Don Reilly - CFO Martin Kits van Heyningen - CEO.

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

Good day, and welcome to the KVH Industries Incorporated, First Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Don Reilly, Chief Financial Officer. Please go ahead..

Thank you, operator. Good morning, everyone. Thanks for joining us today to discuss KVH Industries' first quarter results and our guidance for 2018 second quarter and full year, all of which is included in the earnings release we published this morning. With me on the call is Martin Kits van Heyningen, the company's Chief Executive Officer.

The earnings release is available on our website and also from our Investor Relations Department. If you would like to listen to a recording of today's call, you can access a webcast replay on our website. If you're listening via the web, feel free to submit questions to ir@kvh.com.

This conference call will contain certain forward-looking statements that are subject to many assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any forward-looking statements.

We will also discuss certain non-GAAP financial measures, and you will find definitions of these measures 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 2017 Form 10-Q which was filed on March 2nd and the company's other SEC filings which are available directly from the Investor Information section of our website.

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

Martin?.

Thanks, Don and good morning, everyone thank you for joining us today. I'm pleased to announce that 2018 is off to a strong start. Q1 revenue was $40.1 million and EBITDA was $0.9 million both in-line with our guidance.

Our first quarter results illustrate that the strategic investments we made in 2017 are paying off and we're delivering growth in our key markets. In our mobile connectivity business, we achieved record quarterly VSAT shipments and bookings in Q1. VSAT shipments were up 50% sequentially and 62% compared to last year's first quarter.

We increased our airtime subscriber base by 6% whilst we exited the quarter with a strong backlog heading into Q2. The driver for these results was our AgilePlans connectivity as a service program for the commercial market which we introduced in Q2 of 2017.

This new approach to selling, delivering, and deploying SATCOM hardware servers and content was designed to reduce the barriers to VSAT acceptance among commercial fleets by offering affordable subscriptions that incorporate every element of our end-to-end maritime communications and content solution. And we set several goals for our agile plans.

We wanted to convert our traditional hardware sales into re a recurring revenue stream by moving to a hardware and service subscription model. We also wanted to dramatically move the needle and boost our VSAT deployments, expand our installed base and increase our airtime subscriber population.

If we simply saw one-to-one trade-off with anticipated VSAT sale shifting to subscription the program would have been a disappointment. Fortunately, we can now say that it appears it will be very successful. We're moving out of the quarterly shipment range, we've been experiencing for the last couple of years.

Our AgilePlans no commitment policy has also proved to be extremely appealing, especially in Asia-Pacific market. But more importantly, we're seeing zero churn off the AgilePlans. Once the system and service are aboard our customers are very satisfied and it's been remarkably sticky, driven in part by our unique value-added services including content.

As a result, AgilePlans orders now account for 67% of our commercial maritime bookings. As with companies that have transitioned to a software-as-a-service model, we're seeing lower product sales but increase in subscription revenue which will compound over time.

A recent report by Euroconsult shows that our market share VSAT terminal is up more than five points to 31.2% compared to four years ago. Our market share has also nearly doubled that of our next closest competitor as of the end of 2017. The demand for AgilePlans is now strengthening that leadership position in the maritime industry.

We saw other positive developments in Q1 as well in addition to a major contract with the German fleet in Q1, we also signed a new 45 vessels 5-year contract with the Brazilian fleet last week. The key factor in that deal with our new track phone be 7 H. yes product and service.

Overall, we're now combining the benefits of AgilePlans and our new high throughput satellite or HTS network to further attract new customers. We've just completed an agreement with one of our largest fleet customers based in Singapore to add 45 additional vessels to their deployment all V7-HCS systems.

One of our service providers in the Middle East just completed a new contract with another fleet of more than 40 vessels. So, you can see there is lots of great activity in the pipeline and as those units get installed, we will be adding to our top and bottom line. This success has come with some challenges.

As we discussed in our last call in March, the rapid increase in the acceptance rate and demand for AgilePlans has put pressure on our production and installation planning.

As a result, that momentum created a large reset backlog in Q1 and we need to substantially increase the pace of installations so that we can activate units faster and add them to our subscription revenue stream. This is a good problem to have but it's a problem none the less.

In response, we've made substantial enhancements to our global installation network and processes investing where necessary.

As a result, we more than tripled our installations in Q1 versus Q4, but nevertheless we're still building our backlog of units we need to increase the installation pace even more to keep up with the demand and get these units activated and contributing.

