KVH Industries, Inc.

Good day. Welcome to the KVH Industries, Inc. Q3 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Roger Keeble. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us today for KVH Industries' third quarter results, which are included in the earnings release we published this morning. Joining me on the call are the company's Chief Operating Officer, Brent Bruin, and CEO, Martin Kitzvan-Hanigan. Before we dive in, a couple of quick announcements. First, if you would like a copy of the earnings release, it is available on our website from our investor relations team. If you would like to listen to a recording of today's call, it will be available on our website. If you are listening via the web, feel free to submit questions to ir at kvh.com. Finally, 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 certain non-GAAP financial measures, and you'll find definitions of these measures in our press release, as well as reconciliations of these non-GAAP measures to comparable GAAP measures. We encourage you to review the cautionary statements in our SEC filings specifically those under the heading Risk Factors in our 2020 Form 10-K, which was filed on March 3rd, and our Form 10-Q, which is expected to be filed sometime this afternoon. The company's other SEC filings are available directly from the Investor Information section of our website. Now, to walk you through the highlights of our third quarter, I'll turn the call over to Martin.

Thanks, Roger. Good morning, everyone. Thank you for joining us today. We achieved another strong quarter, reflecting our success in implementing our strategic initiatives. Total revenues increased by 5% in the third quarter to $43 million from $41.1 million in the third quarter of 2020. And our non-GAAP adjusted EBITDA for the quarter was $1.5 million compared to $3.4 in the third quarter last year. Contributing to these results were a 13% increase in airtime revenue, record Q3 VSAT shipments in our mobile connectivity business, and continuing careful management of operating expenses. Like many companies, we feel the effects of ongoing supply chain disruptions and the increased cost of goods. These global issues slow deliveries of our products in both mobile connectivity and inertial navigation. While we could have shipped more if it not for these constraints, we're able to shift the bulk of these orders into Q4. Demand continues to be strong and outpace production capacity. Our team here did an outstanding job of adapting to the supply chain challenges, our engineers identified alternative technical approaches, and our procurement and logistical teams worked hard to track down necessary parts to get them to our factories, and managed to get products shipped to customers around the globe. We did see increased costs related to purchasing hard-to-get chips, and of course, incoming freight was higher. In response, we've begun to raise prices on select products and services in Q4, and we expect to implement additional price increases on January 1st in 2022. So despite these challenges, our lead times have remained reasonable for our customers, and we're able to ship out a record number of VSAT units in Q3. Now let's look at the details of our segments. Starting with mobile connectivity, Q3 is historically a slower quarter in the mobile connectivity market due to seasonality. Nevertheless, VSAT unit shipments were up 53% compared to the third quarter of 2020 and set a new record for any third quarter. This increase was spurred in part by demand for our new ultra-compact track phone V30 in both the leisure and commercial maritime markets. In fact, sales of our smallest VSAT systems were up more than 100% over last year. Unit shipments are an excellent indicator of future airtime revenues, as virtually every one of those units will become an airtime subscriber, typically during the next quarter. Our Q3 VSAT airtime revenue was $24.6 million, an increase of $2.9 million, or 13%, compared to Q3 last year. We also increased our active subscriber base by 12%. Revenue for Agile plans, our connectivity as a service program for the commercial maritime sector, was up more than 54% compared to the third quarter of 2020. Agile plan subscribers now represent 47% of our total mini VSAT broadband subscriber base. We continue to make excellent progress on our initiative to migrate customers from our legacy network to our HTS network. As you know, we have a longstanding plan to shut down our original ArcLight network on January 1, 2022, and then operate only our HTS global VSAT network for primary service. We project a total cost savings of around $12 million next year and a net savings of roughly $5 to $6 million in annual airtime expenses, depending on how many customers move over. For those customers moving to HDS, we will, of course, be adding bandwidth to the HDS network. We've always assumed that not all Arclight subscribers would migrate exactly by year end, and we expect that by January 1st, the customers who do not migrate will represent much less than 10% of airtime revenue. And we anticipate that a majority of those customers will be leisure vessels, which are seasonally suspended and are inactive during the off-season. We expect at least half of those customers to take action when they prepare their boats in the spring. In the leisure marine market, the industry continues to enjoy high levels of leisure boat sales, and some manufacturer backlogs for new boats now extend into 2023 and 2024. Analysts project the global recreational boat market will grow from $16.4 billion in 2021 to $23 billion in 2027. And we're well-positioned to take advantage of this growth thanks to our industry-leading products known for their outstanding performance, quality, and value. We appreciate the show of confidence by members of the National Marine Electronics Association who recognize three of our products, our TrackVision UHD7, our new TrackPhone V30, and our TrackPhone LTE marine cellular system, all with 2021 Product of Excellence Awards. This marks the 24th consecutive year we've received this award for one of our TrackVision satellite DV systems, 19 years in a row for our TrackPhone satellite communication systems, and the third consecutive year for our cellular system. From a leisure marine services perspective, we saw the highest level of demand for our KVH Elite unlimited streaming service since we launched it in 2019. Earlier this year, we expanded coverage to include the eastern seaboard of the U.S. and Canada and joining the Caribbean and the Mediterranean. We also increased our service speeds and adjusted pricing in Q3 and appear to have found a sweet spot for yacht owners. Demand increased, and we've actually sold out weekly subscriptions in two of these regions. This premium service has an ARPU of around $7,000 a month. As we head into winter, subscriptions in the Caribbean are expected to be very strong. In the commercial market, macro industry trends are uniformly positive. Port call arrivals in Q3 were up 12% year over year. The Baltic Dry Index is up 125%. Oil is up over $80 a barrel. Shipping confidence is at the highest level ever recorded. And container ship charter rates are at