Q4 2020 KVH Industries Inc Earnings Call
[music].
Good day and welcome to the <unk> Industries, Inc. Q4 Y E 'twenty and 'twenty earnings Conference call. Today's conference is being recorded at this time of a turn the conference over to breakthrough and CFO. Please go ahead.
Thank you operator, good morning, everyone. Thanks for joining us today and to discuss key Beach industries fourth quarter and full year results, which are included in the earnings release. We published this morning with me on this call is Martin kits Finjan and again, the Companys Chief Executive Officer the.
The earnings release is available.
And our website and through our Investor Relations Department, if you'd like to listen to the recording of today's call. You can access the webcast replay on our website. If you are listening via the web feel free to submit questions to IR of cave each dot com.
This conference call will contain certain forward looking statements that are subject to many assumptions and uncertainties and may cause our actual results may differ materially from those expressed in the statements. We undertake no obligation to update or revise any forward looking statements. We will also discuss certain non-GAAP financial measures and you'll find definitions of these.
And our press release.
And as well as reconciliations of these non-GAAP measures to comparable GAAP measures. We encourage you to review the cautionary statements speed of our SEC filings.
Specifically those under heading risks under the heading risk factors and our third quarter form 10-Q filed on October 29th 'twenty and 'twenty and are.
'twenty 'twenty form 10-K, which we expect to file tomorrow. The company's other SEC filings are available directly from the Investor information section of our website.
At this time I'd like to turn the call over to Martin Martin.
Thanks, Brett.
Everyone and thank you for joining us today.
Well, let's get started.
Like many businesses around the world, we continue to face challenges from the pandemic and Q4. However, we ended 2020 of the very positive note and we the number of reasons to be optimistic about the future.
We built and our strong third quarter and.
Reported fourth quarter revenue of $44 1 billion and increase of one 7 million or 4% versus the fourth quarter of last year. We also increased our fourth quarter adjusted EBITDA of the three 5 million up from 700000 and the prior year.
For the full year, we increased revenue to the $158 7 million up almost $1 billion last year and reported total adjusted EBITDA of $3 1 million and that's the $7 million improvement compared to the fiscal 2019.
I'm really proud of our team's continued ability to deliver for our shareholders and customers. Despite the challenging environment.
Our core business remains strong and Q4 of 2020, we delivered one of the most robust fourth quarter results from continuing operations in the past five years, we recorded very strong tech net of revenues record VSAT unit bookings and record VSAT shipments.
From the operations perspective, we continued our cost containment efforts and Q4, achieving opex well below the prior year and our budget.
While the restrictions on travel and trade shows pose challenges for sales visits and pipeline development and it's also reduced our travel and marketing costs.
And these restrictions begin to ease we expect it to the expense reductions normalize in the second half of the year.
So against the backdrop of economic uncertainty, we're pleased with the overall financial results for the year and with the positive momentum we carried into the first quarter of 2021.
Our strategy of diversification and focusing on innovative products and services really paid off and Twenty-twenty and has positioned us well for the future.
Now, let's look at some of the details of our core markets.
And our mobile connectivity segment VSAT revenue increased $1 2 million to $20 3 million of year over year increase of 6%, while our VSAT subscribers increased 4% versus Q4 the previous year.
Year over year, our airtime margins were up almost four points to $34 two per cent compared to Q4 of 2019.
Our agile plans program continues to be of key revenue driver as customers recognize the benefits of the innovative all inclusive model.
Agile plans revenues increased 53 per cent compared to Q4 of the previous year.
We also recorded strong sales of our agile plans regional service, which employs our smallest beef that the 37 centimeter tracks all of the three H D S.
The other players regional offers connectivity as a service for smaller commercial vessels such of especially in the coastal cargo and work boats.
We announced this new service and February of 'twenty, and 'twenty, just a few weeks before the pandemic related shutdowns took effect, which really impacted the watch.
However, interest and this product began to pick up and the second half of the year and and the fourth quarter agile play of regional and helped drive strong results outside the U S and largely untapped markets, including Vietnam, Indonesia, and Africa and.
As a result Q4 of the three H D. S shipments were up 175 per cent compared to last year.
