Q4 2023 KVH Industries Inc Earnings Call
Yeah.
Good day, and thank you for standing by.
Welcome to the KPH industries fourth quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone.
You will then hear an automated message advising your hand just raised.
To withdraw your question. Please press star one one again.
Please be advised to today's conference is being recorded.
I would now like to hand, the conference over to Roger Kepel Chief Financial Officer. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us today for <unk> industries fourth quarter results, which are included in the earnings release, we published earlier this morning.
Joining me on the call are the company's Chief Executive Officer, Brent Brewing and our corporate controller Anthony Pike as you probably saw in our press release, Anthony will be taking over as CFO as of April one.
Before we dive in the usual announcements first if you would like a copy of the earnings release or if you'd like to listen to a recording of today's call both will be available on our website.
If you are listening via the web feel free to submit questions to IR at <unk> Dot com.
Further this conference call will contain certain forward looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements.
We undertake no obligation to update or revise any of these statements.
We will also discuss adjusted EBITDA, which is a non-GAAP financial measure youll find the definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers.
We encourage you to review the cautionary statements made in our SEC filings specifically those under the heading risk factors in our third quarter Form 10-Q filed on November nine 2023, and our 2023 Form 10-K, which we plan to file later today.
The company's other SEC filings are available directly from the Investor information section of our website.
Now to walk you through the highlights I'll turn the call over to Brent.
You Roger and good morning, everyone.
In March 2022, we kicked off a transformative REIT in our company.
We did this because we recognized that we needed to change how we operated we focused on our core business mobile connectivity and we have made excellent progress in 2022 and throughout 2023.
Last year, we expanded our multi orbit multi channel portfolio with the addition of one with to our service offerings and look forward to launching this service in the second quarter of this year.
We entered into an exclusive maritime distribution agreement with cognitive networks, resulting in our new com box edge, which I will discuss shortly.
Thanks to our Sterling service provider agreement, we are delivering starlink hardware airtime and our wound care service to support end users and Oems.
And we successfully renegotiated our intelsat contract to sustain our global Geo network, a more favorable financial terms.
But we also experienced competitive headwinds in 2023 changes in the market impact here of VSAT and satellite TV terminal sales, which has been an essential element of our offerings, but are no longer contributing towards toward achievement of our profitability goals at the same time demand for Leo service.
And to accelerate putting pressure on Geo airtime services.
We did have a sequential subscriber contraction in the fourth quarter due to competitive factors with quarterly airtime revenue of $25 9 million down 4% from Q4 last year, we expect to offset that contraction and resumed subscriber growth and <unk> with <unk>.
Additional starlink activations and with the launch of our one web service.
Annual airtime overall was up 4% to $107 million, while airtime margins have softened it remains strong and our and our subscriber levels at the end of 2023 were even with year end 2022.
However, our annual airtime revenue growth was offset by declining hardware sales, which require a high fixed cost dedicated manufacturing facility.
Airtime revenue is core to our business.
And we are confident in its future as we increase our starlink airtime sales and add exciting new services, such as one way to our portfolio at the same time, we believe that demand for our hardware products no longer justifies a dedicated manufacturing facility in.
In February we began a reorganization that allows us to focus on our commitment to deliver world class integrated services using our multi orbit multi channel network. These changes also accelerated our transition from a capital intensive hardware focused business to a more nimble integrated services oriented organization.
Between now and the ended June we plan to build sufficient track net and track vision inventory to meet anticipated demand for this for the foreseeable future after which we'll wind down our manufacturing operations. In addition, we have ample inventory of agile plan VSAT terminals, which we will continue to.
<unk> and used to support new agile plan reset subscriptions for years to come.
We also own our satellite terminal intellectual property and would investigate outsourcing future imagined manufacturing should the demand warranted.
Because of the reduced need for manufacturing and support services. We are in the process of reducing our head count head count across several departments a process that began last month and will continue until the end of June I do not expect these reductions to impair our ability to deliver products worldwide.
Or to provide $24 seven 365 services and support to our customers and partners. Although we will have a smaller team. We will continue our innovative research and development approach for new products and third party solutions that we can add to our profit portfolio.
Separately, we are expanding our sales teams globally in particular in Japan, and South America.
I am excited about the prospects ahead of us and believe.
