Good day and welcome to the KVH Quarter Four 2014 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Rendall, Chief Financial Officer. Please go ahead.

Good afternoon. Thank you for joining us today to discuss KVH Industries fourth quarter results and 2015 guidance. With me on this call is Martin Kits van Heyningen, the company's Chief Executive Officer. We should have fourth quarter earnings and 2015 guidance press release this afternoon which is available on our Web site and also from our Investor Relations department. If you would like to listen to a recording of today's call you can access a webcast replay on our Web site. If you are listening via the Web, feel free to submit questions to ir@kvh.com and we will answer them following this call. This conference call will contain certain forward-looking statements that are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. And we undertake no obligation to update or revise any forward-looking statements. We would also discuss certain non-GAAP financial measures and you will find definitions of these measures as well as reconciliations of these non-GAAP measures to comparable GAAP measures in our earnings press release. We encourage you to review the cautionary statements and other disclosures made in our SEC filings specifically those under the heading “Risk Factors.” The company's SEC filings are directly available from us, from the SEC or from our Investor Information section of our Web site. At this time, I'd like to turn the call over to Martin.

Thank you, Peter. Good afternoon and thank you all for joining us today. 2014 was an incredibly productive and successful year for KVH both in terms of our operating results and in our progress to position the company for future growth. We continue to grow our mobile broadband business and have added important new services that both contribute to revenue and help provide a solid differentiating advantage that we believe will contribute to our momentum in the market. Our guidance and stabilization business has a great portfolio of new products and a pipeline of significant sales opportunities as well as foothold to new markets that could contribute to significant future growth. From a financial perspective, the fourth quarter was another record-setting period with an all time record revenues of $50.4 million up 29% year-over-year and diluted earnings of $0.06 per share up from a loss of $0.02 per diluted share from the same period of 2013. Now, Peter will cover the numbers in more detail shortly. But first, let's take a look at our key business areas. We now fielded over 5,000 mini-VSAT broadband systems and have a market share which has nearly doubled the share of our closest competitor according to the latest numbers released last month from the market research firm Comsys. In 2014, our global network delivered over 500 terabytes of data and 25 million minutes of voice calls. Our network is fully deployed and provides the widest coverage of any maritime VSAT service. We have also invested in both terrestrial and satellite infrastructure upgrades this past year that have really enhanced our ability to officially manage our customers bandwidth use, which will in the long-term both improve the quality of the service we deliver and allow us to improve our airtime margins. From our customers' perspective,…

Thank you, Martin. Overall, we were very pleased with our fourth quarter financial results. Our fourth quarter revenues of $50.4 million were a record high and 29% higher than from a year ago and we are at the high-end of the range from our previous guidance. Looking at our service revenues more closely, our airtime revenues in the fourth quarter which includes both VSAT and Inmarsat subscription revenues were up 14% from the prior year at $15.2 million. The year-over-year growth in the VSAT airtime revenues was 16% and our VSAT ARPUs during the fourth quarter for fixed rate plans was solid with ARPUs of approximately $1900 to $2000 per month, while the ARPUs for our metered plans were between $500 and $600 per month. Our content and services revenue in the quarter which includes subscription revenues from the entertainment and e-Learning content as well as any professional service fees was almost $10 million, which was 44% higher than a year ago. Almost all of this increase was attributed to revenues from our Videotel e-Learning business, which was acquired in July last year offset by a reduction in the non-recurring engineering primarily related to the Saudi Arabia National Guard contract which was completed in the first half of 2014. Our subscription base service revenues for the quarter were 47% to total revenues compared to 43% in the prior fourth quarter. Our product revenues in the fourth quarter were $25.3 million, which was 34% higher than the same period last year and 50% higher sequentially both of these increases were primarily attributable to high TACNAV revenues which has been factored into our fourth quarter guidance. The impact of this was that guidance stabilization product revenues for the quarter of $14.6 million would double that from a year ago. As it relates…

Thank you. [Operator Instructions] We will take our first question from Rich Valera with Needham & Company.

Thank you. Question on IP-MobileCast, wondering if you could talk about how you expect to see that monetize where it should show up in your income statement, is that going to be in higher ARPU in your airtime revenue, higher sales of your content. Can you just talk about how you expect to see that monetize? And then if you can talk about what you have actually baked into your 2015 guidance in terms of MobileCast contribution? Thanks.

Right. So I think what we – the way we are going to be reporting the business is, we are going to have the value-added services where IP-MobileCast will be in that part along with the NEWSlink and the other entertainment products as well as Videotel. But also, we might talk about increased APRU's because it also be part of the VSAT airtime. But, just to be clear, so when we reported that revenue will show up in the value-added services, media services part of the numbers.

Great. That's helpful. And then just sort of – I want to know what the mini-VSAT hardware sales were you mentioned, I think you mentioned what's your actual unit sales, [I think it] [ph] was 250 to 275 range, could you give a number for mini-VSAT hardware sales for the quarter?

