Martin Kits van Heyningen - CEO John McCarthy - Interim CFO.

Ric Prentiss - Raymond James Rich Valera - Needham & Company Chris Quilty - Quilty Analytics.

Good day and welcome to the KVH Industries' Second Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I’d like to turn the conference over to John McCarthy, Interim Chief Financial Officer, Please go ahead, sir..

Okay, thank you. Good morning everybody. Thanks for joining us today to discuss KVH Industries' second quarter and our guidance for the third quarter and the full year. All of which is included in the earnings release we published this morning. With me on this call is Martin Kits van Heyningen, the company's Chief Executive Officer.

The earnings release is available on our Web site 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 Web site. If you are listening via the Web, feel free to submit questions to ir@kvh.com.

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’ll find definitions of these measures in our press release as well as reconciliations of these non-GAAP measures to comparable GAAP measures.

We encourage you to review the cautionary statements made in our SEC filings specifically those under the heading Risk Factors in our form 10-K filed on March 14th of this year. The company's SEC filings are available directly from us, from the SEC or from the Investor Information section on our Web site.

So at this time, I would like to turn it over to Martin.

Martin?.

Thanks John, and thank you all for joining us this morning for our second quarter conference call. I'm pleased to report KVH’s second quarter results were read in line with our guidance. Our revenues were 46 million up 2.5% year-over-year from 44.9 million in the second quarter of 2015.

For the quarter our adjusted non-GAAP earnings were $0.08 per share which was at the higher end of our range. All these results are encouraging as it was achieved during a period of significant market headwind. Our key commercial maritime market shipping and oil and gas continue to struggle due to low freight rate and lower oil prices.

Vessels are being sold or laid up and orders for new ships are being delayed. Fortunately we've been able to add new subscribers to overcome these headwinds. Now the Brexit decision in the UK happened late in the quarter so it didn’t have any impact on Q2.

But the exchange rate did adversely impact our revenues compared to our budget and compared to last year. The majority of our training services and value-added content business is built in British pound. Fortunately, we also have a fairly large operating expenses in the UK that are in pounds and that helps to offset the impact of currency.

So we see more of the impact on the revenue line than on the bottom-line. We stellar success in overcoming the various economic challenges can be attributed to our new airtime sales strategy that's gaining momentum.

In the maritime markets our users based airtime plans now account for over half of our overall airtime subscription, both existing and new customers are adopting the new plans which provide faster higher quality of service are also returning higher margins and ARPUs to KVH.

The number of customers using our IP-MobileCast content services also continues to grow and we have several promising initiatives underway to create new sales opportunities for our maritime training services.

In the guidance and stabilization segment we’re seeing continued growth in our INU sales as some of our OEM customers in the autonomous platform, utilized objects and dynamic survey markets begin to sell larger numbers of their product.

We're also successfully fulfilling portions of the large TACNAV orders we received last year, while closely pursuing the several large new orders that we have identified and believe will be placed within the next few months.

As John is going to cover the numbers in more details shortly, so let me provide some operating highlight, the reach of our business area. Beginning with the mobile broadband business our Q2 revenues of 36.9 million were down about 3% from 38 million in Q2 2015.

As I mentioned we attribute these declines to the commercial maritime industries’ economic challenges and on the content side to the decline in the British pound. Our Inmarsat airtime was down 28% year-over-year while VSAT airtime was flat as new activations offset lay-up of offshore vessels.

We are excited about the early success of our new usage based airtime plan. You may recall that one of KVH’s major initiatives in 2016 has been to disrupt the outdated practice in the maritime VSAT industry of managing consumption by limiting the connection speed.

This year we introduced new airtime plans designed to offer every one of our customers, service at the fastest possible speed while giving them control over their consumption with a set of new cloud bandwidth management tools.

New programs have been very popular, providing a significantly better user experience while also increasing KVH’s ARPUs and margins. This is helping us increase the profitability of our existing customer base by converting them to the new plans. In fact our VSAT airtime margins were 37% for the quarter which is up sequentially and year-over-year.

Given the competitive challenges and the difficult macro environment for our customers we are pretty pleased about that. Our new plans are helping us win new customers by offering a differentiated service in the maritime market.

Where the fastest airtime speed unlimited to customers buying the very largest airtime packages, which is the common practice in maritime VSAT. In the second quarter some of KVH’s largest and most important customers have switched from speed based plans to the new usage based plan.

