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 would like to turn the call over to Mr. Peter Rendall. Please go ahead. .

Good morning. I'm 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's been a very busy quarter, and we've 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 we had some major TACNAV opportunities in the pipeline. In this quarter, I'm encouraged by the traction we've 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. While revenues of $37 million in the first quarter were down 7% from the same period last year. We've 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's 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 the continuing robust sales growth, we're also seeing signs that our competitive position is getting stronger in the important maritime broadband segment.

This quarter, one of the industry -- satellite industry's major market research reports estimated that our maritime VSAT market share was 26%, which they reported double that of our nearest competitor, Inmarsat.

An earlier version of this report published 2 years ago estimated that our market share was 16%, so we're making great strides in gaining momentum and reinforcing our leadership position in a market that's 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 the 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 U.S..

Nevertheless, we recently announced a whole new TracVision satellite TV product line in time for the voting season.

I'll talk more about this in a minute, but overall, we're optimistic about the satellite TV business, and we're seeing signs of increased demand for new boat sales in some of our key markets, including the important boatbuilders in Florida, the U.K. and Italy..

We recently rebranded our Headland Media business to the KVH Media Group and remain pleased with the contribution they've made both to our financial results and our combined service offerings.

As we approach our first anniversary since acquiring Headland, we fully integrated their employees and operations and are very happy to have this talented and dedicated team contributing to our overall success.

They've completed a full rebranding effort, tying the news, 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 onto 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 the TACNAV product revenues under the same contract in 2013.

We expected to complete the installation program and management services in the first quarter, but there's 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've 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 subcontract department of a major defense contractor..

During the first quarter, revenues for fiber optic gyros were $5 million, that's down 16% compared to the same period in 2013. Although sales of FOG 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 product lines, Advanced Navigation and Geodetics. We're in discussion with several other GPS manufacturers..

It's also being adopted by developers in a number of new applications in 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're launching in 2014. We've got a lot of exciting news. I mentioned earlier our new satellite TV product line, which we just launched, the new TracVision TV series product line will replace many of our M-series products that's been in the market for several years.

The new TracVision TV series offers a number of improvements over our older models.

These include technical features that ensure 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 of the legacy products and launching a new product line all at once..

Our new IP-MobileCast content delivery service has been beta tested by a number of customers and 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've worked to upgrade our network to add the multi-casting capability in each of the teleports and hubs, worked with security firm 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 in accessing the news, sports, TV and movie content we'll be delivering.

The response we've received at trade shows and events where we've had an opportunity to demonstrate the 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..

In sales events around the world, prospective customers have been very enthusiastic about our new service, no shortage wanting to sign up for trial.

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 U.K. 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 café and communications 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're working is for our guidance and stabilization group making a major addition to the TACNAV product line, 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's an optional mini-VSAT Broadband connection for a higher bandwidth.

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'll be launching TACNAV 3D at the international military trade show, 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've got a lot of new products underway that will strengthen our position in each of our major markets.

We're now recognized as the leader in mobile broadband in the maritime space, and we're successfully winning market share 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 product lines are all being updated and revitalized, and we have some exciting new sales opportunities coming online, leveraging our Crewtoo social media site.

We're seeing good short-term sales opportunities for our TACNAV products and fiber optic gyros and while long term, we're bringing out new versions of our military products that will help us compete for larger sales opportunities on higher-end vehicles..

We're very excited to be going live with our IP-MobileCast service, which is bringing entertainment on board to the next level, and we'll continue to refine our operational offerings for IP-MobileCast by adding partners in the weather link and training link areas..

And now, I'd like to turn the call back over to Peter for a 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 $1,900 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 product sales of $3.8 million were down 9% year-over-year, while land-based systems declined 11% to $1.1 million, as we'd 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 1 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've 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 was service-related, the vast majority of which was subscription-based..

In the first quarter last year, only 37% of our total revenue's 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've 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 product lines..

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're 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..

We expect revenue to be in the range of $41 million to $45 million and a net profit per share 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 remain strong..

And at this point, we would like to take your questions.

Operator?.

[Operator Instructions] And we'll go to Rich Valera with Needham & Company. .

Nice to see you got the multicast service up and running. Wondering if you could give us any sense of how you're looking at that from a revenue standpoint, and if you are going to give us any color on that in terms of subscribers you've added to it or revenue as it begins to roll out. .

Yes. I think what we'll 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'll probably break it out as it starts to become significant. So we don't expect material revenue impact in the second quarter.

So it's -- we are starting revenue service, May 1 will be the billing cycle, and we're very excited about it. But we don't have a specific financial results to talk about, probably until we put a couple quarters behind us. .

Fair enough.

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

Yes. We're still in that range. And as I've said, we're 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. So -- 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 it's going to 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 -- all the hardware, I guess, you've shipped in the last 18 months are backward-compatible, presumably have the kind of storage you need to do the multicast on them.

So if we kind of assume what you're kind of adds have been, call it kind of a maybe 1,000 sort of annualized run rate, that's 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're offering a free over-the-air software upgrade that will start for people immediately, as soon as they sign up. We're also doing some demos so that people who are turning the service on so they can get -- if they're interested, they can see it live for 30 days and check it out.

