Q1 2020 Earnings Call
[music].
Good day and welcome to the K P. H industries first quarter shirts Twentytwenty earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference Overture Invitee Chief Financial Officer. Please go ahead Sir.
Thank you operator.
Good morning, everyone.
Thanks for joining us today, it's got KVH Industries' first quarter results, which are included in the earnings would be published this morning.
No that's called Mountain Kids.
Copies, Chief Executive Officer, Brian, Brian, Our Chief operating Officer.
Your next weeks is available on our website Gulfmark Investor Relations Department.
Like looking for a recording of today's call you can access a webcast replay on our website.
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I just don't call.
This conference call will contain certain forward looking statements that are subject to many assumptions and uncertainties that may cause our actual results could differ materially from those expressed in these days.
When undertake no obligation to update or revise any forward looking statements.
Well off to update certain non-GAAP Americans.
Definitions.
No press release as long as reconciliations of these non-GAAP measures to comparable GAAP measures.
We encourage you can be viewed a cautionary statements made in RCC filings.
Typically goes under the heading risk crackers and about 2019 form 10-K, which was filed on February 28.
Okay. Thank you, which is expected to be filed this afternoon and a couple of other LTC filings, which are available directly from the Investor Relations.
That's information section of our website.
At this time I would like because on the whole tomorrow morning.
Thanks, Don and good morning, everyone. Thank you for joining us today.
Let's get started the.
Despite the impact of the pandemic on the global economy. During the quarter. We're pleased to have delivered first quarter results in line with our guidance total revenue was up 1% at 36.6 million with a GAAP net loss of 35 cents per share compared to a net loss of 37 cents per share in the first quarter last year.
We also made good progress on all of our key strategic initiatives this quarter.
Well, we began the are strong our business like almost every business in the world now faces unprecedented challenges uncertainty as a result for the current health crisis.
However, our core business model the diversification of our company.
Underlying long term demand fundamentals or assets for KVH.
<unk> 19 was declared a pandemic give each already had action plans in place as a global technology company, we have the infrastructure in place already for most of our workforce to work from home.
Willingness to continue providing 24 by seven service support.
As an essential business for both telecommunication services and defense navigation products, we've maintained full operations at both of our factories.
Of course with modifications for social distancing extra cleaning protective mass and loves for worker safety.
Today's call will provide more details and how we're sharing with our diverse operations discuss the recent ongoing impact.
Good economic situation and provide details and how we're managing our business to whether this pandemic.
The maritime market airtime revenue for the quarter was up 5% or 900000 compared to the fourth quarter of last year.
He said shipments were up 12% versus the same period last year, we increased our subscriber base by 10% over the same period.
And everything that happened in Q1, we're really proud of those stuff.
Our agile plants product shipments grew 19% versus Q1 last year it amounted to 78% of total commercial beside shipments.
First quarter agile plans revenues were up 85% compared to the same period last year.
These results illustrate the we carried her momentum for the fourth quarter into the new year.
We're starting in mid February we began to experience some impacts from the pandemic, most notably in the Asia Pacific region, as we mentioned in or last call.
Beginning in mid March the commercial maritime industry has.
Had experienced a significant slowdown.
Seen by the decline in daily commercial shipping Port calls from an average around 26000 per day to allow just before 14003 weeks ago.
The imports have been close and vessels have been.
On new restrictions.
Moving on board access by people, who were not crew members.
Nevertheless, our field service techs together with our robust global network service providers and technical dealers continue to carry out installations of new systems and support existing products, while complying with the new regulations and restrictions.
Sales and service activities also continue but the process has been slowed.
On the loves your mobile connectivity from European boat builders Marine dealers and even marine to start closing beginning in March.
Lockdown requirements in closing of Beach Marina access is also limited activity and much of the United States.
And all the major spring boat shows scheduled for March through June have been canceled or postponed until fall.
As a result, the leisure boating season is getting off to a record slow start.
Despite these factors, which are outside our control we continue to focus on bringing innovative products to market in February we expanded our successful agile plans lines with the new agile plans regional service.
Is targeted at smaller commercial vessels that operate in coastal waters and don't need have a need for global travel.
This new surface employs the same model as original agile plans now known as agile plans global to deliver in all inclusive no commitment satcom solution using or small 14 inch tracfone. The three each do yes.
Well its introduction we saw immediate interest in this new product not only from the Americas in Europe, but also in new markets like Indonesia.
The smaller vessels and smaller fleets that we identified as a significant growth opportunities sound. The compact design faster data speeds and starting cost of only for 99 month very appealing.
Unfortunately, these smaller companies, where the we're very disrupted by the tender and the momentum of this launch was slow.
