KVH Industries Inc (KVHI) 2015 Q3 法說會逐字稿

Good day and welcome to the KVH Q3 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Rendall. Please go ahead, sir.

Thank you for joining us today to discuss KVH Industries' third-quarter results and our updated 2015 guidance. With me on this call is Martin Kits van Heyningen, the Company's Chief Executive Officer. We issued our third-quarter earnings and 2015 guidance press release this morning. It 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 are listening via the web, please 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 the statements, and we undertake no obligation to update or revise any forward-looking statements. We will also discussed 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 in our 10-Q filed on August 10. 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 the call over to Martin. Martin?

Thanks, Peter, and thank you all for joining us today. I'm going to start this time with a high-level overview and then go into some details about halfway through. So, overall this good quarter I am pleased to report our third-quarter revenues were in line with our guidance, albeit at the low end of our range. Our revenues for the quarter were $44.5 million with non-GAAP earnings per share of $0.12.

Now, contrasting that were some very nice wins in maritime fleet, in large defense program -- contract program wins. We don't have all of these orders in backlog yet, but we've been informed that we were selected, we are designed in, and the programs are funded. So we are in excellent shape for Q4 and beyond.

Airtime revenues came in about as expected, meaning it was consistent with prior quarters, up sequentially and up year-over-year, but our growth rate is lower than we are used to. Nevertheless, we feel like we are gaining momentum in the VSAT and IP-MobileCast areas. Airtime gross margins improved to 36% and were above forecast. We expect this trend to continue as we gain traction with our new mini-VSAT broadband 2.0 service. We have a strong deal pipeline and the sales teams are quite optimistic, as it feels like we are gaining market share in a tough macroeconomic environment where offshore vessels are under pressure with vessel layups continuing.

TracVision satellite-TV sales were strong for the quarter. The new TV series products are performing well, both in terms of technical performance and sales. Our e-learning training group had a strong quarter, with Videotel revenues up 17% year-over-year and set a new record for revenues, with nearly 12,000 ships now subscribing to our service. KVH media group sales were also ahead of our plan.

The big news this quarter was the launch of our mini-VSAT broadband 2.0 service, which was very well received. Our new business model of offering very high speeds in exchange for explicit data caps/allowances resonated better than expected customers. We already have over 100 subs on the new rate plans. These plans provide improved gross margins and revenues that scale with usage. I will get back to this in a second.

Box sales overall were slow, however, but a major bright spot was our IMU sales. We have now delivered over 500 units and shipped over 100 units in Q3 alone, including some for use in self-driving cars. These higher margin systems should pull us out of the slump caused by the recent decline in the US Army CROWS program. TACNAV sales were very low in the quarter, but we are not concerned. In fact, we have never had the type of backlog and pipeline that we have now for TACNAV in terms of size, diversity and follow-on potential. During Q3 we finished the design of a new TACNAV FOG variant, started production, and we plan to ship $7 million to this particular customer in Q4. We have a total of $12 million in backlog for Q4 delivery and another $12 million already in backlog for 2016. Total TACNAV sales are expected to be at an all-time record in Q4.

We also expect to book an additional $5.8 million order from an existing customer. But since that is not yet in backlog, we aren't putting it into our guidance for this quarter. We did just receive a $1.4 million PO as part of the same project, so our confidence in the future orders is very high. This will be the third PO as part of a larger, well-defined and well-funded program. In fact, we were informed that this program might now grow significantly, far beyond what we have in our internal plans. So although we had an extremely low revenue quarter for guidance and stabilization, we've turned an important corner. For the first time, we see long-term, multiyear visibility of increasing sales.

As I mentioned, evidence of this is the fact that we already have $12 million in backlog for 2016 TACNAV shipments. That has never happened before, and we expect solid growth in this part of our business now. As previously discussed, our TACNAV FOG has also been designed into a major US Army vehicle program. We expect to be able to announce this contract, which is different from the one I was just referring to, in the coming months and expect to start initial deliveries in 2016. So altogether, over the next few years, we see TACNAV programs going from units in the hundreds to units in the thousands of systems going forward. But for our forward guidance and stabilization group, the long-term outlook for our defense business points to less volatility and more quarterly stability and substantial growth. So that's a high level overview.