Overall agile plans represent 73 per cent of our commercial shipments and the quarter and is now 38 per cent of our total VSAT subscriber base.
Several beneficial industry trend should aid our mobile connectivity sales efforts.
Oil prices are rising and daily Port calls for commercial vessel the appear to have stabilized.
The commercial shipping market, and it's doing quite well container rates and the Baltic dry index of both more than doubled and the last year.
And the luxury of market the National Marine Manufacturers Association reports in the U S boat sales, where the 13 year high in 'twenty and 'twenty.
On the other hand, the the cruise ship market remains depressed and within our media business. The Newslink service for cruise ships continues to be heavily impacted.
Fortunately this is a small part of our business, but it did represent a $1 million decline in 'twenty and 'twenty compared to 2019.
We launched our legacy mini VSAT broadband network in 2007, and after four years, we're shutting it down at the end of this year. The majority of our customers already on our new HTS network, which we launched a few years ago.
We're planning to migrate the remainder of our legacy customers to the HTS network by the end of the year from a customer perspective, the new network and faster cheaper and has much better global coverage from our perspective, we have better margins of the HTS network and consolidated and customers onto one network will reduce our operating expenses as well.
We've been converting customers over the last few years and we intend to complete the effort this year.
And the significant asset the significant investment and effort required to facilitate this migration will impact our results in 'twenty and 'twenty, one but upon completion.
And more represent a net reduction of $4 million to $5 million and annual network. The operating cost starting next year.
We expect the many of these customers will be switching over to our popular agile plant and service.
Moving onto the <unk> watch and our new Iot connectivity as the surface offering we're excited by our progress in recent months. We're focused on rapidly building of broad Foundation of watch solution partners, which we anticipate will provide the pipeline of revenue opportunities.
And these partners already proposed and caveats watches the component of their own maritime Iot and maritime and service solutions. The several large fleets.
You'd like you've likely seen the announcement the beginning of December as we've established relationships with the range of firms, including Iot service providers, such as Green theme I O T platform integrators like P. M S maritime.
And like Kongsberg in the multi card service providers like kilo Marine.
And we've established a form of working process, which each of these partners.
Work with them to define and develop a solution that integrates PVH watch with their systems.
We provide training for their sales teams established joint marketing agreement and deploy trial programs with their customers.
So if you need to watch systems already deployed for trials and training and we anticipate that the number of deployed systems will steadily grow.
So what's driving this acceleration and interest.
There's been a move towards digitalization and the connected vessel of maritime and the pandemic is accelerating this trend.
The port restrictions drove home the importance and the need for remote services, such as equipment access surveys and support.
And there's also a rapidly expanding the ecosystem of Iot service providers, who currently have no access to the connectivity outside the range of cellular service, where the limited access due to the major constraints of bandwidth imposed by the ship operator.
And our watch solution partners and told us that including televisions watches the competitive differentiator for them thinks of the global secure connectivity that's separate from the it systems the ability to support multiple tenants on the single watch terminal and the simplicity of our integrated connectivity as a service model.
And so our view of the cyber security will be a primary driver going forward.
At the start of the year, new commercial maritime guidelines known as I'm out of 'twenty 'twenty, one went into effect.
The vital aspect of this is the separation of it and Ot networks and data one of her watch solution partners reports that the major oil company fleet towards the proposing watch now mandated the vessel performance optimization system not be connected to the onboard network.
We believe the Kt's watches and ideal solution to meet all of these requirements and delivered $24 seven data flow, even where the vessels and the open ocean and affords offer the affordable remote expert and intervention and high quality video on demand plus it provides the dedicated air Gapped Iot connectivity.
And without touching the ships and <unk> network, we think these drivers.
The strong interest we're seeing of expanding array of potential applications. All validating the assumptions we made when we additional when we initially proposed to offer this first VSAT base dedicated Iot connectivity solution.
So we're optimistic that give you each watch will follow the trajectory very similar in many ways to the agile plans, which started slowly and the first year and then began the compound rapidly.
What solution partners play a critical role and our ability to attract new customers to watch which is one of the partnerships we've announced over the past few months and so exciting.
While the commercial market did can take some time, we believe that the Iot connectivity has the potential to be a significant contributor the revenue and earnings in the coming years.
Moving onto our inertial navigation business.