We're still quite optimistic that these opportunities have simply shifted to the right.
Now on the other hand to bad fragile plans global continues to be strong.
There of the issue was getting systems installed due to travel import.
Restrictions.
Back we now have a backlog of had to planes installations in excess of 200 systems, which is actually very encouraging.
Just as important is the current status of our existing agile plans subscribers.
Agile plans offers exceptional flexibility for our customers as it has no contract subscribers can simply take the system off and send it back if they wish to end their service.
However that is not happening.
There has been no increase it as a plans churn during Q1 or so far in Q2.
Well, we are seeing is a slight increase in suspensions year over year, along with the slower pace of reactivations from seasonal suspensions compared to this time last year.
We believe the reactivation tightening as a result of delayed openings of marinas at a slower returned to seasonal operation for smaller commercial vessels.
It's also important to note that activations are still higher than terminations as or overall subscriber base continues to experience net growth of 10% for the quarter.
We're also observing a trend of increased data usage from a reset customers just as most of US are working from home independent got more bandwidth to say connected for business school and with friends and family fleets and crew are experiencing a similar demand for more data.
They need the bandwidth to support continuing operations as well as increase connectivity for the crew most of whom are being denied shortly for health and safety considerations.
In fact, most crew rotations had been delayed or suspended further increasing bandwidth demands for these crew.
If each isn't an excellent position to assist these customers.
Our new KVH link multi cast content service. What lies at the end of January delivering an experienced similar to home streaming services based on curated content, which includes movies TV.
Early print and TV news using karaoke viral videos and more.
Every KVH Tracfone b seven or be 11 system is fully compatible with KVH link as a result, we're activating new subscriptions and delivering content to deciles remotely.
Its product just happened to launch at exactly the right time for people hungry for news about the pandemic and hungry for entertainment escape the news about the pandemic.
In addition, we launched several new maritime initiatives in response to the situation. These programs include free called for the two with the international Seafarers welfare helpline from any KVH equipped vessel free daily news delivery to any commercial ship their requested whether the KVH customer or not.
In fact more than 100, new vessels are currently trialing or new digital news service.
We're also offering discounts on prepaid crew, calling cards. So it's more affordable for crew members to stay in touch with home and on data plant upgrades to support expanded bandwidth needs. This incremental upgrade program has been a huge success with more than 400 vessels increasing their monthly data plans in the last six weeks.
Boosting the monthly recurring charge for.
Come in Q2.
That increased demand for airtime. They also carried over into the leisure markets when that restarts. That's why we announced yesterday the expansion of our new KVH elite unlimited HD screening service for larger yards.
While the surface continues to be available in the Caribbean. It also go live for the Mediterranean Adriatic Black Sea starting on June 1st.
Of course, this assumes that we'll see a gradual reopening of the ledger marine market in Europe.
And finally in the commercial market, we continue to make good progress with our kids age watch TV service.
The opportunities for this product or increasing this leads are recognizing the critical need for remote intervention that connects engineers on shore with crew on board, especially in the situation in which it is impossible to get a technician onboard the vessel to assist with troubleshooting and repairs.
Our I O T webinar or a few weeks ago was heavily attended like fleet managers and service providers and equipment makers.
Well, we're receiving positive feedback from the full range of potential customers for Aiotv, we expect to be making new service announcement later this quarter.
Again, we're taking this opportunity to push KVH forward, even while the market as paused.
As we look ahead to the remainder of Q2 and the marine industry going forward. We're seeing some evidence that the market is beginning to open up. These your marinas in Europe are making plans to resume operations. Many dealers in Florida reopen this week in several states here in the U.S. already easing restrictions that make it easier for people to get out on their votes.
When it courage and signed within the commercial market is that the daily Port calls have been trending back up after hitting a low of just below 14003 weeks ago.
The only port calls have steadily climb back above 20000 consistently for most of the past week, that's still down from the historical norm, but it's showing some improvement.
Moving onto our Herschel that business.
Fiber optic gyro product sales were up $400000 were 9% in the first quarter last year.
Likewise TACNAV military products were also up 400000 versus last year.
That's where their communication services.
Designated as an essential business, where a military products some of which include our Fogging technology.
The fiber optic gyro sales have been a bright spot during this crisis.
We have a healthy backlog for commercial flog products, we continue to see strong bookings in April.
We also still anticipate receiving one or more nature TACNAV orders that we mentioned in her last call.
The western defense budgets have not been impacted by the crisis.
The potential orders for the Middle East, However, should be considered at higher risk due to the low oil price and the potential impact on defense budgets in the region.
