Good day. And welcome to the KVH Industries, Inc. Fourth Quarter and Year-End 2019 Earnings Conference Call. Today's conference is being recorded.At this time, I would like to turn today's conference over to Mr. Don Reilly, Chief Financial Officer. Please go ahead, sir..

Thank you, operator. Good morning, everyone. Thanks for joining us today to discuss KVH Industries’ fourth quarter results and our guidance for the 2019 first quarter and 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, Company's Chief Executive Officer and Brent Bruun, our Chief Operating Officer. This 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 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 heading Risk Factors in our third quarter Form 10-Q on October 31st and our 2019 Form 10-K, which is expected to file later today and the company's SEC filings available directly from the Investor Information section of our Web site.At this time, I would like to turn the call over to Martin..

Thanks, Don, and good morning everyone. Thank you for joining us today. I'm happy to report that we're seeing continued positive momentum in our core business, and this is reflected in our 2020 revenue and earnings guidance.

We believe that this momentum will translate into enhanced shareholder value going forward.Looking at Q4, we had a very productive quarter as our core business and strategic plan delivered on expectations, and we made tangible progress on several of our strategic initiatives. Our quarterly results were in line with our guidance.

Total revenue for the quarter was $42.5 million, a 7% increase versus Q4 of last year, while our adjusted EBITDA was $700,000.For the full year, total revenue was $158 million, a 3% increase compared to 2018. In addition, we repurchased $1.3 million in common stock as part of the stock buyback authorized at the start of the quarter.

We entered 2019 having established several key strategic initiatives that we outlined as drivers for long-term profitable growth.

I'd like to provide you with a progress update on these initiatives, as well as look ahead to the next steps for each them in 2020.In our mobile connectivity business, we continue to achieve excellent results in our efforts to accelerate subscriber growth. Airtime revenues were up 6% year-over-year to $19 million.

In addition, we also saw another quarter of double-digit subscriber growth in Q4 with active airtime subscribers up 11% versus Q4 of last year. Our margins on the airtime business continue to grow year-over-year with the subscriber base.

The ongoing conversion of subscribers from our original network to our HTS network will continue to improve those margins. Thanks in part to the migration effort, which we kicked off in 2019 we now have more daily users on our HTS network than on our original network.

That's a big accomplishment just two years after the launch of the HTS network.We continue to invest in this migration effort, which from a customer perspective, delivers higher speeds, more affordable data and better geographic coverage. At the same time, we are realizing both financial and operational benefits from this transition.

Our AgilePlans service remains a major driver for subscriber, revenue and airtime growth. AgilePlans revenue was up 78% in Q4 versus last year. We're also achieving consistent sequential growth as AgilePlans revenues were up 9% compared to Q3 and 33% compared to Q2 of 2019.

AgilePlans represented 71% of new commercial, mini VSAT broadband subscribers during the quarter.As expected, AgilePlans service became cash flow positive during the fourth quarter, which is major milestone. When we launched AgilePlans in 2017, we upended the commercial maritime Satcom market.

For the first time, fleets could deploy a complete Satcom solution with no CapEx, no installation, or maintenance costs and receive advanced hardware, airtime service, crew entertainment, operational content, all for a single monthly subscription and with no long-term commitment.However, AgilePlans doesn't meet the needs of everyone in the market.

Some fleets have no need for global coverage or may require a smaller antenna due to their vessel size. Others don't need as much data or such high speeds, or have a limited budget. For example, there are more than 350,000 commercial fishing vessels longer than 12 meters operating today.

The vast majority of these vessels have no connectivity once out of sight of land.

We wanted to change that and so earlier this week, we introduce AgilePlans Regional, an extension of our AgilePlans portfolio for a currently unserved segment of the market.AgilePlans regional is a connectivity-as-a-service product with similar benefits to our existing AgilePlans global product, but it includes our smallest antenna, the 14 inch TracPhone V3 HTS antenna system.

There are also no upfront fees and no installation or maintenance costs, and this package is available with a monthly all-inclusive subscription starting as low as $499.

