Good day, and welcome to the KVH Industries second quarter 2012 earnings conference call. Today’s call is being recorded. At this time I would like to turn the conference over to Mr. Patrick Spratt, Chief Financial Officer. Please go ahead.

Hello and good morning, everyone. I am Pat Spratt, Chief Financial Officer of KVH Industries and with me is Martin Kits Van Heyningen, Chief Executive Officer. This call will address the second quarter earnings release that we issued earlier today. Copies of the release are available on our website and also from our Investor Relations department. This call is being simulcast on the Internet, and will be archived on our website for future reference. If you are listening via the web, feel free to submit questions to IR@KVH.com and we will answer them following the call. This conference call will contain certain forward-looking statements that involve risk and uncertainty. For example, statements regarding financial and product development goals are forward-looking. The company’s future results may differ materially from the projections described in today’s discussion. Factors that might cause these differences include, but are not limited to, those mentioned in today’s call and risk factors described in our annual report on Form 10-K filed with the SEC on March 8, 2012. The company’s SEC filings are directly available from us, from the SEC, or from the investor information section of our website. Now, I will turn the call over to Martin for today’s discussion of results. Martin?

Thanks, Pat, and thank you all for joining us today. I'm too happy to report record quarterly revenues of $32 million, that's up 5% from the same period in 2011. That's up 20% sequentially from the first quarter of this year. Quarterly earnings of $0.03 per share were in line with our guidance. We received several large orders during the quarter from both customers of both our mini-VSAT systems and our TACNAV products. In fact, we now have our largest backlog ever for guidance and stabilization product and services of approximately $57 million. Revenue growth was driven by continued success in the mobile VSAT market for our many VSAT broadband airtime revenues were up 68% year-over-year and we shipped approximately 300 new terminals during the quarter. In addition to these strong results, the rest of our maritime satellite business, other than mini-VSAT also showed signs of recovery, growing 21% year-over-year. Growth in the satellite business was offset by a 31% year-over-year decline in our guidance and stabilization business. This drop is a bit deceptive however and last year we had a very large TACNAV shipment in the second quarter. Sequentially, our second quarter guidance and revenues were up 35% from the first quarter and with a large backlog that we now have for TACNAV products and services, we have a solid base of business for the next several quarters. FOG sales or fiber optic gyro sales were down 8% year-over-year but they were up 84% sequentially from the first quarter and we're beginning to see some encouraging signs that our new small gyro designs are gaining traction in the market. Reaction of the launch of our new inertia measurement unit, the Series 1750 IMU has been very encouraging and OEM customers are beginning to adopt the standalone DSP 1750 gyro…

Thank you, Martin. The following summarizes our Q2 revenue by business. The total VSAT business was approximately $14.8 million of which airtime services was about $8.4 million and increased 68% for the airtime. Total VSAT revenue increased 35% year-over-year. ARPU. or by-the-megabyte plans, was again in the $600 to $700 per month range. And fixed rate plan ARPU was in the $1,800 to $1,900 per month range. The mix of unit sales for the quarter was consistent with prior periods. About 40% TracPhone V3s and 60% V7s. All other marines SATCOM revenue including satellite TV systems and Inmarsat systems and airtime was about $7.3 million. Within that amount, marine satellite TV sales increased 13% while sales of Inmarsat L-band satellite systems declined close to 24% on a shrinking base. Band, SATCOM and aviation system maintenance services combined was $1.9 million down 3% year-over-year. TACNAV revenue was $1.5 million down 69% year-over-year. FOG was $5.6 million down 8% year-over-year. Other guidances stabilization products and services was $0.8 million up 91%. Gross margin was 38.9%. This was below our expectation, especially in light of the strong revenue level. This was due to the fact that the mix of FOG sales was weighted towards relatively lower gross margin products. Because the variable margin impact for FOG production is relatively greater than what we experienced with other products, increasing levels of production should support improving FOG margins over the coming quarters. Gross margin for VSAT airtime increased to approximately 32% for the quarter, up from 11% one year ago. The marginal gross profit that was earned on the incremental year-over-year quarterly revenue was approximately 63%. And that includes the impact of the initial cost for the new C-band network. Sequentially, VSAT airtime gross margin improved about 400 basis points. For the next few quarters,…

[Operator Instructions]. And we'll hear from Chris Quilty of Raymond James.

Just wanted to confirm 300 unit shipped in the second quarter would represent a record for the company?

Yes, that is definitely a record.

Okay and this is also traditionally your seasonally strongest quarter. Would it be fair to assume unit shipments decline on average over the next two quarters?

Yes, in general we still have a seasonality pattern. So what we would expect to see is strong year-over-year growth but still seasonal decline from Q2.

Okay and can you characterize whether the nature of your new customers has changed in any way or does it still reflect the same type of leisure commercial mix?