Our biggest initiatives in the inertial business is of course, the release of our photonic integrated ship or pick.
We've been working on the development of this technology for more than two years and did not let up during the quarter.
Now moving into the product integration phase.
I'll pick overcomes numerous technological obstacles to lead the demanding requirements for autonomous platforms by incorporating complex elements onto a chip to maintain or improve accuracy and performance.
Well, a simplified production and remove handwork from the process.
I'm pleased to report that the first to pick based gyros shipped at the end of March for a military customer. This is a tremendous milestone achievement by our engineering and R&D teams are now continuing the integration of pick into our existing product lines and are in the final phase of product release.
Anticipate that the first commercial production I amuse with the taken side will ship later this quarter. That's about a month later than we expected, but given that most of the staff is working from home is still incredibly impressive.
By the end of Twentytwenty, we still expect that all of our fog based products will have the pick inside.
So our progress in the first quarter is tempered by the challenges facing us in the coming months due to the economic environment, resulting from the pandemic.
PVH remains fully operational we anticipated potential disruptions and took proactive steps to ensure business continuity.
Yeah, but we bought laptops for all our call Center staff in the Philippines in case, it would be shut down.
One of the lock down happened suddenly in Manila hit already practice working remotely.
We continue to deliver 24, seven support and service safely for our customers, while maintaining all functions of our network operation Center and teleports.
A mobile connectivity and inertial navigation manufacturing facilities remain open with employees falling following stringent health and safety guidelines.
We're determined to maintain or workforce. During this time to support our current customers and to focus on our strategic initiatives.
Thus far we've been able to avoid layoffs.
The economy and rapid decline and the course through the pandemic still to be charted we're taking unprecedented measures to align our cost with the current business environment.
To that end, we're reducing executive salaries and bonuses temporarily reducing non executive salaries and trimming other forms of employee compensation.
We've eliminated most discretionary spending and delaying most capital outlays, except those that are in connection with our agile plans program and are pick initiatives.
And we're taking steps now to ensure our liquidity in the future.
Our teams morale is high and we're working harder than ever to exit the crisis in a far stronger position relative to our competitors and how we entered it.
The disruption caused by the coven pandemics will be with us for some time and we'll all be adapting to whatever the new normal becomes.
We continue to compartmentalize, the global economic reality to which we must adapt and the internal products and services, which we can control.
The question that we face are not about the underlying long term fundamentals of our products and services, but rather the pace of recovery of the broader economy.
Given the many unknowns with the economic situation.
We're suspending guidance for the rest of the year.
I believe a kid each remains in a strong position, thanks to our diverse and essential business.
Successful transition to a service and subscription base business model.
At a clear and continuing demand for connectivity.
Dan precision navigation.
But I'd like to turn the call back or would have done to give some detail all the numbers dawn.
Thank you Martin.
As Martin mentioned earlier, we got off to a good stuff in the first quarter results were generally in line with our expectations and we made good progress on me he and the execution of the key initiatives that we believe will be soften meaningful revenue and earnings grew up in the future.
Did stuck a C and feeling the impact on the corporate 19 global pandemic before the end of quarter.
Artist Marine products began to slow I think orders for all corners navigation products.
Our installation rate agile product slowed down due to the difficulty experienced by installation crews trying to get the vessel.
I'll talk more about the impact endemic on our business in just a minute I first want me to summarize our results for the corner.
As you know we concluded that videotel not the video call disposition in the second quarter 2019 met the criteria discontinued operation and we reflected that way in our earnings release, and our 10-Q, which profile there today.
Well first quarter revenue was $36.6 million, a slight increase from our 2019 first quarter, which was $36.4 million and was within our guidance range.
Revenue from up mobile connectivity segment remained flat year over year.
Our next navigation revenue increased slightly from the prior years from score.
Product revenue for the Corps fourth quarter was $13.1 million about even with across core of the prior year.
By segment product revenues and I'm, a productivity segment decreased by $800000, our 11th as funny fall product revenue spent over nursing education segment increased about $700000 or 12%.
And within our nurse navigation segment of fog business increased about $400000 were 9% compared to last year not TACNAV sales also increased about $400000 a 46.
In our mobile connectivity segment the client products sales was driven mostly by a decrease in marine mobile conductivity product revenue.
With respect to the agile program as Martin mentioned shipments increased 19% compared to the first quarter 2019, 63% about total unit shipments this quarter, representing 63% about told me gonna checking since quarter, 70% of our commercial segment.
Service revenues for first quarter were about $300000 on one side.
[noise] increased excuse me about $10000 bought one to $5 million to $23.5 million from $23.2 million in the first quarter of last year.