And that military product sales increased by $3 7 million to $7 2 million and Q4.
More than 100% inquiries over the last year driven by shipments of the Tac NAV fog order, we announced last July.
The standalone and fiber optic gyro sales were down $1 3 billion or 17% compared to the fourth quarter of 2019, but that doesn't include the blocks that were used as part of our own tech net systems.
And we entered 2021 with the very strong backlog for both tack NAV and flawed.
At the end of Q4, we also achieved our goal of engineering of photonic integrated chip or Pic technology into the remainder of our core.
<unk> product line, the going forward, alright, and use their standalone fog will all have the pic inside as we ramp production, we're adding a second precision assembly system, which will come online in Q2.
That'll enable us to produce sufficient quantities of assemblies of thick and fiber race to replace our standard product systems.
We will be somewhat constrained by chips and assembly equipment, and Q1, which we accept expect to be released by the beginning of Q2.
In the meantime, we continue to see healthy demand for our fog products, we anticipate strong year over year growth and a flawed business this year.
We're excited about the momentum and the future market opportunity for our Pic based products from the position of the established proven technology provider for autonomous platforms. Our Pic technology enables us to provide a broader range of <unk> performance for different applications and enables THAAD performance and Mems pricing at <unk>.
<unk> mass production and the future.
We're currently working with customers and prospects, who represent a wide range of short and long term opportunities, including autonomous trucking and shuttles mining and industrial robots as well as drove defense applications and of course advanced driver assist systems or Adas.
And as a supplier for these new technologies the growth of this business will depend in part and how rapidly. These technologies are adopted and the market.
As the self driving market continues to evolve autonomous vehicle providers of realizing the importance of bogs as part of the sensor fusion solution to deliver the precision needed the complement lidar when men's gyros can't.
Adas applications, where our inertial systems represent a large and growing market. The total platforms like long haul trucking mining and construction, where the near where we anticipate near term sales opportunities.
We're also working closely with drone developers the consumer drove market doesn't require initial system with the precision that we offer however, our fog and provide the performance reliability and form factor of suitable for military and security and commercial drugs and we anticipate the those markets will provide important revenue new opportunities as they grow.
And each brings almost 15 years of experience as an autonomous navigation technology provider to these growing markets.
In 2005, our systems, we're using the original DARPA Grand Challenge with self driving vehicles are natural products were first the integrated into the U S commercial self driving car prototypes and 2012.
Give each bogs and inertial systems and the deployed and various robotic systems over the past decade, including the winter and the and 10 other.
The competitors and the 2015 DARPA robotics challenge the.
And most recently, we began delivering vital navigation and positioning data for autonomous trucks and other platforms that are being tested on the road now.
Our existing Fox systems already meet the performance requirement for these applications. Our Pic based systems are now rolling out to deliver additional reliability and cost savings at scale.
So in summary, and 2020, we navigated the pandemic the safely and successfully developed key new technology and <unk>.
And the company well in each of our markets.
We had better than expected results and Q4 and Q1 is off to a very good start and we ended the year with around $20 million and backlog.
Our airtime business continues to gain market share as we grow revenues and subscribers, we carry the momentum into 'twenty and 'twenty, one with robust net new Activations of January February and we of exciting new products and the pipeline that will be launched and the next few months.
We're very encouraged by the initial response to our watch Iot initiative and the opportunities are autonomous market continue to grow.
Consolidating our airtime customers onto a single global network will improve customer experience and reduce our operating costs by year end.
We believe that these efforts will fuel our growth and 2021 and beyond and we're confident that the progress that we're making now will deliver sustainable long term value to our shareholders and other stakeholders.
And now I'd like to turn the call back to the Brent to go over some of the numbers.
Brent.
Thank you Martin.
First the ecosystem of the Martin sentiments, we believe our fourth quarter and full year of 2020 results. The lay of the Covid 2019 pandemic I'm sorry of COVID-19 pandemic continues to impact many areas of our business are quite encouraging.
Despite the challenges we faced we reported our strongest fourth quarter of quite some time and.
And we're entering 2021 with sort of with a solid tailwind.
And our fourth quarter and a bit more detail as Martin mentioned earlier, our fourth quarter revenue came in at $44.1 million. This compares to $42 $5 million recorded in the fourth quarter of 2019.