Now I am going to go into a few details on some key parts of the business, and then I will turn the call back over to Peter for the financial details. In our mobile broadband business, overall revenues for the third quarter were just under $28 million. That is up 3% from the third quarter of 2014. This growth rate is lower than what we have seen in the past and it is due largely to the impact of the depressed oil and gas market, which is offsetting the momentum we are seeing in other segments, including shipping, yachting and commercial fishing. Offshore service vessels, which are primarily used in the oil and gas segment, represent a little more than 20% of our maritime VSAT business. A lot of these vessels are being taken out of service and in some cases their owners are actually going out of business, which has led to slower growth in airtime revenues overall. Outside of this sector, we are seeing churn at or below where we have been for the last five years.

We have won a number of fleet deals in Q3, and you should see a steady stream of announcements in the coming weeks. Our sales people are optimistic that we feel -- and we fill like we're seeing that customers are beginning to understand the unique combination of connectivity, content and value-added services. The fact that major competitors are attempting to copy our innovative new services is an indication of how we have changed the basis for competition in a way that clearly favors our market-leading technologies.

The yachting market appears to be rebounding nicely, especially in North America. KVH enjoys exclusive relationships with industry-leading boat manufacturers like Sea Ray and Viking Yachts, both of whose businesses are doing very well. This has led to increased orders for the KVH TracPhone and TracVision products, which were up 25% for each of these important customers. We are seeing similar trends with our major maritime distributors. Heading into the important winter boat show season, which begins with the Fort Lauderdale Boat Show later this week, we are optimistic that the yachting market will continue to rebound.

Throughout 2015, we have made substantial upgrades to our VSAT service, which included upgrading our network terrestrial fiber links. We also increased our ability to manage traffic on the network, added a new customer-facing web portal called myKVH, which enables shipping companies to monitor the position of their vessels and manage their airtime connections, and added new rate plans that enable customers to enjoy the fastest data speeds our network can deliver. Rather than roll out these improvements incrementally, we've combined them all into a major upgrade to the mini-VSAT broadband service, which is what we are calling mini-VSAT broadband 2.0. This new version of our service was launched with a big marketing and PR effort coinciding with a major shipping industry event in London in mid-September. The service went live on October 1.

Our new rate plans are based on bundles of gigabytes, so customers pay for whatever quantity of service they use. These programs are different from our maritime VSAT competitors, who try to regulate consumption based on the speed of the connection, choking off heavy users by slowing their connectivity service or by letting customers self-contend to the point where nobody gets a decent experience. Our new plans allow customers to buy whatever quantity of service they need, use it however they like, and manage their use with powerful account management tools, including the new myKVH portal, where they can set up Internet cafe and phone and crew calling services for their crews.

Large files that have historically been too expensive to send over satellite links or broadcast over IP-MobileCast service and are not part of the customer's data allowance, so IP-MobileCast is a huge enabler for this new approach. Customers can now meet demand for news, entertainment and training services for crews without impacting their Internet connection at all. We think that our unique architecture allow us to be a leader in this approach in a way that our competitors would find very difficult to copy. In fact, we are about to announce significant new upgrades to the IP-MobileCast service which will further extend our lead.

The new rate plans have a great benefit to KVH's business as well, as our airtime margins should improve, and we should be able to support more customers with our existing satellite capacity when revenues are directly linked to consumption. On the content side of the business, we are kicking off a new relationship with Inmarsat, where our NEWSLink Print and Videotel basic training videos will be made available on their fleet media player. We are also exploring collaborating with service providers in other mobile markets to use IP-MobileCast. We are in discussions with most satellite owners now and with leading airline connectivity providers about using our IP-MobileCast technology to deliver content to commercial airplanes and other platforms.

These are early stage discussions, but they make it clear to us that the capabilities that we are inventing are unique and of great interest to other service providers, and are not limited to maritime applications. So, looking forward to the remainder of the year, we believe that we've got a great foundation to our business and we are working hard to convert some of these exciting opportunities into growing sales. Amongst our top five customers for the quarter were manufacturers of drones, self-driving cars, stabilized cameras, and dynamic surveying equipment. We are supplying a number of industry leaders in these new and exciting markets, so we are optimistic about the growth potential for our FOG products.

For the mobile broadband business, we are seeing positive momentum in both maritime VSAT and our satellite TV business. We feel our new mini-VSAT broadband 2.0 service is going to create an extremely compelling offer for commercial shipping companies during a period where our competitors are trying to convert them to significantly higher-priced services. We also believe the new IP-MobileCast service is critical to this strategy and will be adopted by a growing segment of the market as customers experience a variety and quality of this groundbreaking service.