That our growing product and service portfolio, while strengthening our position as a world class integrated solutions provider. Our newest edition is the Com box edge, a result of our exclusive distribution agreement with cognitive networks.
<unk> edge offers intuitive network and bandwidth management tools and onboard edge computing simplifying the multi orbit multichannel kick negativity down on commercial vessels and yards Com box edge is an outstanding resource for maritime it professionals, who want to control the growing array of communication options.
Such as VSAT, Leo and <unk> cellular.
We are also working closely with one web to introduce their global Leo network with custom caveats airtime plans in the second quarter of this year. We are eager to offer this fast affordable enterprise grade solution as a new option for a manner Mariners considering Leo services for their vessels.
As part of this initiative, we expect to announce a new distribution agreement for commercial grade Maritime platform.
Donald terminals to support the one web service.
We also believe that the expanding coverage and capabilities delivered by <unk> cellular service will bring tremendous value to mariners in coastal waters.
G connections offer low per gigabyte costs and data speeds as fast or better than Leo services. Additionally, the compact affordable technology is well suited for smaller vessels and integration with VSAT Leo systems on ships of all sizes, we look forward to sharing more news about our developments later in the.
Quarter.
So to wrap things up we are firmly focused on the future. Following the recent changes in our organization, we are making excellent progress in our evolution as a world class integrated solutions provider, we are expanding our multi orbit multi channel capabilities with Leo cabin connectivity, and we'll be adding a new <unk> service.
Our goal is to continue to grow our service revenue and resume growth of our subscriber base. Following the launch of <unk>, we have a strong business built on global airtime and value added services, we have an outstanding team and I'm confident in our company's future growth and success.
Now with that I'll turn it over to Roger for additional insights into our results. Thanks, Brian.
A reminder, I would like to note that similar to our call for Q3, I will not restate data that is in the earnings release, our quarterly described in our 10-K I will focus my comments on information that either elaborate on or clarifies the published data.
First in the process of completing our audit we concluded that a correction was required in how we recognize revenue for certain product sales to our commercial customers.
Back in 2018, we adopted accounting standard ASC 606, and as a result for certain product sales, we deferred both revenue and costs over the expected life of the customer.
The product sale and the related airtime service as a single performance obligation.
And discussions with our auditors our 2023 audit we concluded that these product sales should not be deferred but rather taken as revenue at the time of the sale.
This has resulted in a non material correction to our financial statements for 2022, and the first nine months of 2023.
Exact impact of this can be seen by quarter in the footnote 16 of our 10-K, but at a high level. We are reporting total revenue for 2023 of $132 4 million and on the prior basis that would have been $103 4 million. So a reduction of $1 million for the.
This accounting change.
Gross profit would have been $130000 more under the prior method.
Related to our decision to wind down manufacturing, we took two charges related to raw materials.
We took a $5 $2 million write down to our inventory to account for inventory on hand that is in excess of what we anticipate our future need will be.
Second we took a reserve of $3 6 million to account for purchase order obligations for raw materials that are not on hand, but for which we have placed noncancelable orders that we do not anticipate needing.
This primarily relates to orders placed in the first half of 2023 for components with extremely long lead times due to supply chain shortages as demand softened. These delivery schedules were pushed out and it was ultimately concluded that a portion of these orders will not be needed.
The charges totaling $8 8 million are both included in cost of product sales and account for all but about $600000 of the $9 4 million dollar Q4 gross margin loss for products. However, we believe that we are now fully reserved for both of these issues and hopefully we will cover some.
Of that later this year.
Also related to our decision to wind down manufacturing was the reorganization, we announced and the elimination of 75 positions.
As noted in our press release and related 8-K filing we expect to incur approximately $3 3 million in severance charges and realized annualized cost savings of approximately $9 3 million from the head count reductions.
At $9 3 million approximately $3 7 million relates to cost of goods sold.
$5 6 million relates to Opex.
With respect to our fourth quarter financial results airtime gross margin, which is not reported in our earnings release was 34, 9% down from 43, 5% last year the decline being due to lower average revenue per subscriber and higher bandwidth commitments.
Total subscribers were roughly flat with Q4 of last year.
The Q4 operating expenses of 13.0 million include a $2 $1 million write off of a discontinued software project, but also benefited from an accrual reversal of approximately $1 million. So the run rate exiting the year on a normalized basis was around $12 million per quarter.