Revenue from our inertial navigation segment increased $1 $7 million and mobile connectivity segment remained flat compared to the prior year fourth quarter.
Product revenue for the fourth quarter was $20.9 million and increase of $2 $2 million or 12% from $18 $7 million and the fourth quarter of 2019 by segment product revenue for nurse with navigation increased $2 $4 million or about 22% primarily due to a $3.
Of a million dollar increase and Tac net product sales, partially offset by a $1 3 million dollar decrease and fog and OEM product sales compared to the fourth quarter of 2019 per.
Product revenue and the mobile connectivity segment decreased point $2 million of 3% driven by a point of $3 million decrease and Chet track vision product sales and a point $2 million decrease of the lay of mobile product sales, partially offset by a point $2 million increase and VSAT product sales and accessories.
Service revenue for the fourth quarter was $23 $2 million, a decrease of $46 million of 2% from $23 $8 million and the fourth quarter of the prior year by segment service revenue for us and navigation decreased $8 million, primarily due to a reduction and contract engineer.
Our service revenue and our mobile connectivity segment sort.
Revenue increased by $42 million of 1%, primarily due to a $1 2 million dollar increase and mini VSAT broadband airtime revenue compared to the prior year fourth quarter driven in part by of 4% increase and subscribers primarily as a result of agile plans. This increase was partially offset by points out of it by a point.
And $7 million decline and our media business, which was significantly impacted by travel restrictions associated with COVID-19, which I will discuss in more detail shortly.
Okay.
Mini VSAT broadband airtime revenues increased $23 million.
Growth of approximately 6% for the prior year fourth quarter driven by the continued success of our agile plans the VSAT shipments and connection with the agile plans program of approximately 58 per cent of our total unit shipments and <unk> 73 per cent of our commercial shipments this quarter.
Edge of the planes and now represent 38 per cent of all of mini VSAT broadband airtime subscribers for the fourth quarter.
Our consolidated gross profit margin was 38, 7% as compared with 37 and four 4% in the fourth quarter of last year for the segment perspective, our mobile connectivity gross margin was 33, 8% up one six percentage points or are there. Some navigation gross margin was down about <unk> seven.
The percentage points to 49.0 per se.
Operating expenses for the quarter were $17 $9 million.
Seven per cent from 19, four of $2 million and the fourth quarter of the prior year as we continue to hold the line and the operating expenses and response to the impact of COVID-19, and many areas of our business and the.
Association and the associated uncertainty that the pandemic represents force.
For the fourth quarter of these changes of revenue and margins and operating expenses resulted in the loss from operations, excluding the impairment charge of point of $9 million compared with a loss of.
Of $3 $3 million recorded in the fourth quarter of 2019.
Yeah.
And as you saw the earnings release, where the.
The total impairment charge this quarter of $10 $5 million relating to our media group goodwill and certain other media group and tangible assets.
And as we've noted previously our media group is one of the businesses has been most acutely impacted by the pandemic. The media group is heavily dependent on travel with the monitoring business closely throughout the year and had believed that the revenue of the Earth's equate any of the business you know that would read out and once the pandemic subsided, however, and the fourth quarter as the pandemic and tenured.
The resulting in new and a new wave of travel restrictions and business closures. It became apparent to us of the damage the business is likely to be longer lasting and perhaps even permanent.
The connection with our annual impairment test, which we conducted and the fourth quarter, which included income in consultation with the evaluation of advisors.
The goodwill and intangible assets and the media group, where less of the carrying value indicators of impairment of resulting in a noncash charge of $10 $5 million.
[laughter].
Including the impairment charge of mobile connectivity segment generated the operating loss of $10 $6 million without this without the charge.
And what would have reported better results from operations of last year's operating loss of $1 $5 million are there. So the allegation segment had operating profit of $4 $1 million for the quarter.
Paired with an operating profit of $3.0 million last year, our unallocated costs remained flat at $4 $8 million compared to last year.
For the fourth quarter, our net loss, including the impairment charge was $11 $6 million compared with the net loss of $2.9 million record and the same quarter last year.
Non-GAAP basis, which excludes impairment charges amortization of intangibles stock based compensation.