In addition to AgilePlans Regional, we also launched KVH Link, our new commercial digital content service that addresses two pressing needs in maritime industry; providing news and entertainment content to improve crew welfare and delivering operations data to optimize vessel performance.We built on our past experience providing content for crew and our patented IP-MobileCast technology for content delivery.

KVH Link provides timely and fully licensed popular news, sports, movies, TV, music, karaoke, podcast, trending viral videos, all in the sleek new user interface designed with digital natives in mind.

Essentially, we've created a Netflix-style service with a broad selection of content that's curated specifically for the international population of seafarers. Unlike our earlier offering, KVH Link does not require a media server.

We now store and stream the content directly out of our integrated modem.Our goals for KVH Links are to address an unmet need among commercial fleets and help them improve crew retention and morale.

We also see KVH Link as an opportunity to generate incremental ARPU among our AgilePlans and other commercial maritime customers, while simultaneously making our airtime services even more appealing and customers less likely to churn.

As we continue to grow in our mobile connectivity, we're also focusing on driving profitability and the scale of our business through improvements in our infrastructure, as well as the digitization of our back office systems, to improve efficiency.Another major strategic initiative is our ongoing push into the maritime IoT market.

We were very pleased to announce the recent installation of the first joint maritime IoT system on Simrad Echo, an active working research vessel in collaboration with Kongsberg Digital.

We also made significant progress in our suite of satellite optimized resources for the intervention feature of KVH Watch, and that's a key differentiator that enables on demand high speed sessions for data transfer, support and service and access to onshore remote experts.

Looking at our maritime IoT efforts in 2020, so far we've already successfully added business development resources and are focusing on expanding our set of IoT infrastructure partners, as well as deploying pilot units with key customers.Moving on to our military and Inertial Navigation business.

I'm pleased to report that TACNAV revenue was $3.4 million for the quarter, that's up $1.9 million, it's over 100% versus Q4 of 2018. This was an important turning point for our TACNAV business. We’ve now returned to growth with orders from both U. S. customers and for important international markets as well.

Now these aren't the TACNAV contracts that we’ll be pursuing in 2020, but some of these are for the same end customer, which is a very important sign. We also continue to be an active participant in the U. S.

Army's assured position navigation and timing evaluation and testing, which will be continuing throughout 2020.Within the Inertial Nav market, sales of our fiber optic gyro products were 5% quarter-over-quarter, an encouraging sign after several quarters of relatively flat revenue. Sales were split among both commercial and military applications.

We're particularly excited that Lockheed Martin selected us to deliver a next generation multi-axis fiber optic gyro sensor for the IRST21 sensor system, which Boeing and the U. S. Navy are integrating into the F/A-18 combat aircraft.

But this program reinforces the value of our patented FOG technology and the proven performance of our fiber optic gyro. It also gives us the opportunity to contribute to the success of an important military program.And finally, we've made tremendous progress in the productization of our Photonic Integrated Chip, or PIC Technology.

We completed the engineering development of the gen-1 photonic chip and we've met our initial price and performance targets with chip itself.

We expect to shift the first of our existing IMUs with PIC technology inside before the end of the current quarter, and we'll then move ahead with the integration of our PIC Technology into existing product lines throughout the remainder of 2020.

Thanks to the anticipated performance benefits and enhanced reliability resulting from this photonic chip technology, we believe we will be an even better position to pursue opportunities in the autonomous market.

We think this technology will be essential for autonomous cars.While the automotive market develops, there's already a large and growing opportunity in the area of autonomous everything, on land, sea and air.

Applications like drones, people movers, trucks, mining and construction equipment, all represent exciting opportunities that are poised to use our technology.

We also believe that they'll contribute to our revenues more quickly than the driverless car market, for which the mass production timing is still a few years out.So in conclusion, we remain confident in our strategy and are highly focused on executing against our strategic plan.

We're investing in these three initiatives, accelerating agile plans, commercializing our photonic chip and developing and launching the new IoT product KVH Watch.

