in our VSAT airtime number.

Got you. I think, Peter, did you give the split between antennas shipped in the quarter?

So the V3s were approximately 40% and the remainder was V7, V11.

Okay. Is the trend up or down on V11?

Well, the trend was certainly up on V7 in the quarter compared to the previous quarter.

The V11 I think was down a bit this quarter --

Slightly down versus Q4.

-- but the overall trend is up.

Okay. And what is your sense of where the biggest opportunity is with customers? Is it large fleets and V11s or is it shifting more towards leisure vessels and V3s or has there been a discernible change?

A lot of the fleet things we are quoting on now are all V11, which is a little surprising to me. But I think that just could be coincidence, that the four or five things we are really involved in right now all happen to be V11s. So I think that the fleet deal size, I think our sweet spot still is the 50 vessel fleet to put a number on it. I think that seems to be where we do best and we don't have big competitors trying to give things away for the sort of marquis deals based on just normal value-based pricing and service. I think we do great in that sweet spot.

Great. And I think, Peter, you did say you are again targeting 1,000, 1,100 vessels this year?

We are expecting to see an increase in that, but it is difficult to know the impact of the IP-MobileCast offering.

That was the historical run rate that he was referring to, Chris.

Got you. And obviously you are not going to be able to provide guidance on the ARPU impact until you get a quarter or two under your belt?

Right. Yes, so I think it will be part of the Media Group initially and when it becomes material, we may break it out. I hope that's soon.

Okay. And shifting back, the commercial FOG business has been choppy over the past couple years, but I think you are well-positioned. What is your sense of what it will take to get that market, that productline selling at a higher rate? Is it just simply the long leadtimes for OEM design-ins or are there large programs that you need to hit in order to get some real traction?

Well, the commercial part of it, as Peter mentioned, we are doing 78% of the quarter was commercial, not military. So that is good news and bad news. I mean the bad news is that the defense side is very slow. Spending in the big programs have really dried up on some of that. So we have been successful on the commercial side and as we say, some of that will depend on those end-user products taking off in the market. So I think what is missing here and the reason why we are down year over year is that the bigger defense programs have dried up due to lack of funding.

Got you. All right, thank you, gentlemen.

Anya Shelekhin, Sidoti & Company.

Good morning and thanks for taking the questions. Could you provide some guidance for G&A expenses going forward say over the next year?

We anticipate that SG&A through the remainder of the year will go up marginally, but there is no big step function expected.

Okay and did you hire any additional employees this past quarter?

Yes, we hired a new VP of Content based in LA working with the studios for content acquisition and we've hired a recruiting person in the UK working on our Crewtoo social media site, developing that into a sort of LinkedIn style recruiting service. We have been hiring engineers for IP-MobileCast, software engineers, app developers, Web developers and network technicians. So we have been strengthening the team around the new businesses that we are building and up until this point, we have been kind of bootstrapping it all internally with existing personnel, including senior managers and CEOs doing a lot of hands-on work. So we are now transitioning that into getting some extra help.

All right, great. And would you be able to estimate how many employees you hired this past quarter? Would you have a number roughly?

Well, net increases would be less than 15.

All right. And final question, if you have this number, how much of the G&A expense this quarter was related to KVH Media Group services?

It would have been approximately 13%.

13%. All right, thanks. That is all from me.

It appears there are no further questions at this time.

Great. Well, as always, if you have any follow-up questions, feel free to contact us directly and those of you listening, again, it is IR@KVH.com and we'd be happy to take calls as well. Thank you.

Thank you. This does conclude today's conference and we appreciate your participation.