The termination non recurring legal fees foreign exchange transaction gains and losses, the tax effect of the foregoing and change in valuation allowance and other tax adjustments, we had net income of $1 $3 million compared with the net loss of $45 million last year's last year EPS for the fourth quarter, Inc.
And again, including the impairment charge was the net loss of 65 cents per share compared with the net loss of 17 cents per share and the same period last year non-GAAP EPS profit for the fourth quarter were seven cents per share compared to a non-GAAP EPS loss of three cents per share per diluted share last year.
Our adjusted EBITDA for the quarter was $3 $5 million compared to $47 million recorded in the fourth quarter of last year.
Fleet reconciliation of.
Non-GAAP measures. Please refer to our earnings release that was published this morning.
Total backlog at the end of the fourth quarter was $20 4 million of which approximately $19 $8 million is scheduled to be delivered during 2021 backlog for our inertial navigation products and services at the end of December was approximately $19 $4 million of which approximately eight.
<unk> point $8 million of scheduled to be delivered in 2021 net cash used in operations was <unk> $2 million compared to $1.9 million using the operations for the fourth quarter of the prior year cash.
Capital expenditures were $3 $9 million for the quarter and our ending cash balance was approximately $37 $7 million and.
Conclusion.
I would say again, and we're pleased with our fourth quarter and full year results. The lay of the global pandemic that we like all businesses around the world faced in 2020.
And we recognize of course that depend downtick is far from over and where they're likely to be dealing with its impact relative to 2021 will be we will continue to be vigilant watch our expenses closely and ready to react properly as circumstances change that said we are pleased with the progress we've made in 'twenty and 'twenty and we're optimistic about 2000.
'twenty, one and beyond as the pandemic subsides and we continued to execute the plan to drive long term value for our shareholders.
This concludes our prepared remarks, so and like I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call.
Thanks, Brent, but before we get to the questions I do one just point out the press release the from this morning, and I mentioned that Roger cable will be joining PVH next week and theyre going to CFO of <unk>.
Rogers and accomplished financial executive having served as CFO of seaborne networks, and treasurer of Aspen technology amongst others.
The great expertise across the financial planning reporting capital markets and strategic transactions as the industry experience as well and telecom, including subsea fiber optic networks. The dwell is software and services.
So Roger and joins us and important moment for KPH as our financial performance is real positive momentum and we focus on building our business through innovation and market leadership, while containing costs and where we're all very excited to have him aboard and.
And I also want to thank Brent bruun for taking over as CFO for the last six months has done a great job.
Put together two headquarters so you're setting a high bar for Roger to come in but the.
On behalf of myself and the board and I just wanted to thank you for doing that so operator, I think we're ready to take questions now.
Absolutely in terms of you'd like to ask the question there's no by pressing star one on your telephone keypad.
Well, let's take advantage of me, Jamie it's function of trying to ask of life insurance sales.
And our equipment again Thats star one.
The question I'll pause for interest and I'm like Wow anyone the opex.
Okay and it looks like we have a question on the phone lines from rich Valera with Needham and company. Please go ahead.
Yeah. Thank you good morning.
Martin.
Makes sense that you're going to be migrating your base over to <unk> to your HTS network. This year and it looks like some nice long term savings from that could you.
Give us a sense of what you expect those incremental costs to be this year to migrate your existing base over the remainder of your existing base of where the HTS network.
Well, what we've you know we've been doing it for two years now so we're basically accelerating what we have been doing so we will be offering some incentives and then in terms of the hardware discounts and things like that installation support so there'll be some some of that cost you might be capitalized if they move over the agile plans, but some of the would show up in the.
And you know our product discounts and and the installation credits.
Got it.
And then Jim.
Just wanted to try to understand the potential impact of of incorporating the pic into all of your commercial products and I guess eventually probably your your defense related products and can you talk about how youre thinking about.
Incorporating the pick any of the commercial products affecting the gross margins and your ability to.
Compete more effectively and maybe drive incremental revenue in that category.
Yeah, we.
You know that.
You actually hit the nail on the head, there's there's still of a margin benefit and there's a product performance and size benefits. So what I mentioned in.
And the path that we've.
Essentially designed the pic into sort of a high and I and you just to the.