We entered 2020 with a solid backlog in our inertial navigation markets, and we're creating a strong foundation for meaningful revenue and earnings growth this year and even more revenue and earnings growth in the future, which we believe will translate into enhanced shareholder value going forward.So now I'd like to turn the call back over to Don for the numbers.

Don?.

Thank you, Martin. As you know, we concluded the Videotel disposition in the second quarter of 2019.

We concluded that the Videotel disposition met the criteria of a discontinued operation and we have reflected it that way in our earnings release and in our 10-K, which we'll file later today.In the fourth quarter, we finalized the working capital adjustment for this transaction, which reduced the proceeds from the sale of Videotel by $1 million to $88.4 million as we expected and as we’ve accounted for in the [Technical Difficulty].

Also a significant development in the fourth quarter was our repurchase of about $1.3 million or 115,000 shares of our common stock as part of our share buyback program.As Martin mentioned earlier, our fourth quarter revenue came in at $42.5 million, which was within our guidance range.

This compares to $39.7 million recorded in the fourth quarter of 2018. Revenue from our Mobile Connectivity segment increased about $300,000 and our Inertial Navigation revenue increase just about $2.5 million from the prior year fourth quarter.

Product revenue for the fourth quarter was $18.7 million, an increase of just under $2 million or about 12% from $16.8 million in the fourth quarter of the prior year.By segment, product revenues in our Inertial Navigation segment increased just over $2.1 million or about 24% and in our Mobile Connectivity segment, decreased very slightly about $200,000 or 2%.

Within our Inertial Navigation segment, growth in our FOG business returned with our revenue is growing approximately 5% this quarter compared to the prior year fourth quarter.

While as Martin said, TACNAV sales increased by just under $2 million or 119%, compared to the comparable 2018 quarter.In our Mobile Conductivity segment, the decrease in product sales was driven primarily by $100,000 decrease in marine product sales and $100,000 decrease in sales of our land product sales.

Service revenue for the fourth quarter was $23.8 million, an increase of $800,000 or about 4% from $22.9 million in the fourth quarter of the prior year.

Mini VSAT broadband airtime revenue increased to just over $19 million, growing approximately 6% from the prior year fourth quarter driven primarily by our successful AgilePlans program and continuing demand for our HTS network.VSAT shipments in connection with the AgilePlans program approximated 54% of our total unit shipments and 71% of our commercial shipments this quarter.

For the fourth quarter, our consolidated gross profit margin increased to 37.4% as compared with 35.9% in fourth quarter of last year.

From a segment perspective, our Mobile Connectivity gross margin was 32.2%, down about 2 percentage points, while our Inertial Navigation gross margin increased about 8.9 percentage points to 49.7%.Operating expenses for the quarter were $19.2 million, up 15% from $16.6 million in the fourth quarter of the prior year, in part reflecting our ongoing investment in key strategic initiatives, as well as higher service-related costs in connection with our growing VSAT subscriber base.

For the fourth quarter, these changes in revenue, margins and operating expenses, resulted in a loss from operations of $3.3 million compared to the loss of $2.4 million recorded in the fourth quarter of 2018.Our Mobile Connectivity segment generated an operating loss of $1.5 million compared to an operating loss of $100,000 in the fourth quarter of 2018, while our Inertial Navigation segment had an operating profit of $3 million for the quarter compared to an operating profit of $1.1 billion last year.

Our unallocated loss increased $1.4 million. For the fourth quarter, our net loss was $2.9 million as compared with a net loss of $2.7 million recorded in the same period last year.

EPS for the fourth quarter was a net loss of $0.17 per share compared with a net loss of $0.15 per share in the same period of last year.On a non-GAAP basis, which excludes amortization of intangibles, stock-based compensation expense, employee termination and other nonrecurring costs, transaction-related fees, non-recurring inventory reserves and other nonrecurring costs, foreign exchange transaction gains and losses, the tax effect of the foregoing and certain discrete tax charges, including changes in our valuation allowance and other tax adjustments, we had a net loss of $500,000 compared with a net loss of $1.1 million last year.Non-GAAP EPS for the fourth quarter was negative $0.03 per share compared with negative $0.07 per share last year.