You know mobile connectivity segment get time service revenues increased $900000, a 5% compared to the first quarter last year to date due to a 10% increase in had time to subscribers largely as a result, continuing momentum of our I compliance program.
You know in nursing education segment contract engineering severance revenue decreased about $500000 compared to last year.
And for the first quarter consolidated gross profit margin was just over 32% as compared with 35% last year.
I've been perspective mobile connectivity gross margin was about 33% inline with last year and that's navigation gross margin was just under 30%.
Operating expenses for the quarter were $19.4 million up slightly from $19 million in the first quarter last year.
For the first quarter. These changes in revenue margins and operating expenses resulted in the loss from operations of $7.6 million compared to last $6.2 million recorded in Q1 2019.
Well, what kind of activity segment generated an operating loss of $2.3 million paid when operating loss of $1.4 million last year, while international irrigation segment had an operating loss of 800000, all four core typically propping up 400000.
Last year.
Unallocated loss was $4.5 million.
Hey, philosophy is $5.2 million.
Well first core networks of $6.2 million as compared with a net loss of $6.5 million recorded in the same period last year, no non-GAAP basis, which excludes amortization of intangibles stock based compensation transaction related and other non recurring legal fees foreign exchange transaction gains and losses tax effect.
And going and changes in our valuation allowance and all tax adjustments, we had a net loss of $4.3 million go net loss of $3.8 million last year.
He asked for the first quarter was enough loss of 35 cents per share compared with net loss of 38 cents per share. The same period last year non-GAAP B P. S lost in the first quarter was 25 cents per share compared to non-GAAP EPS loss of 22 cents per share last year.
Adjusted EBITDA for the quarter was a loss of $3.7 million compared to the loss of $2.8 billion required in the first quarter 2019.
Well complete reconciliation of our non-GAAP.
I just please refer to <unk> earnings release I was published earlier this morning.
Total backlog at in the first quarter was $22.6 million of which approximately $16.9 million is scheduled to be delivered in 2020.
Backlog for inertial navigation products and services at the end of March was approximately $20.3 million of which approximately $14.6 million the schedule because like during 2020.
To conclude the <unk> $11.8 million five products alone.
Net cash used in operations was $2.9 million compared to $1.1 million last trip capital expenditures for the quarter with $3.3 million.
Yeah, No outstanding short term all long term debt other than normal level from accounts payable in accrued expenses.
We ended our first quarter, plus strong casting cash position of over $41 million.
<unk> cash collections for the quarter were fine you saw no noticeable increase delaying payments or increase or deterioration in the on page one of our receivables.
I would like a share a few more thoughts about the covert 19 pandemic that has in fact KVH and just about every other company in the world and given that we're calling into recession.
As Mark said, we're about is well positioned as we could be feeling the impact from a friend.
You have a very diversified and global business.
And had already taken steps to prepare for this health crisis before it became a global set but it is today.
I know everyone listening to this call is fully aware of probably world has changed I think it up by the result of the pandemic and as a result of reactions that business and government to local world have taken in response to it.
And I'm sure you can appreciate the health crisis has impacted many of our customers and off the pars both of my side.
The one understandably pandemic may have them Carol adverse effect on revenue.
South of operations and financial condition for the foreseeable future.
The extent to which the pandemic woman pocket business will depend upon many factors beyond our control, which I'm sure everyone is aware off including.
Among other things with development and implementation of effective treatments and preventative measures.
<unk> only the scope of governmental systems made available to us what companies be engagement.
And the duration of restrictions on travel and trade and other economic activity.
Like the significant uncertainty we all face. It's currently not possible forecasts are estimate with Fusemail Sherman's what the impact will be in our revenues and earnings.
Actually in the short and medium term.
Well, it's Martin said, we'd withdrawn our guidance for this year and will refrain from providing guidance updated guidance until we have a clearer picture of how significantly into how long the pandemic walk though.
This concludes our prepared remarks, and and I'll turn the call over to the upper left open the line Mcewen a portion of this morning's call operator.
Thank you if he would like to ask a question. Please take note of day person style. One on your telephone keypad, if you're using a speakerphone. Please make sure your mute function, it's turned out she and her your signature, which I quit mix again, that's why.
Star one sorry to ask a question we'd take out first question. Some Ric Prentiss Raymond James. Please go ahead, Sir your line.
Thanks, Good morning, <unk>, the only Rick.
Hope you and your family employees or stay safe through this difficult and crazy time.
First did you guys are applied for and get any of the P.P.P. money.
It was offered out there.
We applied early on in the first round before the money ran out and we did not get any money.
