KVH Industries Inc (KVHI) 2014 Q4 法說會逐字稿

Good day and welcome to the KVH quarter four 2014 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Rendall, Chief Financial Officer. Please go ahead.

Good afternoon, thank you for joining us today to discuss KVH Industries' fourth quarter results and 2015 guidance. With me on this call is Martin Kits van Heyningen, the Company's Chief Executive Officer. We issued our fourth-quarter earnings and 2015 guidance press release this afternoon, which is available on our website, and also from our Investor Relations department. If you would like to listen to a recording of today's call, you can access a webcast replay on our website. 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 are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. And we undertake no obligation to update or revise any forward-looking statements. We will also discuss certain non-GAAP financial measures, and you will find definitions of these measures as well as reconciliations of these non-GAAP measures to comparable GAAP measures in our earnings press release.

We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors. The Company's SEC filings are directly available from us, from the SEC, or from our investor information section of our website.

At this time, I would like to turn the call over to Martin.

Thank you, Peter. Good afternoon and thank you all for joining us today.

2014 was an incredibly productive and successful year for KVH, both in terms of our operating results and in our progress to position the Company for future growth. We continue to grow our mobile broadband business, and have added important new services that both contribute to revenue and help provide a solid differentiating advantage that we believe will contribute to our momentum in the market.

Our guidance and stabilization business has a great portfolio of new products and a pipeline of significant sales opportunities, as well as footholds in new markets that could contribute to significant future growth.

From a financial perspective, the fourth quarter was another record-setting period with an all-time record revenue of $50.4 million, up 29% year-over-year, and diluted earnings of $0.06 per share, up from a loss of $0.02 per diluted share from the same period of 2013. Now Peter will cover the numbers in more detail shortly, but first let's take a look at our key business areas.

We've now fielded over 5,000 mini-VSAT Broadband systems and have a market share which is nearly double the share of our closest competitor, according to the latest numbers released last month from the market research firm Comsys. In 2014 our global network delivered over 500 terabytes of data and 25 million minutes of voice calls. Our network is fully deployed and provides the widest coverage of any maritime VSAT service.

We've also invested in both terrestrial and satellite infrastructure upgrades this past year that have really enhanced our ability to efficiently manage our customers' bandwidth use, which will in the long term both improve the quality of the service we deliver and allow us to improve our airtime margins.

From our customers' perspective, we are adding a lot of useful capabilities that allow them to monitor and manage the use of connectivity services on their vessels. This will help them provide our faster and higher quality services to crew members on board their vessels, while also managing their costs, which is critically important to them.

Within the upcoming months we would be rolling out a new customer portal, a new crew morale service called CREWlink that will enable ship owners to provide a full calling card-based Internet cafe and VoIP service for their crewmembers, and new usage-based rate plans that we believe will enable us to continue to deliver a superior value, connectivity service to our maritime customers.

We are very excited about our new IP-MobileCast content delivery service which is fully operational and now delivering over 500 gigabytes per month of content every vessel from exciting entertainment content to digital charts, detailed weather forecasts and training materials. We are getting great feedback from our early customers. Not only are people signing up for the service but we recently won several fleet deals where the customers bought IP-MobileCast as well as many mini-VSAT service, citing IP-MobileCast as the key reason they selected KVH for their comm solution.

Crew turnover on ships is typically around 35%, and the cost of recruiting and training is significant. Our products really have a positive impact on crew welfare. In fact, one of the early trials, officers and crew were trying to get transferred to the vessel that had our media server on board.

I'm confident that we are really starting to build sales momentums as we get more units in the field and we start benefiting from positive word-of-mouth advertising we are sure to enjoy. Our KVH media group is the largest supplier of commercially licensed media content to the maritime industry, including news, sports, TV, movies and music, providing an attractive subscription-based service business for KVH and a great selection of entertainment for IP-MobileCast customers.

Videotel is now fully integrated with KVH and making a very strong contribution. Videotel's credibility as a maritime training market leader was the initial attraction from KVH's point of view, but now that we have their team on board we are really excited about the depth of their knowledge for the commercial shipping industry and their close relationships with many major shipping company customers. We've already benefited from cross-selling mini-VSAT service to Videotel customers and have been able to get our mini-VSAT into large fleets that we otherwise wouldn't have been able to.