Our adjusted EBITDA for the quarter was $700,000 approximately compared with $1 million recorded in the fourth quarter of last year.

For a complete reconciliation of our non-GAAP measures, please refer to our earnings release that was published earlier this morning.From a continuing operations perspective, net cash used in operations was $1.9 million, an increase of $5 million compared to the fourth quarter of 2018. Capital expenditures were $3.2 million for the quarter.

Our ending cash balance approximated $48.3 million. Total backlog at the end of 2019 was $19.5 million. Backlog for our Inertial Navigation products and services at the end of December was approximately $18 million.

Of the total backlog amount, approximately $15 million is scheduled to be delivered in 2020 comprised of $13.5 million in Inertial Navigation and $1.5 million in Mobile Conductivity.With that, I'll now turn to our outlook for the first quarter and full year of 2020. Our guidance for the first quarter is as follows.

Revenue is estimated to be in the range of $36 million to $39 million and GAAP EPS to be in the range of negative $0.42 to negative $0.31 per share.

Non-GAAP EPS is expected to be in the range of negative $0.26 to negative $0.17 per share and adjusted EBITDA is expected to be between negative $4 million and negative $2 million.For the full year, our revenue guidance is $170 million to $185 million.

Our expectations for full year GAAP EPS is the range of $0.81 to negative $0.58 per share, and our non-GAAP EPS is expected to be from negative $0.34 to negative $0.17 per share, and our adjusted EBITDA range is from $2 million to $6 million.

This guidance reflects our continued investment in the key strategic initiatives that Martin discussed, which are contributing to the revenue and earnings growth we are estimating for 2020 and will prepare us well for continued growth in 2021 and beyond. This guy does assume there'll be no significant changes in foreign currency exchange rates.

For 2020, we expect our capital expenditures will be in the range of $15 million to $20 million.This concludes our prepared remarks. And I'll turn the call over to the operator to open the line for the Q&A portion of this morning's call.

Operator?.

[Operator Instructions] Our first question will be from Rich Valera with Needham & Company..

A question on your commercialization initiative, just wondering if you could talk about when you think you'll actually start shipping commercial product with the PIC inside of it..

Our expectation is that will happen in a few weeks, so before the end of the current quarter. So we'll start to put it in, or IMUs, which is our high end products and will ripple it through our entire product line, and our goal is to have it in everything by the end of this year..

And then on the airtime revenue, it looked like you had pretty decent unit growth but the airtime revenue grew 6% year-over-year, which is a bit of a decel from recent rates.

Anything to be aware of there and do we expect that’s the new rate, or do we think that's going to reaccelerate going forward?.

So we had the subscriber growth and we were a little bit disappointed in the airtime number, which came in couple of hundred thousand less than we thought.

And the big reason is there are more seasonal suspensions, and seasonal suspensions, if on the leisure market if somebody is not using their boat, they suspend they still pay per month but it's only for the voice service and same with some commercial fishing in Alaska, where they suspend for a couple of months.

So that number was higher than the year before. And that was the primary driver, because that drops the ARPU down during, so we've already seen, those start to come back in January. And you're not allowed to suspend permanently. So that was the big difference from our expectation going into the quarter..

And then sort of broad question on the inertial business as you're looking at the year and your guidance range, I mean I'm assuming that kind of the big variance in your guidance range is primarily due to the potential variance in international shipments. And it's something about 15 million of backlog that you have due to ship this year.

So seems like there's a lot of sort of book and ship that needs to be done there, kind of just to get even a low end of range or obviously to the high end.

So just wanted to kind of get your thoughts on the visibility to inertial as a whole this year and what sort of drives you up to that high-end, what are some of the potential upside drivers there?.

So where we seeing significant growth this year is primarily in the TACNAV side of the house. So in Q4, we saw big increase, we've started to see orders coming out of the Middle East that we hadn't seen in years, so we now expect that to be significant this year.

So in our internal budget and in our guidance we have a fair amount of TACNAV, there are four or five major programs that we expect to book this year, and some portion of those will ship.And that's a change from this year, but it's consistent with what we just saw in Q4. And some of backlog that we have is already for TACNAV for 2020.

