Q4 2019 Earnings Call
Good day, and welcome GTT KVH industries Inc. fourth quarter in year end 2019 earnings Conference call Today's conference is being recorded.
As time I would like turn todays conference Mr., Don Riley 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.
All right and spoke about 2021st quarter and full year.
Which is included in the earnings release, we published this morning.
With me on this call is Martin could spend Hagen companies, Chief Executive Officer, and Brent <unk> Chief operating officer.
Is there anything at least is available on our website and also from our Investor Relations Department.
I'd like to listen to a recording of today's call.
You can access a webcast replay on our website.
Listening via the web feel free to submit questions to IR KVH Dot 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.
When it takes no obligation to update or revise any forward looking statements.
We'll also discuss certain non-GAAP financial measures 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 meat or actually see priorities.
Specifically those under the headings.
Heading risk factors not third quarter form 10-Q filed on October 31st and not 2019 form 10-K, which we expect to file later today and a couple of other I see filings available directly from the Investor section of our website.
At this time I'd like to torture on the colder Martin.
[noise], 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 or 2020 revenue and earnings guidance.
Leaves at this momentum will translate into enhance shareholder value going forward.
Looking at Q4, we had a very productive quarter as our core business and strategic plan deliberate on expectations and we made tangible progress on several of our strategic initiatives.
Quarterly results were in line with our guidance total revenue for the quarter was 42.5 million a 7% increase versus Q4 last year, while our adjusted EBITDA was 700, okay.
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, let's look ahead to the next steps for each of them in 2020.
And 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 last year.
Our margins on the your time business continue to grow year over year with the subscriber base.
The ongoing conversion of subscribers from our original network to where each guest that work 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 that work then on our original network. That's a big accomplishment just two years after the launch of the issue.
Yes 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 realized we are realizing both financial and operational benefits from this transition.
Our annual plan service remains a major driver for subscriber revenue and everytime growth.
The plan revenue was up 78% in Q4 versus last year.
We're also achieving consistent sequential growth as agile plans revenues were up 9% compared to Q3 and 33% compared to Q2 2019.
Actual plans represented 71% of new commercial mini VSAT broadband subscribers during the quarter.
As expected agile plan service became cash flow positive during the fourth quarter, which is a major milestones.
Well, we launched agile plans in 2017, we up ended the commercial maritime Satcom market for the first time, please could deploy a complete satcom solution with no capex no installation or maintenance cost and received advance hardware airtime services grew entertainment operations content all for a single monthly subscription.
And with no long term commitment.
However, agile plans doesn't meet the needs of every one of 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 were such high speed or have a limited budget.
For example, there are more than 350000 commercial fishing vessels longer than 12 meters operating today.
Vast majority of these vessels have no connectivity once out of sight of land.
We want it to change that that's a earlier this week, we introduce agile plans regional extension of our agile plans portfolio for a currently underserved segment of the market.
That's what plans regional is it connectivity as a service product with similar benefits to our existing agile plans global product.
But it includes our smallest antenna the 14 edge Tracfone V. three.
Yes antenna system.
There are also no upfront fees and no installation or maintenance cost and this packages available with the monthly all inclusive subscription starting as low as for 99.
In addition to agile plans regional we also launched KVH link our new commercial digital content service that addresses to 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 linked provides timely and fully licensed popular news sports movies TV music karaoke podcast.
Friending viral videos all in a sleek new user interface design 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.
Like earlier offering KVH link does not require a media server, we now store in stream the content directly out of our integrated motive.
[noise], our goals with KVH link or to addressing 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 or actual plans and other commercial maritime customers, while simultaneously, making or time 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 it does it digitization of our back office systems to approve deficiency.
Another major strategic initiative is our ongoing push into the maritime Aiotv market. We were very pleased to announce the recent installation of the first joint Maritime I O T system on Sim Red Echo inactive working research vessel in collaboration with Kongsberg digital.
We also made significant progress in our suite of satellite optimize 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 Aiotv efforts in 2020, so far Weve already successfully added business development resources and are focusing on expanding our set of bio t. infrastructure partners as well as deploying pilot units with key customers.
Moving onto our military and inertial navigation business.