On the operational side of the IP-MobileCast service, we're working with two of the market-leading providers of digital charts, Jeppesen and TranSystem, as well as the leading maritime weather forecasting, AWT, which is now part of the Norwegian company storm Geo. These relationships with market-leading application providers help KVH in several ways.

First and foremost, they enable us to work together to assure the customer's application will work extremely well over the IP-MobileCast service. This is an important benefit for our customers who are often resource-constrained shipping IT managers who don't have the time or people to troubleshoot integration problems on new communication systems.

Secondly, we get great cross-marketing and sales support. The leaders from other segments of the market and promoting the efficiency of using KVH's service in automatically delivering their content to their customers' vessels.

We are planning a series of 10 events in major shipping centers around the world in 2015 to allow our various sales groups to cross-sell our products and services. Our application partners are also excited to participate, both by inviting their customers to attend the event and to present how KVH's enhanced connectivity and content delivery service will be the enabling technology for future enhanced versions of their applications.

KVH and our partners enjoy the credibility of being the thought leaders in the future direction of the maritime broadband market. All together, we have an extremely attractive sales pitch for shipping company managers as we save them money on their communications costs with mini-VSAT and also help enhance the efficiency of their operations by saving them fuel with better voice planning, reducing their training costs, and improving their crew morale through IP-MobileCast entertainment service.

It truly is a very compelling value proposition.

Our airtime content delivery and content services are all subscription-based and they all offer significant leverage opportunities as we add subscribers, over what is, in large part, a fixed cost basis. The new Value Added Services and our Media businesses have excellent gross margins and have a tremendous ability to scale.

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Moving onto our guidance and stabilization business. The guidance and [stabilization] fourth-quarter revenues were $15.4 million. That's up 55% year-over-year, driven by strong shipments of our TACNAV product which were up over 300% to $9 million. And fiber optic Gyro sales that were up 12%. In Q4 we announced two significant TACNAV orders totaling more than $23 million, of which only $4 million shipped in the current quarter. In last quarter.

We feel as if we are getting good traction in our guidance and stabilization business from the new products we've introduced this past year. Our recently announced TACNAV 3-D system will be the best performing military navigation product we've ever introduced and we're receiving very good feedback from potential customers.

We believe the contract wins we've seen in recent years are the sign of building momentum in the military land vehicle markets around the world, and we are in an even better position to pursue these opportunities with the enhanced performance of our new TACNAV 3-D product. In addition to the $19 million order we announced last quarter, which will begin shipping at the end of 2015, we have a number of ongoing tests with customers including the U.S. Army who has a new initiative to assure the availability of position, navigation and timing, called PNT, data in the event that their GPS service is interrupted, as well as trials with significant customers in Europe, Middle East and Asia.

We were recently designed into a new U.S. Army vehicle program and we are optimistic that we'll see a substantial order related to this in the coming year. The military business has long sales cycles so we may not see the revenue benefit of many of these initiatives until 2016 and later, but we are very encouraged about the number of RFQs we are receiving and the activity in the sales pipeline.

We also have some exciting opportunities in the fiber optic Gyro market. Our 1750 IMU is starting to get traction in the drone market for a number of both military and commercial applications. Every drone has inertial sensors used for flight control, autopilots or stabilized optics, radars and other sensors or weapon payloads, so it's great to see our IMUs being used in these applications.

In addition to the drone market, we're winning early business in projects to retrofit our IMUs in the stabilized optics on military aircraft. A lot of the budget turmoil that has caused military customers to cancel new aircraft programs created a good upgrade market for older aircraft, and the performance and price of our inertial measurement unit seems to be hitting the sweet spot in that market.

We currently have our 1750 fiber optic Gyros designed into a retrofit project on a major US military fighter aircraft that could result in sizable future orders.

In addition to this military business, we're doing well in our efforts to get an early foothold in some emerging commercial applications that could grow to be very big markets. In the self-driving car market, we're working with several of the early market leaders, including OEMs and tier 1 suppliers, to define our new generation of inertial measurement units and sensors that could be produced in very high volumes at an order of magnitude lower cost than our current products.

The self-driving car technology has been demonstrated to be viable and a number of the world's largest technology companies are now jumping in. So, we are working hard to stay on top of the opportunity by staying actively engaged with our customers.