So, we are yet to see the real benefits of the scale of the AgilePlans bookings since we don't record revenue until they're activated. This is good news for upcoming quarters. The launch of our HTS network and the new TracPhone V7-HTS antenna system in late 2017 has been extremely well received.

The high speed 10 megabit per second channel along with an unlimited data channel is unmatched in the industry. It's helped close a deal on some very competitive commercial bids as well as shown great appeal within the leisure market.

There we saw a strong demand for our HTS communication system and our TracVision Satellite TV antennas from new boat builders both in the US and in Europe during Q1. Many of them enjoyed very strong first quarter that the boat builders which contributed to the strength in that market as well. Moving on to our inertial navigation business.

We continue to see strong growth in our fiber optic gyro and IMU sales as we achieved our fifth consecutive quarter of double-digit revenue growth. Sales of FOG's were up 25% compared to Q1 of last year. I'm pleased to say that our efforts to diversify our inertial nav business are yielding positive results.

From our prior years where we were dependent on a single customer or application for our FOG sales, we've diversified our customer base. As a result, multiple markets and application types including autonomous vehicles, aerospace, navigation systems, remote weapon station, and platform stabilization are all contributing to our revenue growth.

We're also seeing integration designers who previously used MEMS gyros turning to us because they recognize that these lower cost systems simply can't provide the accuracy needed for mission critical applications. We have a strong backlog of fiber optic gyros and inertial navigation systems as Q1 sales outpaced our production capacity.

We kicked off a number of initiatives to boost production through investments and equipment, and direct labor to meet the growing demand and to bring delivery lead times back toward our historical levels.

We expect to see accelerating revenue growth throughout the year as we ramp production ship backlog and increase the pace of new fiber optic gyro orders.

Now in the military market, we recently completed a new round of tests with the US military evaluating the performance of our TACNAV 3D systems as a means of delivering a short position navigation and timing. This is a major strategic initiative for the US and allied forces in response to vulnerabilities in the GPS system.

As with our previous test, the new trials went extremely well and our TACNAV system performed better than specified. That puts us in an excellent position to pursue this extremely large long-term opportunity. And finally, our development efforts for the new photonic chip continue to make solid progress.

We're proceeding with the development and production planning efforts are also developing a robust business plan, development schedule, and manufacturing plan, while at the same time identifying potential partners for mass production and commercialization.

Our goal is still to be able to deliver prototype fiber optic gyro based on the photonic chip the key driverless vehicle customers by the end of this year. So, in conclusion 2017 was the year of investments to transform KVH and move into an exciting new growth phase. We're beginning to see results from those investments, but we aren't standing still.

We continue to invest in type of innovations that have helped us to exceed and build a strong foundation for the future. And we've got a strong pipeline of new products coming out in 2018. We're controlling our operational expenses, but are careful not to impact our longer-term growth.

As the mix changed from purchased units to AgilePlans subscriptions continues to accelerate, we may see a decline in the reported hardware revenue in the short-term, but we're also be showing significant increase in unit fielded which will more than offset that within a short period of time.

We entered the year with momentum and we've carried that into Q2. We're very pleased with our progress and our confidence that we're building long-term shareholder value. And now I'd like to turn the call back over to Don for some detail on the numbers.

Don?.

Thank you, Martin. As Martin mentioned earlier, our first quarter revenue was $40.1 million, which was right at the midpoint of our guidance range and was the same as our 2017 first quarter, which was $40.2 million.

As you know we implemented the new revenue recognition standard ASC 606 in the first quarter, the impact of the new standard was a net decrease of about $400,000, so on an apples-to-apples basis, revenues would have increased slightly about $300,000.

Revenues from our mobile connectivity segment decreased $1.5 million and our inertial navigation revenue increased $1.4 million from the prior year first quarter. Product revenue for the first quarter was $14 million, a decrease of about $900,000 or 6% from $14.9 million in the first quarter of the prior year.

By segment, product revenues in our mobile connectivity segment decreased by $1.9 million or 20%, while product revenues in our inertial navigation segment increased $1.1 million or about 21%.

Within our inertial navigation segment, our FOG business continued its solid top-line revenue growth growing approximately 25% this quarter compared to the first quarter of the prior year. Well TACNAV sales remained basically flat year-over-year.

In our mobile connectivity segment, the decline of product sales was driven partially by the adoption of the new revenue standard, as well an impact of the AgilePlans subscriptions service.