Our Videotel training service is capturing a greater part of the maritime e-learning market through more versatile technology platforms, expanded course offerings, and new relationships with industry-leading institutions. We are encouraged by both our large military sales we have seen for our TACNAV product line and by the potentially large projects in the pipeline that we are hoping to win. But most importantly, we don't see the upcoming spike in Q4 revenues as an anomaly, but more as the beginning of an important long-term trend. And finally, the integration of our FOGs and our IMUs into new applications with high growth potential make us optimistic that we will soon see growth in this area of this business as well.

Now, I would like to turn the call back over to Peter to go over some of the financials. Peter?

Thank you, Martin. Now I would like to discuss in more detail the financial results of the Company for the third quarter. As Martin mentioned earlier, our third-quarter revenues are $44.5 million, but within the guidance range that we previously gave and were about 1% higher than the third quarter of 2014. The primary drivers for this growth were high e-learning and safety content revenues and higher VSAT Airtime revenues, which offset by the lower TACNAV revenues, which we had anticipated.

Our third-quarter service revenues of almost $29 million increased by 5% year-over-year mainly due to VSAT airtime and e-learning revenue growth. Looking at our airtime subscription revenues more closely, in the third quarter airtime revenues were $17.1 million, up 5% from the prior year period. Our VSAT ARPUs during the quarter remained pretty consistent with fixed rate plans, recording between $1,800 and $1,900 per month, while metered plans continue to run slightly lower than we have seen historically at between $500 and $600 per month.

Our content and services revenues in the quarter, which includes subscription revenues associated with the entertainment and e-learning content, as well as any professional service fees, were $11.7 million, which was 6% higher than a year ago. Almost all of this increase was attributed to record revenues from our Videotel e-learning business, as we continued to add new subscribers. We were also pleased with the level of subscription-based service revenues in the quarter, which amounted to 61% of total revenues, up from 58% in the prior year third-quarter.

Moving on to our product revenues, our total product revenues fell by 7% to $15.6 million in the third quarter, or $1.3 million from the prior year quarter, mainly due to the expected decline in TACNAV revenues. Our mobile broadband hardware revenues of $10.3 million in the third quarter were in line with what was recorded in the third quarter last year. Our guidance and stabilization hardware revenues of $5.5 million were $1.1 million lower than the third quarter of 2014, or 16%. As we have discussed, this decrease was primarily attributable to lower expected TACNAV revenues, which fell 44% year-over-year. Although TACNAV revenues were down, as Martin mentioned earlier, we were encouraged with a record number of IMU shipments during the quarter.

Turning to our gross profit margins in the third quarter, our consolidated gross profit margin of 44% was in line with our expectations and higher than the 42% gross margin we reported in the third quarter of last year. During the third quarter, we reported a record 50% gross profit margin for our services business -- our services and content business, which compares to 46% reported in the prior year period. This increase was driven by strong margins from our content businesses and higher VSAT airtime gross profit margins, which increased to 36% in the third quarter compared to 34% in the prior year quarter.

For product hardware, we recorded a gross profit margin of 34% compared to 36% a year earlier. Again, this decrease was primarily attributable to the lower TACNAV revenues, which carry a slightly higher margin than our mobile broadband product revenues. As it relates to our third-quarter operating expenses, we recorded $19.5 million in the third quarter, which was up 7% year-over-year. The majority of this increase relates to higher compensation related expenses in the current quarter, while the prior year compensation related expense was reduced by a one-time reversal of an accrual.

Our non-GAAP EPS for the third quarter -- which excludes discrete tax items, acquisition related costs, intangible amortization and stock-based compensation expense -- was $0.12, which was in line with the guidance we previously gave. Our adjusted EBITDA for the third quarter of $4.2 million was also in line with our previous guidance. For a complete reconciliation between GAAP and non-GAAP measures, please refer to our earnings press release that was published earlier this morning.

Backlog for our guidance and stabilization products and services at the end of September was approximately $28 million. Of this amount, approximately $14 million is scheduled to be delivered during the fourth quarter, which includes our FOG products as well.

With that, I'll now turn to our outlook for the fourth quarter. As we had mentioned on earlier calls, TACNAV shipments are significantly skewed towards the back end of 2015. In our prior guidance we noted that the full-year guidance was dependent on receiving one significant TACNAV order. Although we did receive a portion of an order, as Martin has already described, our current quarter guidance only reflects the TACNAV backlog that we have on hand.

