Good day everyone and welcome to the KVH Industries Q4 2015 Earnings Conference Call. Today's conference is being recorded. And at this time, it is my pleasure to turn the call over to Peter Rendall, Chief Financial Officer. Please go ahead, sir.

Thank you for joining us today to discuss KVH Industries fourth quarter results and 2016 guidance. With me on this call is, Martin Kits van Heyningen, the company's Chief Executive Officer. We issued our fourth quarter earnings and 2016 guidance press release this morning. It is available on our website 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 website. Or 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 in our previous 10-Q filed on November 9. The company's SEC filings are directly available from us, from the SEC or from the Investor Information section of our website. At this point, I would like to turn the call over to Martin. Martin?

Thank you, Peter. Good morning, everyone and thank you for joining us today. 2015 was another great year for KVH. We finished the year with a strong fourth quarter generating record revenues and profits and coming in at the high end of our guidance. Strategically, we reinforced KVH's position as a leader in each of our major markets by winning important new contracts, while also introducing new products and services that will help support continued growth in 2016 and beyond. From a financial perspective, we had a record setting revenues of $54.0 million in the fourth quarter, that's up 7% year-over-year. Non-GAAP earnings of $0.43 per share were up almost 60% from $0.29 per share from the same period of 2014, with quite finish [ph] contributed to our record setting year with revenues of $184.6 million, up 7% from $172 million in 2014. And non-GAAP earnings of $0.73 per share were up 18% from $0.62 per share in 2014. I'll let Peter cover the numbers in more details. But first, let's take a look at our key business areas, starting off with mobile broadband. In 2015, KVH increased our revenues and strengthened our competitive position in our mobile broadband markets. For the full year we recorded revenues of approximately $148 million, and that's up almost 14% from a $130 million in 2014. Our mobile broadband business growth came during a very challenging year at our key maritime markets. Our oil and gas customers face the lowest crude prices in over a decade, and commercial shipping customers are battling over capacity and the global economic slump which has reduced demand for their services. This has clearly impacted our growth rate, particularly in Airtime. Nevertheless, KVH's sales increased, we outsold our competitors, and we improved our market share. KVH has now fielded…

Thank you, Martin. Now I'd like to discuss in more detail the financial results of the company for the fourth quarter. As Martin mentioned earlier, our fourth quarter revenues of $54 million which was within the guidance range we previously gave and was 7% higher than the fourth quarter of 2014. The primary drivers for this growth were the expected higher TACNAV and VSAT airtime revenues. Our fourth quarter service revenues of $26.8 million increased by 6% year-over-year, mainly due to the growth in VSAT airtime and our e-learning revenues. Looking at our airtime subscription revenues more closely, in the fourth quarter airtime revenues were $15.7 million, up 4% from the prior year period. Our VSAT ARPUs during the quarter remained pretty constant with fixed rate plans recording between $1,800 and $1,900 per month while the metered plans continue to run slightly lower than what we've historically seen between $400 and $500 per month. Our content and services revenues in the quarter, which includes subscription revenues associated with the entertainment and e-Learning content, as well as any professional service fees was $11 million, which was 13% higher than a year ago. Almost all of this increase was attributed to record revenues from our Videotel e-Learning business as we continue to add new subscribers. We were also pleased with the level of subscription-based service revenues in the quarter, which amounted to 47% of total revenues, which were similar to the prior year fourth quarter. Moving on to our product revenues, our total product revenues increased by 8% to $27.2 million in the fourth quarter or $2 million from the prior year quarter mainly due to the expected increase in TACNAV revenues. While our VSAT hardware revenues were flat year-over-year, our total mobile broadband hardware revenues declined 6% to $10.1 million in…

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

Thank you. I just wanted to get a little more granularity on your service. Can you give us what the mini-VSAT airtime revenue growth was for both the fourth quarter and for the full year?

For the fourth quarter Rich it was 5% and for the year it was 8%.

Okay. So I guess just wanted to get a sense of how you see that business trending in 2016, sort of what's baked in to your 2016 guidance. Clearly, that business saw a decelerating growth I think throughout the year, lot of pressure from oil and gas I guess and maybe some from shipping. But how should we think about hat business as we look into 2016 and kind of what's baked into your guidance there?