In one of these cases switch resulted in a doubling of the monthly service revenue which is a $1.5 million increase in annual subscription fees from this existing fleet customer alone. We are also having good success using the plans to get long time KVH VSAT customers to sign up for new multiyear airtime contracts.

For new business in this past quarter we won two significant fleet deals with these new programs, one for over 50 vessels and the second for a fleet of over 100 vessels. Both of these programs are on an accelerated installation schedule, so we expect them to start impacting results as soon as Q3.

Overall usage based airtime plans now account for over half of our airtime business. The key to offering these services is providing excellent tools for customers to monitor and manage their own bandwidth use, which required significant back office upgrade which we completed last year.

This investment and the competitive advantage we have overall in our ability to manage control our own network will make it difficult for competitors to copy our approach. And of course our unique IP MobileCast service keeps the big video files off the data network and off the customers’ usage allowance.

They can do all the video streaming they want through IP MobileCast and it doesn’t count towards their usage at all. From KVH’s perspective the significant advantage of usage based airtime plan is our revenues are now directly linked to our cost. The more the most of the use to the network is predictably profitable.

With the old approach no matter how much bandwidth you supply customers will use it all plus 10%, creating a never ending demand for more bandwidth without additional revenue. For the competitors, that creates a congested contended network that everybody complains about.

On the other hand give people high speeds and great service they don't mind paying for what they use, even if it's slightly more than they were paying before. Looking forward we're encouraged by the increasing availability of high throughput satellites and maritime focus being coming from most of the major satellite providers.

By not having huge capital investments in satellite, we can leverage the lower cost capacity been launched to provide better value for our customers, while also improving the profitability of our existing business.

We're also starting final testing of new products that we think will enable us to offer our customers higher speeds, even better performance than they're getting today. We are in a unique position to partner with the best of the upcoming network.

We have the largest install base in maritime VSAT customers, global distribution for sales, installation and after-sales support, hardware and software design, manufacturing and integration capabilities, and unique data broadcasting and value-added services with customer bases reaching large parts of the maritime industry.

All of which makes us the perfect partner for any new satellite services being launched. Then moving onto our content business, our IP-MobileCast news, movie and music service continues to grow steadily with monthly revenues up 60% in June compared to January of this year.

The adoption rate of IP-MobileCast is gaining momentum and we're even seeing some of the major tanker companies adding mini-VSAT to their vessels just to be content catchers for IP-MobileCast service. There is simply no other comparable service available for keeping seafarers informed and entertained in the middle of transoceanic voyages.

In our Videotel training business we're in the midst of a major technology upgrade that will make it easier for partner companies, educational institutions and even commercial customers to use KVH training materials as part of their own integrated learning management systems.

These upgrades will open up new distribution opportunities for Videotel making it easier for us to use other peoples’ content in our own system and provide a better user experience by enabling our content to play on seafarers’ tablets and smartphones in addition to the dedicated training systems and computers currently in use.

Videotel training libraries are now onboard over 12,000 vessels with 328,000 seafarers completing over 650,000 training events in the second quarter alone.

Moving on to our guidance and stabilization business, which includes our fiber optic gyro and TACNAV military navigation product, revenue was 8.4 million in the second quarter, and that's up 40% from 6 million last year.

In our fiber optic gyro business the mix is changing as our IMU sales continue to gain traction especially in the emerging autonomous vehicle markets where we're being integrated into the navigation systems of with new platforms developed for use in air, on land, on sea as well as underwater.

These platforms are being used for both commercial and military application, and they are often high end high precision craft where KVH product meets the customers performance goals for the acceptable size, weight and cost constraint.

KVH continues to be involved with the leading players in the self driving car market and we're seeing near term opportunities as some of the early market entrants start to field larger fleets of vehicle. We began supporting the concept of the self driving car more than 10 years ago during the first DARPA challenge in 2004.

Any of the engineers leading today's projects are the same people we supported in these pioneering efforts. We're now part of this many of the solutions being developed to rely on inertial centers as part of their navigation solution and we continue to work to perfect our centers for these customers.

Our goal is to get designed in and to make sure that we stay in the system as they transition from prototypes to production. Obviously managing cost and our reliability are the 2 key items in addition to the demanding performance requirements.

Moving on to our military land navigation business, we continue to see version opportunities ahead for our TACNAV system. Our new TACNAV 3D solution works through GPS to provide assured position navigation and time in the event the GPS service is blocked or jammed.