In addition, a portion of our revenues and costs are denominated in pounds sterling, and we have seen significant currency fluctuations over the past year. Our guidance assumes that there are no significant fluctuations in exchange rates for the remainder of the year. With this context, our revenue guidance for the fourth quarter is in the range of $52 million to $56 million, and we expect our GAAP EPS for the fourth quarter to be between $0.23 and $0.28. We also expect our non-GAAP EPS to be in the range of $0.38 to $0.43 and our non-GAAP adjusted EBITDA to be in the range of $10.5 million to $12 million.

In wrapping up my thoughts, we were pleased with the solid operating results we recorded in the third quarter and we are looking forward to a strong fourth quarter. With that, I would like to turn things back to the operator for the Q&A portion of this morning's call.

(Operator Instructions). Jim McIlree.

Thank you and good morning. Martin, in your commentary, I think you said that the Q4 spike in revenue is not an anomaly. I hope I am not misquoting you. I just want to clarify what you mean by that. Are you saying that you think -- it seems to me that most of the variation you have seen in the revenue comes from the guidance and stabilization business. Are you suggesting that the guidance and stabilization business going forward is in kind of a steady-state $10 million to $15 million per quarter? Did I understand you right on that?

Well, that is -- yes, and perhaps I didn't say it as clearly as I should have. What I meant to say is that in the past, we've had big spikes in Q4, and then next year was a bust. In other words, the TACNAV business has a history of being cyclical on an annual basis. What we are seeing now is that we've got a lot of backlog going into 2016 and we've got a lot of stuff in the pipeline, and we even had some orders bow wave out that we didn't book in Q4 that we expected to book.

So, what I am saying is that we don't see the TACNAV business as being something unusual. We see that as the start of a trend, which is very different from how it has been in the past five years, where we have a great quarter and then nothing for a year.

Got it, okay. So you're going to -- so you have 28 in backlog right now. You're going to deliver I think 14. So you will start -- well, and let's just assume those are right. So you will start next year with 14 but you have got things in the pipeline?

Correct.

Can you quantify just either a range or compare to that 14, how much is in the pipeline that could possibly be booked in 2016 or the rest of this year and into 2016?

Well, it is -- in terms of quantity, not necessarily all for delivery in 2016. But it is in the $30 million to $40 million range in terms of total pipeline that could come in here. So it is significantly different from what we have had in the past.

And does that $30 million to $40 million include the Army vehicle that you mentioned earlier in the script and you have been talking about in prior calls?

No.

Okay. And relative to that particular program, can you just review again the status of that and how confident you are that that is actually going to get built? And if it does get built, your chances of being on it?

We are designed in. We expect to get POs for LRIP I would say in the coming months. So that -- US Army programs happen slowly, so we don't expect big numbers for 2016 for that particular program. Although we do expect it is a multi-thousand vehicle potential overall, so it is going to be a very large program. One of the largest that we've had.

And that program has been awarded and has gone through the protests and all of it has been resolved? Or is it still somewhat up in the air with protests?

Yes, I don't want to get too specific here, because I give too many details -- I mean, there aren't that many. I think you'll figure it out (multiple speakers) for competitive reasons, I don't want to say any more than that. But yes, the program has been awarded.

Okay. Great, I will get back in line. Thanks a lot.

Chris Quilty, Raymond James.

Martin, can you give us a sense of what the vessel net adds looked like in the quarter for the mini-VSAT service, what you are seeing in terms of disconnects, and what is your outlook for 2016, just in broad terms?

Yes, so I think as we talked about on the call, we have seen some suspensions/deactivations in the offshore sector. I don't have a number for that to give you, Chris. And we don't really report subscriber numbers directly, but it is limited to that area. And as I indicated, that part of our business in total, of which oil and gas is not 100%, is 20%. So, net adds are still positive. We are adding new customers at rates that are consistent with what we have done in the past, or even a little bit better, actually. So clearly, outside of oil and gas, we've got a strong business.

Now, we don't expect that to improve, but we also done expect it to get any worse. Meaning that right now we are not selling into that market really at all. There's just no activity in that business. I think we sold, like, two units in the oil and gas this quarter. So, the good news is that it is not going to get any worse. So, looking out at 2016, we are pretty confident. We think that we've got a great product offering and we think that we are -- we have won a couple fleet deals now, we're getting some momentum. People are starting to get the story with Videotel and IP-MobileCast and VSAT and the pricing structure that we put in place. So our overall outlook is decidedly positive, despite the poor macroeconomic environment that we are seeing.

Got you. And the content business growing single digits, why should it not grow faster? And how does the content growth or pricing get reflected, when I believe the new plans -- they are getting a bucket of data? Do they pay separately for a type of service and then that service folds into the 500 gig bucket?

Yes, so the content business that we -- content and service includes engineering services, so that growth rate -- like Videotel was up double-digit growth, which is a big part of our content. So a big part of the content that we are selling is operational content. It is not just the entertainment part, which is the exciting part. But the pricing model for the content business has not changed, so that you purchase the movies or the charts or the training package and we deliver it for free over the IP-MobileCast.

So, that is really the key here is that in the past nobody wanted metered plans or capped plans because they would blow through those caps with people downloading movies and things, and they'd just have this -- either have a giant bill or their Internet connection gets choked off to the point where it is unusable, because everybody is downloading stuff. So it is really the combination of having IP-MobileCast to deliver content. Then it makes this other approach feasible in combination with our portal. So it is really those three things together that are a compelling offering, and that is what is different from what we had before.

Got you. And would you expect, with the new 2.0 plans going into force, should that drive the growth of the content business up to higher growth rates next year?

Yes, absolutely. We are seeing very high take rates on -- with the new plans and IP-MobileCast.

Got you. And I forgot to ask with regard to mini-VSAT, any change in the antenna types -- V7 versus V11, V3? And how do the new pricing plans impact customer selection?

For the year, it is still trending to the 60/40. So it is the 60% being a combination of V7/V11. In Q3, it was slightly skewed more toward the V7/V11, so it was actually 70/30, but long-term trends are still the same.

So the way the hardware and the service interact is that we have gone to sort of a 2, 3, 4 megabit per second data rate on the forward link, so that with the V3 you get 2 megabits per second; V7, 3; and with the V11 you get 4 megabits per second. So, that is the really only difference in the data speeds. And then for the open plans the pricing is identical for V7 and V11.

Okay. And the new broadband plan is radically different than what anybody offers. Does a create issues in terms of customer bids when they approach the market seeking an offering, and you have that something that looks like an apple to everybody's orange. How do you deal with that situation?

Yes, it is very different and it is intentionally so. I think what we have found is we have actually been approached now by a couple of the big deals that -- where they had a bake-off and the purchasing department decided to make everything identical. And we don't do well in those types of situations, and the super-low-bidder guys won. And now they are coming back and saying the service is awful. And we actually had a customer -- we've actually had customers now who are adding V7, just so they can get IP-MobileCast, even though their IT department purchased somebody else's VSAT. So, even though it is different, I think that there's enough experience now with the other approach that people are starting to come around and be very open to this method.

Okay. And Peter, you talked about improved margins with these plans. Can you give us a sense of how that flows through?

So we saw a sequential increase between Q2 and Q3 going up to 36% margin, and we would expect to see those margins continue to creep up close to the 40% mark over the next three quarters.

Okay, and one clarification and I will jump back in the queue. Did I understand correctly when you gave the rundown on TACNAV orders? It sounds like there was about a $4.5 million delta between what you expected to receive in TACNAV orders and what actually came through in fourth quarter. And if I am correct, is that account for the difference in the Q4 revenue guidance relative to what you had previously given? Or what factors did (multiple speakers)?

Yes, let me go through that in a little detail. So, this one particular program we were expecting, we had delivered Q4 last year to a US customer, a US vehicle manufacturer, for an overseas end customer. We expected the same this quarter. What we got were -- what they have actually done is split the order. We received part of it, about $1.4 million. We are expecting another $5.8 million.

The difference is that now the vehicles have already shipped and the installations are being done in-country. Which we don't really care about, because it is the same revenue for us, but what it means is that we need an export license. So, whereas in the past, we expected that even if we get the order November-December, we are building it anyway. We would ship it, recognize revenue this quarter. Late yesterday we heard that we have to ship it over there, so that even if we do get the order now, it is unlikely that we will get the export license in time. So that is why we have removed it from the guidance. That is really the only substantive change, but it is -- it changes the revenue recognition -- revenue shipment for this quarter.