Show how good it is and now we're rolling it into all the other products. So during the fourth quarter, we do the engineering work.
To design it into our standard products and.
And you know.
We're now.
All of those products are going into production. So the cost savings will happen when we are able to wind down the cash.
Current method of fabrication, which involves couplers and polarizers and the fiber manufacturing with the other significant cost and overhead so as all of that is completely.
Stopped then we'll have significant margin improvement and manufacturing overhead improvement, which will translate directly and the gross margin. So right now we expect that starting really in.
Oral.
And we'll be ramping that up we've ordered a second the precision Assembly system, which will then allow us to move everything over to this new.
The new automated manufacturing and at that point, you know realistically I think by the end of June we'll be looking at switching over completely.
No that's really helpful. Thanks for that.
And I just wanted to follow up on the autonomous the opportunity a couple of years back and think you'd provided at least samples of your five products at the time to a number of players and that autonomous market and.
Just wanted understand sort of where things stand there and how youre thinking about that opportunity today, and particularly now that you've got the pik and production.
So you know we're in you know over 20 different platforms. So we will continue to do well and as all of these platforms are and testing and prototyping you know it doesn't generate a lot of revenue yet, but as you know this is the enormous opportunity and we've been focused on it which is why I wanted to pause.
And that out and in the script and and we've been we've been focused on this market for 15 years. So from DARPA first you know sponsor of the the original Grand Challenge. So we've been working with these companies for a very long time.
And so we feel that we have the precision you know we have the experience we've literally been and millions of miles of of autonomous driving on roads today you know.
Through our customers.
And you know some of these markets and we think are going to the developed faster than others and we think you know autonomous trucking.
For example will develop faster than a fully autonomous consumer vehicle and.
And the reasons for the out of both economic and that you know these are more expensive platforms and they deliver and then.
The economic value to the people who are operating of the trucks as well as the you know the opportunity is to run them and more contained environments of the level five doesn't mean that level of five is an every single sort of road that you could possibly drive off and it might be level five you know all the other.
The state highway system.
We think the.
And things like trucking and the autonomous vehicles for the public transport and people movers of which again are and more defined deals the areas. They will happen faster and we're already seeing customers and those areas.
Got it thanks for that and I'll yield the floor.
Yeah.
Okay and again that is star one to ask the question. If you find your question has been answered you may remove yourself from the queue by pressing star two and we'll take our next question from Ric Prentiss with Raymond James. Please go ahead.
Right.
Thanks for the guidance Barak.
Terrific.
Couple of questions following up on the.
And the migration and converged finishing up the.
How should we think or.
Are you worried about any of the revenue side, who are the people not converting over.
Did I hear you right that.
Exit one word the four to 5 million Opex savings net of the networks.
Yep.
Well, it's not it wouldn't be opex, but the savings because of the sales and cost of sales you're right yeah.
That was the sort of 5 million at the day.
And kind of exiting 'twenty, one and the 22.
Right, so reduce bandwidth cost and so we're not running two networks. So.
In other words, we're spending more than that now of course, all of the old network, but this would be the incremental part because as we migrate people over you know we put the bandwidth on the new network.
But the net savings we estimate as you know four.
$4 million to $5 million.
Right.
The concerns on the subscriber side and can you get everything switched over and so it's really more of just the <unk>.
Well you know how people are of the yeah. No. That's definitely concern and you know for US is as you know and.
And the enormous priority to get this done.
But you know how people are the always wait till the last minute and so we're giving people incentives to do it early and and to get switched over so really we don't anticipate this being of of the risk to revenue in 'twenty and 'twenty. One you know if anything some people may differ until tomorrow. The 22 and unrealized you know the big forgot to do it and have to do it.
You know the January but what we've also seen the work is that you know the high value customers. The people who are you know more modern customers of all switched already so the PS.
Who are left are sort of the stragglers you know the low ARPA and customers you know who aren't really prioritizing this.
Whereas our big fleets, you know have mostly all converted already.
Right and obviously.
The agile sales how.
How should we think about capex in 'twenty and what this total process might do the deal.
Oh, all of the Brent answer that it'll be well if you ask the question you ask the question again I'm sorry.