an unprecedented $200,000 per day. During the quarter, we continue to build our position within leading commercial fleets around the world. Breeza Schiffhardt in Germany recently signed Agile plans to deliver connectivity and crew welfare content to their fleet of cargo ships, bulk carriers, and container ships, as well as for their more than 2,000 seafarers. Greek ship manager A.M. Nokimos is rolling out Agile plans to its fleet in collaboration with our service partner in the region. And we've also added some important customers in Asia, and our service revenue is now almost perfectly split between the Americas, EMEA, and AsiaPAC. And finally, on the commercial front, it was great to see content revenue up versus Q3 last year as our cruise ship customers steadily resume operations. This is an important turning point in our media business, which is an extremely high-margin business and a great contributor to our mobile connectivity margins. Our maritime IoT business continues to develop as we steadily expand our partner and application ecosystem, most recently announcing that Netfasa has joined as a watch solution partner. Netfasa's focus is container tracking, an application of particular value right now as container rates are soaring and the shipping industry seeks to straighten out the global supply and logistical challenges. KBH Watch is being designed into partner solutions and is actively included in proposals by our partners. These efforts are the foundation of our future success as we're essentially creating and serving an entirely new market space in the maritime industry. The big news in our IoT business is yesterday's introduction of Cloud Connect, the third component of our KVH Watch suite of maritime IoT solutions. Initially, we offered Flow for basic 24-7 machine-to-machine connectivity and for real-time IoT applications, and remote expert intervention, which connects experts onshore to engineers onboard in real-time on video. Now we're offering Cloud Connect, an edge-to-cloud IoT connectivity solution with advanced edge computing that enables the integration of maritime applications and digital services for smart shipping. Cloud Connect addresses the complexity of acquiring data from hundreds of onboard sensors with a comprehensive package containing data source definitions, data mapping, and associated dashboards. An onboard cloud edge connect edge server aggregates and processes data from the vessel sensors and provides a hybrid cloud architecture that enables edge and cloud-based data storage along with API-based data access for analysis, cloud-based data reporting, and dynamic visualizations. Now, Cloud Connect can support a broad selection of stakeholders in the maritime industry. For example, vessel owners and operators can see equipment data in real time, such as noon reports, monitoring reporting, and verification reports to check their compliance with the Energy Efficiency Ship Index, for example. Equipment manufacturers, like engine manufacturers, can monitor their onboard equipment to support service contracts and warranties. And multi-cart service providers can use the data to provide remote service and repair. And vessel performance optimization companies can rapidly deploy digital services by pulling live data from the cloud to reduce fuel consumption throughout a fleet. KBH's Blueprint software normalizes data channel names to one global standard for ease of integration. We believe that Cloud Connect is the most advanced, versatile, and robust maritime IoT connectivity technology an analytics solution available in the maritime industry. Cloud Connect uses a dedicated KVH watch terminal, so multiple subscribers can enjoy enhanced security, compliance with IMO cybersecurity guidelines, and priority transmissions, since they're not reliant upon the ship owners to share a sliver of the vessel's connectivity. Cloud Connect has been undergoing live testing on several prospective customer vessels for months now and will be available on November 30th. The power of Cloud Connect is its ability to turn data into economic benefit for a fleet of vessels, and we're very excited to bring it to market as the maritime IoT segment continues to develop. And moving on to our inertial navigation business, within the Fog product line, we definitely had supply chain challenges which limited deliveries in Q3. Fiber optic gyro and OEM product sales decreased half a million dollars or 6% in the third quarter, compared to Q3 of last year. The demand for fog products continues to be quite strong, and we now have a total backlog of $22 million for our inertial navigation business. Within the market, there's an increasing interest in autonomous robotics and platforms, including autonomous trucking. The long-haul trucking industry faces a severe crunch regarding drivers, with an estimated shortage of 80,000 drivers. As a result, we're seeing accelerated demand from autonomous trucking companies. We've achieved some recent design wins with some of the leading autonomous truck developers and leading autonomous platform companies. KVH has been selected as the primary inertial sensor due to its superior performance. RMUs are being integrated into sensor fusion solutions that include LiDAR and radar as well. We expect to be able to announce the companies we're working with in the autonomous trucking space in the coming months. Our success in autonomous vehicle market is starting to become an important part of the fog business. In fact, we expect over 20% of our fog revenues to come from autonomous vehicle platforms next year. In addition to vehicles, the autonomous everything industry is expected to grow with a CAGR of 31%, and KVH has products that meet the needs of many of these new applications. Elsewhere in our inertial business, we recently received a $7.9 million fiber optic gyro order for remote weapon stations built by Escobano in Spain. As you may recall, remote weapon stations have long been a pillar of our inertial business thanks to our system's ability to accurately measure vehicle motion and withstand the shock of gunfire while helping keep the weapon precisely aimed at the target. We have a solid pipeline of TACNAV opportunities as well, In fact, we're expecting an important production order from a U.S. customer during the fourth quarter of this year. So, to wrap up, we achieved record VSAT shipments and solid year-over-year growth, even in the face of disruptions to the global supply chain. While we expect these to continue for some time, we're still successfully delivering on our strategic priorities, delivering strong growth, building backlog in our key markets, and establishing a firm foothold in exciting new markets and applications. Ship deliveries and other components remain a concern for Q4 and could limit our overall growth rate in the short term. However, as we've previously indicated, our mid-range targets of low double-digit growth for revenue and mid-teens percentages for adjusted EBITDA margins are on track. We continue to believe that our financial outlook will translate into substantial shareholder value. Now, I'd like to turn the call back to Roger for a more detailed look at the numbers. Roger?