[noise] second question [noise] as you think about the trends that you saw January February that into March and April any further detail you can lay out first as far as what you've seen in April as far as a.
Agile plan.
Subscriptions termination any change in kind of how the ARPU flows through outside.
Yeah. So the the agile plans has been a continuing bright spot. So yeah, we still see daily bookings you know that or if you know look very good you know.
The quarter was better than the you earlier quarters. So the daily bookings gradual look look good.
ARPU is are the same or slightly better.
No increase in terminations or you know war suspensions for agile compared to prior year. So so that part of the business.
You know the subscription base and you know what we've been walk monitoring very closely is to see if there's any.
Uptick in terminations, you know into subscription business or increased churn with agile that hasn't happened so.
So far so good there and as I mentioned in the call. The challenges actually you know we've got good demand. The challenges you know getting the ships into poured and you know a lot of companies don't let people, who arent crew members onboard says no because on or off the ship right now so that's that's been a challenge.
And Don you mentioned that you're not see cash collection is probably the first quarter.
Sat across all the different segments agile other services product revenue.
I assume most of the auditors out there this quarter or having people wouldn't get particular about any reserves at like it could be taken.
That's correct. The orders are they did much deeper dive then like normally expect.
On a quarterly review.
But no work, we haven't seen any real significant change and the trend of collection or the tier a deterioration in our receivables in either of our segments point.
All of customers have reached out to watch for accommodations, which we've.
Granted but no no no real trend a significant trend or negative trend in our receivables collections all the quality of our receivables at this point.
[noise], Michigan, you're talking about like payer plant. So they can make payment over time exactly yeah, and you can really small customers and out large amounts.
And.
You talked a little bit mitigating obviously is looking at all your costs out there how should we think about the variability versus fixed nature of which cost if we take a services business the product hardware business and then kind of your corporate.
She Dave product development et cetera.
Well.
I'd say.
The majority of our cost of fixed, especially now because the cost side, where might have had some variability to them. We've cut back on your cut back on them early.
Our service our ARIA time service business as you know has a substantial power fixed component to it which is.
That's the idea of the model so that we can.
Benefit from airtime revenue growth.
Directly at the margin line.
Salt life subs, you know not entirely fixed cost quite a large fixed component there are overall gionee.
So.
Its fixed within ranges as Martin mentioned, we implemented across the board salary reductions recently, so well, it's not fix if you can do that but.
So to the extent that we can piece those fixed costs we have.
R&D cost is a significant you know what about the most significant operating costs and you know you can think about those is variable if you'd like but.
When we bought back in R&D is likely a a long term negative impact associated with that so we've tried not to do that and we'll continue to try not to impact R&D.
Now the marketing costs have hey, you know paid fixed and variable component there variable component you know commissions and so on travel and other.
Sales type cost, but there's also a failure.
And from maybe a.
I happen to be quite a lot sales costs are you know fixed in nature.
So if we take about how to.
Good.
No I guess I was asking about answered your question.
It does just try and also the thing from a from a high level and not the guidance, obviously since there isn't any but how much burn rate.
Do you think that business might.
Well I wonder as we look out over the next couple of quarters, three very with the depth and duration of the pandemic is.
Well we've.
Just had a couple of times, though we've taken or whatever steps. We can we can take at this point or a lot of steps anyway, that's probably more we can do but I to lower the burn rate. So I certainly expect the burn rate in the second quarter will be a lot less the burn rate in the first quarter.
Likewise wins during the fourth quarter.
So that we should end the year.
And without giving guidance, we should end the year, but they are.
Enough cash to enter 2021 with water momentum and continue you know somebody investments that we need to make you.
It did hit the revenue and earnings growth targets that are all I'm excited about yeah. I think you know at a high level. We've we've taken the steps that we need to take that that we feel you know comfortably get us through the years in other words, we don't feel that there's more to be done you know we feel that you know, we we don't have perfect visibility.
You know beyond you know what we've seen today, but based on what we see today, we feel comfortable that the steps that we've taken will be more than adequate.
It's it's nice to have that pool, a cash sitting there.
Yeah Yeah.
Good luck in getting best wishes to you your family employees as we all navigate thanks, where it came to you and yours, Yes, you have got thanks very much.
We'll take our next question from Christopher Van Horn from be writing FBR. Please go ahead. Your line is.
Good morning, everyone. Thanks for taking my questions learning money.
I just wonder if you could talk about the competitive environment and if you're seeing you know some market share opportunities.
Edge as some of somebody or some of your competitors maybe struggle in these times.
Yeah, we we've definitely seen that we've been approached by some mid to large fleets you know who were with you know some of our competitors and no longer feel comfortable with a with those companies. So we definitely see that as a short term opportunity.