Yes, I think - I'll let Peter answer that specifically but just a little background color, and so - we're being recently conservative and for the reasons that you just outlined, it's just the general market. I mean the Baltic dry exited [ph] new low here in February and around below 300 and down from 11,000 in 2008 so it’s still, they haven’t seen the increase in global trade which really drives that economic activity in the maritime bay so even though our unit sales are up this quarter and our market share is increasing, we are being conservative because until the market overall starts to recover a bit, we don’t see that return to really rapid growth. So that's where we are just in terms of the macro-economic environment but competitively we feel really good about where we are and we have new products and services in the pipeline that we think are going to make a big difference. But I will let Peter talk about the guidance.

So Rich, in terms of the VSAT Airtime guidance for 2016, so our mid-point assumes single digit but high single digit.

Okay. And what is that, it seems like in terms of the Delta from your original plan 2015, so there were two factors, one was being higher deactivations of insurance and the other was presumably lower ads as well, can you talk about how you think of those two factors as we head into 2016? Do you think you have reached - seen the worst of the churn, I mean obviously you've had I think quite a few of your oil and gas related, certainly on the exploration side already kind of churned off. And it sounds like you saw some rebound in the actual new ads in 4Q relative to 3Q but - if you could just talk about how you think about those two factors as we head into 2016? That would be helpful.

Right. So we call it churn sometimes but it's not technically churned in the way most people call it because these are, we're not losing these customers to competitors. So, for example if we have a fleet and they lay up half their vessels, they'll deactivate those vessels that are laid up but they're still our customers for the rest of their fleet. And as those vessels get put back in the service or if they get put back in the service they're still, they're technically we call that churn because they deactivated. But I just want to point out that we're not losing those in the traditional meaning of the word churn. So I think you're right, I think that we have seen the worst of it in terms of vessel layup. I think that happened pretty quickly throughout 2015 to the point where the vessels that are left are being used. We can tell that from the usage. So we don't see that being significant in 2016, so that's why we're forecasting higher growth year-over-year. But that's obviously still a concern, but that's what we're thinking right now.

Got it. And then with respect to the guidance stabilization now, last quarter you had talked about, I think it was a $5.8 million TACNAV order that you expected to see sort of deferred revenue recognition on that into the first quarter. And based on your first quarter guide, it doesn't really seem like you got $6 million of TACNAV in there. I mean I may be wrong on that. I just wanted to understand what's the disposition of that particular order?

No, you're absolutely right. That's not in the Q1 guidance but it is in the full year guidance. So I don't want to spend too much time talking about Q1 already because it's not over yet. But it is in our guidance for the year, and just to be clear that wasn't deferred revenue, that was an order that didn't materialize. So it wasn't like we have the order and couldn't ship it or something. So, but that is extremely high probability order that we have in our current guidance for the year, probably shipping in Q2 or Q3.

Okay. And if you can just give a sense of what you're expecting in that GNS business for the year versus '15, if you can give some sense for TACNAV and FOG, and I think total, I guess, revenue there was I think around $36.5 million in '15. Can you give a sense of where we expect that to be in '16?

So in terms of just our guidance, the low end of the guidance assumes a pretty flat year, maybe slightly below and then obviously the high end is assuming a higher TACNAV amount with FOG remaining flat.

So FOG flat kind of, in any case, TACNAV flattish at the low end of the revenue and then something higher than obviously the mid-point?

Yes.

Okay. Okay, I'll get back in the queue and let some other ask questions. Thanks guys.

Thanks, Rich.

Our next question comes from Jim with from Ardent Capital [ph].

Thanks, I think that's me. Can you talk about the dollar content per vehicle on the AMPV?

I don't want to talk specifically about that particular contract but in general, our TACNAV systems are in the $10,000 to $20,000 range. So it's a pretty significant - so if the whole program were to go forward as envisioned, it would be - our contract would be north of $30 million.

All right, great. And I just want to make sure I understand the high and low end of the guidance correctly, but potentially you're saying that the delta is going to be TACNAV, you have a good TACNAV year, you can hit the high end, you have an okay year, you'll hit the low end. Is that a fair way to summarize it?

No, it's a simplification but you're not far wrong. I mean that - there tends to be - that would be the biggest swing factor but obviously, we've got airtime, we've got content, we've got fiber optics gyros, we have TracVision, so there are a lot of parts to the business but the biggest delta in the guidance range is in fact the TACNAV, you're right.

Understand, okay. And as far as gross margin go, do you think you're going to have some gross margin pressure on the services side in order to make - in order to keep your airtime sales going?