So we're very optimistic about the TACNAV business here. And on FOG baked into our guidance is some reasonable growth, but not really big numbers compared to last year, so mid to high-single-digit growth type thing..

And what drives that?.

Well, we think that as we convert over to the photonic chip technology, we expect to get some nice marketing buzz around that as we launch, get into standard products and then we'll be launching some new products that specifically take advantage of the new photonic chip, and will offer better performance and things like that.

And it's fairly consistent with what we just saw in Q4 and some of the backlog that we're carrying. And this is a lot more compared to last year, I don't have the number off the top of my head, but the backlog for Inertial Nav is much larger than it was going into 2019..

Our next question will be from Rick Prentiss with Raymond James..

I want to follow-up some of those questions, I’ll start with guidance. First, obviously, the corona virus is impacting the stock market.

How is it affecting your markets as far as first supply of your components, then also demand and maybe how you've reflected it if at all in guidance?.

So we're kind of assuming that in the long run, this won't be an issue. So obviously, Q1 is where we would feel the impact most but obviously, nobody knows. From a supply perspective, we've done analysis of our supply chain. We don't see -- we don't think we have any significant exposure in Q1. We don't buy a lot of stuff in China.

Circuit boards aren't made there but some are components are, so some of the raw material for circuit boards does come out of China even though the boards are being fabbed in Taiwan, or in Mexico for that matter.But we think we're in pretty good shape for Q1. We don't have any immediate major issues that I'm aware of.

If this drags on for long then I think it's a more generalized problem at the secondary level, because if the chips, or resistors, or capacitors are coming out of China, then it doesn't really matter where your boards are fabricated. So on supply side, we feel pretty good.

On the demand side, we think we haven't seen any immediate order cancellations or anything like that. We have seen two or three of our major trade shows cancelled, which is a bad thing for the long run, the one in Singapore got rescheduled to fall, I believe. So that's not good.But so far, we haven't seen any immediate impact.

I think if this were to extend for long periods of time, the exposure would be on the shipping side, ships going in and out of China or Asia in general, raw materials going in and finished products coming out, travel by sea. So those are the kinds of risks that we're looking at.

But so far, we don't see anything that's going to impact us beyond what we've got baked into our guidance..

And speaking of baked into guidance, I think you said that the fourth quarter actuals was from the same end customer, but we've had that large international TACNAV orders that we've been hanging around the hoop for a while but haven't put in.

Is that in your guidance for 2020? Is it still a possibility of shipping in 2020? What are your thoughts on that, those large international….

Yes, we expect as I mentioned, we now have four or five major programs that we expect to book this year and we have, and our guidance assume that at least one of those will start to ship in 2020 and we have a pretty high level of confidence that that's going to happen..

And then same going to happen then, the first quarter guidance kind of implies maybe a slow start to the year on revenues and then you have the cost later.

So what's the thought as far as what would cause 1Q to head towards the low end of guidance, which would be pretty low versus historical levels?.

I think, it would be just general economic macro things would push us to the low end. In other words, people -- business not behaving normally due to the corona virus that would push us to the low end for sure. I think it's a possibility. But as I mentioned, we haven't seen that yet..

And we're sitting here almost on leap day, so we're two months through the quarter. And then switch gears for other line of questioning is on the Agile side of things, showing pretty good subscriber growth.

What's the initiative then as far as incenting dealers to promote it? Is it just to accelerate it even further, or are you seeing any pushback maybe with Inmarsat having gone private?.

Well, there's two things we're doing. One is we're giving incentive to the service providers who convert L-Band end customers, like fleet broadband customers specifically.

And then we've also launched this AgilePlans regional, which we think is a whole new price point, new size, new market that we think it's sort of a blue ocean type market that isn't currently being served..

That’s part of the promotions you were talking about, okay..

So this is a new product offering. Just to be clear, we've never offered AgilePlans with the V3 before. So this is the new -- and we've never offered it into fishing kind of work boat market. So that's a big push..