Thanks, Martin. As Martin mentioned earlier, our third quarter revenue came in at $43 million even compared to $41.1 million recorded in the third quarter of 2020. Our consolidated gross profit margin was 35% for the third quarter as compared with 38% in the third quarter of last year. Revenue from our mobile connectivity segment increased $3.0 million with a gross margin of 35%, which was down two percentage points. Revenue from our inertial navigation segment decreased $1.1 million year-over-year with the gross margin decreasing five percentage points to 36%. Service revenue for the third quarter was $27.7 million, an increase of $3.3 million, or 13%, from $24 million in the third quarter of last year. By segment, service revenue in our mobile connectivity segment increased by $3.4 million, or 14%. This increase was primarily due to a $2.9 million increase in mini-VSAT broadband airtime revenue. As Martin noted, airtime revenue grew to $24.6 million, or approximately 13% over the third quarter of last year, and the related gross margin was 36%. Product revenue for the third quarter was $15.2 million, a decrease of $1.4 million or 8% from $16.7 million in the third quarter of the prior year. By segment, our mobile connectivity product revenue decreased by $0.4 million or 5%, primarily due to a decrease in track phone product revenue. Inertial navigation product revenue decreased approximately $1 million or 11%. Within this segment, TACNAV sales decreased by $0.6 million this quarter compared to last year's third quarter, while our combined FOG and OEM revenues decreased by $0.5 million. In our inertial nationalization segment, service revenue was down by less than $100,000. Operating expenses for the quarter were $18.4 million, up $2.1 million from the third quarter of last year. Almost half of that increase was compensation-related as we restored salary and benefit cuts put in place to mitigate the impact of a COVID-19 downturn. The remaining increase is primarily due to a decrease in funded engineering expenses and an increase in professional fees. At the operating income level, these changes in revenue, margins, and operating expenses resulted in a loss from operations of $3.2 million which was up $2.7 million compared with the $0.5 million loss recorded in the third quarter of 2020. Our mobile connectivity segment generated an operating profit of $1.5 million compared with an operating profit of $2.3 million last year, while our inertial navigation segment had an operating profit of $0.3 million for the quarter compared with an operating profit of $1.4 million last year. Our unallocated loss was $5 million compared to last year's $4.2 million. For the third quarter, our net income was $4.0 million compared with a net loss of $0.5 million in the same quarter last year. This quarter, we recorded a $7 million gain associated with the forgiveness of the Paycheck Protection Program loan we received last year. On a non-GAAP basis, which excludes the income from the forgiveness of this loan as well as amortization of intangibles, stock-based compensation, and other non-recurring costs such as unusual non-operating fees, foreign exchange transaction gains and losses, related tax effects and changes in our valuation allowance and other tax adjustments. After all those adjustments, we had a net loss of $1.2 million compared with net income of $1.1 million last year. EPS for the quarter was $0.22 per share compared with $0.03 per share in the same period last year. Non-GAAP EPS loss for the third quarter was $0.06 per share compared to non-GAAP EPS profit of $0.06 per share last year. Our adjusted EBITDA for the quarter was a positive 1.5 million, compared with a positive 3.4 million in the third quarter of last year. For a complete reconciliation of our non-GAAP measures, please refer to the earnings release that was published earlier this morning. Total backlog at the end of the third quarter was 25.4 million, of which approximately 8.8 million is scheduled to be delivered during 2021. Backlog for inertial navigation products and services at the end of September was approximately 22.2 million, of which approximately $5.9 million is scheduled to be delivered during 2021, which includes about $5.3 million for fog products alone. Net cash used in operations was $2.9 million compared to less than $0.1 million used in operations for the third quarter of last year. Cash flow from operating activities is still positive for the year to date, as well as for the last 12 months. Capital expenditures for the quarter were $4.7 million, and for the full year, we expect capital expenditures will be in the range of $19 to $21 million, the majority of which is driven by Agile plan shipments. Cash provided by financing activities was $0.3 million, resulting in an ending cash balance of approximately $27 million. With respect to the full year at a high level, as noted in our earnings release, we believe that revenue growth over last year will be in the high single digits and that EBITDA will grow faster than revenue. However, OPEX is expected to tick up in Q4 due to a variety of factors, and production capacity constraints brought on by supply chain issues will be a limiting factor for revenue. Although this will hold down 2021 performance, the resulting backlog sets us up well for next year, as the backlog for 2022 is now double what it was at the end of June. 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?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone the opportunity to signal. Our first question comes from Rick Prentice with Raymond James. Please go ahead.