Our adjusted EBITDA for the quarter was a positive $2 3 million and our earnings release has the usual reconciliation of that capital.
Capital expenditures for the quarter were $3 5 million and so adjusted EBITDA less Capex was negative by about $1 2 million for Q4 for the full year. Adjusted EBITDA was $14 3 million and Capex was $10 6 million. So the net result was a positive $3 7 million.
Our ending cash balance of $70 million was up approximately half a million dollars from the beginning of the quarter.
Our earnings release provides our guidance for 2024, which is revenue of $125 million to $135 million and adjusted EBITDA of $11 million to $17 million.
This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call.
Operator.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Yeah.
Our first question will come from the line of Chris Quilty with Quilty space.
Okay.
Hello can you hear me guys.
Yes, Hi, Chris.
Great.
So first I just wanted to.
Follow up on the guidance and what should we assume or product sales is sort of the Q4 exit rate and obviously theres a lot of seasonality to product I'm, just trying to figure out.
How much we should expect that to wind down by the end of the year.
Yes, I can answer the specific question, we're not going to wind down product sales, we're winding down our build and we're going to have ample inventory.
For 2025 and going into 'twenty six no. It depends on how much the demand is but we won't have any changes as far as the wind down as far as the availability of hardware.
Yes.
Purple.
Is that for both the track vision and track net product lines or product vision.
<unk> tend to keep those refurbished and running as long as the demand for it.
Trac vision being shut altogether.
<unk> vision will happen there again, that's more what we're looking at it we will have ample inventory.
Okay in the business and demand through 'twenty five 'twenty six.
Great and.
Should we assume that most of or all of the charges related to the manufacturing wind down employee reductions or complete as of Q4 or might we expect additional charges.
Follow on purchases associated with those actions going into next year.
Yes, we think we're fully reserved as far as charges. I mean, we will continue to have sort of product related operations. They won't be manufacturing, but we will still have a warehouse, we're going to be having the Leo systems coming in and out of that we're also going to be continued during repair and referred refurbishment. So there will be active.
<unk> are on the operation and product operations side, but they won't be manufacturing, but all of the charges. We believe we believe we're fully reserved for everything that would be a charge from an inventory perspective, it's absolutely correct. Since we're going through a staged wind down will have additional severance charges.
In both the first and second quarters break because yes.
Severance charges I mentioned, the $3 3 million of severance charges thats going to occur over Q Qs, one and two with.
With the majority of that probably two thirds of that more than two thirds will be in Q2, but.
Okay. Good thanks for the clarification there.
A question on the gross margins I think you had said last quarter, we should expect about.
500 basis point drop.
Sort of mid thirties gross margin range is that still a good range to use and associated with that.
When we're looking at the Starlink services that all fall into the product sales category or are the associated services with that.
I think what we had said previously was we expected airtime margins in the high Thirty's I think there is.
Now we reported roughly 35% I think that's probably in that sort of mid sort of.
High end of the mid low end of the highs sort of range is probably about right with respect to star linked I mean, there are other services that we're going to be providing and associated with that and in fact.
As we go forward you can't really think about it. It's just it's not just one or the other it's going to be VSAT combined with Leos is what we really see the future being so.
It's going to be a combination that's what we're really focused on as well as the <unk> that Brian talked about we think particularly for everything close to Shar <unk> is going to become a big part of that.
Great.
They're competing products out there with <unk> that other retailers are offering.
They are.
<unk> services are just starting to take hold and it will be competitive services in.
There's a number of companies that are offering it now so one of the thing I think is key not to forget its not just a matter of having <unk>. It's a matter of how you integrate <unk> with everything else that you've got so if it's just the leisure customer and that's all they've got as five G. Thats, one thing, but for our commercial customers, it's going to be <unk> integrated with VSAT and also <unk>.
Weighted with Leo and Thats, how youre going to manage all of those together is going to be very critical for commercial customers and thats one of the things what we think the com box edge is going to do we think better than anything else.
Yeah, and I actually wanted to ask you is there a version of that Com box edge that would be appropriate for a leisure market or is that purely a commercial.
Alright.
It definitely leisure and it depends on how far down the chain you on you on leisure, but absolutely for both leisure and commercial.
For two different tiers of services.
Which all can be found on our website and happy to see some of those to you as well.