I'm pleased to report the TACNAV revenue was 3.4 million for the quarter, that's up 1.9 million that's over 100% versus Q4 of 2018. This was an important turning point for our TACNAV business. We saw returned to growth with orders from both U.S.
Customers and for him and for in an important international markets as well now these aren't the large TACNAV contract that we are.
There will be pursuing in 2020, but some of these are for the same and customer which is a very important side.
We also continue to be an active participant in the U.S. armies assured position navigation and timing evaluation and testing, which we'll be continuing through throughout 2020.
Within the inertial NAV market sales of our fiber optic gyro products were up 5% quarter over quarter. It's an encouraging sign after several quarters are relatively flat revenue.
Sales were split among both commercial and military applications.
We're particularly excited Lockheed Martin said selected us to deliver a next generation multi axis fiber optic gyro sensor for the Iris T 21 sensors system, which Boeing and the U.S. Navy are integrating into the F 18 combat aircraft.
For 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 this to the success of an important military program.
And finally, we've made tremendous progress in the product is Asian of our photonic integrated chip or Pic technology.
We completed the engineering development of the Gen. One photonic chip and we met our initial pricing performance targets for the chip itself.
We expect to ship the first of our existing I am use with the 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 enhance reliability, resulting from this photonics chip technology, we believe will be in an even better positioned 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 in their applications like drones people movers trucks mining and construction equipment all represent exciting opportunities that are poised to use our technology.
He also believed that they'll contribute to our revenues more quickly than the driverless car market for which the mass production timing, it's still a few years out.
So in conclusion, we remain confident in our strategy and our 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 Aiotv 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 enhance shareholder value and he [laughter].
Going forward to now I'd like to turn the call back over to done for the numbers done.
[noise]. 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 are reflected in that way in our earnings release and in our 10-K, which will file later today and.
Fourth quarter, we finalized the working capital adjustment for this transaction, which reduced the through the proceeds from the sale videotel by $1 million to $88.4 million as we expected and as both accounted for the third quarter.
[noise] also was a significant development in the fourth quarter was our repurchase of about $1.3 million on 115000 shares of our common stock as part of our share buyback program.
As Martin mentioned earlier, a 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 my mobile connectivity segment increased about $300000 International navigation revenue increase just about two and a half million dollars from the prior year fourth quarter.
Product revenue for the fourth quarter was $18.7 million, an increase of just under $2 million are about 12% from $16.8 million in the fourth quarter over the prior year.
By segment.
Product revenues and our inertial navigation segment increased just over $2.1 million or about 24% and in a more connectivity segment decreased very slightly about $200000 or 2%.
Within our international irrigation segment growth and our fog business returned but our revenues growing approximately 5% this quarter compared to the prior fourth quarter.
Well as Martin said TACNAV sales increased by just under $2 million, 419% compared to the comparable 2018 quarter.
You know mobile connectivity segment. The decrease in product sales was driven primarily by 800000 dollar decrease in marine product sales and 100000, a decrease in sales will land product sales and all of their product sales.
Service revenue for the fourth quarter was $23.8 million, an increase of $800000 or about 4% from $22.9 million on fourth quarter of the prior year.
Mini VSAT broadband airtime revenue increased to just over $19 million growing approximately 6% from prior fourth quarter.
Driven primarily by our successful agile plans program and continuing demand for our HTS network.
He sat shipments in connection with the agile plan program approximated, 54% about total unit shipments and 71% about commercial shipments this quarter.
The fourth quarter consolidated gross profit margin increased to 37.4%.
As compared with 35.9% in the fourth quarter of last year.
From a segment perspective, a mobile connectivity gross margin was 32.2% down about two 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 15% from $16.6 million on the fourth quarter over the prior year in part, reflecting our ongoing investment in key strategic initiatives as well as higher service related costs in connection with a growing be sat subscriber.
Base.
The fourth quarter.
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.
Well, what kind of PV segment generated an operating loss of $1.5 million compared to an operating loss of $100000 in the fourth quarter 2018.
While our international irrigation segment had an operating profit of $3 million for the quarter compared to an operating profit of $1.1 million last year.
Our unallocated loss increased $1.4 million.
For the fourth quarter on net loss was $2.9 billion as compared with a net loss of $2.7 million recorded in the same period last year.