With respect to the Agile program, approximately 51% of our total unit shipments this quarter and 67% of our commercial shipments were in connection with this new offering which allowed us to achieve a record high in some of VSAT unit shipments.

Service revenue for the first quarter increased by about $800,000 or 15% to just over $26 million from 25.3 million in the first quarter of last year. In our mobile connectivity segment, mini-VSAT broadband airtime revenue increased about $600,000 or about 4% compared to the prior year due to a 6% increase in airtime subscribers.

In our inertial navigation segment, non-recurring engineering revenue increased about $200,000 compared to our prior year. For the first quarter, our consolidated gross profit margin increased to just over 43% as compared to about 41% in the first quarter of last year.

From a segment perspective, our mobile connectivity gross margin was 44%, up about 2.6 percentage points while our inertial navigation gross margin increased just over 3 percentage points to just under 40%. Operating expenses for the quarter were $20.5 million, down 2% from $20.9 million in the first quarter of the prior year.

For the first quarter, these changes in revenue margins and operating expenses resulted in a loss from operations of $3.2 million compared with the loss of 4.5 million recorded in Q1 2017.

Our mobile connectivity segment generated an operating profit of $1.1 million compared with a $600,000 last year while our inertial navigation segment had an operating profit of $300,000 for the quarter compared with an operating loss of $100,000 last year. And our unallocated loss decreased to $4.6 million from $5.1 million last year.

Our overall effect of tax rate for the first quarter was negative 4.8% which reflected the tax expense on our foreign earnings and valuation allowance on our deferred tax assets generated by net operating losses incurred in the U.S. as required by accounting rules.

As we consider this valuation allowance to be a discrete non-cash item, we have excluded this reserve when computing non-GAAP net income and EPS. For the first quarter, our net loss was $3.9 million, as compared with a net loss of $4.9 million recorded in the same period last year.

On a non-GAAP basis, which excludes discrete items, intangible amortization and stock-based compensation expense, and employee termination and other non-recurring cost and foreign exchange transaction -- from exchange losses, we had net income of $1 million compared with a net loss of $1.3 million last year.

EPS for the first quarter was a net loss of $0.23 per share compared with a net loss of $0.30 per share in the same period last year. Non-GAAP EPS loss for the first quarter was $0.06 per share compared to a non-GAAP EPS loss of $0.08 per share last year.

Our adjusted EBITDA for the quarter was $900,000 compared with a loss of $700,000 recorded in the first quarter of last year, which was within our guidance range $0.5 million to $1.5 million. For a complete reconciliation of our non-GAAP measures, please refer to our earnings release that was published earlier this morning.

Total backlog at the end of first quarter was $15.6 million. Backlog for our inertial navigation products and services at the end of March was approximately $14.6 million. Of the total backlog amount, approximately $13.3 million is scheduled to be delivered during 2018.

Net cash used in operations was $1.2 million, an increase of $5.5 million compared to the first quarter of the prior year. Capital expenditures were $3.2 million and our net debt was $6 million, up somewhat from the end of 2017 due to the addition of new capital leases in connection with the launch of our HTS network at the beginning of the year.

With that I'll now turn to our outlook for the second quarter and full year of 2018. Our guidance for the quarter is as follows, revenue is estimated to be in the range of $41 million to $43 million and GAAP EPS to be in the range of negative $0.13 to negative $0.08 per share.

Non-GAAP EPS is expected to be in the range of $0.02 to $0.06 per share and adjusted EBITDA is estimated to be between and $2 mi8 and $3 million. For the full year, our guidance is unchanged at this point. Our revenue guidance is $166 million to $180 million.

Our expectations for full year GAAP EPS is a range of negative $0.44 to negative $0.21 per share, and our non-GAAP EPS is expected to be from $0.12 to $0.28 per diluted share and our adjusted EBITDA is expected to be in a range of $12 million to $16 million. Also, as you know all public companies in the U.S.

were required to adopt a new revenue recognition standard on January 1 of this year. For us that new standard is expected to reduce revenue and adjusted EBITDA in the second quarter by $1.6 million and $400,000, respectively, and in the full year by $4 million and $1 million respectively.

Reduction to non-GAAP EPS is expected to be $0.02 in the second quarter and $0.04 for the full year. These amounts reflect the guidance amounts provided. This guidance assumes there will be no significant changes in foreign currency exchange rate. For 2018, we continue to expect our capital expenditures will be in a range of $15 million to $20 million.

So, that summarizes our first quarter results and our outlook for the rest of the year. With that, I'd like to turn the call over to the operator to open the line for the Q&A portion of this morning's call.