Okay and.
Comebacks edge is the.
Product co developed with cognitive.
Sure.
They are doing already.
Yes.
They developed it we have an exclusive maritime distribution agreement, they're going to be doing additional development.
With some of our suggestions and guidance if theyre doing the development.
Great and so when is that product commercially released now.
Yes.
And I haven't seen any marking materials on it and I know there are.
Similar products out in the market.
How do you position that relative to other integrated systems.
In terms of its performance or speed or cost or how does it.
We think its whats currently we think it's highly <unk>.
Sorry to interrupt here, we think is highly competitive.
Services and the elements that come along with it.
The offering are.
Highly competitive if not better than others that are introduced in the market. Additionally, the user interface is incredibly user friendly.
And Thats one of the things.
But we're very focused on.
I can set it up.
My own desk in our office and I am not overly technical so.
It's really about it's about.
The services that we're able to offer with that but also the ease of use and integration.
Gotcha.
You mentioned.
One web terminal distribution can.
Can you inform me who was.
Who has.
There are time, one web terminals available at this point.
Sides until then.
Yes.
Is being developed and released and in some.
Intel in as well as.
Sure.
Okay.
I was going to say cognitive <unk> other catering.
I didn't know they had a maritime products. So okay. That's good.
You had talked about sales and distribution you mentioned, Japan, we had a pretty long standing.
Market presence.
But why the emphasis on South America.
South America, there is a tremendous amount of business, we have a presence in Brazil.
Brazil is Portuguese speaking, we felt the need to have a local.
<unk> actually out of Colombia.
Speak Spanish and can really cater to the rest of the market and we've been we've been managing South America.
Inside of Brazil from Brazil, but also from the U S and we felt that we were.
We're best suited in we felt there was more opportunity if we actually added a dedicated resource and region.
Great.
I guess a final question you had mentioned.
We'll focus on R&D.
And developing more products and services or <unk>.
Delivering connectivity.
Should we expect a step up in R&D on a go forward basis, and if so how much.
No, it's a step down into scaled back team, but the appointed the comment was that we're still focused on it we're not ignoring it altogether.
Great Alright, thank you gentlemen.
Thanks, Chris.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day, and thank you for standing by.
Come to the <unk> industries fourth quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone.
If any or an automated message advising your hand is raised.
To withdraw your question. Please press star one one again.
Please be advised for today's conference is being recorded.
I would now like to hand, the conference over to Roger <unk> Chief Financial Officer. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us today for caveats industries fourth quarter results, which are included in the earnings release, we published earlier this morning.
Joining me on the call are the company's Chief Executive Officer, Brent Brewing, and our corporate controller Anthony Pike.
As you probably saw in our press release, Anthony will be taking over as CFO as of April one.
Sure.
Before we dive in the usual announcements first if you would like a copy of the earnings release or if you would like to listen to a recording of today's call both will be available on our website.
If you are listening via the web feel free to submit questions to IR at <unk> Dot com.
Further this conference call will contain certain forward looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements.
We undertake no obligation to update or revise any of these statements.
We will also discuss adjusted EBITDA, which is a non-GAAP financial measure youll find the definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers.
We encourage you to review the cautionary statements made in our SEC filings specifically those under the heading risk factors in our third quarter Form 10-Q filed on November nine 2023, and our 2023 Form 10-K, which we plan to file later today.
The company's other SEC filings are available directly from the Investor information section of our website.
Now to walk you through the highlights I'll turn the call over to Brent.
Thank you Roger and good morning, everyone.
In March 2022, we kicked off a transformative period in our company. We did this because we recognized that we needed to change how we operated we focus on our core business mobile connectivity and we have made excellent progress in 2022 and throughout 2023.
Last year, we expanded our multi orbit multi channel portfolio with the addition of one web to our service offerings and look forward to launching this service in the second quarter of this year.
We entered into an exclusive maritime distribution agreement with cognitive networks, resulting in our new com box edge, which I will discuss shortly.
Thanks to our Sterling service provider agreement, we are delivering historically hardware airtime and our one care service to support end users and Oems.
And we successfully renegotiated our intelsat contract to sustain our global Geo network, a more favorable financial terms.
But we also experienced competitive headwinds in 2023 changes in the market impact here of VSAT and satellite TV terminal sales, which have been an essential element of our offerings, but are no longer contributing towards toward achievement of our profitability goals at the same time demand for Leo service.