Well I think the mix has continued to evolve more towards commercial. So on one hand you would think that commercial would be less seasonal, on the other hand there are seasonal factors within fishing fleet and there's also we do a lot of business in Europe in the commercial shipping market in July and August in Europe are traditionally heavy vacation periods. So, that also impacts bookings. So over the last couple of years, we've seen that the seasonal pattern still exists even though we're moving commercial markets more and more.

And have you seen any distinct weakness coming out of Europe in any of your product lines?

No, we haven't. We've been concerned about it. We've also been concerned about the exchange rate fluctuation which has gone against US exporters over the last couple of months. So we're watching that as well. But so far sales in Europe have been on or above target.

And can you discuss with regard to the new V11 antenna and the service, has the product been certified and fully tested or are there other legal regulatory issues you need to hop through before the product can actually ship?

Yes, one of the biggest things that has to happen is we need the FCC license. We have been told that that’s coming very shortly possible soon as next week, so, we were very happy about that but that’s the major sort of licensing hurdle. Mean time the product is continuing to undergo testing and it is entering what we call pre-production right now which is units being built by manufacturing that are built to prints and there is additional testing and certification that has to happen but we expect all of that to be done in the next month and start production in September.

And in terms of the ground infrastructure, hubs, leases, capacity?

All that is in place and we're live. So the entire all three global transponders are up and running and the teleports are in place, the hubs are installed so that’s all finished.

Okay. And for Pat I think this was probably the largest sequential increase in cost of service about a $1 million that we have seen, is it fair to assume that the bulk of the step up associated with the C-band service was reflected there and we should probably see a flatter cost of service increase on a go forward basis?

Well we didn’t have a -- we never had a full quarter of C-band coverage that we had to pay for in the second quarter. So we are just in the third quarter you will see the full impact of that but the sequential step up we had a sequential increase of about $1.5 million close to $1.6 million and $1.5 million in VSAT airtime but that increase in cost, Chris, isn’t necessarily related to the VSAT airtime in terms of other services. We also had an increase in cost of goods there even though the revenue for those other services. When I talk about other services I am talking about repair services, non-recurring engineering, things of that nature. The revenue sequentially actually decline however the cost of the services increased which was…

That’s price increase.

Well that’s not even including Inmarsat, Inmarsat margins declined as well sequentially but the VSAT, in terms of VSAT, you know we actually saw an improvement sequentially in gross margin. So the increase in the cost of service that as you pointed out was pretty large sequentially really was primarily related to non-recurring engineering repair services and things of that nature, where if you recall back in the first quarter we did say that we had an unusually strong gross margin for those types of services and didn’t expect that to continue going forward.

Got you. Another question. In the past four or five months here, you have signed up a half dozen new distributors. Two questions: number one, how does that impact your service margins with any kind of revenue sharing agreement and number two, what kind of a material impact should they or could they have relative to what your historic growth rate has been?

Well most of the distribution arrangements that we are putting in place are for our metered service, so as a percentage the gross margin should be very good. We are selling by the megabyte because it's a fixed -- metered service. As far as the impact goes, we are not really sure how effective these customers are going to be and that really comes down to their ability to churn their own customers off of competitive services and on to ours and the economics of that are in their favor, meaning that they can improve their gross margin significantly by doing that. But it is of course an effort to take an existing customer and get them to switch antennas and switch services. So the jury is still out as to how effective these distribution partners will be in churning their own customer base.

Have you seen some impacts of it today, from any event?

Yes, we are definitely seeing some progress.

Okay and one final generic question, you talk about some new products coming in the fall. Was that speaking to the mini-VSAT service or guidance and stabilization and FOG products.

Well we are specifically talking about mini-VSAT products.

And any hints?

Well then we wouldn’t be announcing it, we will preannouncing it.

[Operator Instructions]. And it appears there are no further questions at this time.

Okay well with that then, unless anybody wants to jump in right now, we will call that the end of the conference call.

We do have two more questions that just queued up.

Okay. Thank you.

Rich Valera, Needham & Company.

With respect to the mini-VSAT products Martin that you have coming out, can you say if there are. We should expect any significant incremental costs associated with them i.e. with the V11 obviously, we had significant incremental transponder gateway cost et cetera. I mean, is this a type of thing where they are going to be running on your existing network? We shouldn’t expect any significant step up in fixed cost?

No that’s correct, these are products we use in the existing infrastructure, so we don’t envision anything impacting our fixed cost infrastructure going forward.

Great. I was hoping could you give us a little color on the NYK deal. I am not sure how representative that is of your typical deal from a competitive standpoint but you did point out that it was you know quite competitive and would love any color you can give us on what was the differentiator for you there with respect to competition?