So we're being very accommodating there to try and.
Bring those.
It's on board. So one of things we're actually looking at is is whether we can quickly move or people who are using KVH antennas on board. So that's it that's an area that we're exploring yeah. So people who have a need urgent need to switch.
You know to us and we can't get on their vessels quickly to put new KVH antennas on you know we're looking at a reusing re purposing the equipment, that's already there and we've done some tests on that it seems to work so that might be a way to rapidly migrate some of those customers.
Okay got it and then sort of on that front you know it seems like the adoption of agile plans. This is going well is it the competitive factors that you cited in the past or is there something else that play more recently, that's driving that.
No I think it's just the continuation and if anything you know and maybe that you know I think when you look at the rippled through ripple down effects of of everything that happens you know what happens to you know our suppliers happens to us what happened to our customers, which happens to their customers. So.
It could be simply that you know shipping companies are looking at their own cash flow and think you know jeez I don't really want to invest in these you know expensive products today that agile plan it sure looks pretty good and if I lose a charter or something I can just send it back and you know this seems like a better moves so.
If you notice that our percentage of units that went out to the commercial market.
It was up to 17%.
As agile this quarter. So so I think it maybe that this business model is even more attractive right now.
Got it okay.
And then on to get on the on beef, that's the fog opportunity set.
Both from a government and commercial perspective, you know talking to you Oems on on the automotive side as well as you know defense contractors.
There's talk so things are going in terms of the pipeline for autonomous or the or the spending on defense hardware things are going well.
Maybe little bit shipped to the right, but you know still happening those conversations are still happening and others are saying that things are deferred even longer than that could you just maybe update us on the pipeline for four or fog and TACNAV.
So as I said in the prepared remarks, the slog. It has been a real area of bright spots. We you know who seem very strong bookings you've gotta.
11 million dollar backlog for fog product. So that's actually gone pretty well. So we're very happy with that and you know if that momentum can continue through the second quarter. Then you know as we recover as the economy recovers I think we'll be in good shape. All the defense side, we haven't seen any programs slipping to the right you know their budgets are impacted.
We have seen a few programs where they had some field trials you know testing that they wanted to do that were postponed.
I didn't want to you know have people you know gathering to do a test, but I think that's temporary but we see no push out in any of our defense programs.
As far as autonomous stuff goes I think that's really a on a time scale that I think wont be impacted by this meaning that you know if you think this pandemic left still even duly ended the year, that's not long enough to impact the time scales for mass adoption of.
So I think that's.
I'm not going to have an impact there and then you know the whole idea of people lists driver in vehicles is probably going to be more attractive in the future as opposed to less.
Great. Thank you so much for the time in states it.
Got it thank you thanks, Chris.
[noise], we wouldn't that Guy next question from Chris Quilty, Quincy and that takes please go ahead your line.
Chris.
And here you might be on mute.
Yeah never go and Afone problem.
So just a follow up on Rick's question earlier about SGN a and.
Hard to know when things pick up but you know if you assume maybe on a full year basis, we we finish out at 7% or 60% of where we thought we would be you know things get moving in the fall.
You had talked about done about a $10 million year over year planned increase last year in any spending.
Is it fair to assume that a significant portion of that increase things like marketing in trade shows.
That were planned will get cut back into you could.
Sure it's not a dollar for dollar, but a significant portion of that could be scale back.
That's a fair assumption absolutely yeah.
Yeah, I think you know it's fair to say that we're doing everything we can to bring that increase you know, it's close to zero as possible.
And I have on America, correct myself, a little bit and Rick out the question or about cash from the second quarter.
Our I should've been lots Pacific <unk> operating expenses cash bonds in the second quarter will be less and the first quarter. However, all cash balance.
You know uncle populate the Cline well, probably in the game, but somewhere in the neighborhood of what we saw in the first quarter and then hopefully stabilize after that.
Okay.
Coming back to the the marketing spend.
And you already mentioned that you see some competitive opportunities.
Where might you opportunistically choose to spend more money is it simply you know agile plan you know the fact that your subsidizing the capex outlay for the customers that probably the single biggest area, where you think you can use your balance sheet, which is an advantage relative to many of your competitors.
Yes, you know I think that's true and I think you know, it's probably too early to say.
You know there right now you know my theory is that's why we're seeing you know the increased demand in agile is that you know.
Our customers are becoming more risk averse and just hedging their beds. You know we short short term contracts are no contract with agile and as you know we recall from 2008 2009.
Sort of everybody assumed that they were going to lose their job and everything you know the assumption was that everything would be horrible.