Ask about Capex, you were a little hard to hear there Rick I think he was asking about capex for 'twenty and 'twenty one for the agile related capex.
Capex for the total 21.
Well generally the more capex, the better way of co badge households, as far as worked with the.
And it'll be total capex will be somewhere in the neighborhood of <unk>.
Two of the $20 million.
Okay.
And the way and.
And you know as I said, a moment ago, if we get some forget the agile waters, which mean more subscribers out of their network and more revenue and more airtime revenue could be higher so the very fluid number of the amount of capex that we have.
Budgeted for and it's not revenue generating capex of just the agile is relatively low.
Gotcha.
Okay and all of it.
The new president of illustrations.
Well the Bell how do you see the.
And.
Orders and all.
The international orders.
Yeah.
It's a question of on the defense side Rick.
Yes.
And also just in.
Yeah.
The administration and what's your view of the.
Business.
Yeah.
Well too early to tell I think the.
And it's clear that this administration is probably going to be less focused on defense.
The defense spending.
No.
Would that mean for the future budgets and we'll have to wait and see also.
You know depending on what happens politically with the middle East and that could impact you know some of you know potential and attack the half business. If there's you know the.
Barcodes or bans on on exports and things like that so.
Hopefully that doesn't that doesn't happen.
No.
Okay and.
And and any thoughts of do you see it obviously as well.
Good day.
And this COVID-19 pandemic Oh the other.
Rick and the only having trouble hearing you Rick.
And if you could maybe the only sorry.
Can you hear of any better now, yes, that's perfect yep, Okay very good yeah, obviously, the balance of balance sheet, the cash position and.
Negative net debt or any thoughts on.
M&A or what else might be out there that you might want to tuck in.
Yeah.
You know, we're you know we're not a super acquisitive company, but we've done some you know.
The four of five deals that were over the last 10 years. So we are you know, we'll always look I think that you of some of the things that we've seen that have come out and really troubled and you know very difficult to justify doing so.
If we were to do something you would have to be you know something that's very compelling and and.
It doesn't put pressure on US you know with with a lot of debt or anything like that so we've kind of like where we are and we've got the new products coming.
We think we're going to be very very competitive this year I think.
We see a lot of upside and the airtime business.
And so.
Overall, we feel we feel pretty good about our position.
Very good thanks, guys stay well.
Thanks, Craig.
All right and on top of my time that that is our one to ask the question I'll pause for another one of the plant and you want to ask the question and it does look like we have another question from Chris Quilty with Quilty analytics. Please go ahead.
Thanks, guys I think are Brent and they are given and this in his script, but he was talking too fast.
The gross margin for the mini VSAT broadband service specifically.
Yeah.
Before.
And change.
Well he was there.
The gross margin for the mobile connectivity business unit was <unk> 33 per cent.
So yeah, that's the amount of more about of four four point increase over Q4 of last year I believe.
Right and where do you expect that the go this year, assuming you don't get the $4 million to $5 million of savings this year.
Or would the savings won't is that this year, we're talking about the savings and in 2022.
We're still running two networks to the end of the year.
And and that does put a bit of of a pressure on the gross margin percentages and predict.
For our airtime business.
But coming out of the year, where we're down to one network we're anticipating.
Improvement.
Gotcha and so the.
And for the full year, and 'twenty, 'twenty, one and where they remain and sort of the mid thirties and by next year or are they kind of push back up to the 40 per cent pole, you've long talked about.
And that's a good a good estimate I think there should be increasing this year and there'll be winding down caused some of the old network and ramping up costs on the new network, the with incrementally it will be better and.
And it's a little bit tricky.
Chris because it's sort of the pace of the migration of the migration happens evenly throughout the year.
And then you know that's one thing, but if it's all backend loaded we're carrying the cost are up you know.
More subscribers.
And the old network perversely, its actually better because youre not needed out of bandwidth on the new ones and so it's a little bit tricky to forecast, but we do and our models. We do have you know the.
The margins generally you know where the artist slightly increasing.
Okay.
And a follow up on the Capex of the 15 to 20 million and how much of that.
Ballpark might come from agile plan and also are you seeing the significant capex contribution developing for PVH watch.