Yes for the fourth quarter was a net loss of 17 cents per share compared with a net loss of 15 cents per share the same period of last year.
Non-GAAP basis, which excludes.
Amortization of intangibles stock based compensation expense employee termination and other nonrecurring costs.
Transaction related fees nonrecourse nonrecurring inventory reserves and other nonrecurring costs foreign exchange transaction gains and losses, the tax effect of the fall going and certain discreet tax charges, including changes in a valuation allowance and all our tax adjustments.
We haven't net loss of $500000 compared with a net loss of $1.1 million last year.
Non-GAAP EPS for the fourth quarter was three cents per share compared to.
Negative three cents per share compared with a negative seven cents per share last year.
Our adjusted EBITDA for the quarter was $700000 approximately compared with $1 billion recorded in the fourth quarter of last year.
Complete reconciliation of our non-GAAP measures.
The first two our earnings release I 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 2018 capital expenditures with $3.2 million for the quarter, our ending cash balance approximated $40.3 million.
Total total backlog at the end of 2019 was $19.5 million.
Backlog for inertial navigation products and services at the end of December was approximately $18 million. After total backlog amount approximately 15 million is scheduled to be delivered in 2020 comprised of 13.5 million international navigation, and 1.5 million and 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 GAAP EPS to be in the range of negative 42 cents to negative 31 cents per share.
Non-GAAP EPS is expected to be in the range of negative 26 cents to negative 17 cents per share and adjusted EBITDA is expected to be between negative $4 million and negative $2 million.
The full year.
Revenue guidance is 170 million to $185 million.
Our expectations for full year gap, yes, it's a range of negative 81 cents to negative 58 cents per share in our non-GAAP bps to be is expected to be from negative 34 cents to negative 17 cents per share.
Our adjusted EBITDA ranges 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 estimated for 2020 and will prepare us well for continued growth in 2021 and beyond.
This guidance assumes 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 now turn the call over to the operator to open the line for the Q when a portion of this morning's call operator.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Peaker fun, Michigan function is turned off to allow your signal to reach our equipment again that is star one to ask a question.
So just a moment to allow everyone the opportunity to signal for questions.
First question will be from rich Valera with Needham and company.
Thank you good morning question on your.
Good question on your pick commercialization initiative I'm just wondering if you can talk about when you think you'll actually start shipping commercial product with with the pick inside of it.
Our expectation is that'll happen in a few weeks since before the end of the current quarter. So we'll start to put it in ER or I am use which is our high end products and will rippling through our entire product line.
And our goal is to have it and everything by the end of this year.
Got it that's great [noise].
And then on the.
Airtime revenue it looks like you had pretty decent unit growth, but that the airtime revenue grew 6% year over year, which is a bit of a detail from 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 you know going forward.
Yeah. So we had good subscriber growth and we were a little bit disappointed in the air time number which came in you know couple hundred thousand.
You know less than we thought and the Big reason is are there were more seasonal suspensions and seasonal suspensions you know.
On the leisure markets Somebody's you know not using their both these spend they still pay per month, but it's only a.
For the voice service and same with some commercial fishing in Alaska, where there you know they suspend for a couple of months so that number was higher than the year before.
And that was the primary driver because it's that drops the ARPU down during the so.
We've already seen those start to come back in January So you know and you're not allowed to suspend permanently so it's a.
But that was the big difference from our expectation going into the quarter.
Got it and then.
For broad question on the inertial business as you're looking at the year and and your guidance range I mean, I'm I'm, assuming that kind of the big variance in your guidance range is primarily due to the potential variance in inertial shipments and it sounds like about 15 million of backlog that you have duty shipped this year.
Sure. So it seems like there's a lot of sort of booking ship that needs to be done there. It's got to just to get to even the low end to range or obviously to the high end. So just wanted to kind of get your thoughts on the visibility to two inertial as a whole this year and what sort of drives you up to that high end what are some of the potential.
You know upside drivers there.
Yeah, So you where we see significant growth. This year is is.
Ah primarily in the tax outside of the house. So in Q4, we saw you know a big increase we've started to see orders coming out of the middle East that we hadn't seen in years and we now expect that to be significant this year. So you in our internal a budget and in our guidance we have.