And I think for shipping companies today, they they'd be assuming the same things like it lose all of their charters you know, but they won't even if they lose five or 10% you know that's built into our model. So I think we've got a really attractive offering here that offloads to risk and it doesn't really mean, a lot of incremental risk for US you know so.
We're really comfortable with where we are you know with it with that product offering.
Great.
Switching gears over to the attack have side of the business. I think you had previously talked about four to five big orders and sounds like.
The middle East is probably a new ago, given the current environment, how many of those four or five were specific to the middle East.
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Two and the one that we're a you know closest to right now is it is in the North America. So.
Gotcha and likewise on the fog business you seem to indicate that.
Selling well and I think you had previously talked about.
Mid to high single digit growth for the business is it.
Are you, hoping to maintain that guidance based upon what you currently seen.
Well I wouldn't call his guidance, but but we did increase by blue figure was 9% in Q1.
So yeah, we are.
Optimistic that you know the fog business will continue to do well, but doing well in this economy I mean in the let you know what's in the last six weeks is has a different definition that of did in January two I think doing well now is you know generating you know millions of dollars <unk> revenue.
Not necessarily you know solid gross every quarter so.
But up backlog, you know, but still pretty strong, it's almost $12 million $1.8 million for shipment this year upon product so.
That's that's a good number given the environment.
Okay and down maybe I missed it did you give the entire I'm not just for fun, but for a inertial there.
Okay, but I'll I'll give it oh, given again I total backlog was $22.6 million.
Just on a 17 million over that scheduled to be delivered this year.
International backlog for navigation, and that's not a nation was $20.3 million them.
14.6 million of that.
Because of it this year again 11.8 million of that as fog.
Okay.
And while we're at at the can you give us the me he said airtime revenues and margin in the quarter.
Sure the revenues are about $19.2 million.
Well I didn't was just over 32%.
And at one point in the past you had been targeting a gross margins are pushing up towards 40% is there's still a prospect you know given the current situation is that still being a target sometime within the next six to 12 months.
And that timetable, yes, but not sooner.
Okay, and again, because you know building off the earlier comment is it's a lot of those costs are fixed so part of that answer depends on either revenue growth. So if the revenues continue to grow the you know there they were up 5% this quarter, which which.
Good denied not fantastic, so, but as revenues continue to grow and compound in the cost stay relatively fixed and those margins will continue to improve and I think you know, we probably you know optimistically, but we do expect margins to improve here in Q2 for the airtime business.
Got it and a final question I know, it's still early days with the KVH watch deployments and testing and whatnot, but.
It just seems like.
If you've had lunch that product a year earlier as the demand for it now we're just the overwhelming.
Yeah in terms of the ability for these equipment providers to to remotely access.
Equipment that they can't get to know.
Our their efforts underway to accelerate that or is it just not possible given the normal testing that you need to do and the restrictions on your cost.
Turtle ability to work with customers and testing in the field.
Well, we're doing two things one is that we're you know we haven't you know cut back our development efforts for that product at all so we're still you know pedal to the metal working on the KVH watch product and service and family of services. We're also looking at whether we can perhaps accelerate some of those features and.
Deploy them to our existing customer base, who you know have vseven each U.S. antennas on board. So then you are those would not necessarily be for equipment manufacturers, which is the target for the watch product, but we're still seeing that there's a lot of demand for just remote expert and intervention for our existing customer set.
So that I think might be in the near term opportunity as well because you don't need to visit the vessel to deploy it.
Got it good stuff.
All right well, thank you gentlemen.
All right I think Chris picks up.
We will now take on next question from Rich Valera from need had please go ahead. Your line is.
Thank you I'm can boarding gentlemen, everybody.
So mark no buys you drill down into each one of these businesses. It actually sounds like things are you there largely on track like I'd say, it's eight inertial or maybe stabilizing at the margin maybe getting better if I think about the the mini VSAT business. So just trying to reconcile that.
With that pulling your guidance and trying to understand maybe what you're seeing in the last month that makes you think things could maybe get worse and and which parts of the business are you most concerned about possibly getting worse.
You gave any color around that thanks.
Sure Yeah. So just to be clear you know I'm answering specific questions about specific product lines, and then model so but you're right. There's a disconnect between you know those answers and the general you know risk to the business and brings to the overall you know.
The performance of the company. So for example, you know the leisure Marine market. You know, we actually had some bookings days that were literally zero and this never happened in the history of the company I mean like zero dollars in zero sets. So you know all the marine stores or close to dealers are close the boat builders in Europe you didn't.
All the Italians Big Italian boat builders were close to you know U.S. boat builders were close so that's going on epic disaster for you know that's going on now for.