Thanks. Good morning, everyone. Good morning, Rick. Hey. Hey. A couple questions. First, Martin, I want to go back to kind of the end of your prepared remarks. You mentioned something about adjusted EBITDA margins and some revenue stuff, so not just the guidance that Roger gave, but at the end of your remarks, Martin, what were you referencing as far as revenue and adjusted EBITDA?

Yeah, we had – given some sort of midterm guidance or outlook back in June, which was double-digit revenue growth and mid-teens EBITDA margins, adjusted EBITDA margins. So those are kind of our business model targets that we're working towards. And based on everything we're seeing today, we feel like we're on a very good path to achieve those.

Yes, but let's be clear, those are sort of mid-term targets. That's not intended to be guidance for next year.

Yeah, or for this quarter, for that matter. That's something we have. I'm just restating something that we had put out there in a presentation.

Right. So mid-term means over the next several years, not like a 10-year plan, but something that's not a one-year plan.

No, no, no. No, right. Yeah. Long-term would be three to five years midterm would be, you know, two to three years. Makes sense.

Okay, cool. Then also, you know, some interesting and exciting news on the autonomous trucking and autonomous vehicle areas in general. What can you share with us as far as looking at that addressable market, your ability to go into that addressable market and what steps do you need to make to like scale up to hit those numbers?