The amount of TACNAV, there are four or five major programs that we expect to book this year, a and some portion of those will ship.
So and that's a that's a change from this year, but it's consistent with what we just saw in Q4, so and some of the backlog that we have is already for TACNAV for 2020.
So we're we're very optimistic about the the tack that business here and on the fog you know baked into our guidance is you know some reasonable growth, but not not really big numbers compared to last year. So mid to high single digit growth type thing.
And what what drives that.
Well, we think that you know.
The as we convert over to the photonic chip technology, we expect to get some some nice marketing buzz around that as we launch it into standard products and then we'll be launching some new products. It specifically to take advantage of the new photonic chip and will offer better performance and things like that so.
And is fairly consistent with what we just saw in Q4 and you know some of the backlog there were carrying into since a lot more compared to last year I don't have the number on the top of my head, but the backlog for inertial NAV is much larger than it was going into 2018.
Got it okay. Thanks, gentlemen.
Yeah. Thanks.
Thank you. Our next question will be from Ric Prentiss with Raymond James.
Yeah, Good morning, guys.
Hi, whatever.
Hey.
To follow up some of those questions a start with guidance first obviously, the corona viruses impacting the stock market.
Was it affecting your markets as far as first supply of your components that also demand and maybe how you have reflected it if at all and guidance.
Right so.
So you know we're kind of assuming that.
You know in the long run this won't be an issue. So you know obviously Q1 is.
It is where we would feel the impacted most you know, but obviously nobody knows from a supply perspective, you know 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, you know circuit boards art made there.
But some of the components are so some of the raw material for circuit boards does come out of China, even though the board you know are being fab in Taiwan or <unk> in Mexico for that matter.
But we think we're in pretty good shape for Q1, we don't have any immediate a major issues that I'm aware of.
You know if this drags on for a long then you know I think it's more a more generalize problem at the secondary level because a lot you know if the chips or resistors or capacitors are coming out of China than it doesn't really matter, where you know where your boards are fabricated.
So on slides side, we feel pretty good on the demand side. We think you know where we haven't seen any immediate order cancellations or anything like that.
We have seen you know two or three of our major trade shows canceled which you know is a bad thing for the long run you know the one of the 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, you know the exposure would be on the shipping side, you know ships going in and out of China or you know Asia in general raw materials going in and finished products coming out travel by sea.
So that's those are the kinds of you know risks that we're looking at but so far we don't see anything you know that.
You know that's going to impact us beyond what we've got baked into our guidance.
And speaking of baked into guidance I think he said that.
The fourth quarter actuals was from the same and customer, but we've had that large international TACNAV orders that we've been hanging around the who for a while but haven't put in a is that yep. It's your guidance for 2020 is it's still a possibility of shipping and 2020 what are your thoughts on that there's large yeah. We <unk>. We expect you know as I mentioned, we now.
I have four.
Four or five major programs that we expect to book this year and we have in our guidance assume that at least one of those will start to ship in 2020, and we have you know a pretty high level of confidence that that's going to happen.
Okay, and then so you're going to happen that on the first quarter guidance kind of implies maybe a slow start to the year on revenues and then you have costs. Obviously there are still there what's the thought as far as what would cause one cuda head towards the low end of guidance, which would be pretty low versus historical.
Right I think you know it would be just general economic you know macro things would push us to the low end in other words, you know people business not behaving normally due to the Corona virus that would push as to the low end for sure.
I think it's a possibility, but as I mentioned, we haven't seen that yet.
We're sitting here almost on leap day, so were two months through the quarter. So okay.
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 push back maybe with inmarsat having on private.
Well, there's there's two things we're doing one is a we're giving incentive to service providers to convert.
L band customers like sleep broadband customers, specifically and then we've also launched this agile plans regional which we think there's a whole new price point new size new market. It's a you know we think it sort of a blue ocean type market that isn't currently being served.
Hi, so far the promotions you were talking about okay.
Yeah, well this a new product offering.
Make sense that Weve never up you know just to be clear, we've never offered a agile plans with the three before.
So this is a new and we've never offered into the fishing you know kind of work boat market. So.
That's a big push.
So as we think about that how should we think about what's gonna have to be average pricing.