Operator?.

Thank you. [Operator Instructions] We'll go first to Rich Valera with Needham & Company.

Thank you. Good morning. Martin, I think you mentioned that installs tripled in the first quarter and I'm not sure if that was year-over-year or quarter-over-quarter. But, and you also mentioned I think that's it's -- you've kind of broken out of your historical quarterly addition range.

Would love to get some sort of bounds there? I mean, I think we've historically talked about a range of 200 to 250 or 250 to 300, and I'm not sure if you are willing to sort of say where you are if you are kind of out of that range or any color on that.

And also, I think just to follow-up, you've talked about having a really building backlog there on the VSAT. If you could give us any sense of the magnitude of that backlog and kind of how you think that's going to flow through with the balance of the year as you work to increase your delivery and fulfillment capacity..

Okay, lot of questions there for me. So, you are correct. So, what we're saying is that we're no longer in that range than on the range you just mentioned. So, we're above that range now for the first time and we mentioned it was a record, so clearly a positive trend, sequential quarter growth as well as year-over-year growth of 60%.

When I talked about tripling the installation pace that was sequential compared to Q4 of last year. In the year earlier quarter, we didn't have any at all Agiles. So, that was -- that program hadn't started yet. So, I was referring to sequential growth.

So, in terms of the magnitude of the backlog, we went into the quarter with a good backlog and we expect to see continued solid year-over-year growth.

So, we feel pretty good about where we're going and as you know, we've struggled to really break out of this range and to really sort of move the needle in an important way and we feel that we're doing that now..

Got it. And then, just wanted to reconcile the 4% airtime revenue growth with apparently a 6% growth in your sub base, because I think you've been saying that the AgilePlans carry a pretty significant ARPU premium. I think you may have mentioned 30%.

So, it would seem that your average ARPU for the entire base was down year-over-year to kind of have 4% revenue growth on 6% sub-base growth. So, just trying to reconcile that with what we think should be an improving ARPU given the increasing mix of AgilePlans..

Right. Yes, you are right. We do expect ARPUs to increase as our plans are above the average ARPU, but the ARPU mix is little bit more complicated than just Agile versus non-Agile, because you have the 11s which have very high ARPU compared to V7 or V3. So, there is a bit of mix change there as well.

So, it's -- but you are right, AgilePlans does have a better ARPU than our corporate average. And you are also right that there was a blended rate decline in ARPU due to mix..

And you know as happy as we are with the success we've had with Agile, it's still a very small portion of our total number of subscribers. So, it's not -- so the higher Agile ARPU, isn't really going to significantly impact the overall ARPU at this point. .

That's another good point. So, not only is you are comparing it to the install base, so you have to move the needle of you know the 10-year install base, but you also have to get them installed and activated.

So, for example when we mentioned that we won a fleet of 40 vessels or 100 vessels or 50 vessels, we don't even count that as bookings or shipments until we get each individual order, like where the unit is shipped to a vessel. So, that's not even in the totals. And again, until they are installed and activated, we don't recognize any revenue from it.

So, the backlogs of installation, purchase on the revenue line and it also hurts us on the growth and ARPU, because there will be no growth in ARPU until they are activated..

Yeah. I get that it will take a while for it to have a significant accretive impact on ARPU, but I guess it seems like there is something going on where your average ARPU is declining on your base, which I wouldn't have necessarily expected. So, that's what I was really trying to get at.

And I guess you are suggesting that maybe that's less V11s in the mix is driving that or?.

Correct, yes..

What's driving the less V11s. Is that more people doing Agiles and you don't get V11s on agile or is that the….

We do get the 11s on Agile. The big thing is that, the HCS is our newest product and it's a V7. So, the V7 HCS has much better global coverage than the old V7. So, there are fewer cases where you absolutely need a V11 and the V11 is not an HCS compatible product. So, we've seen a mix change to the V7 HCS..

Got it. And then just wanted to address the full year guidance. I mean, obviously, you maintain that and sort of at the mid-point of your full year EBITDA $14 million, you'd need to do roughly $10 million of EBITDA in the back half after doing call it $4 million in the first half, which should be kind of a 2.5x increase.

So, just wanted to kind of understand what's driving it. I'm presuming it's going to be a pickup in shipments on the inertial side, guess to move the needle that rapidly I would think. That's what's got to happen.

So, just wanted to confirm that's the case and sort of what your visibility is to that presumed ramp of shipments on the inertial side in the back half?.

Yeah, so I think you are right. The biggest driver on the second half of the year will be shipments out of our inertial NAV segment. We have -- as we've said, a really strong backlog where basically selling out our capacity.

We're at the first and second quarter adding capacity for the last half of the year, so that we can meet all of our -- ship all the orders that we have. But the momentum is really strong..

Got it. Okay, thanks. Thank for taking my questions..

We'll go next to Ric Prentiss, Raymond James..

Thanks. Good morning guys. Couple of questions one that will be short-term, one medium term and one long term. Continuing on the previous questions, what would it take to hit the high-end of the guidance versus obviously right now you are kind of running at the low-end of the guidance on revenue.

And how important is the backlog to kind of determine where you'd end up at the end of the year on that revenue guidance?.

Yes. We have a fairly, for a company our size, we have a fairly complicated business where there are lot of different parts.

So, when we look at the short and long-term, sorry the high and low-end of the guidance, you know there is scenarios for each product line and each business group from inertial to TACNAV to TracVision to TracPhone, airtime content training, so a lot of different moving parts. So, there is not a single easy answer to your question.

So, we -- everything is a probably why it's high low for each business segment. So, there is not one -- which is also a good thing, there is not one single thing that we're depending on, you know this year. As you know in past years, we were overly dependent on large TACNAV orders. That's not the case this year. The business is more diversified..

But TACNAV continues to be really lumpy business and while we -- those large international orders are not included in our forecast, but we do have on the upside more TACNAV business then on the downside..

And the risk to the number as far as if the backlog and the installation process, doesn't improve, are a risk to the numbers?.

Yes. But I think it's captured in the downside. I think that the -- you know there is, you know, clearly if we don't increase the pace of the Agiles we won't see the economic benefits. The backlog also is a little bit at risk, because we need to increase our production in our fiber optic gyros facility.

We don't think any of those are big risk, but they clearly are risks..

And then one other point to keep in mind, in some respects with respect to Agile, we can be victims of our own success. So, if Agile -- the Agile momentum continues or increases, that will be great for our long-term business, but it will put pressure on our short-term business.

So, risk to our full year could be that agile grows, continues to grow even greater than our expectations, but that could come at the expense of product sales, that we would have expected to record the share..

And so, we become a growth company, right? Handle the growth. Second question in the medium term, Iridium is getting closer to getting their full constellation up, I think launch 6 is scheduled for another week and half or two weeks or so.

What do you see happening with the Iridium Certus product? And how does that play into kind of your medium-term sales outlook?.

Well, we like Iridium. We're partnered with them. We have 100s, if not thousands iridium customers. We use Iridium as a backup service, because every ship at sea always wants to have two methods of communications onboard and we use Iridium for that backup. And as a result, we have many gigabytes of Iridium capacity.

We're working with them on their new Certus product, so we expect to transition to that when it's ready, which we think will be an improvement over fleet broadband, because it's global, so we're looking forward to that going live. So, we're bullish on that..

Is that something you could see affecting the numbers in 2019 or is it in 2020 kind of timeframe just trying to think when you might see the benefit?.

Yeah. It's not a big. You know, for us, it's not a large revenue contributor. It's more because people -- the good news about our VSAT service is it's incredibly reliable. So, people don't use the backup channel at all, or rarely. So, that it doesn't really drive a lot of revenue for us. So, it's a hardware sale.

The new service -- the new sort of equipment is a bit more expensive, so we should see a bit more hardware revenue. But we don't expect a big uptick in the Iridium airtime rate. However, as we increase the number of units fielded and they benefit from that as well, because a lot of those will go Iridium in addition to our VSAT. .

Got it. And then one other team you touched on a little bit or looking at the possibility of getting manufacturing and distribution with the FOG, chip, autonomous vehicles.

What are your thoughts as far as the timeline on sort of how we should think about working with the foundries, working with commercial packaging and kind of updating kind of what the timeline we should be watching on that as?.

Right. So, we're working hard to try and get a sort of tangible milestone this year which is a package part that we can hand to a potential customer. So, we are working currently with two different foundries with two separate processes both have already delivered prototypes that are looking very good.

So, we expect next samples in the next 30 days or so from one of the foundries and about another month or two from the second foundry, so we're staggering the two foundries and we're working with independent packaging company to a third party that just does packaging to try and optimize that.

So, I think that we're on the schedule that we set out at the beginning of the year, so no show stoppers have been identified. We continue to make progress and the next big milestone is a packaged working product..

Okay. We'll stay tuned to watch for that. Have a good day..

And we'll go next to Chris Quilty with Quilty Analytics..

Question for Don; did you give them any VSAT margins for the quarter and could you also provide for Q4, I was looking at my model and I seem to have missed that last quarter?.

Sure. So, I don't know if I gave out airtime margins, but I can tell you for the quarter they were just under 37% for first quarter and for fourth quarter, I think they are just a little bit higher than that. I want to say close to 40%. Just give me a second to look that up..

Okay.

Also, while you dig in through there the guidance and stabilization backlog?.

Just over $13 million..

So, just over $13 million..

Yes..

Okay. So, Martin just to circle back on some of the U.S. military assured PNT programs and the kind of pipeline you're working on there and testing. I know in the past we talked specifically about the AMPV which at one point I have my notes was like a potential $30 million opportunity whether those are my numbers or yours and of course the JLTV.

Can you talk through both of those individual programs and where you are in terms of penetrating into the programs or being funded or an add on part of the programs and are there any other big ones I'm missing?.

Sure. AMPV is a program that we won. So, we're designed in, we've been working closely with BAE.

On the vehicles, we've delivered I want to say on the order of maybe 30 of our TACNAV systems and we put those into their vehicles and the vehicles themselves are in the process of being qualified and production is scheduled to start next year and it's expected to be on the order of 3000 vehicle program.

So, for us that is in the $30 million to $40 million range. And JLTV to my knowledge has not, does not have a discrete navigation solution requirement. So, for most of the U.S.

military vehicles are now anticipating that it'll be part of this larger assured PNT program where there is going to be a navigation solution with an integrated back up and anti-jam capability and that'll be applied across all vehicles. So, the total target there is huge, huge number of vehicles potentially hundreds of thousands of vehicles..

Okay.

So, can we talk about your position and role in the assured PNT program, I mean you've indicated that you've been testing while, do you sense of how larger the field of competitors are going against and any kind of timeline on when the office makes selections or receives funding?.

I would say at this point we don't have a timeline that the government has signed up for. So, I really can't shed any light on that.

Because the program is so large they tend to move very slowly to the point where individual groups may break rank and do something quicker, so whether that's the marine corps, SOCOM, or the rapid deployment groups there are opportunities in the near term for us and we've been pursuing those and a lot of trials that we've been doing in the last few months have been related to those who're not actually part of the bigger program, but part of the same solving the same problem but doing it faster..

So, target SOCOM once, they buy it the marines buy it then you're pushing that and maybe and then eventually the army..

What you are describing is how a lot of these programs work, projects work those smaller groups can move quicker and then a bigger group gets the benefit of seeing the results and it helps drive the procurement, help drive the requirement so was always a benefit to being in the early stages and that's what we're trying to do..

Okay. Speaking of military and VSAT, I mean Coast Guard is a big anchor customer I know you also had some placement with the navy.

Is there are there any discussions that you have ongoing to transition those customers from your legacy network to an HTS network?.

I think in general the -- yes, as a short answer. But I think in general we're re-evaluating our whole defense opportunity because on the earlier platform it was a non-standard technology, the new platform lends itself to be more compatible with military applications or they need standardized encryption for example.

So, we are looking at ways we can increase our defense presence which today has been outside the ones you mentioned has been extremely small. So, we're looking at that as the potential opportunity..

Okay.

And final question maybe this is Don again, did you give the number for the content revenue in the quarter and if there is any thoughts or discussion there in terms of either new products or services or the impact that the AgilePlan transition is having on the overall content sales?.

So, no. I didn't give it. I could tell you that it was about $7.6 million, $7.7 million combined roughly the same as last year..

So, in terms of new product there Chris in the fourth quarter we launched our Videotel performance manager which is brand new software platform, which includes the back-end, which is really critical development for us and that's been very well received. We added a couple of thousand in Q1 on to the new platform.

We have a total of about 3800 vessels now on the new platform. So, we're getting a very rapid uptake and that's critical. So, we expect that to sort of return that business to grow after being flattish to even slightly down in 2017. So, we're expecting to see growth again because of the new software platform..

Great. Thank you very much..

The answer to your first quarter margin question is 37.4%..

And we have no further questions in queue at this time. So, I hand the call back over to our speakers for any additional or closing remarks..

Great. Thanks for your time today and as always, we'll be happy to talk to you one on one..

That does conclude today's conference, we thank you for your participation..