Okay (multiple speakers).

It is $5.8 million. The short answer is, it is about a $5.8 million delta.

Okay. So, doing my short mental math, that seems to account for most of the change, the downward revision to the revenue guidance.

Yes, absolutely.

Perfect. Thanks for the clarification.

(Operator Instructions) Jim McIlree, Chardan Capital.

Thanks again. As a follow-up to Chris's questions, so that $5.8 million that is not shipping this quarter, is that a Q1 of next year shipment and revenue recognition? Or does that get recognized over a couple of quarters next year?

It would most likely be in Q1 next year.

Right. And I know you said it earlier, but just to make sure, that $5.8 million is in backlog?

Is not in backlog.

Is not in backlog?

Not in backlog.

Great. And can you -- (multiple speakers).

So that -- just to clarify, that order will be coming from an in-country installation -- sort of a third-party installation company, which we have already seen received an order from, but it is not from the vehicle manufacturer. So, that is the change.

All right, okay, got it. And just a little bit more on the impact of the 2.0 service. So, you are expecting margins to be better?

Yes.

You are expecting ARPU to be better as well?

That is a good question. ARPU -- we expect subscriber growth to come from this, but one of the advantages that we are doing -- one of the advantages of this new service is that now we can target people who are on fairly low monthly plans. So that if you were paying $500 a month or $1,000 a month and getting really awful service, either through L band or through low-speed plans, now you can step up to a 3 megabit per second plan and get 5 gigabytes per month for under $1,000. So ARPUs actually might go down, but it would mean that subscribers are going up. So, in other words, these are incremental adds to people who are not generally in the VSAT market today.

Right, okay, terrific. Does that require any significant increases in your marketing or sales or service of infrastructure?

Not beyond what you have seen in the run rate. So, we've got a pretty aggressive marketing campaign and customers are relatively targeted. So, we aren't expecting a big increase in marketing expenses.

Okay. And then, Martin, you made some comments about Inmarsat and IP-MobileCast on other platforms. And I am just a little bit confused, or maybe a lot bit confused about what it is that you are contemplating there. Are you going to be offering just the content for Inmarsat and others to offer on their networks? Or are you offering your IP-MobileCast service that includes the content that would be delivered to Inmarsat and other customers over your network? Or a little bit of both?

Yes, two separate thoughts there. One is we did a deal with Inmarsat where we are providing our NEWSLink Print product, which is a low bandwidth product that they can deliver to their L band customers as part of their fleet media product. And we are also preloading a package of Videotel movies, training movies called the Videotel Basic Training Package. So it is kind of a limited service, but it gives people a sense for what our content is.

Separately, we are also talking to satellite owners as well as other service providers about taking advantage of this new architecture that we've invented for content delivery and over-the-top service, in combination with some of our content, and seeing if that makes sense for commercial airlines or offshore oil platforms or other things. Even media delivery on land, because it is just a very efficient way of doing it. So we see a lot of opportunities there and we are exploring some of those.

But that is something that is still in exploration phase. It is probably not going to have a big impact on 2016, but if it works, maybe we will see some impact in 2017 and beyond. Is that a reasonable assumption?

Well, that is probably reasonable. You know how these markets are: they take some time to develop. But it is more interesting -- I mention it more to give a sense for how people in the industry, the larger satellite operators and the larger people in the commercial aviation space, think that what we have developed is pretty impressive.

Right. Okay. Great. And Peter, on the cash flow, CapEx, etc., can you just give us some basics there, D&A for the quarter, stock comp for the quarter, CapEx for the quarter?

I sure can. So, just in terms of capital expenditures, they were $1.1 million for the quarter. In terms of depreciation and amortization, that was $3.2 million. And stock-based comp was just under $1 million.

Okay. With the cash that you have currently, are you becoming more aggressive on M&A, or are you looking at that cash as a nice to have going into potentially a weaker economy?

Well, I think we have done an increasing amount of M&A over the last couple of years, so we continue to look at things that make sense strategically. There is nothing right now that we feel is an imminent gap in our product portfolio or in our content strategy. But we certainly keep that on the table.

Okay, great. Thanks again.

Rich Valera, Needham and Company.

Just wanted to confirm that your gross adds were within your historical 250 to 300 range that you've talked about.

The gross adds --?

(multiple speakers) VSAT.