And far as the storage goes, there's -- we also have a media server, which has terabytes of storage. So there's going to be two-tier product offering, one is what's built in, and that gets you news link and sports link, movie trailers and the newsprint, 70 different languages of newsprint, and the TV show of the month, 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 you -- that we designed that you just plug in to your network. .

Got you.

And can you remind us what the range of ARPU is you might expect that as a multicast -- out of a new multicast customer, or how much incremental ARPU if they're already a Headland customer?.

Right. So the -- well, let's start with the customers that are VSAT customers. So 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're guessing, but we think we're 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, sounds like you've got one opportunity, specifically that you mentioned, I guess, is actually in sort of processing at a large OEM.

Can you give us any sense of the magnitude of that opportunity?.

Yes, we've got a couple different opportunities, actually, and we're not quite sure. Some of them, we have baked into -- we're pretty confident that they're 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 a $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 hit the low end of your EPS guidance, you need to do $0.30 or roughly $0.15 a quarter.

So just one of you can kind of 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. .

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

Martin is actually right. So we've guided last quarter as being normally -- and particularly as you related it 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's a lot of forward-momentum, particularly as it relates to subscription-based services and also with the launch of our new TV product line, we have high expectations. .

Right. The other thing -- 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 2 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 cost that we've been incurring as part of this IP-MobileCast over the last few quarters. So that should hopefully be start to be offset by some incoming revenue now. .

And we'll go next to Jim McIlree with Chardan Capital. .

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

$1.6 million product, $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're 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's a little bit weaker than what you were previously thinking?.

Yes. I think that 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're 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, that we're seeing a little bit more TACNAV, a little bit less FOG, for example, but not materially. Maybe we're talking about 10% changes within that mix. .

However, in terms of the gross profit dollars that are earned on those 2 components, the TACNAV, which we believe will be higher, generates a higher gross profit margin. .

Yes, 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're incorporating a number of other items in there?.

No, I don't think so. I think 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're going to have a slot or you're going to have the capability to do a mini-VSAT link on into the TACNAV.

How do you contemplate the real estate to accommodate a mini-VSAT communication system onto the platforms that you serve?.

Yes, it's normally for a percentage of the vehicles, so command and control vehicles would be the ones that we get a V3, for example. But all the products have a built-in iridium modem, so you've got 2-way messaging and position reporting right built into the system. .

Okay.

And can you share which particular iridium modem you're using?.

I would be happy to share, but I've forgotten the part number. It's -- there are integrated boards that has a wide temperature range. And the number [indiscernible]. .

And then -- that would be great. 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 we're -- 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. .

And we'll go next to Chris Quilty with Raymond James. .

I want 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're not going to see the same sequential growth that we have 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?.

That's correct, yes. .

Correct. And that's vessels going into -- in the... .

Seasonal suspensions. .

Seasonal suspensions, correct.

And as you look out to next year, I mean, what might be a target, and if you continue to add 1,000 vessels per year, what sort of operating leverage should we expect out towards the end of '15?.

So we've been adding around about 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's compounding. The more hardware we sell, the higher that airtime becomes in the future. So it's hard to predict, from a public disclosure perspective, the range. .

Yes. So -- but you're thinking about it the right way, Chris. So as the -- we still are adding incrementally more users, the individual gross margin contribution is still in the order of 60-plus percent of the adds, but you're adding to a larger and larger install 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 is 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're not included in our VSAT airtime number. .

Got you.

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

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

Okay.

Is the trend up or down on V11?.

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

The V11, I think, was down a bit down in this quarter. .

Slightly down versus Q4. .

But the overall trend is up and so... .

Okay.

And what's 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're quoting on now are all V11, which is a little surprising to me. But -- so -- but I think that just could be a coincidence that the 4 or 5 things we're 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 marquee 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're again targeting 1,000, 1,100 vessels this year?.

We're expecting to see an increase in that, but it's 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're not going to be able to provide guidance on the ARPU impact until you get a quarter or 2 under your belt?.

Right. Yes. So I think it will be a 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 of years, but I think you're well-positioned.

What's your sense of what it will take to get that market, that product line selling at a higher rate? Is it just simply the long lead times 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 is, as Peter mentioned, we're doing 78% of the quarter was commercial, not military. So that's good news and bad news. I mean, the bad news is that the defense side is very slow. This spending on the big programs have really dried up on some of that.

So we've been successful on the commercial side and as you say, some of that will depend on those end-user products taking off in the market. So I think what's missing here and the reason why we're down year-over-year is that the bigger defense programs have dried up due to lack of funding. .

And we'll go next to Anya Shelekhin with Sidoti & Company. .

Could you provide some guidance for G&A expenses going forward, say, over next year?.

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

Okay.

And would you -- did you hire any additional employees this past quarter?.

Yes, we hired a new VP of Content for -- based in L.A, working with the studios for content acquisition. And we've hired a recruiting person in the U.K., working on our Crewtoo social media site, developing that into a sort of LinkedIn style of recruiting service.

We've been hiring engineers for IP-MobileCast, software engineers, app developers, web developers and network technicians. So we've been strengthening the team around the new businesses that we're building.

And up until this point, we've been kind of bootstrapping it all internally with existing personnel, including senior managers and CEOs doing a lot of hands-on work. So we're 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 a 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%. .

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's ir@kvh.com, and we'll be happy to take calls as well. Thank you. .

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