We haven't historically broken that out Rich.

Fair enough. Okay.

So breaking out the mobile broadband and hardware revenues separate from the guidance and stabilization revenues so that helps you.

Right, okay. And of your $25 million of G&S backlog, can you say how much of that you expect to be delivered within 2015 and would you further be willing to say what you have actually baked into your, call it $200 million of revenue from the entire G&S segment?

I think Peter is just looking up a number to help you with that. So generally – just – while he is doing that, let me just say directionally that the TACNAV business of the $19 million order probably the first half of the hardware is expected to ship in 2015. There is also some engineering component that we will show up in the value-added service line, so that's where we put the non-recurring engineering work. So roughly half of that $18 million in terms of the hardware will go this year and none of it has shipped yet. So of the $19 million contract there were some NRE that was recognized, but no hardware sales yet.

Got it.

And just a – I don't have the specific number in front of me Rich, but it will be in our 10-K filing that talks about what is going to be recorded in the current year.

So I'm just wondering for guidance and stabilization as a whole, I don't know if you can give a point number or just relative to 2014, do you expect that business to be kind of flat up or down in the guidance that you have given for 2015?

Approximately flat.

Okay.

So we do see some upside in the back half of the year, but we are guiding to flat.

And that's from the second half of the year it sounds like that you expect a pretty nice bump in TACNAV, how about FOG first half, second half or how would you think about FOG for the entire year?

I think FOG is less backend loaded than TACNAV is. It is – we do expect it to grow, but basically more through a normal progression of increasing sales recovering from a low base as you know on the FOG business. But the TACNAV, we expect some very strong just like we saw in 2014. So basically what we are guiding for 2015 is what – quarter we just delivered we ended up with $9 million in TACNAV in Q4, which we don't like it to be spread a little bit more uniformly, but that's just the way the vehicle deliveries are scheduled and the contracts are scheduled though.

Right. Just figuring –

Rich, if you want to do a follow-up, I don't know if anyone is holding, Rich we may just – let them jump in here.

Sure. Fair enough, I will see in the floor and get back. Thanks.

Operator, please see if some one is hanging?

We go to our next question with Chris Quilty with Raymond James.

Thanks, Martin. I just wanted to follow-up on the mini-VSAT business, you have been running call it 250 to 300 new vessels every quarter for – almost a couple of years running now. But, you seem to have some language in your introduction I talked about some sizeable new orders, do you think 2015 could be a year where you can see a breakout from that kind of 1000 net adds a year or is that still further out?

I think 2015 will be that year. I think we have got some new services that are coming out and we talked a little bit about the CREWlink which is another way to get units on vessels. We are also seeing an increase in V11 sales, so some of that fleet deals that we have just closed are V11s. And the only cautionary comment is that there is still a disconnect between what we sell and book and what we record as revenue and unit shipped. So if we say, we sold 250 or 300 in the quarter those are physically left the building revenue recognized units and that's not the same thing as, hey, we signed a fleet deal for 100 units, which might take two years to get those completely installed as recognized. So I just want to clarify that point.

I understand. And are you still seeing the same paradigm with the shipping companies where they might order some number 50, but the rollout happens over a period of a year or 18 months or are you seeing any deployments where they are going quicker?

Some people do it quicker and generally the pacing item is the – what else they are doing at the same time. If the company is rolling it into an IT renovation program or they are putting in servers and computers and new software and a billing platform and I saw an ERP type platform then it takes longer, if they are just putting in our product that can go very quickly. So like the NYK rollout was – they did over 100 vessels, 130 vessels in 6 months. So it really depends on the customer.

And speaking of billing platforms, I mean right now you are selling into the HR ops budget, are you developing anything that will allow more crew level access where sailor, if he wants to watch particular movie could swipe his credit card, is that something that you could deploy in 2015 or is that longer term development?

Yes. That's part of what we are working on with this CREWlink platform where we see this as another opportunity to get the equipment onboard more like the Coke machine model, the equipment is provided in [crew phase] [ph] for the drink. So we will be launching that in the coming months.

Okay. And I will pass the floor and circle back in and give Rich his chance.

Great.

And we will take our next question from Jim McIlree with Chardan Capital.

Thanks and good afternoon.

Hi, Jim.

Peter, what tax rate are you assuming in your 2015?

It's around about 27% to 33%.

Okay. And is the exclusion could be – reconciliation from GAAP to non-GAAP for 2015, are the major items stock comp and the amortization, is there anything else that we should be aware of?

In 2015, is your question or for the quarter just ended?

For the year coming up – for 2015?

Okay.

Its amortization and cost based comp.

Okay, great. Yes.

And I know that –

Just one clarification on that. The discrete tax item was a reduction of tax assets based on tax law changes in Rhode Island. So we will actually have a lower tax rate going forward which is the probably because you may recall we were paying a higher tax rate in previous years.