Well the I'll answer of the watch part, but not yet for watch, but we expect that to take on the similar business model that we saw with agile plans. So you know where the compounds over time.
But the vast majority of the <unk>.
This is right now is not very capital intensive outside of the agile plans.
Some of those new equipment that we're talking about as you know for for the photonic chip as you know is fairly pricey for machine and it maybe half a million dollars kind of thing to get the installs and set up but the.
Vast majority of the Capex budget is for agile plans.
Great and the.
Where are you seeing the strongest demand for agile plans either you know of.
Amongst your your higher end customers, lower and geographically or by application and and has that changed over the course.
The year.
Well the other.
The geographic split hasn't changed and that sort of evenly distributed between the Americas and APAC and Asia. So it's actually a pretty nice distribution geographically of.
The one big change that we saw in Q4 as you know VSAT and the 11 continued to do extremely well would be three which was not offered and agile plans and service there'll be three was purchased only and the past.
And that really took off and Q4 and that's why as I mentioned in my script the.
Unit sales for the three Acs was up 175% and Q4 and that's the product had been on the market for three years. So you know really.
And and that was driven by agile plans, where we're addressing a new market, which as you know smaller fishing boats.
Countries, like Indonesia, and Vietnam, and and parts of Africa, where there's a lot of fishing.
So it's a it's a really a new market for us so it's incremental.
And what does that lift in the three due to the overall ARPA.
Presumably it will mix it down.
Yeah.
What have you seen happened with the trends we're agile plans.
The ARPA as had been very very constant you know so it's surprisingly stable.
The years, you know agile plans very stable.
The three of at a lower price point, both for the hardware sale and for the airtime and and fragile so.
Going forward and we May report of who sort of you know by byproduct. If this becomes you know if it just continues to take off.
But I just Wanna pointed out of the Incrementals. So it's not.
Breaking down the <unk> in the traditional sense as adding a new category, which is at a lower price point.
Yeah.
Yeah.
Gotcha, and and I guess, the other question with agile plans, how has the churn and changed over the course of the year.
Turned out of it very low and agile yeah. There is all of our products like agile. So it's it's our lowest churn of any product we offer so and that's another thing is the you know I'm speaking about the old network and the legacy network has very high churn compared to the HTS NAV.
The work.
Vast majority of the churn is on the old network for these are old old products, you know old network.
A lot of these boats are getting sold relayed out. So you know we also expect good of.
As a result, starting next year, whereas the progress throughout the year, we should see of.
The significant reduction in churn simply because we're getting people off that all of that work.
Great and final question just on the the government defense markets, you've got a couple of big programs with the.
The better.
Our planned for roll out or are any of those schedules being impacted by the change of administration or does everything look generally on time with AT&T and.
And P D and others.
Yeah of the U S programs, you know or all of you know budget. It and you know moving forward. So we don't see any any impact in the U S programs, you know where our big one is with the A&P the program would be a E.
That program is on track.
At least as far as funding goes and and all of that.
So I think the risk would be more and you know some international you know whats going happen and the middle East.
Who knows.
And which I think you had a $10 million tack NAV that was supposed to ship and the fourth quarter, presumably only a portion of that shipped and we should see the barrels and Q1.
Some of it shipped in January.
So.
Some of the you know.
You're absolutely right yeah.
So, but it's the it's all it's all been shipped involved and and paid for cash has been received so.
The program is complete.
Right and I think you had talked previously about two to three potential orders going into 'twenty and 'twenty, one and we hope to win and water to and I see them all of that is still on track.
Yeah. We've got you know as Brent mentioned, we've got around $20 million and backlog you know $19 million of that is for inertial NAV. So you know, we expect strong growth and our fog business.
This year.
You know Jack NAV.
Try not to forecast that it aggressively so.
And in fact out of roles very conservative on our forecast you know until it's in backlog.
So that's not built into our guidance at this point.
And so.
That's a good thing alright, thank you everyone.
Alright, Thanks, Chris and thanks, Chris.
Oh, right and again Thats star one to ask the question of parts of another moment to allow anyone to ask the question.
And it would appear that there are no further questions on the phone lines at this time.
That's great. So this wraps it up and as always feel free to reach out to us directly for any follow ups.
Thank you. Thank you very much thank you very much.
And this concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
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