Well, the autonomous trucking market, those numbers are not tens of millions of units like the automotive market. So it's actually an easier step for us than going straight to automotive volume. So as this ramps over the next year or two, we feel very comfortable that we'll be able to keep pace with our production for that. You know, and as I pointed out that if this is not something that is, you know, three to five years away, we expect, you know, starting now, you know, really next year, you know, 20% of our fog revenues will be coming from autonomous vehicle platforms. That's great.

And we've been hearing from some of the logistic transportation companies about something that we call tele-ops, where it's kind of like small drone-like vehicles that are maybe remotely controlled vehicles. Have you made some progress into that as well? What can you share with us on that kind of sub-market?

No, I can't say that we have. Most of our customers are autonomous, but sometimes autonomy means that there's a lead vehicle and then there are three or four follower vehicles, for example, that are self-driving, but the lead vehicle might have a human driver in it. But none of these platforms are tele-operated per se. Okay. but not the ones that we're on.

Okay. And then we also noted cost of service came in a little lighter than we were looking for. Obviously, we're getting ready to move over the customer base, but how should we think about that cost of service transition going from third quarter to fourth quarter and looking into next year?

Did you say it was a little lighter than you thought? I didn't hear you.

Yeah, I think so. Yeah, I think it was a little lighter than we thought. We had a full conference report this morning, so we're still in a bit of a blur.

Yep. Yeah, so it came in, I think our overall margin was a little bit better than we expected as well, fairly consistent with last quarter. So we've been adding capacity as we've been adding subs. So we've been adding a lot of subs to the HDS network. So keep in mind that when we say the net subscriber growth number of 12% and airtime revenue is up 13%, that doesn't indicate how much capacity we're adding to HTS as people migrate off. About 90% of all the revenue is already on the HTS network. And that's really what's driving the cost saving for next year especially. So come January, we'll shed an immediate $10 million plus of cost, making the year-over-year cost reduction on the order of $12 million. And where we are now, we've already incurred a fair amount almost of the increase in the HGS network. So it's a long answer, but saying that, you know, this migration is going well, you know, as long as we don't strand too many customers come January, it's going to be a big net positive for us next year. So we should see improving margins is my point. Okay. Great. Appreciate it. Thanks. Stay well.

Okay.

All right. Thanks, Rick.

Thanks, Rick. Thank you. Once again, as a reminder to our audience, you may ask a question by pressing star 1. Our next question comes from Chris Quilty with Quilty Analytics. Please go ahead.

Hi, guys. Wanted to follow up on that morning. Wanted to follow up on the autonomous vehicle. If you're targeting 20% next year, what does that compare to either this year or in recent years, the contributions?

It's significantly larger. I don't have the exact number for this year, but my guess would be more than double next year.

Gotcha. And most of the historic shipments were sort of legacy designs and hardware that was relatively expensive. Are you looking at the contribution next year being more PIC-derived products and higher volumes?

Yes, 100% of everything we ship next year is PIC-based. So the answer is yes. So it'll be our new photonic chip-based products, and they're primarily IMUs as opposed to single sensors. So that's another difference from what we've seen in automotive is that for these trucking-type applications, they're looking for a three-axis IMU, not just a single-axis, you know, yaw sensor.

I understand. And I think historically you've talked about, you know, a set last year or historically was, you know, order of magnitude, thousands of dollars, and presumably you're coming down to, you know, hundreds of dollars or high hundreds of dollars. So you're seeing significant, you're implying at least significant volume increase if those numbers are still accurate.

Well, it's, the short answer is no. We're not, you know, we're not in the, you know, dropping prices into the hundreds of dollars yet. That would require significant volume, as you point out. So, you know, we'll scale, you know, the price as the, you know, the self-driving trucking ramps up. But there's no, you know, from a competitive perspective, you know, there's no need for us to be, you know, an order of magnitude cheaper than we are today, for example. So, So we intend to maintain the margins next year as we grow into this market with our customers.

Great. And can you give an update on where you are in terms of your production capacity? Because I know you've been dropping a new production line in the past year. And what sort of volume you're scaling for?