Reliance on GPS has now proven to be the Achilles' heel of many critical military applications. We had a solid quarter for TACNAV shipments in Q2 and everything that's in our financial guidance for Q3 is already in backlog.

We are still awaiting two additional orders for our TACNAV system and assuming they arrive in time this should ship before yearend. There are several combinations of programs that should allow us to meet our guidance for the remainder of the year.

Message from our TACNAV customers is still very positive and we see indication that the orders we are anticipating and have built into our guidance are in jeopardy.

In one case the new vehicles to be provided as part of the new order have already been built and they are delivered to the customers’ country, so we have high confidence that the orders for TACNAV will arrive. But as always the timing is uncertain and the risk for delivering in the current year increases with passage of time.

Although we do have finished goods inventory on the shelf and we're managing our supply chain to enable them to quickly fill new orders. In total we have about 100 million of TACNAV orders in our sales pipeline so the number of opportunities continues to grow.

So in conclusion we're happy with the results for the second quarter and believe that we are in a great position going forward we've got a good leadership position in the maritime satellite market and our new airtime programs are popular with customers and are profitable for KVH.

We seem to be gaining attraction with our IP MobileCast service and our training business is strong and positioned to grow. Our spot technology is finding good niches in emerging market and a little some of these have been slow to develop the advancement of the technology they represent will create a wide range of new opportunities for use to pursue.

And the short-term prospects for TACNAV orders have never looked better. Although the timing of these military contracts is often difficult to predict, but importantly our military customers appear to know they've got vulnerability now relying exclusively on GPS, which is exactly the reason we invented our TACNAV solution.

And now I'll turn the call back over to John for the detailed financial results.

John?.

Thank you, Martin. I’d now like to discuss in more detail the financial results of the company for the second quarter. As Martin mentioned earlier, our second quarter revenues of $46 million were right at the middle of our guidance range that we previously provided and we are 2.5% higher than the second quarter of 2015.

The primary drivers for this growth were a 40% year-over-year increase in guidance and stabilization product revenues, partially offset by a decrease in sales of our mobile communications products of 2.6%. Negatively impacting revenues by approximately $400,000 as compared to the prior year quarter was the weakness in the British pound.

It's worth noting that the second quarter revenues, the second quarter 2016 revenues were largely unaffected by the further weakness in the pound that resulted from the Brexit decision because that occurred, that Brexit decision could towards the end of the quarter.

Our second quarter service revenues of 25.9 million decreased 3.7% year-over-year, mainly due to a decrease in revenue for both e-learning and maritime safety and media sales the biggest driver of this sales decrease was the weakness in the British pound, which negatively impacted these revenues by $400,000.

We also had a $200,000 decrease in Inmarsat service sales and a slight decrease in contracted engineering services. Looking at our airtime subscription portion of our service revenues in the second quarter, airtime revenues were 16 million which was down 1% from the prior year.

Mini-VSAT airtime revenues were flat with the prior year, however continuing its trend Inmarsat fleet broadband revenues were 28%. So when compared to Q1 of 2016 the airtime revenues were up 4%, with virtually the entire increase attributable to mini-VSAT airtime with both subscriber activations and ARPUs being stronger than the first quarter.

Now moving on to product revenues, total product revenues increased by 12.3% or 20.1 million in the second quarter and most of this increase was attributed to the TACNAV revenues which were offset by a decrease in both FOG revenues of 800,000 and mobile communications product sales of 200,000.

Our guidance and stabilization hardware revenues of 8.4 million were 2.4 million higher than the second quarter of 2015 or a 40.3% increase. As we discussed this increase was primarily due to the higher TACNAV revenues.

As we turn to our gross profit margin in the second quarter, consolidated gross profit margin of 43% was the same as we reported in the second quarter of 2015.

Our overall service margin was 49% both this quarter and in the second quarter of last year, while our VSAT airtime gross profit margin was 37% in the second quarter, and that was up 3% from 34% from what we reported in the prior year and it was up sequentially 1.2%.

And as Martin mentioned the key driver is the usage based airtime plans that are favorably impacting our margin. For product revenue we reported gross profit margin of 35% which compares to 33% a year earlier and the increase was primarily driven by the increase in the guidance and stabilization product revenues.

As it relates to our second quarter operating expenses we recorded 20.4 million in the second quarter, which was up 5% or 1 million year-over-year and of course there were increases and decreases but the notable increases were in commissions both external and internal, media and advertizing, and payments to outside consultants.

Our Non-GAAP EPS for the second quarter which excludes discrete tax items, acquisition-related costs, and intangible amortization of stock-based competitive expense was $0.08 which is at the higher end of our range of which we provided last quarter.

Our adjusted EBITDA for the second quarter was 3.5 million compared to 4.1 million recorded in the same period last year and that was within our 2.5 million to 3.7 million guidance we previously provided last quarter.

For a complete reconsolidation between GAAP and non-GAAP measures please refer to our earnings press release that we published this morning.

And capital expenditures during the second quarter were 1.3 million and then backlog for our guidance and stabilization products and services at the end of June was approximately 17 million, which was consistent with the amount at the end of the first quarter. And we expect to ship and recognize roughly 13.5 million of this backlog this year. Okay.

Now I turn to our outlook for the third quarter and update for the full year guidance.

Similar to what we experienced in 2015, we still expect TACNAV shipments to be skewed significantly towards the second of '16 in addition a portion of our revenues in course of as we discussed denominated in pound sterling and although we have seen significant currency fluctuations over the past year.

This guidance assumes there is no further fluctuations in exchange rates for the remainder of the year. With this context we are reaffirming our full year revenue guidance for 2016 to be in the range of 190 million to 210 million.

And we expect our GAAP EPS for 2016 to be between $0.12 to $0.42, and we also expect our non-GAAP EPS to be in the range of $0.66 to $0.96 and our non-GAAP adjusted EBITDA to be in the range of 21 million to 28 million.

For the third quarter our net loss is projected to be in the range of $0.5 million loss to a net profit of $400,000 and with GAAP net loss per share being in range of $0.03 loss per share to net profit of $0.02 per share.

Non-GAAP adjusted EBITDA is projected to be in the range of 3.8 million to 5 million with the non-GAAP diluted EPS for the quarter expected to be in the range of $0.08 to $0.13 income per share.

In wrapping up my thoughts, even though we experienced continuing headwinds in the commercial maritime sector overall we're still pleased with the solid results that we recorded in the second quarter. And with that now I'd like to turn things back to the operator for the Q&A portion of this morning's call..

Absolutely. [Operator Instructions] And we'll take our first question from Ric Prentiss with Raymond James. Go ahead, your line is open..

Hi. A couple of questions for you, first on the two additional orders on the TACNAV side, you mentioned that the order arrives in time, you can ship it before year end but you're watching the clock.

How much flexibility do you have in that, and how late could the orders show up and still be able to ship and make the year?.

Well, one of them we've had especially high confidence and specificity on the quantity. So, we actually have the product built and sitting on the shelf. So, that one, even 30 days before the end of the year, which is all we need to get the export license we'd be able to ship.

The other one I would say would probably be, the timing will have to be early in the fourth quarter, so absolute minimum I say first two weeks into the fourth quarter, in order to ship..

That's good to have one on the shelf though. The second question I think you mentioned the TACNAV 100 million in the pipeline.

Does that include at all the AMPV potential?.

No, that's no. So, that's a more out year type stuff, so, this is -- for the AMPV, was a solid win for us, so they are long-term prospect there depending on how much they build to be another $30 million or so for us..

And then any update on what you're seeing in the M&A environment out there? There's been transactions and partnerships forming all around the space, just wondering what you're seeing in the M&A side?.

Yes I think there have been consolidations especially with so many smaller players. I think the market there were probably too many players in this space. So, I think that we're continuing to increase our market share.

I think that we're adding about even at the pace a little over 1,000 per year run rate right now, where that's significantly higher than anybody else. But in terms of M&A I think that you probably have better visibility into that than we do. It just seems like, there's a lot of consolidation..

And will take our next question from Rich Valera with Needham & Company. Please go ahead. Your line is open..

Thank you.

Martin just wanted to follow-up on the commentary on those two TACNAV orders that are in your sort of short-term forecast can you give us a sense of the relative size of those two orders the one that is sort of on the shelf and the other one that you are pending that sort of final order?.

Yes, I don’t want to get too specific about individual orders just for competitive reasons. If people figure out our pricing, but roughly on the order of -- it's in the $10 million to $20 million range that we expect it to get..

Is that all between the two or is it…?.

Yes, so what we have in our guidance actually assumes even a partial shipment so the order might be a larger than that but in terms of what would be shippable this year would be in that range..

Okay.

And that's the total for the two orders or only for the one that you are hoping to get?.

That's total for the two and when I say 2 it is probably that they are four different programs and any combination thereof so it is what we're trying to say is that there is a -- we have an amount in our guidance that is predicated on achieving at least two orders but there is -- that's out of pool of four potential orders that could happen..

And so I wanted to ask if you around the mini-VSAT’s airtime revenue one actually could you give the -- I know you said it was flat year-over-year but can you give that actual number of what the mini-VSAT airtime revenue was in the quarter?.

Yes, I think John has that number it is….

Yes 15.5 so it's up sequentially from Q1 and is about flat with last year so -- but the ARPUs are up sequentially and also I didn’t mentioned but the unit shipments are up, so we are up over 250 back in that so in positive territory there so it seems like that and that's always a good predictor of how the airtime is going to grow because our hardware was lost to our airtime service so it is 100% of the product we sell have deactivated on our network..

Right, now it is good news on the unit shipments in the quarter.

Now last quarter you talked about maybe growing that I think mid single-digits this year, but I think you have had a couple of quarters now sort of flat in the first half, which would appear to make mid single-digits stretch goal, do we think we can get back though to sort of maybe mid single-digits growth for the back half quarters or how should we think about when that business starts growing again?.

Right, yes. So, after another quarter being flat makes the full year goal that much more difficult, I think that we do expect to return to growth here and certainly it is market dependent.

We have seen like the bulk dry to its index increase, it was a down a lows of 200s now it could jump back up to around 600 so that's a good sign that the market is starting to recover a little bit, which is really, which should really help us.

And the oil price has been dancing around but generally it is more stable and better than it has been beginning, so certainly those macroeconomic things that will help us we feel that our market share is good and growing, so a little bit of help from the overall market would be required for us to get back to the single-digit growth for the full year.

And on to your media businesses one, can you give us the number of the revenue from the media businesses in the quarter and also if you can give a constant currency growth for them.

I know they were I think hit by about 400 chasing the pound but sort of what they would have been on a constant currency basis?.

Constant currency basis I don’t have the number in front of you, but it’s relatively flat. So those businesses in pounds were flat John is looking up the number as we speak yes round number is 9 million for the quarter..

It was hit by about 400,000 which is impacted by our 400,000 in currency negatively..

Right yes, so on constant currency basis it would have been call it 9.5 million..

So separate topic but you alluded to some technology upgrades you are working on Martin which would increase it sounds like the throughput of your system and the speed to your customers, anything else you can say about that, is it presumably still KU but some enhancement to your KU modem or antenna technology?.

Yes it will still be KU so it’s really working on sort of next-generation technologies. We would probably have something more to say about that towards the beginning of Q4..

And then just one more on the book-keeping side for guidance and stabilization can you give the split between TACNAV and FOG?.

The revenue split for the quarter?.

Yes please..

Yes, FOG was around 4ish million, 4.2 maybe, off the top my head..

4.3..

4.3 John says, then TACNAV was the balance..

4.1..

It was 4.1 million [indiscernible]..

[Operator Instructions] We will go and take our next question from Chris Quilty with Quilty Analytics. Please go ahead. Your line is open..

Martin you talked about the benefit of new HDS satellites that are coming online, have you yet contracted for any capacity and if not, should we be modeling a step up on the cost of sales as you bring in new transponders?.

Well I didn’t say specifically HDS, but I did say that well overall what our position is that all this new capacity is good for us in terms of our cost side, so I don’t want to talk specifically about contracts. But we see that the opportunity to reduce our cost overall, as opposed to increasing our cost, certainly on a per subscribers basis.

Now, there are always times when if you add capacity in a region or capacity beyond particular satellite, you might have an increase in cost, so given that we already have a global network that should be more or less within the normal course of business as opposed to a step function increase.

So, we shouldn't be modeling any increases in cost over the next -- the balance of the year for example..

Okay.

And in terms of antenna sales, are we seeing the traditional split between the V3, V7 and V11?.

Yes. In any given quarter it seems to jump around a little bit, but overall V7s are most popular than the V3 and then the V11 in terms of units. But in terms of dollars, V11 is probably larger than V3 just because the cost per unit is much higher..

And when you talk about an improvement in ARPUs can you give in order of magnitude is this kind of single-digit or double-digit type year-over-year improvements?.

Well, it's nit year-over-year it is sequential. So, what we're seeing -- and that's -- so what we're starting to see now is two things. One is that we did see sequential improvement from Q1 which was good. But more importantly the new open plans are significantly higher. I mean they're like double, almost double the average ARPU.