So as we think about that, how should we think about what's going to happen to the average pricing of Agile given that one of the regional plan might be in the $500 range or as low as $500.

How should we think about modeling kind of as you talk about Agile subscribers and what the relative contribution might be?.

It's a little bit like the old days when we had hardware revenue sales. So you would start to get impacted by mix. So when we look at V3, V7 and V11, it was a big difference in price. V11 was back two years ago with $75,000 and the V3 was $18,000, $19,000. So we end up with a weighted-average for ARPU, which will include V11sa and V3s.

We still expect the majority to be V7. But you're right, I mean, it is going to impact the average ARPU, but we think it will be incremental ARPU that's coming from a market that we're currently not in at all..

So the ARPU, a lot of its lower but the volume will be higher net-net….

So the incremental APRU, so we also don't expect this to cannibalize the existing V7 HTS Agile programs, because it's regional, it's a small antenna and the pricing is structured around small vessels and in terms of usage.

So if you're going to be a user or even a medium user, you really are -- it's cheaper for you to get the V7, because the overages or the higher data plans are cheaper on the V7 Agile program..

It really is a new market segment with different dynamics it's kind of like wireless without postpaid and prepaid historically as well.

And how should we think of that average ARPU for Agile trending out at, are we looking at 1,000, 1,300, 1,500? Where should we be thinking about that average ARPU trending them?.

I think it’ll be trending towards 1,000 it's still in the 1,200 range. So I think as time marches on depends how successful this V7 program is. We just launched it a few days ago. So if it becomes 10% or 20% of the annual shipments then mathematically that would probably drop the ARPU by $100..

Our next question will be from Chris Van Horn from B. Riley FBR..

So I want to focus on the win with Lockheed. Just maybe a little bit about the history of that award.

And certainly opens up the question is there are other aircraft applications where you could see these devices go into?.

So it started out as then buying our standard product and then they wanted to customize, so we did some custom development work for them, which we're continuing to do. So the initial orders that we received her for limited product in 2020.

But yes -- so the answer is that their product is going on other types of aircraft and they have other programs that we feel that we're very well suited for. So we think that this could be a nice new market for us..

And then just on that same program, I imagine it was a competitive bid.

Anything that jumped out at you as why your product over someone else’s?.

Well, I think initially it was the performance of our standard product was good enough for this military application. So a lot of it involve hardening the product and making incremental product improvement, as well as our ability to customize, to build it exactly into this very tight package that they have.

So I think that's probably the difference, performance and the ability to customize it for their space..

And OpEx increase that you cited during the quarter.

Is that mainly people, is that systems or other infrastructure, how do we think about that?.

Mostly people related costs..

And then you mentioned you had some color on the KVH Watch.

I'm just curious on any updated timing or the pipeline, how that looks?.

Yes, I think again, that's a brand new product. Parts of that are still being developed. So we're doing business development. Now, we've gotten some really good encouraging feedback, we’ll be rolling out some more pilot stuff here in the next couple months. So I think the initial reaction has been very good.

I think that what -- we don't have a lot of revenue baked into our guidance for that yet, so we see this as sort of the introductory year. And we have very high hopes for it going forward. We think it's a really huge opportunity, the big market and we think we've got a very interesting value proposition here and we're getting some good feedback.

But it's not something that is baked into our guidance for 2020, nothing significant..

And then last for me on the cash.

Do you continue to look at buybacks? Is M&A kind of in your sight line? How you think about that cash usage?.

I mean, we just -- I probably should have mentioned this in the script here. We did sell Videotel. It's our training business for $90 million, which was a very successful exit for us. And we did it specifically, so that we could invest in these strategic opportunities so that we'd have the cash to do that.

We feel that the internal organic growth opportunities we have are really good so that's where we're putting the money first and foremost.But you're right. I mean, we do have probably sufficient capital to address that and look at some M&A activity.

So we always look but there's nothing imminent and we don't feel that there's anything that we need immediately to complete our strategy.

So we think we're pretty comfortable with where we are and what we're developing so if we were to do something, it would be have to be -- it have to be very close to our, the stuff, the areas that were already focused on..