Agile given that no one of the reserve plan might be the $500 range for as long as $500 <unk>, how should we be about modeling kind of as you're talking about agile subscribers and what the revenue contribution might be.
It's a little bit like the old days, while we had hardware revenue sales you know so you'd start to get impacted by mix. So when we look I'd be three b seven of the 11.
It was a big difference in price of 11 was back you know two years ago was $75000 in the V. Three was you know 18 $19000. So.
We'll end up with a weighted average for ARPU, which will get to include the elevens nvthree.
But we still expect the majority to be Vseven.
So, but you're right I mean, it is going to impact the are the average ARPU, but we think it'll be incremental ARPU, that's coming from a market that we're currently not in at all.
Yeah, so slight the ARPU elaborate slower, but the volume what will be higher not win for it'll be incremental ARPU.
So we also don't expect us to cannibalize the existing Vseven HTS household programs because you know its 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 big user or even the medium user you really are it's cheaper for you to get the vseven because the overages or the higher data plans are cheaper on the Vseven agile program.
Yeah. It makes sense, it's it really isn't new market segments with different dynamics kinda like wireless would have postpaid and prepaid historically as well he's actually cabinet that average ARPU for agile trendy out at are we looking at <unk> thousand 1300, 1500, where where should we thinking about that average ARPU trending then.
I think you know we'd be trending towards.
1000, it's still you know in the 1200 range. So I think as time marches on depends how successful the the speed three program is now we just launched it a few days ago. So.
You know if it becomes 10 or 20% of.
The Angele shipments then you know mathematically that would probably dropped the ARPU by $100.
Okay. Thanks, guys.
Thanks.
Thank you. Our next question will be from Chris Van Horn from B. Riley FBR.
Hi, Good morning, everyone. Thanks for taking my call morning money Chris.
So I want to focus on the win with Lockheed you don't just maybe a little bit up about the history of that that award and you know certainly opens up. The question is there is there other aircraft applications, where you could see these devices or go into.
Sure. So it started out as you know them buying our standard product and then they wanted it customize so we did some custom development work for them, which we're we're continuing to do.
So the initial orders that we.
Received for for you know limited production in 2020.
And but yes. So the answer is that you know this their product is going on other types of aircraft and they have other.
Programs, you know that we feel that we're very well suited for so we think this this could be a nice a new market for us.
Okay got it and then you know just on that same program I imagine it was a competitive bid you know anything that jumped out of you as 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 applications. So a lot of it involves hardening the product and making incremental.
Product improvements.
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.
<unk> performance and the ability to customize it for their space.
Okay got it thanks for that the Opex increase that you cited during the quarter. It was that mainly people is that systems or other infrastructure, how do we think about that.
People and related costs.
Okay got it and then you know you mentioned you had some color on the on the KVH watch Im just curious on any updated timing or the pipeline how that looks.
Yeah, I think again, that's a brand new product you know parts of it are still being developed so yeah. We're doing a business development now has gotten some really good encouraging feedback we'll be rolling out some more pilots stuff here.
And in the next couple of months. So I think you know the initial reaction has been very good.
I think that what we we don't have a lot of revenue baked into our guidance for that yet so that we see this is as sort of the introductory year and.
Yeah, we have very high hopes were at going forward. We think it's a really huge opportunity is a big market. 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 not nothing significant.
Okay. Okay, and then and then last for me I'm on the cash you know do you continue to look at buybacks is M&A kind of in your and your sight line. How are you thinking about that Cas usually cash usage.
Yeah, I mean, we you know we just you know I probably should have mentioned this in the script. We did sell videotel. It's our training business you know for for $90 million, which was a very successful exit for us than 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 or are really good. So that's where we're putting the money first and foremost, but you're right. I mean, we do have you know probably sufficient capital to address that and look at some M&A activity. So we would you know we always look.
There's nothing eminent and we don't feel that there was anything that we need immediately to complete ours. 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 you know have to be very close to our you know this stuff. There is that were already focused on.
Okay got it. Thank you so much for the time this morning.
All right. Thanks, Chris.
[noise]. Thank you. Our next question will be from Chris Quilty, Some quilty analytics.
Hi, Thanks done with some of the promotion activity going on this year can you give us a sense of where do you expect a asked you need to finish out.
Sure.
Well actually they will be you know.
Fairly significantly higher and Twentyth and 19.
Give me an idea.
[noise] So we ended.
19, with total operating expenses of 70 or $75 million.
Our last $74.8 million.
Grow and 22.
[noise] No group.
Maybe $10 million I'd say for modeling purposes.
Okay and is there any seasonality to that that are spending will be higher in certain quarters due to trade shows or or just the ramping of the programs.
Yeah no.
I'd say.
It'll be growing fairly consistently every quarter.
Okay.
And along with that.
You gave is 15 to 20 million for Capex, how much of that is.
Customer equipment or that you're capitalizing is it a significant growing.
Approximately a $15 million will be for our job.
Big chunk.
Yep.
And.
I think you already touched on a little bit of the seasonality that seem to have hit you more in Q4, but you know as we look into Q1 and.
Again, I think rich touched on this there's a fairly steep revenue drop probably steeper than normal go in Q4 to Q1.
Is it can you give us a break down there of hardware versus service is there a particular area, where you expect the drop to be larger.
Yeah, that's that's TACNAV, primarily so what you know our.
Longstanding policy as if we don't have you know TACNAV orders and backlog for the current quarter, we don't put it in guidance. So.
So the big drop from Q4 to Q1 is on the inertial outside they you know the V. sat business. We expect the can you continue to grow the service revenues, you know should be growing as well.
I understand and on the detective side is the.
Hey, P. and T activity is there anything that could contribute here in this year or is this just another full year of testing and or no. We we there are one of those four or five programs that I mentioned is specifically for a PMT or for the U.S. So [noise].
We do expect revenue from that this year.
Great.
And also when you talk about the agile plan regional and you mentioned that most of these vessels have no kind of activity.
Fair to assume that.
Many of these vessels do have KVH products, you know one that the dth side and you have at least some channel presence or brand acknowledgement with them I mean, what what's the challenges in terms of reaching that market. If they've never had a product opportunity like this before.
Yeah, that's a good point so in the.
You know, we do have other products like our track vision product line that are very popular you know amongst all types of boat. So I think we do have the brand presence.
And these are you know when I say, they don't have connectivity I mean, they don't have like Internet connectivity lot of them do have like a satellite phone they might have an iridium handheld phone or something [laughter], but but there and served in the sense that there was no regular onboard connectivity product <unk> also these are and when we talk about commercial fishing.
As as an example.
A lot of that as international So I mean, there's mark there's very large market opportunities in countries like Indonesia, Vietnam, you know in the South China see where there's a lot of fishing boats. So it's not just you know U.S. you know for Alaska type markets.
And you had I forget the name of excuse me, but you had introduced a.
Cellular range extend or product, which you have assumably.
Addresses the same opportunity is that had any success.
Well, we haven't targeted at you know the commercial markets, that's more of a leisure product.
And you know the range extend <unk> works very well, but you're still talking about you know maximum distance of 20 miles from the tower.
So that you know so this you know the agile opportunities for for both the go further than you know 10 or 20 miles offshore.
I understand and final area of questioning on the.
Pick the product and you mentioned that the automotive is still a ways out but any updates there in terms of you know the number of Oems that you're working with and the progress that's ongoing there and then can you pivot over what are the autonomous everything opportunities or.
Tangible for this year.
Well, let me start with the last question first the most tangible as an example, we just you know recently got a 2 million dollar order for a 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 in our Investor Day here last year, we probably had maybe 20 different autonomous vehicle platforms that were on now we're probably a 30 to 35.
Maybe a third of those were being used as more of a test platform or a reference unit. So there's probably 20, you know real major Oems and startup companies using that says the primary inertial solution.
But they're using legacy products for that test platform not the new pick.
Absolutely, yes. So they you know that some of the bigger ones have received you know the new photonics <unk> based version already.
For testing and evaluation, but the ones that they're using today is the today's club scanner product. So we'll we'll start shipping the new ones with the picking it at the end of during March in March this year.
Next month, great. Thanks, perfect. Thank you all right [laughter].
Thanks, Chris.
Thank you I'm showing no further questions at this time.
That's great as always done and I are available for any investors that 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.
[noise] [noise] Oh.
[noise].