I don’t think so. I think right now our margins are increasing so we had a nice increase in the gross margin in Q4. It was up three point's year-over-year to 36%. So we're seeing - I think with our new rate plans, I think we are managing the margin situation well. So we're not concerned about gross margin. I think the pressure might come more from usage, in other words, if somebody were trying to save money with the new plans they would use less. So the margins would be high but maybe the ARPU would come down. But so far, gross margins look - we're optimistic about that.

Great. And then lastly Peter, can you talk about operating expenses in 2016? How you think those would fall out either as a percentage of sales or as growth rate over 2015?

The total OpEx in 2015 was 43% of sales and in 2016 it became more like 44%.

And that increase is a function of what? Why is that going up?

Just inflationary increases, nothing specific. No big underlying changes to the cost infrastructure.

Okay, great. That will do for me, thanks.

Our next question comes from Chris Quilty from Raymond James.

Thanks, gentlemen. A question for you Martin, can you give us a sense of net ads that you are seeing them. And I think for the past couple of years, you've been hitting about a 1000 vessels a year and you're looking for an upturn. Are you seeing the headwinds starting to diminish at all that would allow you to see a little bit of an uptick or is it continuation of the same environment you've seen for the past year?

Well, our guidance assumes that nothing gets better. So that's the short answer. In terms of the global markets which obviously we don't control, I am an optimist, so I'm always expecting things to get better. It's just - I think that as an industry this has lasted longer than people would have thought. I mean it had to do things like, last year China brought - imported 30% less coal than they did in 2014. That has a big impact on global shipping obviously, so there is some other factors involved here. But for our current guidance we're assuming that status quo in the economy and we continue to grow our units incrementally year-over-year. We did have incremental unit growth in Q4 over Q3. So we still think that we're pretty much know that we're adding more than anybody else. So after the vessels being laid up, I think if it wasn't for that trade we would have a great shot but its tough environment but we are growing.

Got you. And how is that environment impacting the competitive dynamics? Do you have any competitors out there doing stupid things or struggling? Playing to your advantage or disadvantage?

I think there are a couple - some companies that were for sale and they look like they were trying to be aggressive at the ads and scribers right before that happened, post, but we don't see much of that anymore. So I think that the people that we're selling to now are really kind of value what it is that we have, and we're not, if not a price war. So and I said you can see that in the gross margins now. Our gross margins are increasing which is a good thing. Also looking forward, there is a lot more bandwidth coming in the market so we see some opportunities to reduce our cost over the course of the year. On the supply side we were able to buy capacity at better prices.

And is there anything that you need to do specifically to position yourself for bringing online some of this high-throughput satellite capacity?

Well, our systems have been architected in the Ku-band basically. So our antennas are already compatible with the high-throughput satellites that are Ku-band, so we've obviously know this is coming for a while. So that's one area where we have an opportunity to both increase speed and reduce cost and still be compatible with the above decks equipment that were already deployed. So I think there is a lot exciting new technology coming down the pike and we've got some interesting product launches coming up for this year.

That's right. And can you talk about how the industry has received the new pricing model because I can't think of anybody else in the industry that's pricing capacity in broadband and exactly the way you are?

Yes, it's definitely - we're alone here. But I think that it's a bit off a risk on our part but the good news is people seem to really like it. Initially people tell you they hate the idea, they'll never ever buy it and then you talk them through the benefits. And then once they've tried it, the experience is so much better. You're getting 10 times the speed and fixed cost, and you still know what your bill is going to be every month because of the way we set it up. So it's somewhat radical but on the other hand it's really the way the industry needs to go, and we like being first.

Got you. And one final question, I think you mentioned that you're actually producing or targeting to produce a lower cost FOG version for the automotive market?

Yes, we're working on, we think that this could be a big market someday and we just want to make sure that we've been in designed into many of the vehicles that are out there today. But obviously these are small quantities and prices isn't a big factor. They just want precision, they just want it perfect. So they've been buying our products for those applications now. We just want to make sure that we don't get left behind when this becomes a major market. We're really targeting to get something around a couple of hundred dollars through automotive quantities.

And is that something you're pending to develop or do you have customers willing to subsidize that?

We're paying for the development, because we don't want to be tied in to the single customer.

Great. Thank you very much.

All right, thanks Chris.

And there are no further questions. I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Okay. Thanks for listening and if anyone has any follow up questions, please feel free to call Peter or myself, or e-mail us. Thank you.