Well I don’t want to talk too much specifically about that deal, but in general, I think the key differentiators are the fact that we have got very high speed service so competitive solutions typically don’t offer upper end of the bandwidth that we do for the VSAT market whether it's Ku-Band only or obviously the new CKU, we have the best coverage for whichever service we want. Also the products are easy to install, so they don’t require a dry docking the way competitive products do. So that’s if you want to deploy a system quickly and I think that also we have good partners. So whether it's this particular case, in Japan we have got local Japanese companies that are very well respected that have licenses in Japan and things like that, so it's really kind of the whole package and typically for these big projects you have a very complex evaluation criteria where they ask 50 or 100 questions that you have to answer based on different features that you are looking for. So it's really a combination, it's not one thing that I can say this is why we win every time.

Great. And I don’t know if you are willing to give this level of granularity, but relative to Ship Equip, which obviously is owned by your much larger competitor now, any differentiation you can give there you know how you guys sort of stack up against what I presume they are trying to sort of compete against your product with right now.

What they have migrated towards is a product that called express link (ph) which is a Ku-Band product that is touted to be upgradeable to Ka-band but it's sold with a companion FleetBroadband 500 so it's a two antenna solution. The small antenna is the 60 centimeter product which is for the FleetBroadband, but then the global express link antenna is actually in a 1.7 meter dome. So, it's a very large 400 pound antenna so the whole combination then -- then below the x-equipment is also very large and complex, size of a small refrigerator. So it's not an elegant solution and it's expensive but it's being positioned as all inclusive so they are bundling in the monthly cost with the hardware but there is significant upfront cost like an $18,000 deposit, high monthly fee and long term, five years or more. So it's -- they are trying to bridge their way to their new satellite launch but they -- that particular product doesn’t seem to be getting a lot of traction in the market right now.

Now that’s great color. I appreciate that. With respect to V11, I think when you first talked about that you said you had a chunk of units sort of spoken for from one of your existing customers, can you talk about any other developments you have had in the V11 sales funnel at this point?

It's a little bit difficult to tell where we are in the process, we seem to have a lot of excitement about the product and I think there are going to be production constraints early on rather than sales constraint and by that I mean we will be building the product but also placing the products as Pat mentioned because this product will require a crane to install. It's lighter than an Inmarsat solution, it's a 200 pound antenna but it's not the same thing as a V3 or V7 where you can just hand carry it on-board and place it so. That’s going to pace the installations I think for the very near term. So but overall the reaction has been very positive, there is nothing like it on the market, it's the only product that is dual mode, it's the only one that has complete global coverage and we are excited about it.

Any other color you can give them, it's obviously a significantly higher upfront ASP than your V7 product but obviously a lot more functionality. Just trying to get an sense of how you view the relative size of that market versus the V7, V3 market. I mean I think it originally maybe talked about it perhaps been you know 10% of your total sales at some point. Any updated thoughts there?

Yes I think that, as Pat mentioned, we have sort of a 60-40 split, and somewhat surprising to something to many people is 60% is actually the V7 which is twice the ASP of the V3. So, and I think that with this product the V7 will still be our main product but this could be in the maybe 10% to 20% maybe as much as 25% of the total share if it goes well. But at this point we have got a great product line and it's almost, we almost don’t care which product they buy, I mean it's we really have something for every type of vessel now and most importantly, it gets us in the conversation whereas before, some of these large L&G tankers where just adamant that they did not want ever to be out of coverage and they weren’t really a target for us. Now we can sell to these customers, and sometimes they look at the V11 and decide that’s what they want, other times they look at that and say you know what your V7 actually should be fine for most of my vessels which is great too.

Great. And one final one if I could, you mentioned you have some TACNAV opportunities out there, any color you can give on them in terms of and don’t want to get too ahead of ourselves but in terms of potential size and/or timing.

Yes, really, obviously this was the largest one and we don’t have anything that’s in the $35 million to $40 million range in our pipeline but we do have lot of other programs that are in the $5 million to $10 million range or even maybe a little bit more than that. So I just mentioned that they didn’t want people to think that this was a one shot deal, we actually are seeing a number of other programs out there so we should expect to see continued solid TACNAV bookings going forward.

Next we will hear from Jim McIlree of Dominick & Dominick.

Pat and Martin, you have talked in the past about incremental margins on the VSAT service in the 65-ish percent areas, is there any reason to believe that’s changed?

It didn’t change in the second quarter, Jim, it was 63% but the reason for the even modest decline was because we started to flow in cost for the C-band network, so I expected it will change a bit during the third and fourth quarter because of the C-band coverage that will be at full run-rate but then I would expect will return shortly after that, we will probably return incremental margins that are back in that -- at that level.

Okay and it seems like the 300 unit shipments during the quarter is a slight I shouldn’t say slight, is an uptick from prior quarters, is that correct? Are you seeing an increase in the number of unit sales per quarter?