Our next question will be from Chris Quilty from Quilty Analytics..

Thanks, Don, with some of the promotion activity going on this year.

Can you give us a sense of where you expect SG&A to finish out?.

Well, SG&A will be fairly significantly higher in 2019. I’ll give you me an idea, so we ended '19 with total operating expenses of $75 million more or less $74.8 million. So that will grow in 20 to -- it'll grow maybe $10 million, say for modeling purposes..

And is there any seasonality to that that the spending will be higher in certain quarters due to trade shows or just the ramping of the programs?.

I'd say it'll be growing fairly consistently every quarter..

And along with that, you gave us $15 million to $20 million for CapEx. How much of that is customer equipment that you're capitalizing? Is it a significant growing portion….

Approximately $15 million will be for Agile..

Big chunk. And I think you already touched on a little bit of the seasonality that seemed to have hit you more in Q4. But as we look into Q1 and again, I think Rich touched on this, there's a fairly steep revenue drop, probably steeper than the normal going Q4 to Q1.

Can you give us a breakdown there of hardware versus service? Is there a particular area where you expect the drop to be larger?.

Yes, that's TACNAV primarily. So our longstanding policy is if we don't have TACNAV orders in backlog for the current quarter, we don't put it in guidance. So the big drop from Q4 to Q1 is on the Inertial Nav side. The VSAT business we expect to continue to grow. The service revenues should be growing as well..

And on the TACNAV side. Is the A-PNT activity, is there anything that could contribute here in this year or is this just another full year of testing and….

No, there are one of those four or five programs that I mentioned, is specifically for A-PNT for the U. S. So we do expect revenue from that this year..

And also when you talk about the AgilePlans Regional and you mentioned that most of these have no connectivity.

Is it fair to assume that many of these vessels do have KVH products on the DTH side and you have at least some channel presence or brand acknowledgment with them? What the challenge is in terms of reaching that market if they've never had a product opportunity like this before?.

So we do have other products, like our TracVision product lines that are very popular amongst all types of boats. So I think we do have the brand presence. And these when I say they don't have connectivity, I mean they don't have like Internet connectivity.

A lot of them do have like a satellite phone, they might have an iridium handheld phone, or something but they're unserved in the sense that there's no regular onboard connectivity product. And also these are -- when we talk about commercial fishing as an example, a lot of that is international.

So I mean there's very large market opportunities in countries like Indonesia, and Vietnam and the Tennessee where there's a lot of fishing boats. So it's not just U. S. or Alaska type markets..

And you had, I forget the name of it, but you had introduced a cellular range extender product, which presumably addresses the same opportunity.

Has that had any success?.

Well, we haven't targeted at the commercial market, that's more of a leisure product. And the range extender works very well, but you're still talking about maximum distance of 20 miles from the tower. So the Agile opportunity is for both to go further than 10 or 20 miles offshore..

And final area of questioning on the you know the new PIC product, and you mentioned that the automotive is still a ways out, but any update there in terms of the number of OEMs that you're working with and the progress that's ongoing there.

And then can you pivot over what of the autonomous, everything opportunities are most tangible for this year?.

Well, let me start with the last question first. The most tangible, as an example, we just recently had $2 million order from a customer for a drone program. So that was very recent of top of mind. As far as the automotive, we discussed in our Investor Day. Last year, we probably had maybe 20 different autonomous vehicle platforms that we're on.

Now we're probably on 30 to 35. Maybe a third of those were being used as more of a test platform or referencing, s this probably 20 real major OEMs and startup companies using us as the primary inertial solution..

But they're using legacy products for that test platform, not the new tech?.

Absolutely, yes. So some of the bigger ones have received the new photonic chip based version already for testing and evaluation, but the ones that they're using today is today's product, the standard product. So we'll start shipping the new ones with the PIC in it at the end of, during March -- in March of this year, next month..

Thank you. I'm showing the further questions at this time..

That's great. As always, Don and I are available for any investors who have follow-up questions, feel free to reach out. Thanks for your time..

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect..