Good day everyone and welcome to the KVH Industries First Quarter 2013 Earnings Announcement Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Peter Rendall, Chief Financial Officer. Please go ahead, sir.

Good morning everyone. I am Peter Rendall and with me is Martin Kits Van Heyningen, Chief Executive Officer of KVH Industries. This call will address the first 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 this 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 April 2, 2013. The company’s SEC filings are directly available from us, from the SEC, or from the Investor Information section of our website. Now, I like to turn it over to Martin for today’s discussion of results. Martin?

Thank you, Peter, and thank you all for joining us today. I’m pleased to report that KVH achieved record results during the first quarter, our third record quarter in a row. Revenues of $39.9 million were up 49% from the same period last year. EPS for the quarter was $0.13 up from the loss of $0.09 per share in the first quarter of 2012. Our continued solid revenue growth during the quarter was primarily the result of strong shipments for our guidance and stabilization business which was up 189% for the quarter and continued growth in our Maritime VSAT business which was up 42% from the same period last year. Our TACNAV business continues to benefit from our large ongoing contract with the Saudi Arabia National Guard, our fiber optic gyro sales were also quite healthy especially commercial sales of our inertial measurement unit used in dynamic mapping systems and autonomist platform navigation. In fact, commercial FOG sales were larger than military FOG sales for the first time. Looking at each of our markets in greater detail, starting with our satellite business, our overall mobile broadband revenues including satellite TV were $22.9 million that’s up 10% year-over-year. The mini-VSAT broadband portion of the business was up 16% overall reflecting strong airtime growth which offset a small decline in hardware sales. Hardware sales were about flat from last quarter and the drop in hardware sales year-over-year was caused primarily by a decline in our European mini-VSAT hardware business, which we believe was down due to the continuing poor economic conditions in the EU especially in Southern Europe. As expected our Inmarsat hardware revenues were down 32% but that was offset by 11% increase in Inmarsat airtime revenues. So ironically the Inmarsat price increases that have helped drive their customers to our…

Thank you, Martin. For the first quarter, total company revenues of $39.9 million were in line with our expectations and towards the higher end of the guidance we previously gave. As Martin stated earlier, our mobile communications revenues were $22.9 million which represented a 10% increase year-over-year while our guidance and stabilization business grew 189% year-over-year to $17 million. Our mini-VSAT business recorded $14.8 million in quarterly revenues, of which Airtime Services represented almost $10 million, which was 42% higher than the first quarter last year. Total VSAT product and service revenues increased 16% year-over-year, while ARPUs for by-the-megabyte plans continue to be in the $600 to $700 per month range and ARPUs for our fixed rate plans continue to be around the $1900 level. The mix of VAST unit sales for the quarter was 40% V3, 58% V7 and 2% V11. The relative mix of V7s and V3s remained consistent with recent quarters. All other marine SATCOM revenue including TV Systems and Inmarsat Systems in airtime was about $8 million. Within that amount marine satellite TV sales increased 4% year-over-year to $5 million, while LAN based systems declined as we anticipated by 22% to $1.2 million. TACNAV product revenues of $7.8 million saw a seven-fold increase year-over-year which included over $6 million related to the Saudi Arabian National Guard Program. We also recorded $2.7 million in revenues under this program related to the facility construction and management services. We were pleased to see robust FOG sales during the quarter of approximately $6 million, which were up 93% year-over-year. And we continued to see a greater proportion of our FOG products being used in commercial applications versus defense applications as Martin has mentioned earlier. In the first quarter, over 50% of the revenues related to these commercial applications, which compared…

Sure, Jim. So, we still expect team to see about $17 million in revenue in 2013, 65% of that is expected to be product. And we say, we did $8.7 million of that in Q1. Jim Mcllree - Dominick & Dominick: So, does most of the rest get delivered in Q2 or is that – is it spread out sort of evenly for the rest of the year?

It is skewed slightly towards Q2. But, there is a portion throughout the rest of the year. Jim Mcllree - Dominick & Dominick: Okay. And when you talked about the Saudi business, you split it up, it seems like you split it up into two parts the 7, 8, which was the products and the $3 million of the services business. That $3 million is included in the $17 million total for the year?

That’s correct. Jim Mcllree - Dominick & Dominick: Okay, great. Speaking on (inaudible) for a bit, so the backlog for FOG versus TACNAV can you describe either quantitatively or qualitatively how the backlog splits out between FOGs and TACNAV?

It’s approximately 25% is FOG backlog. Jim Mcllree - Dominick & Dominick: Great. And how long does that backlog extend, is that just next 12 months or is it the next few years?

It’s generally the next 12 months. So especially the FOG backlog is probably in the next 6 months; 6 to 9 months back. We normally don’t get multiyear backlog in FOG although with TACNAV, we do. So, there is a distinction there. Jim Mcllree - Dominick & Dominick: All right. And one more, I don’t want to (inaudible) questions. It looks like the mini-VSAT business accelerated a bit. I mean, I think you announced that there was 3000 unit either sold or delivered recently which was a very short period after you had announced 2500 have been sold or delivered. Am I right in thinking that the mini-VSAT –

Yes. Generally, the business has been increasing steadily although this quarter in terms of unit sold it was pretty flat with – in terms of hardware with last quarter. So I think, we anticipate year-over-year 2013 to be significantly higher than 2012 so. Jim Mcllree - Dominick & Dominick: That’s great. Okay. Thanks a lot.

Yes.

Our next question comes from Chris Quilty of Raymond James.

Martin, you are partially answering my question there but given the flat performance in the first quarter sequentially that obviously implies a pretty big pick up through the balance of the year. Can you give us a sense both of the timing of how you expect orders to land and number two, what gives you visibility into those sales is it just based upon ongoing channel increase or do you have any large deals that give you discreet visibility?

Let me start with the second question. We don’t really have any large deals that give us discreet visibility. We do have a number of large customers who are still on the process of rolling out our products across their fleet. So we have good visibility – not visibility but good expectations and very high probability of success because of (inaudible) contract but not actually in backlog. So, for example if we signed a contract with a customer for 100 vessels, we don’t call that backlog because they issue POs against that and as they are in the process of rolling out across our fleet. And getting back to your first question, I think that Q1 was definitely softer than we would have liked. We thought that but to put that in perspective, we are talking about 20 to 30 units less and we would, we were expecting in Q1 and so it’s a little bit of a disappointment. We are looking at what’s happening across the markets. So we are seeing probably a few companies that actually is marketing products in Cypress for example that didn’t go well this quarter. So the European – Southern European business is definitely a way off and that had an impact. We are looking at other people in the industry Inmarsat, unit sales were down 4% or 5% and they reported they only sold 85 VSATs in Q1. So we are selling three times as many as VSATs as they are according to their numbers.

Okay, great. And could you also give a breakout not that it’s that material – the LAN revenue business how that did in the quarter?

Discontinued all our discreet LAN products so that had an impact on our revenues. It’s roughly under a $1 million now – about $1 million, yeah, $1.2 million Peter is pointing to a number.

Okay. And also I don’t know, Peter, you may have given this but of the Saudi revenue, of the TACNAV revenue excuse me, how much of that was non-Saudi?

So, of the $8.7, we did in Q1, $6 million was from the Saudi contract.

Okay. You weren’t talking that fast, but I can’t type that fast. Also just on the, the mini-VSAT service margins that kind of stalled out over the last several quarters as the C-Band network has been rolled out. Two things, one can you comment on how C-Band services are progressing and b) how does that impact generally, how does service margin should trend towards the back half of the year, are you still targeting 40% type service margin by Q4?

We were sequentially up 3% so went from 30% in Q4 to 33% this quarter which I think is good progress and compared to year ago, I believe the number is 27% Peter?

27% to 28%.

So, I think we are on track. So, I would no longer point to the C-Band as impacting the change in margin.

And have you landed any significant new customers on the C-Band?

I wouldn’t say significant we’ve got probably dozen units out on trial. So, we do expect to get significant orders for V 11 product. But at this stage we are not really making the distinction whether it’s C-Band or Ku-Band because it’s a (dual more) product. So, we just look at them, as customers that are on the network. So, we’re not billing separately for the C-Band service.