So in summary, 2014 was a great year for KVH. Our mini-VSAT Broadband network is performing well and continues to hold a clear market leadership position and we've continued to enhance the network to improve the quality of the service we deliver for our customers and enable us to manage our traffic more efficiently. Our new IP-MobileCast service is getting a great reception from customers that have it on board their vessels and we feel as if we are approaching a tipping point where our earlier customers will become evangelists for other vessels in their fleets.

The content we are delivering, sourced by our media group and the world's largest producers and studios, is unmatched in the market; and our network efficiency in delivering this content is second to none. And we are forming strong alliances with other market leaders who see the benefit of connecting their applications in the IP-MobileCast onboard cloud.

Our acquisition of Videotel went extremely well, and our new colleagues are a great addition and really help to strengthen the KVH team with their extensive experience in the commercial maritime markets. All of this synergy will help us sell more mini-VSAT systems and every mini-VSAT customer should be a good prospect for our new content and Value Added Services.

KVH's TACNAV business is very healthy with a good pipeline and exciting new products and, finally, we are getting into some great applications with our fiber optic gyros, both retrofitting existing military systems to improve their performance at lower cost, and in several emerging applications that could be quite large including drones, self-driving cars and next-generation robots.

KVH is financially strong, offers products and services that provide a unique value proposition for our customers, and we believe we are in an excellent position to continue our successful growth and deliver long-term shareholder value.

I'd like to turn the call over to Peter to review the numbers in more detail. Peter?

Thank you, Martin.

Overall, we were very pleased with our fourth-quarter financial results. Our fourth-quarter revenues of $50.4 million were a record high and 29% higher than from a year ago, and we are at high end of the range from our previous guidance.

Looking at our service revenues more closely, our airtime revenues in the fourth quarter, which includes both VSAT and Inmarsat subscription revenues, were up 14% from the prior year at $15.2 million. The year-over-year growth in the VSAT airtime revenues was 16%. And our VSAT ARPUs during the fourth quarter for fixed rate plans was solid with ARPUs of approximately $1,900 to $2,000 per month while the ARPUs for our metered plans were between $500 and $600 per month.

Our content and services revenue in the quarter, which include subscription revenues from the entertainment and e-learning content, as well as any professional service fees, was almost $10 million which was 44% higher than a year ago. Almost all of this increase was attributed to revenues from our Videotel e-learning business which was acquired in July last year, offset by a reduction in the nonrecurring engineering, primarily related to the Saudi Arabia National Guard contract which was completed in the first half of 2014.

Our subscription-based service revenues for the quarter were 47% of total revenues compared to 43% in the prior fourth quarter. Our product revenues in the fourth quarter were $25.3 million, which was 34% higher than the same period last year and [50%] higher sequentially. Both of these increases were primarily attributable to higher TACNAV revenues, which had been factored into our fourth-quarter guidance.

The impact of this was that our guidance stabilization product revenues for the quarter of $14.6 million were double that from a year ago.

As it relates to trends, as we've seen in the last several quarters, the majority of our fiber optic gyro revenues were shipped for use in commercial applications. Our mobile broadband product revenues, which includes VSAT together with our marine and land TV products, was $10.7 million during the fourth quarter, which was 8% lower year-over-year but 4% higher sequentially. The majority of the year-over-year decline was attributed to anticipated lower land-based TV product sales.

Our VSAT unit sales during the quarter were in the range of 250 to 275 units. Turning to our gross profit margins in the fourth quarter, our consolidated gross profit margin was 45%, which was in line with our expectations and higher than the 40% we reported in the fourth quarter of 2013. Our overall service margin was 48% compared to 40% in the fourth quarter last year. VSAT airtime gross profit margin was 33% in the fourth quarter which was down from the quarter -- down from the 37% we'd reported in the fourth quarter of last year primarily because we added some additional bandwidth capacity.

For product hardware, we recorded a gross profit margin of 42% compared to 39% a year earlier, again reflecting the significantly higher TACNAV sales. As it relates to our fourth-quarter operating expenses, we recorded $20.1 million in the fourth quarter which was up 25% year-over-year, and almost all of this increase was attributed to the addition of Videotel operating expenses, Videotel purchase accounting expenses, including intangible amortization, together with higher commissions related to the increased TACNAV shipments.

Our non-GAAP EPS for the fourth quarter, which excludes discrete tax items, acquisition-related adjustments and stock-based compensation expense, was $0.29. This compared favorably to the $0.06 comparative non-GAAP EPS recorded in the fourth quarter last year. For the full year the non-GAAP EPS was $0.62 compared to $0.61 for the whole of 2013.