Okay, great. And I think Rich was asking about guidance and stabilization for this year and I believe you said that it's about flat versus 2014. Is that flat for FOG and flat TACNAV, or is one up and the other is down to get to the flat total?

Yes. FOG is projected to be up and TACNAV is projected to be down. But I will say that TACNAV has some opportunity for upside in 2015. So we tend to – but those orders tend to be so specific that we generally don't like to forecast them outside of window visibility just because they are binary.

Okay. And is there – are there any special margin issues with TACNAV that we should be aware of – or is this mostly a – that you are looking mostly a product sales for TACNAV and just a high margin is the only issue we need to be aware of?

Okay. That's correct. There are large entry non-standard margin programs in 2015. So it's just a normal product margins which are solid.

Okay, great. And my last one, on operating expenses for this year, are they – can you characterize operating expenses this year versus 2014?

Sure. I think – I will let Peter answer that. But, I think it's best to look at the run rate starting in Q4 because of the acquisition.

Right. So we will have obviously a full year of Videotel in 2015. And the Q4 run rates as we projected in the first quarter, we are expecting operating expenses to be modestly down because of TACNAV commissions. But, then just to stabilize, so there is no expected significant increase year-over-year.

But in the second half of the year, is TACNAV sales increase, shouldn't you have that increase in OpEx as well to reflect the commissions for the TACNAV?

In the second half, yes.

Yes, yes.

Year-over-year excluding the impact for full year of Videotel, you won't see significant increases in operating expenses.

Okay. Fantastic. Thank you so much.

Thanks.

And we will take our next question from Rich Valera with Needham & Company.

Thanks. Peter, it looked like the airtime revenue is actually down a bit quarter-over-quarter, was that seasonal effects, like seasonal deactivation sort of or was that something else going on under the covers there?

You are absolutely, right. It's seasonal – historically the third quarter is our strongest quarter and then we have seasonal tensions in the fourth quarter then starts to pick up in the first quarter.

Got it. And can you give us a sense, I mean it sounds like you have got some optimism about maybe seeing an improvement relative to that historical 250 to 300 new ships per quarter on broadband, have you kind of assumed an acceleration in your guidance, or are you still kind of assuming that the same baseline level with maybe some upside if you get above that level in terms of your overall year?

There is some baked in because if you look at the growth we are projecting solid growth. And it's also some of these new business models where we will be putting units into the field, which might be different revenue recognition model than the current model. So that's all baked into the current guidance. So there might be a little bit of change between the number of units and the product revenue. But, I don't think it will be significant.

Can you just elaborate on the new business model for deploying units in the field, is this more of a sort of leased model?

Well, it's getting back to I think it was Chris' question about is there an opportunity to sell some of these services directly to the crew and we have been experimenting over the last six months with some methods, but we put the equipment on board, free of charge and then we charged the crew on a pay per used basis a bit of no obligation model. And that's been working out pretty well and we probably will expand that program somewhat in 2015.

So would that be effectively a capitalized expense for you and then you kind of amortize that over the life of the contract or…?

Yes, right. That show up a service revenue then.

Sure. That makes sense.

But just to be clear that we don't see that being a significant portion of units in 2015, I don't want to give the wrong impression. But that is part of what we are seeing as the opportunity to increase units deployed in 2015.

Great. And then just from a competitive differentiation standpoint, so you obviously got your MobileCast network with a lot of proprietary content, Inmarsat has kind of their own broadcast network if you will with some content that got sort of some movie content and some other stuff. How differentiated are you seeing this offering, are you seeing, it sounds like you have actually seeing some deals where it was the sort of deal closer if you will, but how differentiated do you see your content and the combination of the content in MobileCast?

It's pretty dramatic. So first of all, there approaches a broadcast service, it's primarily stored on the box. So then the titles get unlocked over time, so the old titles they get released. And they do have some unicast news service like 20 minutes per week of news where we have 24 hours of live news per day. It's really a dramatic difference in terms of the amount of content that's being delivered. So in some ways we think it's actually good that they are following our lead and recognizing the importance of entertainment because when you compare the two, it's really a dramatic difference.

And am I correct in understanding that you are not letting them sort of have access to your proprietary content for their service, you kind of keeping that as a proprietary to your customers and network?

Yes. They have access of a lot of content through some deals that they have done. So they have the access to movies and things like that. Where we have proprietary content like our training linked service or like our news linked service, those might be opportunities to sell content to their customers in the future. But, I think the IP-MobileCast service itself is just too rich in terms of the amount of bandwidth that it would take for them and to sell through their network. But, our NEWSlink product today we are on about 8000 ships, almost a 100% of those are being delivered over Inmarsat. So we sell content today over Inmarsat --

Got it. Thank you. That's all for me.

With low bandwidth.

Okay. Got it. Thanks very much.

At this time, there are no further questions over the phone lines.

Okay. That's great. And we will be available to answer any questions over the phone or via email. Thanks for your time.