Yeah, it's kind of ironic, you know, we've done everything to be able to build units quickly, and, you know, the invention of the photonic chip, you know, we've added some optical, you know, automated assembly equipment, and that's the only thing that we're not having production issues with, you know, and now it's all, you know, trying to get chips in, and, you know, when you finally get the chips, you know, it's late in the quarter, and you have to try and build things, and you have, you know, work in process on the floor, it's just a horribly inefficient way to manufacture, and that's especially true in our Chicago facility, but it's also true here in Middletown. Even when we get the parts, oftentimes they're not sequenced correctly, so it really is disrupting manufacturing in a way that's worse than what you're seeing in terms of our ability to get product out the door. It's just not an efficient way to build. So from an optical component point of view, we're in fantastic shape for large-scale production.

That's good to hear. Question on the TACNAV order you said you expect in Q4. Is that the sort of seven-digit or is that an eight-digit type of order in terms of scale?

It's a big one.

It's a large program over time. I mean, over time, it's going to be a very large program. by historical standards, how much is actually ordered that will be delivered for next year is still sort of up in the air. I mean, we know the program is very large, but they're still working through what would be in next year versus future years.

So, yeah, it's north of $10 million. And as Roger said, whether they take it all in 2022 remains to be seen.

And this is one of the well-known programs that you've been working on for decades. know the past couple years prototyping and testing yep yep so it's a repeat customer you know so perfect and um switching over to the the mobile connectivity side um you talked about some potential price increases that you're going to implement both this year and going into next year is that something that you're seeing amongst your competitors already or expect to see amongst them, or do you feel like you're having to step out in front in terms of those pricing increases?

Well, it's mostly due to the hardware cost, and it's unclear whether that's going to be a permanent change. For example, in order to keep production lines going, we've ended up buying chips from what are affectionately known as scalpers. you know, where you're paying 10x the price of a chip, you know, just so you don't shut down, you know, and can't ship a $20,000 antenna. You know, but you're paying, you know, $100 for a $10 part, for example. So, you know, there are definitely, you know, increases in our cost of goods sold. And, you know, going forward, you know, we're going to pass those along to our customers in order for us to be able to keep delivery. So our customers are more interested in getting the product than waiting six months, you know, which is, you know, lead time on some of these chips.

Yeah, with respect to competitors, I mean, it's kind of a mixed bag. We've heard about some price increases, but it's, you know, we don't have perfect information, but we have heard about some increases by other providers.

Right, so I should have been stocking up on chips when I was stocking up on toilet paper, I guess.

Yeah, everybody had the wrong...

Okay, the HTS shift that will happen January 1st, can you give us an idea of whether there are any potential incremental costs of the transition? You know, you've talked about in the past possibly having to really, you know, subsidize customers or other costs that you may incur in Q4 to get that transition done. Well, yeah.

Go ahead, Brad. There may be some cost, Chris, but it won't be overly material. You know, we're talking, you know, $100,000 or $200,000, so we're not talking like a significant expense going out the door. And it's more like upgrade kits, you know, and upgrading their existing equipment and giving them, you know, deals on hardware. Right. Understand. That type of thing.

And... Final question, just in terms of CapEx, you know, I think either for this year or if you can step out and think about next year and what you may incur in terms of, you know, Agile plan-related CapEx or KVH Watch-related CapEx expenditures. Do we stay in the same sort of levels as 2021, or do you expect to step up?

We're not really ready to talk about next year yet. I think it's on a relative basis. Obviously, as we grow subscribers on the Agile plans, we're putting... Good CapEx. That's good CapEx. It's all revenue generating, so I think you can think about it, the CapEx being proportional to Agile revenue growth. But we haven't really, we're not really prepared to put out anything specific about next year at this point.

Right. I think, you know, the business model isn't changing for Agile. You know, the growth continues to be very, very strong there. And, you know, we've got strong backlog as well for Agile as we, you know, enter this quarter and for next year. So, you know, directionally, I think you're going to see something similar next year. And then as far as watch goes, you know, as Agile, As Brent and Roger just said, everything is success-based. So the more successful, you know, potentially the higher the CapEx, but that would mean that we're successful.

Great. I hope CapEx goes up.

Thanks, Chris.

That will conclude today's question and answer session. Mr. Keeble, at this time I will turn the conference back to you for any final remarks.

Thanks, Operator. We have no final remarks here. I want to thank everyone for joining us for the call. We appreciate it, and we look forward to a successful end of the year.

Thanks, everyone.

Thank you.

Thank you. This concludes today's conference. All participants may now disconnect.