For a complete reconciliation between GAAP and non-GAAP measures please refer to our earnings press release that was published earlier this afternoon.

Our adjusted EBITDA for the fourth quarter and the respective components that comprise that number was $7.4 million compared to $2.4 million recorded in the same period last year. For the full year, our adjusted EBITDA was $18.2 million, up from $17.7 million recorded in 2013.

Now moving on to the balance sheet. At December 31 we had cash and marketable securities of $49.8 million, a decrease of approximately $600,000 from the end of the prior quarter. It should be noted that approximately $6 million of this cash balance is due to be transferred into an escrow account related to the Videotel acquisition shortly.

Total debt outstanding at the end of December was approximately $71 million. At quarter end our inventory balance stood at $17.4 million, which was 15% lower than that on hand as of September 30. Capital expenditures during the fourth quarter were $1.6 million, making the total expenditures for 2014 $5.1 million.

Backlog for our guidance and stabilization product and services at the end of December was approximately $25.1 million, up by approximately $5 million from September 30.

Now I'll turn to our outlook for the first quarter and for 2015. We anticipate that TACNAV shipments will be significantly skewed towards the back end of 2015 in a similar way to what we saw in 2014. As a result of this, TACNAV revenues are expected to be less than $1 million in the first quarter and only marginally higher in the second quarter.

Operating expenses are expected to decrease modestly in the first quarter compared to the fourth quarter, primarily reflecting less third-party commissions on lower TACNAV revenues. And our guidance also assumes there are no significant fluctuations in exchange rates between the US dollar and the pound sterling.

With this context, our revenue guidance for the first quarter is in the range of $40 million-$44 million and we expect our GAAP EPS for the first quarter to be a loss in the range of $0.10 to $0.06 per share, and on a non-GAAP EPS we expect it to be in the range of $0.03 to $0.07. Non-GAAP EBITDA for the first quarter is expected to be in the range of $2.5 million-$3.4 million.

For the full year, our revenue guidance is in the range of $190 million-$210 million and we expect our GAAP EPS to be in the range of $0.30-$0.40 per share and the non-GAAP EPS to be in the range of $0.81-$0.91 per share.

Non-GAAP EBITDA for the year is expected to be in the range of $.5 million-$27.5 million.

So in wrapping up my thoughts, our operating results were solid in 2014, and this year is already shaping up to be an exciting year. I certainly look forward to what lies ahead.

So with that I'll turn things back to the operator for the Q&A portion of this afternoon's call.

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

Thank you. A question on IP-MobileCast. Wondering if you could talk about how you expect to see that monetize, where it should show up in your income statement, is that going to be higher ARPU in your airtime revenue, higher sales of your content, if you could just talk about how you expect to see that monetize. And then if you'd talk about what you've actually baked into your 2015 guidance in terms of mobile test contribution, thanks.

Right. So, I think the way we're going to be reporting the business is we are going to have the Value Added Services where IP-MobileCast will be in that part, along with the NEWSlink and the other entertainment products as well as Videotel. But, also, we might talk about increased ARPUs because it also could be part of the VSAT airtime.

But just to be clear, when we report it, that revenue will show up in the Value Added Services, Media Services part of the numbers.

Great, that's helpful. Then just sort of wanted to know what the mini-VSAT hardware sales were. I think you mentioned what your actual unit sales were, it was a 250-275 range. Could you give a number for mini-VSAT hardware sales for the quarter?

We haven't historically broken that out.

Fair enough. Okay. (multiple speakers)

So, we are breaking out the mobile broadband hardware revenues, separate from the guidance stabilization revenues if that helps you.

All right. Okay. And of your $25 million of G&S backlog, can you say how much of that you'd expect to be delivered within 2015, and would you further be willing to say what you've actually baked into your -- call it $200 million of revenue from the entire G&S segment?

Yes. I think Peter is just looking up a number to help you with that.

So generally, while he's doing that let me just say directionally that TACNAV business of the $19 million order, probably the first half of the hardware is expected to ship in 2015. There's also some engineering component that will show up in the Value Added Services line, so that's where we put the nonrecurring engineering work. So, roughly half of that $18 million in terms of hardware will go this year and none of it has shipped yet. So of the $19 million contract were some NRE that was recognized but no hardware sales yet.

Got it.

I don't have the specific number in front of me, but it will be in our 10-K filing that talked about what is going to be recorded in the current year.