Okay. And on the commercial FOG business up year-over-year but last year was a pretty bad quarter. And if I’m doing my math right it looks like the commercial FOG business was actually down in the first quarter relative to the rate it was running at for say the last three quarters. What are your prospects for that business, I mean, is it possible to get sort of a break out from call $3 million to $5 million of quarter range and what would it take to get there?

Yeah, I’m not sure that the commercial is declining. I think commercial is increasing, in terms of absolute dollars as well and we expect another 50% kind of year-over-year increase in Q2 which put us around $8 million or higher for the quarter. So, I think we’re on the path for that business is growing quickly. And I think by next quarter, our biggest customers would be commercial in addition to the total being more than 50% commercial.

And how broad base you’re concentrated is the commercial business now?

It’s concentrated around a couple of key products and key customers but compared to where we were, where we had a high very concentration of one program and one military customer, it’s a big improvement.

Okay.

And also we like it because it’s not military.

Right. Peter, one other question just on product margins down big obviously because of mix related issues, how should we look at the product margins through the balance of 2013 and should there be any kind of Saudi impact we should watch for?

Well, so, obviously, in terms of the Saudi contract, it’s a combination of how higher margin product revenues with our lowest margin service revenues. So, throughout the course of the year, we should be seeing it being pretty consistent to increasing slightly.

Great. Thank you, gentlemen. Good work.

All right, thanks Chris.

And our next question comes from Rich Valera of Needham & Company. Rich Valera - Needham & Company: Thank you. Question on the CROWS III, you made cautionary comments regarding the potential timing of that program as it relates to sequestration. Can you give us any sense of, have you learned anything new in the past quarter restricted that program specifically that would make you more cautious, or is it sort of just a general caution. And can you give us any sense of how much revenue could be pushed out whatever in the back half related to CROWS III? Thank you.

Yeah we’ve gotten, we have firm backlog in hand that covers Q2, Q3 so we have, I would say zero risk for – in the next couple of quarters. We’ve got some backlog related to CROWS in Q4, which is I’d say probably half a million to a million dollars less than what we would expect but that’s at this stage that’s not unusual. So, I’d say at this point, we don't have any visibility and we have heard specific comments that sequestration as a concern for the prime contractor but we haven’t heard anything beyond that. So, where do you get the concern for everybody, so I would tell, that’s a generalized comment at this stage. Rich Valera - Needham & Company: But am I might to take it that what’s really a risk for you relative to your guidance is half million to a million of revenue that’s fairly small amount I would say.

Yeah, I think that, so was a cautionary comment because it was a comment that we heard directly from the prime contractor… Rich Valera - Needham & Company: Right.

And we, but we do have backlog in place including up and through Q4. So, but we have, we’re not fully booked yet for Q4, so that’s where we are. Rich Valera - Needham & Company: Okay. Not like a (inaudible) there by any stretch?

Exactly. So, we’re in pretty good shape. And as I pointed out, TACNAV business is on the international, so we don't expect any issues there. Rich Valera - Needham & Company: Okay. So, I just want to be clear. So, as it relates to your expectations that you laid out a quarter ago for guidance and stabilization to be up, I think about 10% in 2013, is your current backlog hover essentially all of that minus what’s a million dollars of CROWS III or, is there other stuff you need to turn in the remaining few quarters to hit that number?

Right. Yeah, we definitely have more to book to hit our numbers. Rich Valera - Needham & Company: Okay.

So, this was just a comment about the specific sequestration exposure… Rich Valera - Needham & Company: Got you.

As it relates to guidance and stabilization. We’ve also heard that we have some exposure possibly 30 to 40 unit range as it relates to Coast Guard because that’s also federal money. So, we keep an eye on that too. But that… Rich Valera - Needham & Company: Oh, you’re talking about the Coast Guard mini-VSAT structure?

Yes. Rich Valera - Needham & Company: I see.

Yes. So, that’s not guidance but obviously but it is defense. It’s federal government. Rich Valera - Needham & Company: Got you, okay. That’s helpful color there. And then in the leisure marine market, I wanted to make sure, I understood that I’m there so you suggested that I think that March quarter was lighter than expected because of the cold weather and you’re hopeful that some of that might actually come back to you in later period sort of delayed demand….