So, that's a big, a big improvement. So, as we transition more people to those plans we're optimistic that the ARPUs will continue to increase..

And I know one nice feature I guess for the vessel operator as well as yourself of those new plans as they can basically off mode to the crew if they want extra megabytes a month, gigabytes a month they can purchase that independently.

Have you seen any of that activity contributing to the ARPU?.

Yes, but it's not a huge -- the overages are not a huge part of the benefit of the plan and actually that's a feature of the plan. So, the reason that in the past nobody wanted these kind of plans as they got surprises at the end of the month. We call it bill shock in the industry.

So, part of our whole methodology here is that try and manage so even that's good for one month, it's actually bad for business, so we're actually trying to manage it so that they don't get that and so they manage the per usage themselves. So, typically we're looking at something on the order of a 10% overage on a monthly basis which is good..

And the content business doesn't seem to have grown in a way that I thought it might have of vessels buying movie packages and what not, and you've got a with the recent acquisitions you've got a much bigger install base in which to sell those services, can you give us a sense of how you're going about trying to up sell customers and what's working and what isn't?.

Right, so a little bit of it is, there's a bit of, we have a pretty large install base, the DVD library install base which is two-in-one in 2,000 vessels.

So, some of that is when those moves to IP-MobileCast that's a little bit of zero sum gains, so it is we're trying to move those customers to the new service but it doesn't -- you don't know what's beard in the revenue.

But all of our sales pitches include IP- MobileCast the Videotel customer base is much larger than our VSAT install base at 12,000 vessels, so that's kind of a different sale so that's a sale to a different customer than the customer who is buying the IT connectivity for the vessel.

So we see better alignment with the Videotel product and the media product than we do with the Videotel and the mobile broadband product so -- but what we're doing is we're transitioning our Videotel on-board library into a feature that's available within our media server and eventually within our antenna control unit for the VSAT product itself so that that product will come with IP-MobileCast and Videotel capability inherently built in.

So, I think that's something that should help increase the sales of cross -- and help cross-sell..

And is that something that could be retrofitted or is this for forward fit only?.

That's for forward fit only the retrofit is getting a media server. So today the Videotel content library is on what is called a VOD box which is just like a media server so that's installed on the vessel. And then if you wanted IP-MobileCast you would have another server that's required.

So, this would at least consolidate those two and then eventually when we have our new products out those two will both be eliminated and just be a standard feature within the core product..

And final question your Inmarsat revenue was down quite a bit sharper than their revenues were down, can you give us a sense of whether there is something specific to the markets you are selling into or the general relationship on the Inmarsat line?.

So I think that a lot of our Inmarsat business is leisure in the audio market and their pricing policies have been particularly on a drag for that customer group so I think the price increases for people that don’t really use the product much and have it more as the backup have caused them to deactivate..

And is that a market you can address with something in your product line?.

Yes. So our V3 is a perfect solution for those guys where we have plans that start a little $49 a month so it's a, it needs a big switch over..

Have you've had any success switching over?.

Yes, the leisure market continues to be strong for us so I think we've get very-very high market sharing in leisure. So that's kind of our core business and about 40% of our total sales are in the leisure market..

We will take a follow-up question from Ric Prentiss with Raymond James. Please go ahead. Your line is open..

I wanted to circle back on something from the press release. You had mentioned that you came to an agreement of greater customer with a large fleet to the broadband C.0..

Yes..

Yes I am sorry that was not in the quarter what are the kind of the thoughts on the magnitude and the timeline and how successful are you being at than other of those upgrades?.

Yes so that was kind of a nice example of the fleet customer and it's going to end up in doubling the ARPUs which would be approximately $1.5 million incremental revenue on an annualized basis, and because of existing customer. There is no installation required so that’s just changing the rate plan so that should start this quarter..

And how long is that sales cycle obviously not much cost to upgrade them but just the kind of sales cycle to get others to see the benefit of doing the upgrade?.

Yes, it takes a fare amount of convincing just because it's different, and people are -- and so and that particular one we actually did do a trial for a couple of months and they loved it and they didn’t get any surprise bills and so they decided they want to make the switch.

Even though on a per vessel basis it was almost a doubling of what they were paying. They just fell they were getting a lot more value for their money..

You have no further questions at this time..

Great, well if anyone who wants to talk to us afterwards feel free to contact me or John directly. Thanks for your time..

This does conclude today's program. You may disconnect at any time. Thank you for your participation..