And to accelerate putting pressure on Geo airtime services.
We did have a cyst VC sequential subscriber contraction in the fourth quarter due to competitive factors.
Quarterly airtime revenue of $25 $9 million down 4% from Q4 last year, we expect to offset that contraction and resume subscriber growth in <unk> with additional starlink activations and with the launch of our one web service.
Annual airtime overall was up 4% to $107 million or airtime margins have softened it remains strong and our subsea and our subscriber levels at the end of 2023 were even with year end 2022.
However, our annual airtime revenue growth was offset by decline in hardware sales, which require a high fixed cost dedicated manufacturing facility.
Airtime revenue is core to our business and we are confident in its future as we increase our starlink airtime sales and add exciting new services, such as one web to our portfolio.
Same time, we believe the demand for our hardware product no longer justifies a dedicated manufacturing facility in.
In February we began a reorganization that allows us to focus on our commitment to deliver world class integrated services using our multi orbit multi channel network. These changes also accelerated our transition from a capital intensive hardware focused business to a more nimble integrated services oriented organization.
Between now and the end of June we plan to use to build sufficient track knit and track vision inventory to meet anticipated demand.
For the foreseeable future after which we'll wind down our manufacturing operations. In addition, we have ample inventory of agile plan VSAT terminals, which we will continue to refurbish and used to support new agile plan VSAT subscriptions for years to come.
We also own our satellite terminal intellectual property and would investigate outsourcing future imagined manufacturing should demand warrant it.
Because of the reduced need for manufacturing and support services. We are in the process of reducing our head count head count across several departments a process that began last month and will continue until the end of June I do not expect these reductions to impair our ability to deliver products worldwide.
To provide 24, seven 365 services and support to our customers and partners. Although we will have a smaller team. We will continue our innovative research and development approach for new products and third party solutions that we can add to our profit portfolio.
Separately, we've expanded our sales team globally in particular in Japan, and South America.
Okay.
I'm excited about the prospects ahead of us and believe.
That our growing product and service portfolio, while strengthening our position as a world class integrated solutions provider. Our newest edition is the com box as a result of our exclusive distribution agreement with cognitive networks.
Com box edge offers intuitive network and bandwidth management tools and onboard edge computing simplifying the multi orbit multichannel kicked activity down on commercial vessels and yards.
<unk> edge is an outstanding resource for maritime it professionals, who want to control the growing array of communication options, such as VSAT, Leo and <unk> cellular.
We are also working closely with one web to introduce their global Leo network with custom caveats airtime plans in the second quarter of this year. We are eager to offer this fast affordable enterprise grade solution as a new option for manner Mariners, considering Leo services for their vessels.
As part of this initiative, we expect to announce a new distribution agreement for commercial grade Maritime flat.
Donald terminals to support the one web service.
We also believe that the expanding coverage and capabilities delivered by <unk> cellular service will bring tremendous value to mariners in coastal waters.
G connections offer low per gigabyte costs and data speeds as fast or better than Leo services. Additionally, the compact affordable technology is well suited for smaller vessels and integration with VSAT Leo systems on ships of all sizes, we look forward to sharing more news about our developments later in the.
Quarter.
So to wrap things up we are firmly focused on the future. Following the recent changes in our organization, we are making excellent progress in our evolution as a world class integrated solutions provider, we are expanding our multi orbit multi channel capabilities with Leo cabin connectivity, and we'll be adding a new <unk> service.
Our goal is to continue to grow our service revenue and resume growth of our subscriber base. Following the launch of <unk>, we have a strong business built on global airtime and value added services, we have an outstanding team and I'm confident in our company's future growth and success.
Now with that I'll turn it over to Roger for additional insights into our results. Thanks, Brian.
A reminder, I would like to note that similar to our call for Q3, I will not restate data that is in the earnings release, our quarterly described in our 10-K I will focus my comments on information that either elaborate on or clarifies the published data.
First in the process of completing our audit we concluded that a correction was required in how we recognize revenue for certain product sales to our commercial customers.
In 2018, we adopted accounting standard ASC 606, and as a result for certain product sales, we deferred both revenue and cost over the expected life of the customer trading the product sale and the related airtime service as a single performance obligation.