Yes. Rich Valera - Needham & Company: Is raining you’re seeing a month now into the second quarter that would lead you to believe there will be some pick up or is that still something you’re hoping to come at the next several weeks or months?

Yeah. I think it’s a little bit too early to tell, if it has been better than March was but that so, but it’s too early to say whether that’s just early April sales, I don't have the, obviously the four quarter results yet but so far so good. Rich Valera - Needham & Company: Okay. And you kind of indirectly addressed this. But just want to get your sense of the competitive dynamics in the mini-VSAT market particularly I guess that relates to Inmarsat who clearly is competing aggressively in that market. Any thoughts on they should suggest their price increases have not led to increased churn into factions and sort of worked out quote kind of great for them. But how are you seeing the competitive dynamics in the marketplace particularly as it relates to them?

Well, I think it hurts them. I think it hurts their brand and their reputation and I think it will make it more difficult for them when they come with their new system requires people to buy new hardware. I think that they are correct and that the price increases didn’t really hurt them in the short-term because people have their equipment on board; it only works with their service. So, that they’re kind of stuck in the short-term. So I think it’s a good short-term strategy but I think it’s going to hurt them in the long run. But I… Rich Valera - Needham & Company: Okay.

I can’t say that that’s an immediate benefit to us but it certainly doesn’t make their customers happy because they feel like they’re being abused and there is nothing they can do about it. Rich Valera - Needham & Company: Right. I understood. Okay, thanks for taking my questions.

Yes.

And we’ll take a follow up from Jim Mcllree with Dominick & Dominick. Jim Mcllree - Dominick & Dominick: Great, thanks again. Martin, I think you mentioned that discreet LAN products have been I think you said discontinued, does that mean that we’ll see a drop in that LAN business from $1.2 million to close nothing going forward?

No, I should – I wasn’t very clear on that. What I should have said is that we’ve just continued our unique RV products. We’re still selling. We now have a common platform that’s our low end marine products which is also our only RV product which is our M1 platform, there is a R1 variant. But we discontinued all the products that were only designed for the RV market. And that we are continuing with. And we’re also continuing with the A7 which is primarily in the bus market today, motor coach market. Jim Mcllree - Dominick & Dominick: Got you. Okay.

And that’s not a change from our guidance so I should have been more clear on that sorry about that. Jim Mcllree - Dominick & Dominick: Okay. All right. And there have been a lot of new services and products recently in the mini-VSAT business, it sounds like you have a whole bunch more coming this year, can you tell us what you think the impact is going to be on ARPU as these things get rolled out?

Well, the reason we’re doing is because we want to drive ARPUs higher but I think that the way we want to do is a little bit different from I think the way our competitors are approaching as we want to sell products that have value so that the delivery cost will be transparent to the customer, non-existent to the customer. So by using the small (inaudible) approach, we’ll be able to deliver things for example like a movie where the customer pays for the movie, he doesn’t pay for the delivery of the movie. So, the net impact will be increasing ARPUs but it will done through the delivery of things that people want to buy like a digital chart. So the impact will be increasing ARPUs, and each of these services might be $100 a month or $400 a month in the aggregate, it should make a significant impact on our ARPUs we are hoping. Jim Mcllree - Dominick & Dominick: I see, okay. Great. And last one Peter, I’m sorry I keep popping on the Saudi service, the Saudi business and the service business. But again, if you would just focus on the service business the low margin that 10% margin from the Saudi. How does that map out over the years. I’m just – I just want to make sure that I get how that progresses over the year. Correct?

So, we anticipate doing approximately $5 million for the remaining three quarters. Jim Mcllree - Dominick & Dominick: Of that low margin service business?

Correct. Jim Mcllree - Dominick & Dominick: Okay. And there is skew towards Q2, but you do have some in Q3 and Q4?

Correct. And they are based on meeting certain milestones so certain cost inflow from one quarter to the next. Jim Mcllree - Dominick & Dominick: Right. I’m with you on that. Okay, great. Thanks a lot.

You are welcome.

And with that we have no further questions in queue.

Okay. Well, thanks everyone for listening and if as always if anyone has a specific question, feel free to call us or email us. Thank you.