Five or six weeks now we see that you know build to restart open and retail shops are starting to come back. So those parts of our business that it relate to like product hardware, we're very very very impacted now.
Going forward is it could it get worse, we don't think so we think it'll get better but you know, we we don't know how fast.
You know people get a run out by boats or the way. They did before you know we hope so.
Is that going to continue to the ended the year, we don't know so.
You know.
But the beauty of our business is that we have this diversification you know a lot of people over the years have asked why are you still in the Nat. This is why do you have military business that doesn't seem to go with it you know thank God that we do because we have a business is very resilient.
And its diversified so parts of the business are doing pretty good you know, but not all the business you know, but the parts that are doing poorly.
You know we expect to the poor in this study transients you know so there's there's you know obviously, we're not selling products. The boat builders that are building boats now those guys are coming back online and you know we expect to start shipping again.
Got it does help question, but yeah, yeah I know, it's that's definitely helpful color I think guests the lesion marine business is one that would stand out its likely being very very hard hit here I'm just drilling into the the maybe step. It just so just wondering if you can get any more color on what you saw in the month to date.
The old relative to Q.
Yeah, I didnt really solid quarter right for that for the bump I'm sure can be up for the March quarter, and I'm guessing that you know the trajectory there was sort of some deterioration at least as you went into March and April.
And just trying to back if you would take the month of April and kind of times. It by three you know he is there any kind of rough estimate you could give us on what that quarter would look like in terms of kind of net sub adds the or that meet the number you gave us where you actually had I guess, 10% growth and.
In units year over year, if there's any way you could give us a sense of what that might look like if we kind of took that took the month of April that stands out.
Multiply that by three.
Yeah, well, we don't we're optimistic that that won't you know that won't be the answer you know is April times, three but if that were then you know we would have pseudo flat to declining you know business.
Which hopefully won't happen you know hopefully they will be better than April and June will be better than may you know, but again, where we don't know that for effect.
So you know if if things don't improve you go then.
We could forecast that you know subscribers wouldn't grow.
Yes.
You know and you can.
Just a worst case scenario, where subscribers shrink you know, which would be really bad but you know so far we haven't seen drinking subscriber base.
Got it that's very helpful. Thank you and [noise].
You know I know going back a this is quite a few years ago, but yeah, you had pretty meaningful exposure to oil and gas than I think that's kind of been mitigated over the subsequent years, but.
Can you can you give us a sense of what your exposure is today loyal and gas and what you've seen with that part of your Ah you know the fleet.
Right, we have very little exposure to oil and gas you know, we don't do any business on oil rigs or platforms.
We have the few odd customers, who use our products on land or you know, but very very minimal exposure there now.
I mean, the the collapse in oil prices for our Satcom business, probably if anything has slightly net positive. So you know reduction in offshore vessels, but you know all of the commercial shipping companies are making a lot more money because of lower fuel costs, you know fuel cost them.
$40000 today is that gets cut in half that's a huge savings for them.
And then on the tanker business those guys are absolutely printing money because you know those because of lack of storage people are using tankers for you know can't tango, where they store the the oil on the on the tankers and the charge and $240000 today.
So they're absolutely MINTIC money. So that's you know.
We're really hurts US is you know is there's already been pointed out is in the middle East you know potential defense sales. So you know the price of oil. There is you know I imagine the major factor that drives their defense budget. So.
For we're very pessimistic about that business right now.
Got it and that seems my final question.
You mentioned you have coming into this quarter, you had to kind of four to five TACNAV programs out there in Saudi for taking part two of those off the table, but you're still got.
Three large ones, one which sounds like you're pretty close on are getting closer on so just wondering how you're thinking about the overall outlook for the nursing business. It for this year versus where it was you know coming into the year. Obviously it sounds like you still have some of that upside optionality from one or more of those large programs finding.
We still have Ah I'd say two oh.
Oh that that you know have decent probability one I'd say is very high probability.
But the one of them with a very very high probability it's unclear how much of that will deliver in 2020, So major program more than $10 million, but you know how much is delivers gonna be in 20 Twond. He is would be the concern with that.
The other one as you as you know U.S. military days that could be a.
We don't think they'll be impacted by everything that's going on but that one isn't as good as large as the others. So.
Okay very helpful. Thanks for taking all the question yes.
All right.
It's kind of attrition.
It appears there no further question.
That's great well I'd like everyone for.
Okay.
No I was just to say thanks for listening on the questions and and a will as always we'll be available for via email or direct calls you answer further questions. Thank you.
Ladies and gentleman I just got good today Scott. Thank you for your participation you may now disconnect.
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