And discussions with our auditors and our 2023 audit. We concluded that these product sales should not be deferred but rather taken as revenue at the time of the sale.
This has resulted in a non material correction to our financial statements for 2022, and the first nine months of 2023.
The impact of this can be seen by quarter in the footnote 16 of our 10-K, but at a high level. We are reporting total revenue for 2023 of $132 4 million and on the prior basis that would have been 103.4 million. So a reduction of $1 million for this.
This accounting change.
Gross profit would have been $130000 more under the prior method.
Related to our decision to wind down manufacturing, we took two charges related to raw materials first we took a $5 $2 million write down to our inventory to account for inventory on hand that is in excess of what we anticipate our future need will be <unk>.
We took a reserve of $3 $6 million to account for purchase order obligations for raw materials that are not on hand, but for which we have placed noncancelable orders that we do not anticipate needing.
This primarily relates to orders placed in the first half of 2023 for components with extremely long lead times due to supply chain shortages as demand softened. These delivery schedules were pushed out and it was ultimately concluded that a portion of these orders will not be needed the.
The charges totaling $8 8 million are both included in cost of product sales and account for all but about $600000 of the $9 4 million dollar Q4 gross margin loss for products. However, we believe that we are now fully reserved for both of these issues and hopefully will cover some.
Of that later this year.
Also related to our decision to wind down manufacturing was the reorganization, we announced and the elimination of 75 positions.
As noted in our press release and related 8-K filing we expect to incur approximately $2 3 million in severance charges and realized annualized cost savings of approximately $9 3 million from the head count reductions.
Of that $9 3 million approximately $3 7 million relates to cost of goods sold and $5 6 million relates to opex.
With respect to our fourth quarter financial results airtime gross margin, which is not reported in our earnings release was 34, 9% down from 43, 5% last year the decline being due to lower average revenue per subscriber and higher bandwidth commitments total subscribers were roughly flat.
<unk> with Q4 of last year.
The Q4 operating expenses of 13.0 million include a $2 $1 million write off of a discontinued software project, but also benefited from an accrual reversal of approximately $1 million. So the run rate exiting the year on a normalized basis was around $12 million per quarter.
Our adjusted EBITDA for the quarter was a positive $2 3 million and our earnings release has the usual reconciliation of that.
Capital expenditures for the quarter were $3 5 million and so adjusted EBITDA less Capex was negative by about $1 2 million for Q4 for the full year. Adjusted EBITDA was $14 3 million and Capex was $10 6 million. So the net result was a positive $3 7 million.
Our ending cash balance of $70 million was up approximately half a million dollars from the beginning of the quarter.
Our earnings release provides our guidance for 2024, which is revenue of $125 million to $135 million and adjusted EBITDA of $11 million to $17 million.
This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call.
Operator.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Yes.
Our first question will come from the line of Chris Quilty with Quilty space.
Okay.
Okay.
Hello can you hear me guys.
Yes, Hi, Chris.
Okay great.
So first I just wanted to follow up on the guidance and what should we assume or product sales is sort of the Q4 exit rate and obviously theres a lot of seasonality to product I'm just trying to figure out how much we should expect that to wind down by the end of the year.
Well.
Yes, I can answer the specific question, we're not going to wind down product sales, we're winding down our build and we're going to have ample inventory.
For 2025 and going into 'twenty six no. It depends on how much the demand is but we won't have any changes as far as the wind down as far as the availability of hardware.
Yes, okay.
Manageable.
Is that for both the track vision and track net product lines or track vision.
Intend to keep those refurbished and running as long as the demand for it.
To attract vision being shut altogether.
Our track track vision will happen there again, that's more what we're looking at we will have ample inventory.
Okay in the business and demand through 'twenty, five and into 'twenty six.
Great and.
Should we assume that most of or all of the charges related to the manufacturing wind down employee reductions or complete as of Q4 or might we expect additional charges.
Follow on hedges associated with those actions going into next year, yes.
Yes, we think we're fully reserved as far as charges. I mean, we will continue to have sort of product related operations, they won't be manufacturing, but they'll still have a warehouse, we're going to be having the <unk>.
<unk> systems coming in and out of that we're also going to be continued during repair and referred to refurbishment. So there will be activity around the operation and product operations side, but they won't be manufacturing, but all of the charges. We believe we believe we're fully reserved for everything that would be a charge from an inventory perspective, it's absolutely correct.