Yes, we see both a sequential and year-over-year increase and you mentioned earlier this particular quarter was a record but I think the way you should think about it is that we are as before we are maybe hovering around the 200 or 250 a quarter now we probably are in the 250 to 300 per quarter range and you know so we are the growth is steady not explosive but the compounding effect of the airtime and everything is -- should continue. So we are not expecting every quarter to be over 300 but we are expecting solid year-over-year growth every quarter.

Does the introduction of the V11 boost that to 300 - 350 a quarter?

Yes but don’t forget it will be based on shipments as opposed to when we talk about shipping 300 or when I talk about booking, so bookings will be larger and initially we will have more bookings for V11 than we will have shipments.

Right I understand, okay. Just a couple of others if you don’t mind, Pat can you gives us the depreciation and amortization and stock comp for the quarter?

Yes depreciation for the second quarter was 1.91 million -- depreciation and amortization was $1.91 million for the quarter and equity expense was $851,000.

And Martin you mentioned the CROWS procurement in your script, is there a realistic chance that that gets pushed again to the right or the numbers get brought down. Has there been any chatter about the commitment to CROWS.

No, I haven’t heard anything that would indicate it would be delayed further I have heard some speculation that it might actually pulled to the left a little bit because there may have been fewer bidders prime contractor bidders than originally anticipated which would potentially shorten the evaluation period that they had originally forecast but we will see.

And is it your belief that these units require new trucks being built or this would be a retrofit for the existing install of CROWS.

It's both, and so there are new vehicles and there's a lot of retrofit, so the whole idea behind CROWS. The C stands for common, so that they are trying to use this cross platform for everything, the M1's the Humvees. So, that’s the plan.

Chris Quilty, Raymond James.

Just as a follow-up on that, do you know how much head room Kongsberg still has for orders through the period where CROWS 3 would actually go into production, I mean basically does it meet your expectations or needs for maintaining a steady run rate for that business.

Well right as far as our own internal visibility goes we have basically have in backlog already what we have in our guidance for the rest of the year for CROWS type production. So we are covered for now.

Also the NYK announcement pretty significant, have you seen any uptick in interest from other shipping companies as a result of that that you could specifically tie back to that specific announcement?

Yes, there is another large one in Japan that we are currently working on which is a similar size type of program but in general I think what we are finding is these things tend to build on each other. So as these press releases come out from these consulting groups say we are now the largest VSAT maritime VSAT provider that helps us get credibility when we get big orders like V.Ships or (inaudible) or NYK that further helps credibility and helps us get other business, because people want to know they are working with a company that’s reputable, it's going to be around for a while and that they are making a smart decision. It's a very conservative industry and all of these things are critical and they are going in our favor and it's helping and it's compounding I think our credibility.

The other -- also regarding credibility of Ku-band versus either L-band or Ka-band, can you comment on the announcement by Intelsat with their new epic satellite program and how that impacts you?

Well, Intelsat’s a supplier of ours, so we have received a presentation on the Epic, and how we might be able to take advantage of that and some of our bandwidth requirements so looks like it's going to be a nice option for us. So I mean part of the key benefit of our approach is that we are not building and launching satellites and we had a flexibility to use whatever the best and the most economical and highest bandwidth solution is for whatever region we are trying to gain coverage. What we also like, is that we can buy more bandwidth where we need capacity as opposed to buying global bandwidth where you have to buy bandwidth in areas where you don’t have any customer. So I think the Epic is a nice solution, it's a high throughput satellite, it's Ku-band, Intelsat is our supplier for the C-band coverage and some other satellites as well. So I think it's going to be a great option for us.

Great. And then finally, Pat, can you run through the revenue breakdown for land, FOG and TACNAV you may have given pieces that but I may have missed.

Sure LAND (ph) was $1.7 million, FOG was 5.6 million just over 5.6 million, are there any other pieces that you?

And the TACNAV breakdown?

TACNAV was 1.5 million for product and then in the guidance stabilization area collectively we have got other stuff like non-recurring engineering repairs and so forth that was about another $800,000 combined but that should add to about $8 million which was the guidance stabilization revenue.

Okay operator I think we are done, unless there are any other questions in the queue.

Rich Valera, has a follow up.

But question on the LAND (ph) business. From the number you just gave, because I actually punched in before the you gave that answer it sounds like you haven’t really seen any commensurate rebound in LAND (ph) has you have in the marine TV so just wondering what is your thoughts are on that, do we think it sort of stays down here in this sort of sub-2 million range and just kind of bounce along here.

Yes, we are seeing continued declines in that business and as we said probably two or three years ago, that business was no longer strategic for us. So we are not investing in new products or services, so we expect that will continue to decline and we are not spending a lot of management time on it.

And there no further questions at this time.

Great. All right thanks, everyone.

Thank you very much.

That does conclude today’s conference. Thank you all for your participation.