So I'm just wondering for guidance and stabilization as a whole, I don't know if you could give a point number or just relative to 2014, do you expect that business to be kind of flat up or down in the guidance that you've given for 2015?

Approximately flat. So we do see some upside in the back half of the year, but we are guiding to flat.

And that's -- through the second half of the year it sounds like you expect a pretty nice bump up in TACNAV. How about FOG -- first half second half or how do we think about FOG for the entire year?

I think FOG is less back-end loaded then TACNAV is. We do expect it to grow, but basically more through a normal progression of increasing sales recovering from a low base, as you know, on the FOG business. But the TACNAV we expect some very strong -- just like we saw in 2014, so basically what we are guiding for 2015 is the quarter we just delivered, we ended up with $9 million in TACNAV in Q4, which we would all like to be spread out a little more uniformly. But that's just the way the vehicle deliveries are scheduled and the contracts are scheduled.

Right. So just (multiple speakers)

If you want to do a follow-up, I don't know if anyone else is holding, Rich, maybe we'll just let someone else jump in here.

Fair enough. I'll cede the floor and get back (multiple speakers)

Operator, pick someone hanging.

Chris Quilty, Raymond James.

Thanks Martin, I just wanted to follow up on the mini-VSAT business. You've been running call it 250-300 new vessels every quarter for almost a couple years running now.

But you seem to have some language in your introduction that talked about some sizable new orders. Do you think 2015 could be a year where you would see a breakout from that kind of 1,000 net as a year, or is that still further out?

I think 2015 will be that year. I think we've got some new services that are coming out, and we talked a little bit about the CREWlink which is another way to get units on vessels.

We are also seeing an increase in the V11 in sales, so some of the complete deals that we just closed are V11. And the only cautionary comment is that there's still a disconnect between what we sell and book and what we record as revenue and units shipped.

So if we say we sold 250 or 300 in the quarter, those are physically left the building revenue-recognized units. And that's not the same thing as we signed a fleet deal for 100 units, which might take two years to get those completely installed as recognized. So I just want to clarify that.

I understand. And are you still seeing the same pattern with the shipping companies, where they might order some number 50 but the rollout happens over a period of a year or 18 months, or are you seeing any deployments where they're going quicker?

Some people do it quicker, and generally the pacing item is what else they are doing at the same time. If the company is rolling it into an IT renovation program, where they are putting in servers and computers and new software and a billing platform, and it's an ERP type platform, it is going to take longer. But if they are just putting in our product, that can go very quickly.

So like the NYK rollout was -- they did over 100 vessels, 130 vessels in six months. So it really depends on the customer.

And speaking of billing platforms, I mean right now you're selling into the HR ops budget. Are you developing anything that would allow more crew level access, where a [sailor] wants a particular movie, could swipe his credit card, is that something you could deploy in 2015, or is that a longer term development?

That's part of what we are working on with this CREWlink platform where we see this as another opportunity to get the equipment on board. More like the Coke machine model where the equipment is provided and the crew pays for the drinks. So we will be launching that in the coming months.

Okay. And I'll pass the floor and circle back in and give Rich his chance.

Jim McIlree, Chardan Capital.

Thanks and good afternoon. Peter, what tax rate are you assuming in your (technical difficulty) 2015?

It's round about 27% to 33%.

Okay. And is the exclusion -- the reconciliation from GAAP to non-GAAP for 2015, are the major items stock comp and the amortization? Is there anything else in there that we should be aware of?

In 2015 is your question or for the quarter just ended?

Yes. For the year coming up, 2015.

It's amortization in stock-based comp.

Okay, great. And I know that (multiple speakers)

One clarification on that. The discrete tax item was a reduction of tax assets based on tax law changes in Rhode Island, so we will actually have a lower tax rate going forward, which is partly -- as you may recall we were paying a higher tax rate than the previous years.

Okay. Great. And I think Rich was asking about guidance and stabilization for this year, and I believe you said that it's about flat versus 2014. Is that flat FOG and flat TACNAV, or is one up and the other is down to get to the flat total?

FOG is projected to be up and TACNAV is projected to be down. And -- but I will say that TACNAV has some opportunity for upside in 2015, so we tend -- those orders tend to be so specific that we generally don't like to forecast them outside of our window of visibility just because they are binary.