Since we're going through a staged wind down will have additional severance charges in.
Both the first and second quarters right, because yes, the severance charges I mentioned, the $3 3 million of severance charges thats going to occur over Q2's wanted too.
With the majority of that will probably two thirds of that more than two thirds will be in Q2, but.
Okay. Good thanks for the clarification there.
A question on the gross margins I think you had said last quarter, we should expect about.
500 basis point drop.
Or sort of mid thirties gross margin range is that still a good range to use.
And associated with that.
When we're looking at the Starlink services that all fall into the product sales category or are there associated services with that.
And what we had said previously was we expected airtime margins in the high Thirty's I think there's there is right now we reported roughly a 35% I think that's probably in that sort of mid sort of.
High end of the mid low end of the highs sort of range is probably about right with respect to star linked I mean, there are other services that we're going to be providing and associated with that and in fact.
As we go forward you can't really think about it. It's just it's not just one or the other it's gonna be VSAT combined with Leos is what we really see sort of the future being so.
It's going to be a combination that's what really focus on as well as the <unk> that Brian talked about we think particularly for everything close to <unk> is going to become a big part of that.
Great and are there competing products out there with five G that other retailers are offering.
Sir.
<unk> services are just starting to take hold and you wont be competitive services and.
There's a number of companies that are offering it now so one of the thing I think theres keyed it not to forget it it's not just a matter of having five G. It's a matter of how you integrate <unk> with everything else that you've got so if it's just the leisure customer and that's all they've got five G. Thats one thing, but for our commercial customers is going to be <unk> integrated with VSAT and also in a.
Greater with Leo and its how are you going to manage all of those together is going to be very critical for commercial customers and thats one of the things what we think the com box edge is going to do we think better than anything else.
Yeah, and I actually wanted to ask you is there a version of that Com box edge that would be appropriate for a leisure market or is that purely a commercial.
No no.
Is it definitely it's leisure and it depends on how far down the chimney money on leisure, but absolutely for both leisure and commercial.
For two different tiers of services.
Which all can be found on our website and I'm happy to send those to you as well.
Okay.
Comebacks edge is the.
Product co developed with cognitive.
I mean.
They are doing already.
Yes.
They developed it we have an exclusive maritime distribution agreement, they're going to be doing additional development.
With some of our suggestions and guidance that theyre doing the development.
Great and so when is that product is it commercially released now.
Yes.
And I haven't seen any marking materials on it and I know there are similar.
Similar products out in the market.
How do you position that relative to other integrated systems.
In terms of its performance or speed or cost or how does it.
We think its whats currently I think is highly Kim I'm, sorry to interrupt you I think we think it's highly competitive.
The services.
And the elements that come along with.
The offering are.
Highly competitive if not better than others that are introduced in the market. Additionally, the user interface is incredibly user friendly.
And that's one of the things that will that we're very focused on.
I can set it up.
My own desk in our office and I am not overly technical so it's.
It's really about the year is about.
The services that we're able to offer with that but also the ease of use and integration.
Got you and you had mentioned.
One web terminal distribution can.
Can you go in for me who was.
Who has a maritime one web terminals available at this point.
Besides Intel there.
Yes, they are being developed and released and it's.
Intel in as well as.
<unk>.
Okay.
I was going to say cognitive <unk> allocating.
I didn't know they had a maritime products. So okay. That's good.
You had talked about sales and distribution, you mentioned, Japan, where you've had a pretty long standing.
<unk> presence.
But why the emphasis on South America.
South America has driven tremendous amount of business, we have a presence in Brazil as.
As you know, Brazil is Portuguese speaking, we felt the need to have a local person who is actually out of Colombia.
We speak Spanish and can really cater to the rest of the market and we've been we've been managing South America outside of Brazil from Brazil, but also from the U S and we felt that.
We are best suited and we felt there was more opportunity if we actually had a dedicated resource and region.
Great and.
I guess a final question you had mentioned.
We'll focus on R&D.
And developing more products and services or <unk>.
No.
Delivering connectivity should.
Should we expect a step up in R&D on a go forward basis, and if so how much.
No. It's a step down to scale back team, but the comment was it was still focused on it we're not ignoring it altogether.
Great Alright, thank you gentlemen.
Thanks, Chris.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.