So in terms of subscriber adds, we [certainly] don't talk about subscribers. But outside of the offshore business, the answer is yes. The business has been steady-state. We did see some deactivations that we have discussed a couple times now.

Yes, I was specifically referring to gross, so not taking into account the deactivations that was -- you have talked about that 250 to 300 number many times, and I just wanted (multiple speakers).

Yes, but I just don't want to confuse hardware and net adds, which is based on subscribers. But just to answer your specific question, net adds have been in the consistent range where they -- sorry, the gross adds have been in the range that has been very consistent.

Got it. And then I am just wondering how you look at the headwind you are seeing from oil and gas. We are at least three quarters if not more into a very depressed oil environment. I am just wondering how many more of these oil and gas customers there are to churn off, and when that stops being as much of a headwind as it has been for these last several quarters. Any thoughts on when that churning slows down at least, so maybe you see some reacceleration of the airtime business?

That is really difficult to answer. We don't -- obviously we have a limited exposure, because it is not a big part of our business. So we -- logically, what you're saying is correct. We should see that tapering off. We have seen some stabilization, particularly in the Middle East, where the activity seems to be better than, for example, in the Gulf here in the US.

But you don't have any sense of when that might -- like, as we head into next year, should we be thinking -- I mean, at that point we will be over a year I would say into a very depressed oil market. It would seem that you would have shaken out a lot of the weak ends, so to speak.

Right, yes. And starting next year, your year-over-year comps will be based on already low oil prices.

Right. Okay. And then Peter, I am sorry, I just missed your breakouts for guidance and stabilization, the revenue and then the split between FOG and TACNAV and other.

So, I did not specifically give that level of breakout, but the TACNAV has been historically running for the first three quarters at around about $1 million. And the FOG has been traditionally running around the $4 million to $5 million mark. Those are pretty consistent.

Okay, can I just have the G and S revenue number for the quarter?

We have that at just under $7 million.

Okay. Just under $7 million, okay. And then with respect to IP-MobileCast, I gathered from your prepared remarks that you are seeing traction with that. And I guess it is, in theory, flowing through the increase -- should be flowing through via the increased media sales, as well as presumably some bump in ARPU. Just wanted to get a sense on if it has really had an impact on the business yet from a revenue standpoint. And if not, how do you see that, moving to 2016, that impact potentially growing for MobileCast?

Right. I think the -- up until this point, it is not a material revenue number. In other words, it is not driving a big part of our overall service business. It has had a very material impact on our positioning and our take rate in the VSAT business. And what we expect going forward is that now in combination with these new rate plans, it becomes an integral part of it. So, it is very early days. We just went live with the new rate plans on October 1, but it does look like it is working.

Okay. Got it. All right, thank you. That does it for me.

Chris Quilty, Raymond James.

Martin, just a follow-up on that. Will you allow current customers to transition to the new plans? Or is everybody going to have to wait until the end of their current contracts?

No, we will encourage people to transition. So, we will grandfather them in if they don't -- until their contract expires if they don't want to, but we absolutely are -- would encourage them to move.

Okay. So, could you perhaps in the future give us a sense of what that rate of transition looks like? That would certainly be helpful to get an idea of the conversion rate. A question just -- it is a bit of a future question on high throughput capacity; lot of stuff coming online, really more middle into next year and beyond. How is that going to impact the margin structure for the Company in terms of -- is it a direct substitution for older broad beam capacity that you can just roll off? Or is it -- does it become an incremental cost for you?

It becomes a cost saver for us. So, we see the new high throughput satellite as being more efficient, higher data rates, lower cost per bit. So, as we overlay that type of capacity, we expect that to have a positive impact on margins. So, we can do it in a way where we are not adding cost on top of what we are doing. We are adding incremental subs and adding bandwidth at cheaper prices than we are paying today.

Okay. And final question, Inmarsat did go live with the Global Xpress service. Can you give us a sense of how that is impacting you or not impacting you competitively?

It is surprising that we haven't really seen an impact. I am not sure if it is because they are not global yet or because -- because they had the first satellite up and they said it was available for regional service. And they have launched a bunch of different services around transitioning to Global when it is available, but it has not been an impact so far.

Okay, fair enough. Thank you, gentlemen.

(Operator Instructions).

Okay. Well, if there is no other questions we will wrap up, and we are always available to answer questions directly by phone or email for Peter or myself. Thank you.

Ladies and gentlemen, this concludes our conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.