Okay. And are there any special margin issues with TACNAV that we should be aware of, or is this mostly you're looking mostly at product sales for TACNAV and just the high margins is the only issue we need to be aware of? Okay.

That's correct. There are no large NRE non-standard margin programs in 2015, so it's just the normal product margins, which are solid.

Okay, great. And my last one, on operating expenses for this year, are they -- can you characterize operating expenses this year versus 2014?

Sure. I'll let Peter answer that but I think it's best to look at the run rate starting in Q4 because of the acquisition.

We will have obviously a full year of Videotel in 2015, and the Q4 run rate so we projected in the first quarter we are expecting operating expenses to be modestly down because of the TACNAV commissions, but then to just stabilize so there's no expected significant increase year-over-year.

But in the second half of the year, as TACNAV sales increase, shouldn't you have that increase in OpEx as well to reflect the commissions for the TACNAV?

In the second half, yes. Year-over-year, excluding the impact of the full year of Videotel, we won't see significant increases in operation expenses.

Fantastic. Thank you so much.

Rich Valera, Needham & Company.

Thanks. Peter, it looked like the airtime revenue was actually down a bit quarter-over-quarter. Was that seasonal effects like seasonal deactivations or was there something else going on under the covers there?

You're absolutely right. It's seasonal. Historically our third quarter is our strongest quarter, and then we have seasonal suspension from the fourth quarter that then starts to pick up in the first quarter.

Got it. And can you give us a sense -- it sounds like you got some optimism about maybe seeing an improvement relative to that historical 250-300 new ships per quarter on broadband.

Have you kind of assumed an acceleration in your guidance? Or are you still kind of assuming that the same baseline level with maybe some upside if you get above that level in terms of your overall year?

There's some baked in, because if you look at the growth we are projecting solid growth. And there's also some of these new business models where we will be putting units into the field which might be different revenue recognition model than the current model. So that's all baked into the current guidance.

There might be a little bit of a change between the number of units and the product revenue. But I don't think it will be significant.

Can you just elaborate on the new business model for deploying units in this field? Is this more a sort of a leased model?

It's getting back to, I think it was Chris's question, about is there an opportunity to sell some of the services directly to the crew? We've been experimenting over the last six months with some methods where we put the equipment on board free of charge, and then we charge the crew on a pay-per-use basis, sort of a no-obligation model. And that's been working out pretty well, and we probably will expand that program somewhat in 2015.

Would that be effectively a capitalized expense for you, and then you'd kind of (multiple speakers) amortize that over the life of the contract or whatever?

Right. That would [shore up] a service revenue then.

That makes sense.

So just to be clear, we don't see that being a significant portion of units in 2015. I don't want to give the wrong impression, but that is part of what we are seeing as the opportunity to increase units deployed in 2015.

Great. And then just from a competitive differentiation standpoint, so you've obviously got your mobile cast network with a lot of proprietary content, Inmarsat has kind of their own broadcast network, if you will, with some content that got sort of movie content and some other stuff.

How differentiated are you seeing this offering? Are you seeing -- it sounds like you've actually seen some deals where it was the deal closer, if you will, but how differentiated do you see your content and the combination of the content in IP-MobileCast?

It's pretty dramatic. So, first of all, their approach isn't a broadcast service, it's primarily stored on the box. And then the titles get unlocked over time so that their old titles, they get released. And they do have some unicast news service like 20 minutes per week of news, where we have 24 hours of live news per day.

It's really a dramatic difference in terms of the amount of content that's being delivered. So in some ways we think it's actually good that they are following our lead and recognizing the importance of entertainment, because when you compare the two, it's really a dramatic difference.

Am I correct in understanding that you're not letting them have access to your proprietary content for their service, you're kind of keeping that as a proprietary to your customers in network?

They have access to a lot of content through some deals that they have done, so they have access to movies and things like that. Where we have proprietary content like our training link service or like our NEWSlink service, those might be opportunities to sell content to their customers in the future. But I think IP-MobileCast service itself is just too rich in terms of the amount of bandwidth it would take for them to sell through their networks.

But our NEWSlink product today, we are on about 18.000 ships. Almost 100% of those are being delivered over Inmarsat. So we sell content today over Inmarsat.

Got it. Thank you, that's all for me (multiple speakers). Got it, thanks very much.

At this time there are no further questions over the phone lines.

That's great, and we will be available to answer any questions over the phone or via email. Thanks for your time.

This now concludes the presentation. Thank you for your participation.